SRV – Building for lifeCredit investor presentation
Jukka HienonenCEOHannu Linnoinen, Executive vice president, CFO
December 2013
2
Contents
• SRV Group in brief • Strategy • Ownership structure and management • SRV Group 1-9/2013 • Financing and Capital structure • Potential bond issue• Appendix: Selected financials• Disclaimer
3
SRV Group in brief
4
SRV – A different kind of builder
• Offers comprehensive solutions for the built environment
• Operates with customer-oriented SRV Approach
- Innovative project development
- Transparent and networked project management implementation
• Implementer of large-scale projects in Finland, Russia and Estonia
• Industry vanguard in preventing grey economy
• Management and personnel has strong ownership interest
• Founded in 1987• Listed on the Helsinki Stock Exchange in 2007• Personnel approximately 1000• Revenue (2012) EUR 642 million
5
SRV´s competitive edge
Innovativeproject
development
Scalable customer-oriented
project management
SRV Approach
6
Business premises
55 %* (230 M€)
Housing
45%* (188 M€)
International operations in Russia (& Estonia)
Share of Group revenue 18 %(89 M€)
• Offices and retail facilities
• Hotels and specialised facilities
• Logistics facilities
• Infrastructure
• Retail premises in Moscow and St. Petersburg
• Shopping centre management
• Other business premises
• Owner-occupied housing
• Rental housing
• Area development projects
Operations in FinlandShare of Group revenue 82 % (419 M€)
*share of revenue from operations in Finland
Revenue, 1-9/2013
Three pillars of business operations
7
End-investor’s market know-how• End-investor yield-% => sales value • Own investor sales
Management of project capital• Project financing (debt capital)• SRV’s own investment capability• Co-investors• Investment vehicles• Refinancing during operating period
Efficient construction • Eur/m2, construction costs,
quality & implementation time• Scalable business model
Rent revenue management• Eur/m2• Tenant leasing• Strong retailing know-how• Shopping centre management in
Russia
Own project development• Acquisition of plots, zoning• Concepts and business expertise• Target market Finland and Russia
SRV Approach
Core capabilities in real estate development
8
Projectmargin %
Risk level
~ 20%
Construction Taking agreedadditional
responsibilities
Temporaryownership
Developmentprojects
Developer-contractedprojects
Ownership of developer-contractedprojects
Longer termownership
Construction
~ 15%
~ 10%
Project type’s effect on return and risk
9
SRV Group Plc (2008-Q3/2013)Meur Revenue Meur Operating profit
Meur Order backlog Meur Profit before taxes
537391
484
672
466 508642
0
100
200
300
400
500
600
700
800
2008 2009 2010 2011 2012 1-9/12 1-9/13
517704175 165
153
215 218230
207
455 482
595
811 828747
911
280 317442
596 610
0
100
200
300
400
500
600
700
800
900
2008 2009 2010 2011 2012 1-9/12 1-9/13Sold order backlog Unsold order backlog
19,2
0,62,8
10,8
7,96,5
23,7
0
5
10
15
20
25
2008 2009 2010 2011 2012 1-9/12 1-9/13
21,8
4,56,9
14,1
12,510,7
32,9
0
5
10
15
20
25
30
35
2008 2009 2010 2011 2012 1-9/12 1-9/130%
1%
2%
3%
4%
5%
6%
7%
8%
10
Strategy
11
• SRV will focus on improving profitability rather than on growth• International Operations will account for more than 20 per
cent of Group revenue• The operating profit margin will reach 6 per cent• The return on equity will be at least 15 per cent• The equity ratio will remain above 30 per cent• A dividend payment equaling 30 per cent of the annual result,
taking into account the capital needs of business operations
SRV’s strategy 2013-2017
12
Strong focus in strategy
Russia is most important growth area- Strong retailing know-how supportsshopping centre development focus
SRV’s target is to increase volume of own developments
- Better long term profitability
Finnish operations in growth centres- Major own developments create
unique opportunities
Core capabilities support profitability- Scalable business model and project capital
resources support also large projects
13
• Kalasatama towers- Six 20-33 storey residential towers connected to a
metro station. Permitted building volume 90,000 m²- City plan gained legal force in June 2013
• Keilaniemi towers- Four 32-40 storey residential towers connected to a
metro station. Permitted building volume 72,000 m²- Appeals on city plan were dismissed in
Administrative Court, a right to file an appeal was dismissed by Supreme Administrative Court
• Residential projects in Matinkylä- Four residential projects in vicinity of a metro
station, the last site Espoon Artesaani will be completed in 12/2013
• Niittykumpu area development- Joint venture with Varma and Sato. Estimated
building volume 135,000 m², SRV’s share 1/4- Zoning estimated to be valid by Q1/2015
• Perkkaa area development- Joint venture with Ilmarinen and Sato. Estimated
building volume 110,000 m², SRV’s share 1/3- Zoning estimated to be valid by Q1/2014
• Development of Tapiola district centre- Large development project with LähiTapiola
• Urheilupuisto/Orion development project- Co-operation agreement with Orion for the
development of industrial area into a residential area in Niittykumpu. Estimated building volume 36,000 m², SRV’s target to purchase at least 40%
Development of SRV’s housing projects in Helsinki area is based on rail traffic connections
14
Why shopping centre development in Russia ?
Russian retail market is lucrative• Consumer spending highest in Europe and driven by;
- Low housing debt levels due privatisations- 13% flat tax rate, moderate 18% VAT- Average income has fourfolded since 2003- Low cost of living (e.g. healthcare, education,
energy, public service)• Growth of retailing highest in Europe
- Moscow market is four times and St. Petersburg market is 75% of Finnish market
Source: Retail Update Russia, www.russiaretail.com
15
Ownership structure and management
16
SRV has an experienced Board of DirectorsIlpo Kokkila• Born 1947, M.Sc. (Eng.) • Chairman of the Board of Directors (1987-)Other positions of trust a.o.• The Finnish-Russian Chamber of Commerce SVKK, Vice
Chairman (2006-) • Kesko Corporation, Board member (2006-) • Central Chamber of Commerce, Council member (2001-
2005) (2006-)• Chairman of Members of the Board of the
Confederation of Finnish Industries EK, (2013-)
Olli-Pekka Kallasvuo• Born 1953, LL.M• Vice Chairman of the Board of Directors (2011-) Primary working experience • Nokia Corporation, various positions (1980-2010),
President and CEO (2005-2010)Other positions of trust • TeliaSonera AB, member of the Board (2012-)
Arto Hiltunen• Born 1958, M.Sc. (Econ.) • SRV Group Plc Board member (2010-) Primary working experience • Suomen Osuuskauppojen Keskuskunta SOK, President and CEO
(2007-2009) • Helsingin Osuuskauppa Elanto, Managing Director (2004-2007) Other positions of trust a.o.• Veho Group Oy, Chairman of the Board (2012-)• Itella Corporation, Chairman of the Board (2011-)• Metsäliitto Group, Board member (2007-)• Metsä Tissue Corporation, Board member (2010-)
Timo Kokkila• Born 1979, M.Sc. (Eng.)• SRV Group Plc Board member (2010-) Other positions of trust • Pontos Oy, Board member (2007-) • Renor Ltd, Board member (2008-) • AS Viru Center, Supervisory board member (2008-)• UAB Mulga, CEO and member of the board (2011-)
Minna Alitalo• Born 1962, M.Sc. (Econ.)• SRV Group Plc Board member (2012-) • Alko Inc. Executive Vice President, Finance (2009-)Primary working experience• Isku Group, Senior Vice President, Finance (2005-2009)Other positions of trust• Federation of Finnish Commerce, committee on tax and
finance policy, member (2009-)
Risto Kyhälä• Born 1963, M.Sc. (Eng.)• SRV Group Plc Board member (2013-) • Commercial Director, Sanoma News Ltd (2013-)Primary working experience• Realia Group Oy, CEO (2006-2012)• Huoneistokeskus Oy, CEO (2005-2012)Other positions of trust• Avara, Chairman of the Board (2012-)• Kaukomarkkinat Oy, Member of the Board (2012-)• Marinetek Oy, Chairman of the Board (2010-)
17
Committed owners including top management & staff
20.11.2013SRV own shares
1.3 M kpl3 %
Kokkila Ilpo9.0 M kpl
25 %Others14.5 M kpl
39 %
Nominee reg.0.6 M kpl
2 %
Kolpi Investment5.5 M kpl
15 %Kokkila Timo
4.5 M kpl12 %
SRV executive team1.4 M kpl
4 %
Corporate executive team's shareholdings in SRVJukka Hienonen Chief executive officer and president 81 800Timo Nieminen Exec. vice president, Project Development 418 266Hannu Linnoinen Exec. vice president, CFO 615 566Juha Pekka Ojala Exec. vice pres., Bus. Operations in Finland 111 234Antero Nuutinen Vice pres., Housing in Finland 34 167Veli-Matti Kullas Vice pres., Project Development in Russia 103 984Jussi Kuutsa Vice pres., Country Director, Russia 16 433
Other members of executive team 20 4321 401 882
percent of shares 3,81 %
18
SRV Group 1-9/2013
19
1-9/
2013 1-9/
2012 change,
meur change,
% 1-12/ 2012
Revenues, meur 507.8 466.2 +41.6 +9% 641.6 Opera ng pro t, meur 21.8 4.5 +17.3 +386% 6.9 Opera ng pro t, % 4.3% 1.0% 1.1 % Pro t before taxes, meur 19.2 0.6 +18.6 +2961% 2.8
Order backlog 1), meur 911.5 747.1 +164.4 +22% 827.8 Equity ra o 1), % 39.3% 28.5% 34.7%
EPS, eur 0.38 -0.01 +0.39 0.02 Share price 1), eur 4.41 3.44 +28% 3.26 Equity per share 1), eur 4.95 4.58 +8% 4.62
1) at the end of the period
January – September 2013 in brief
1) At the end of the period
20
• Group’s revenue and operating profit increased- Revenue EUR 507.8 million, +8.9%- Operating profit EUR 21.8 million, +368%
• Domestic Operations’ revenue and operating profit increased- Profitability improved in 7-9/2013 due to increase in revenue of developer-
contracted housing construction- Profitability of commercial contracting has developed positively
• Domestic housing sales at a good level- Total sales grew, with total of 584 units sold (538). Sales to consumers have
slowed down after March. Housing production’s focus has shifted to rental housing development projects sold to investors
• Concentrating on constructing shopping centres in Russia has borne fruit- International Operations’ revenue and operating profit increased
› Due to sale of a 55 % stake in Okhta Mall, construction of Pearl Plaza, growth in the level of activity, and cost-savings measures
1-9/2013 – Positive profitability trend continued
21
SRV Group PlcMeur Revenue Meur Operating profit
Meur Order backlog Meur Profit before taxes
141170 156
175 179 170158
0
20
40
60
80
100
120
140
160180
200
Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13
746 704
191 195 230218
194
213207761 746 747
828
727
959 911
570 551 517610
532
0
100
200
300
400
500
600
700
800
900
Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13Sold order backlog Unsold order backlog
0.3
2.5
-2.1
2.20.7
13.3
5.2
-4
-2
0
2
4
6
8
10
12
14
16
Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13
6.9
13.7
1.22.4
-0.4
3.11.8
-2
0
2
4
6
8
10
12
14
16
Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13
22
Order backlog and new agreements
• Order backlog 911.5 M€ (+22%, Q3/13)- Domestic order backlog 727.8 M€ (676.2
M€). Competitive contracting has been regarded more critically both in commercial and housing construction. The volume of housing contracting has been notably decreased
- International order backlog rose to 183.7 M€ (70.9 M€) as SRV signed project management contracts valued at more than 160 M€ on the realization of the Okhta Mall shopping centre project in St. Petersburg
• New agreements 532.4 M€ (+54%, Q3/13)
New agreements
396
560
812
595
347
532
0
100
200
300
400
500
600
700
800
900
2009 2010 2011 2012 1-9/12 1-9/13
Order backlog
255 272362
439 451
202
303
349
336 277
25
20
10053 184
482
595
811 828
911
0
100
200
300
400
500
600
700
800
900
12/2009 12/2010 12/2011 12/2012 9/2013
Internationaloperations
Domesticoperations;Housingconstruction
Domesticoperations;Businesspremisesconstruction
23
Domestic operationsMeur Revenue Meur Operating profit
Meur Order backlog
7.3
2.73.41.61.9
5.8
5.4
0
2
4
6
8
10
Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13
121151 140
157129
155135
0
20
40
60
80
100
120
140
160
180
200
Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13
459 451
329 336 364
336297
313 277
658 662 676
774687
772728
329 325 312439 390
0
100
200
300
400
500
600
700
800
Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13Business premises Housing
Business premises
55 %* (230 M€)
Housing
45%* (188 M€)
• Offices and retail facilities
• Hotels and specialised facilities
• Logistics facilities
• Infrastructure
• Owner-occupied housing
• Rental housing
• Area development projects
Operations in FinlandShare of Group revenue 82 % (419 M€)
24
Steps taken to improve profitability of housing construction
• 61% of housing production is production developed by SRV (43%, Q3/12)
- Volume of contracting has been decreased, 550 units under construction (1,212)
- Preliminary agreements made with two housing funds to build 252 housing units; not included in the order backlog
• Volume of sales has developed favorably- Institutional sales have grown, while sales
to consumers suffer from transfer tax hike and growing uncertainty about economy
- SRV has prepared for weak consumer demand. Start-ups have been reduced (202 start-ups in 2013 vs 320 1-9/2012) and criteria for new projects are tightened
- Amount of unsold housing units decreased, 389 units on sale (500)
25
International operationsMeur Revenue Meur Operating profit
Meur Order backlog
0.2
12.3
-0.8
2.4
-1.1-1.9-2.6-4
-2
0
2
4
6
8
10
12
14
Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/1320 19 16 18
50
1523
0
10
20
30
40
50
60
Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13
10285 71
53 40
188 184
0
20
40
60
80
100
120
140
160
180
200
Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13
International operations in Russia (& Estonia)
Share of Group revenue 18 %(89 M€)
• Retail premises in Moscow and St. Petersburg
• Shopping centre management
• Other business premises
26
• Pearl Plaza shopping centre opened on 24 August 2013- 1. phase EUR 140 million, ca. 92,000 m2. SRV’s share 50%, SRV’s
investment 22 MEUR - SRV acted as a project management constructor in charge of
commercialisation, value of contracts exceeded 120 MEUR- SRV in charge of shopping centre management- 100% of premises leased out or under final negotiations, targeted
annual net operating income (NOI) ca. 18 MEUR- Designing 2. phase has started, 30% preliminarily leased
• Okhta Mall shopping centre’s construction work started- Part of SRV’s development project in Okhta area of St. Petersburg- 55% sold to Russia Invest (SRV owns 27%). In addition, SRV has a
45% minority share- Investment value 250 MEUR, ca. 144,000 m2. Over 25% leased
with preliminary agreements, targeted annual NOI 33 MEUR- SRV is in charge of commercialisation and a project management
contractor - value of contracts exceed 160 MEUR- SRV invests 44 MEUR during the construction. Cash flows from
project management agreements and the sale of the holding will cover the amount of capital committed to the project
- Letter of intent signed for a EUR 160 MEUR project loan financing- Final building permit received in August 2013
SRV’s main shopping centre projects in Russia
27
Nr. Project1 Admiralteiskaya
2 Galaktika
3 London Park
4 PEARL PLAZA (in operation)
5 Monpansye
6 Pyat ozer
7 Zanevskiy Kaskad, Phase III
8 Evropolis
9 Skandinavia
Nr. Project
10 Piter-Raduga Phase II
11 Port Nakhodka, Phase II
12 Hollywood
13 Hines Outlet Centre
14 Fashion House
15 OKHTA MALL16 Sputnik
17 Sofiyskaya St, 60
Under construction
Planned
Source: Jones Lang LaSalle
4
15
Quality Shopping Centres in St. Petersburg, 2013-15
28
Sales profit
Revenuerecognization ofeliminated partof constructionfeeSRV's share ofprofits of assoc.company duringoperating period
Revenuerecognised partof constructionfee
Accrual ofrevenuerecognised partof constructionfeeConstruction period Construction + operating period (cumul.) Total profit
Construction time- Revenue is recognized according to the stage of completion- The share corresponding to SRV’s ownership is eliminated from the
construction margin
Operating time- The share corresponding to SRV’s ownership is recognized from the
associated company’s profit- The cumulative total return depends on the operating time and the
associated company’s profit
Property sales- The share corresponding to SRV’s ownership is recognized from the
construction margin- The capital gain is recognized
The illustration is based on estimation of the Okhta Mall shopping centre project- The purpose of the illustration is to describe the timing of financial results and it is
based on current knowledge. The actual figures may be significantly different.
Illustration of the estimated cumulative profit of the development project
29
SRV ownership 60 % Investment cost 250 MEURConstruction volume 160 MEUR 160 MEURConstruction profit, %* 10 % 33 MEURRental level average* 90 % 3 YRSExit yield* 10,0 %Period SRV sales SRV profitConstruction period 150 MEUR 6 MEUR Yr 1 26 MEUR 80 %Operating period 31 MEUR 31 MEUR Yr 2 30 MEUR 90 %Constr. profit at exit 10 MEUR 10 MEUR Yr 3 33 MEUR 100 %Exit profit 48 MEUR 48 MEUR Tot 89 MEURSRV cumulative totals 239 MEUR 95 MEUR (39,8 %)
Net rental development
OKHTA MALL -PROJECT; SRV'S FINANCIAL RESULTS
Project loanTarget rent levelOperating period
The variables in the calculation are sample assumptions. The realisation may be significantly different.
An example of the calculation formula of OkhtaMall's cumulative profit development estimate
30
Russia Invest – investment vehicle developed by SRV
• Investment company Russia Invest- Co-investor concept developed by SRV - Russia Invest will invest in SRV’s
development projects in Moscow and St. Petersburg
- SRV will be in charge of project development and acts as a project management contractor
- Partners’ investment commitments 95.5 M€:› SRV, Ilmarinen, Sponda 26 M€, each› Etera 12.5 M€› Onvest 5.0 M€
- Development projects will be funded by project-specific bank loans, the whole investment can rise up to 300 M€
- St. Petersburg’s Okhta Mall is the company’s first investment, ca. 50 M€
Russia Invest
Max 95.5 M€
Okhta Mall
ca. 50 M€55%
Investmentvehicle
Investmentsin Russia
Project loans
Moscow
& St. Petersburg
focus
31
Business premises ready for sale
• Derby Business Park, Espoo- Three building office project developed by SRV, borders the new
intersection of Turku motorway- Over 90% of premises leased, almost 600 parking spaces. Phase I
completed in 8/2012 including among others SRV’s head office. Phase II (including head office of Siemens) completed in 6/2013
- SRV estimates, that 100% leased project will generate 4.2-4.3 MEUR of annual NOI in 2014
- Sale process started
• Etmia II & III –office building, Moscow- SRV’s office development project in Moscow- Located next to Prospekt Mira metro station, Etmia II was
completed in 10-12/2009, extension Etmia III was completed 2012
- Etmia II, “Class A” rated office building and Etmia III “Class B”rated
- SRV owns 50% of joint venture- Project has been leased out in full and current
annual NOI level is ca. 4 MEUR - Sales process under way
32
SRV’s outlook for 2013
• The quarterly change and development of revenue and result in 2013 are affected by the recognition upon delivery of SRV's own projects, the continuously recognised order backlog comprising mostly low-margin contracting, the development of the order backlog's profit margins, the sales volume of self-developed housing production and the completion times of the properties, the number of new contracts, the project development nature of the operations, and the realisation of planned property sales, among other things. Based on current completion schedules, SRV estimates that a total of 539 developer-contracted housing units will be completed during 2013
• The Group's full-year revenue is expected to amount to around EUR 700 million, and profit before taxes is estimated to be at least around EUR 20 million
33
Financing and Capital structure
34
Relationship banking & equity level target
Group’s core financing is based on long term relationships with highly rated banks
- All relationships banks have strong credit rating (S&P: AA- to A-; Moody’s: AA3 to A3)
- SRV follows a common Group borrowing policy with standard financial covenants- 100 M€ committed revolving credit facility is underwritten by relationship banks
and matures in December 2015. Previous revolving credit was also refinanced in 6/2012 with current relationship banks
Equity level maintained above 30%- SRV’s loan financial covenant is
equity ratio (POC-based), i.e. “sold” developer contracting is excluded
- Q3/13 equity ratio 40.4%
35
Debt maturity structure and financing reservesDebt maturity structure 31.12.2012
- Short term debt consists of commercialpaper issued and maturing loans fromfinancial institutions. Commercial paperissued is fully covered by standbyfacilities
- Long term debt consist of housing loans(20+ yr maturities) and loans fromfinancial institutions
Long term reserves support liquidity- Standby committed financial reserves
are 100 M€ syndicated loan maturing in December 2015 and 22.3 M€ current account limits
- Additional financial capacity is availablee.g. by refinancing cashflow generatingprojects
36
Financing reserves & liquidity reserves 2009-Q3/2013Financing reserves 148 M€ (Q3/13)
- Financing reserves consist of cash and undrawn committed loan facities and limits
- Committed facilities are preferredreserves. Therefore SRV has limitedcounterparty risks and in a lean treasuryorganisation
Financial liquidity risk in domesticdeveloper contracting is low
- Construction costs of domesticdevelopment projects (36 M€ Q3/13) are covered by undrawn committedproject loans and sales receivables (42 M€ Q3/13)
- SRV’s liquidity is not adversely affected in case of slow down of housing sales
37
Finance structure and hybrid bond issueAttention has been paid to increasenon-interest bearing debt as financingsource
- Scalable subcontractor based business model has limitations on the use of supplier credits
Hybrid bond has been used to supportequity to assets and gearing ratios
- SRV issued 45 M€ hybrid capital bond in December 2012
- First call date is 28.12.2016
38
SRV Model and its effect on financial ratios
A. SRV has a compareable equity ratio than its peer group companies, but gearing is relatively higher- SRV’s equity to assets ratio was 39.3% (IFRS, Q3/2013) and POC-% 40.4%- SRV’s gearing ratio was 103 (Q3/2013)
B. SRV’s equity ratio and gearing is affected by following factors1. SRV’s strategy to increase developer contracting in housing construction in
Finland› IFRS standard for revenue recognition in developer contracting lowers
the equity ratio and increases the gearing › SRV’s policy to reduce the liquidity risks relating to volume of housing
developer contracting increases construction debt2. Effects of SRV’s business model on gearing and liquidity3. Investments in development projects especially in Russia
39
1. SRV’s strategy is to increase developer contracting in housing construction in Finland
• SRV is among TOP-5 housing construction companies in Finland. - IFRS standard for revenue recognition for developer contracting lowers the equity
ratio and increases the gearing, since also the sold inventory is reported on SRV’sbalance sheet
• SRV’s policy is to reduce liquidity risks related to construction volume of housing developer contracting- SRV constructs its development projects with upto 70% housing corporation loans,
which are most cost efficient long term financing available- 70% loan level policy is a risk mitigator for housing sales downturn- Level of loan covers adequately construction costs of production and thus
completion of unsold housing production has limited effect on SRV’s liquidity- Liquidity risk mitigation policy increases the gearing during construction
1. Developer contracting and financial ratios
40
2. Effects of SRV’s scalable business model on gearing and liquidity• Project management contracting model reduces non-interest bearing current
liabilities on balance sheet- 1) employment related liabilities, 2) trade payables, 3) advance payments and 4) other
current liabilities are lower than those of SRV’s peer group’s- SRV uses also extensively small enterprises in subcontracting
• SRV has a policy to abstain from fixed price traditional contracting. These contracts are awarded with fixed payment schedule
• In project management contracting construction bids are often requested with preliminary plans. This affects the payment schedules and reduces advances as a financing source
3. Investments in development projects (mainly in Russia)• SRV’s capital employed in International operations was 172 MEUR (Q3/13) and mainly
in Russia. Local financing sources prior construction phase are very limited. Since development times are long in Russia, Group’s financial resources can be tied up for a long time in development, construction and ownership phases
2. SRV’s business model and financial ratios
41
• Financing for developer contracting is secured by sales process, project loans and use of general liquidity reserves
• Domestic developer contracting - Housing developments for consumer market are financed with housing loans from
domestic relationship banks. SRV’s policy is to use upto 70% LTV in these projects - For other developments under construction either a project loan is used or
construction is financed with SRV’s general financing reserves• International developer contracting especially in Russia
- Local project loan are preferred for Russian projects. Project loans have long maturities covering also operations time
› Project loan for Pearl Plaza is 95 M€, project loan (LOI) for Okhta Mall is 160 M€. SRV does not guarantee these loans. Project loans in associated companies are not consolidated on SRV’s balance sheet
- Co-investors and Investment vehicles provide additional equity investment capacity- Construction of smaller developments may be also financed with SRV’s financial
reserves
Summary of SRV’s project development financing
42
Rem
aini
ngca
pita
l and
pro
fit
Construction2007-2009 & 2011-12
Operating period2010 -
Constructionfinancing
0 -> 35.9 M€
Russian bankrefinancing
SRV (50%) SRV (50%)
35.9 -> 1.7 M€SRV’s capital employed in
Etmia
Repa
ymen
tof
SRV’
sloa
n an
d in
tere
st
• Etmia construction wasfully financed by SRV with interest bearingsecured loans
• SRV owns 50% of Etmia
• After successfullyleasing out the premises local projectfinancing was arranged
• Refinancing enabledSRV to release most of capital tied in Etmia
EXIT2014?
SRV (50%)
NOI 4 M€ p.a.
Case Etmia: SRV’s financing and subsequent refinancing
33 M€
43
1XX M€
Repa
ymen
tof
part
of in
vest
edca
pita
l
Construction2011-2013
Operating period8/2013 -
Projectloan
95M€
Refinancingxx/201x ?
22 M€
EXIT201?
Rem
aini
ngca
pita
l and
pro
fit
SRV’
sfee
for 1
20 M
€pr
ojec
tman
agem
ent
cont
ract
s• Investment value 140 M€
• Project term loan 95 M€
• SRV’s investment 22 M€
• The value of Pearl Plazaincreases with operatingcashflow
• Capital tied can bereduced during operatingperiod by refinancing the project loan
Case Pearl Plaza; co-investor & project loan
SRV (50%) SRV (50%) SRV (50%)
44
Case Okhta Mall; SRV’s investment vehicle & project loan
Construction2013-2016
Operating periodH1 2016 -
Projectloan (LOI)
160M€
Refinancingxx/201x ?
SRV (60%)
EXIT201?
SRV (60%)
Rem
aini
ngca
pita
l and
pro
fit
XXX M€
SRV’
sfee
for 1
60+
M€
proj
ectm
anag
emen
t co
ntra
cts
• Investment value 250 M€• Project term loan 160 M€• Shareholders’ investment
90 M€• SRV’s commitment during
construction is 44 M€, which is covered by cash flows from project mana-gement agreements and the sale of the holding
• Capital tied can be reduced during operating period by refinancing the project loan
Russia Invest
SRV
55%45%
27%
Sale of the holding (Q2 13)
Repa
ymen
tof
part
of in
vest
edca
pita
l
45
The illustration is based on estimation of the Okhta Mall shopping centre project- The purpose of the illustration is to describe the timing of financial results and it is
based on current knowledge. The actual figures may be significantly different.
Life cycle of selected SRV’s projects in Russia
LOI signed for 160 M€ project loan
95 M€ project loan
33 M€ refinancingSRV’s financing for construction
Construction period Operating period Exit Yr Target SRVYr 1 Yr 2 Yr n NOI %
Okhta Mall 8/2013 - Q1/2016 H1/2016 -> 33 M€ 60 %over 25% let *)
Pearl Plaza 8/2013 -> 18 M€ 50 %100% let/reserved
Etmia 2010 (& 2012) -> 2014 ? 4,2 M€ 50 %fully let
Pearl Plaza II 2014 ? 2015 ? 50 %over 30% let *), no investment decision made
Mitishi 2014 ? 2015 ? 25% **)ca. 30% let *), investor negotiations on-going
*) preliminary lease agreements
**) current ownership
46
Potential bond issue
47
Indicative term sheet
Indicative Terms and Conditions
Issuer SRV Group PLC
Type Senior unsecured
Maturity [5 years]
Amount EUR [50] million
Coupon Fixed
Documentation Stand-alone Finnish
Law Finnish Law
Listing Helsinki
Denominations EUR 100,000 + 1,000
Redemption Bullet
Covenants Negative pledge, Change of control, Cross-default, Pari Passu
Lead Managers Pohjola & Swedbank
• SRV Group is contemplating a senior unsecured bond issue in the near future to extend debt maturity profile, diversify the funding base and to facilitate execution of the growth strategy
• The company is conducting a roadshow to present and discuss the potential transaction with selected key institutional investors.
• 1-on-1 investor meetings and group presentations will be conducted during weeks 49 and 50, ending on Monday December 9th
• The timing of the potential transaction will be thereafter, subject to market conditions
• Pohjola and Swedbank have been mandated as lead managers
48
Key investment highlights
• Well diversified business between business premises and housing in Finland as well as international operations mainly in Russia
• Extensive and attractive housing project pipeline in the Helsinki Metropolitan area based on rail traffic connections to Helsinki city centre
• Highly potential shopping centre development focus in Russia
• Improving revenues and profitability with scalable business model- Stable revenues and profitability of domestic operations- Significant revenue and profitability improvement in international operations
• Strong order backlog 911.5 M€ and substantial development portfolio
• Equity ratio 39.3% (IFRS) and financing reserves of 148 M€ (cash 19 M€and committed loans and limits 129 M€) at the end of 3Q13
• Committed shareholders, including top management and staff
49
Appendix: Selected financials
49
50
SRV Group key figures
Group key figures (IFRS, EUR million)
1-9/ 2013
1-9/ 2012
change,MEUR
change, %
7-9/ 2013
7-9/ 2012
1-12/ 2012
Revenue 507.8 466.2 41.6 8.9 170.0 155.8 641.6 Operating profit 21.8 4.5 17.3 385.8 6.9 -0.4 6.9 Financial income and expenses, total -2.6 -3.9 1.3 -1.7 -1.8 -4.1 Profit before taxes 19.2 0.6 18.6 2960.7 5.2 -2.1 2.8 Order backlog 911.5 747.1 164.4 22.0 827.8 New agreements 532.4 346.5 185.9 53.6 107.9 138.5 594.5 Operating profit, % 4.3 1.0 4.0 -0.2 1.1 Net profit, % 3.3 -0.1 2.0 -1.0 0.1 Equity ratio, % 39.3 28.5 34.7 Net interest-bearing debt 227.1 311.3 -84.2 -27.1 267.9 Gearing, % 102.8 187.7 126.2 Return on investment, % 1) 6.4 1.8 2.2 Return on equity, % 1) 10.4 -0.4 0.5 Earnings per share, EUR 0.38 -0.01 0.39 0.06 -0.04 0.02 Equity per share, EUR 4.95 4.58 0.37 8.1 4.62 Share price at end of period, EUR 4.41 3.44 0.97 28.2 3.26 Weighted average number of shares outstanding, millions 35.5 35.5 35.5 1) In calculating the key ratio, only the profit for the period has been annualised.
51
Segment financials 2013
Domestic Operations (EUR million)
1-9/ 2013
1-9/ 2012
change,MEUR
change, %
7-9/ 2013
7-9/ 2012
1-12/ 2012
Revenue 418.9 411.1 7.8 1.9 155.0 139.7 568.3 - business construction 230.2 221.8 8.4 3.8 88.1 78.9 305.3 - housing construction 188.7 189.3 -0.6 -0.3 66.9 60.7 263.0 Operating profit 13.4 13.1 0.3 2.5 7.3 1.9 14.8 Operating profit, % 3.2 3.2 4.7 1.3 2.6 Order backlog 727.8 676.2 51.5 7.6 774.4 - business construction 451.1 312.1 139.1 44.6 438.7 - housing construction 276.6 364.2 -87.5 -24.0 335.7
International operations (EUR million)
1-9/ 2013
1-9/ 2012
change,MEUR
change, %
7-9/ 2013
7-9/ 2012
1-12/ 2012
Revenue 89.0 55.1 33.9 61.6 15.1 16.1 73.1 Operating profit 11.7 -5.6 17.3 0.2 -1.1 -3.2 Operating profit, % 13.1 -10.2 1.1 -7.0 -4.4 Order backlog 183.7 70.9 112.8 159.2 53.4
Other Operations (MEUR)
1-9/ 2013
1-9/ 2012
change,MEUR
change, %
7-9/ 2013
7-9/ 2012
1-12/ 2012
Revenue 9.2 11.0 -1.8 -16.4 2.9 3.6 14.4 Operating profit -3.3 -3.0 -0.3 -0.6 -1.1 -4.7
52
Segment assets, liabilities and invested capitalAssets change, change,
(EUR million) 30.9.13 30.9.12 MEUR % 31.12.12 Domestic operations 413.6 392.9 20.7 5.3 422.9 International operations 195.7 225.0 -29.3 -13.0 233.7 Other Operations 309.1 280.0 29.1 10.4 311.8 Eliminations -296.0 -272.1 -23.9 -293.0 Group, total 622.4 625.8 -3.3 -0.5 675.4
Liabilities change, change, (EUR million) 30.9.13 30.9.12 MEUR % 31.12.12
Domestic operations 353.6 334.3 19.3 5.8 370.4 International operations 192.3 231.2 -38.8 -16.8 235.2 Other Operations 124.5 139.4 -14.9 -10.7 123.3 Eliminations -268.8 -245.0 -23.9 -265.8 Group, total 401.6 459.9 -58.3 -12.7 463.1
Invested capital change, change, (EUR million) 30.9.13 30.9.12 MEUR % 31.12.12
Domestic operations 286.5 286.2 0.2 0.1 297.4 International operations 171.7 200.7 -29.0 -14.5 200.2 Other and eliminations 8.7 3.4 5.3 158.7 15.7 Group, total 466.9 490.3 -23.4 -4.8 513.3
Return on investment, % 1-9/13 1-9/12 1-12/12
Domestic operations 1) 6.4 6.7 5.6 International operations 1) 9.1 -2.7 -0.2 Group, total 1) 6.4 1.8 2.2 1) In calculating the key ratio only the profit for the period has been annualised
53
Consolidated balance sheetConsolidated balance sheet (EUR million) 30.9.13 30.9.12 change, % 31.12.12
ASSETS Non-current assets Property, plant and equipment 13.0 13.4 -3.1 13.7 Goodwill 1.7 1.7 0.0 1.7 Other intangible assets 0.7 0.6 27.2 0.6 Other financial assets 16.9 10.9 54.4 10.9 Receivables 5.3 12.2 -56.9 1.4 Loan receivables from associated companies and joint ventures 23.8 13.2 80.9 11.9 Deferred tax assets 6.2 5.6 10.1 8.1 Non-current assets, total 67.6 57.7 17.2 48.4 Current assets Inventories 428.6 407.8 5.1 431.2 Trade and other receivables 104.1 110.5 -5.8 127.1 Loan receivables from associated companies and joint ventures 1.1 31.6 -96.5 31.6 Current tax receivables 2.0 5.1 -61.1 4.0 Cash and cash equivalents 19.0 13.2 44.6 33.1 Current assets, total 554.8 568.1 -2.3 626.9 ASSETS, TOTAL 622.4 625.8 -0.5 675.4
54
Consolidated balance sheet
Consolidated balance sheet (EUR million) 30.9.13 30.9.12 change, % 31.12.12 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent company Share capital 3.1 3.1 0.0 3.1 Invested free equity fund 92.2 92.2 0.0 92.2 Translation differences 0.0 0.0 -13.7 0.0 Fair value reserve 0.0 0.0 0.0 Retained earnings 80.3 67.2 19.6 68.9 Equity attributable to equity holders of the parent company, total 175.6 162.4 8.1 164.2 Non-controlling interests 0.6 3.5 -82.3 3.5 Hybrid bond 44.6 0.0 44.6 Equity, total 220.8 165.9 33.1 212.3 Non-current liabilities Deferred tax liabilities 1.7 1.5 15.0 4.1 Provisions 4.8 5.6 -15.1 6.3 Interest-bearing liabilities 114.7 155.4 -26.2 118.5 Other liabilities 0.1 0.0 37.2 0.0 Non-current liabilities, total 121.2 162.5 -25.4 129.0 Current liabilities Trade and other payables 143.9 123.8 16.2 147.6 Current tax payables 2.2 1.4 56.0 0.3 Provisions 2.9 3.1 -3.9 3.7 Interest-bearing liabilities 131.4 169.1 -22.3 182.5 Current liabilities, total 280.4 297.4 -5.7 334.1 Liabilities, total 401.6 459.9 -12.7 463.1 EQUITY AND LIABILITIES 622.4 625.8 -0.5 675.4
55
Disclaimer
This Credit Investor Presentation has been prepared by, and the information contained herein (unless otherwise indicated) has been provided by SRV Group Plc (the “Company”). By attending the meeting where this presentation is made, or by reading the presentation slides, you agree to be bound by the following limitations. This presentation is being furnished to you solely for your information on a confidential basis and may not be reproduced, redistributed or passed on, in whole or in part, to any other person. Legislation in certain countries may restrict the distribution of the content of this Credit Investor Presentation. The information contained in this Credit Investor Presentation or other information relating to the listing of a bond issue may not be distributed or published in the United States of America, Australia, Hong Kong, Japan, Canada, Singapore or any country or under any circumstances wherein this would constitute a breach of valid legislation or is otherwise not permitted. The bond issue is not, nor will be registered in the United States of America in accordance with the United States Securities Act of 1933, nor will it be registered with any United States of America state authorities. The bond issue may not be offered, sold, pledged or otherwise directly or indirectly handed over to the United States of America, nor to American persons (as determined in the United States Securities Act of 1933, Regulation S), nor on behalf of such persons, with the exception of individuals who are not American persons (as determined in the United States Securities Act of 1933, Regulation S) in transactions outside of the US pursuant to Regulation S.
This presentation does not constitute or form part of and should not be construed as, an offer to sell, or the solicitation or invitation of any offer to buy, acquire or subscribe for, securities of the Company or any of its subsidiaries in any jurisdiction or an inducement to enter into investment activity. No part of this presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investments decision whatsoever. The information contained in this presentation has not been independently verified. No representation, warranty or undertaking, expressed or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or the opinions contained herein. Neither the Company nor any of its respective affiliates, advisors or representatives nor any other person shall have any liability whatsoever (in negligence or otherwise) for any loss however arising from any use of this presentation or its contents or otherwise arising in connection with the presentation. Each person must rely on their own examination and analysis of the Company and the transactions discussed in this presentation, including the merits and risks involved.
This presentation includes “forward-looking statements”. These statements contain the words "anticipate", “will”, "believe", "intend", "estimate", "expect" and words of similarmeaning. All statements other than statements of historical facts included in this presentation, including, without limitation, those regarding the Company’s financial position, business strategy, plans and objectives of management for future operations, including without limitation those regarding the demerger plan and its execution, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company's present and future business strategies and the environment in which the Company will operate in the future. These forward-looking statements speak only as at the date of this presentation. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. The Company cautions you that forward-looking statements are not guarantees of future performance and that its actual financial position, business strategy, plans and objectives of management for future operations may differ materially from those made in or suggested by the forward-looking statements contained in this presentation. In addition, even if the Company's financial position, business strategy, plans and objectives of management for future operations are consistent with the forward-looking statements contained in this presentation, those results or developments may not be indicative of results or developments in future periods. Neither the Company nor any other person undertakes any obligation to review or confirm or to release publicly any revisions to any forward-looking statements to reflect events that occur or circumstances that arise after the date of this presentation.
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