Consti Oyj — Earnings Release 2018

Feb 7, 2019

Consti Group Plc Financial Statements Bulletin for January – December 2018

Consti Group Plc Financial Statements Bulletin for January – December 2018

CONSTI GROUP PLC FINANCIAL STATEMENTS BULLETIN 7 FEBRUARY 2019, at 8.30 a.m.

Consti Group Plc Financial Statements Bulletin for January – December 2018

NET SALES GREW, OPERATING RESULT NEGATIVE   

10–12/2018 highlights (comparison figures in parenthesis 10–12/2017):

·Net sales EUR 96.8 (86.3) million; growth 12.1 %

·EBITDA EUR -1.7 (-2.1) million and EBITDA margin -1.8 % (-2.4 %)

·Operating profit/loss (EBIT) EUR -2.2 (-2.6) million and EBIT margin -2.2 % (-3.0 %)

·Order backlog EUR 225.1 (225.7) million; growth -0.3 %

·Free cash flow EUR 1.9 (2.6) million

·Earnings per share EUR -0.25 (-0.30)

1–12/2018 highlights (comparison figures in parenthesis 1–12/2017):

·Net sales EUR 315.8 (300.2) million; growth 5.2 %

·EBITDA EUR -0.5 (1.7) million and EBITDA margin -0.1 % (0.6 %)

·Operating profit/loss (EBIT) EUR -2.1 (-0.4) million and EBIT margin -0.7 % (-0.1 %)

·Free cash flow EUR -7.1 (8.9) million

·Earnings per share EUR -0.30 (-0.14)

·The Board of Directors proposes that no dividend will be paid for 2018

Guidance on the Group outlook for 2019:The Company estimates that its operating result for 2019 will improve compared to 2018.

KEY FIGURES (EUR 1,000)	10-12/ 2018	10-12/ 2017	Change %	1-12/ 2018	1-12/ 2017	Change %
Net sales	96,779		86,300		12.1	%	315,762		300,203		5.2	%
EBITDA	-1,749		-2,050		14.7	%	-464		1,714
EBITDA margin, %	-1.8	%	-2.4	%		-0.1	%	0.6	%
Operating profit/loss (EBIT)	-2,153		-2,590		16.9	%	-2,126		-375		-466.8	%
Operating profit/loss (EBIT) margin, %	-2.2	%	-3.0	%		-0.7	%	-0.1	%
Profit/loss for the period	-1,926		-2,294		16.0	%	-2,330		-1,074		-116.9	%
Order backlog				225,082		225,721		-0.3	%
Free cash flow	1,942		2,581		-24.8	%	-7,140		8,936
Cash conversion, %	n/a	n/a		n/a	521.4	%
Net interest-bearing debt				19,582		12,070		62.2	%
Gearing, %				83.6	%	47.7	%
Return on investment, ROI %				-4.5	%	-0.7	%
Number of personnel at period end				1,046		1,079		-3.1	%
Earnings per share, undiluted (EUR)	-0.25		-0.30		16.7	%	-0.30		-0.14		-114.3	%

CEO Esa Korkeela’s comment

“Our net sales for 2018 grew 5.2 percent from the previous year and amounted to 315.8 million euro. Net sales grew both in our Building Facades and Renovation Contracting business areas. Net sales fell in Technical Building Services because we reorganised the business area and introduced both new operating models and more disciplined bidding practises.

Our annual result was negative. This was mainly due to weak profitability of project deliveries from the technical installations unit, which belongs to our Technical Building Services business area, and also from the housing repair unit, which belongs to our Building Facades business area. The profitability problems are limited to a number of projects started in 2016 and 2017, which were for the most part finished by the end of the fiscal period – apart from a few housing repair unit’s projects that will be handed over in 2019.

During the year Consti had approximately 900 ongoing projects. The vast majority of these projects advanced as planned, and our profitability-improving actions had an evident positive impact on new ongoing project deliveries. In a limited number of projects, however, our performance fell clearly short of expectations. Our result for January-December was significantly weakened by the impact of negative results from two demanding building purpose modification projects.

We have continued targeted actions to return profitability in weakly preforming units. In addition to resolving changes and reductions in personnel, and clarifying responsibilities in our line organisation, we have also tightened our bidding and monitoring processes even further. In future, we will not take on demanding building purpose modification projects in which the project delivery method is not balanced with the risks and profit potential of the project.

In order to accelerate the improvement of Consti’s performance and carrying out our strategy, we will adjust the company’s businesses and resources. The essence of the Group-wide program is to create a customer-oriented organisation structure, which moves leadership closer to production at the work sites and fosters the efficient organising of internal support services. The planned actions include structural changes and also developing common processes and operational models. The impact of the program will be communicated in more detail as plans advance.

Our market environment remained primarily good in fiscal year 2018. During January-December our new order intake amounted to 228.5 million euro, which is a 17.8 percent decrease to the strong comparison period. Due to the positive development of our new order intake toward the end of the fiscal period, our 225.1 million-euro order backlog at the end of the fiscal year was nearly at the same level as the comparison period. Based on our current market and business outlook we believe that the demand for renovations and technical building services will remain at a good level. I anticipate that the combination of our strong order backlog and our new change program will lift our performance in 2019.”

Operating environment

The amount of professional renovation construction has grown nearly continuously for the past 20 years in Finland. In peak years renovation construction’s value has surpassed the value of new construction. Growth has been fast compared to the rest of Europe, due to the age of our building stock.

The value of renovation construction in house building was approximately 12.7 billion euro in 2018. Both the Confederation of Finnish Construction Industries RT and Euroconstruct have estimates that house building grew about four percent in Finland during 2018. The Confederation of Finnish Construction Industries RT estimates that renovations grew 1.5 percent while Euroconstruct estimated the growth at 0.8 percent. Due to the heightened construction of residential buildings, both estimated that new construction grew approximately six percent.

Over half of renovation construction comes from renovating residential buildings. During the past two years residential building renovations declined slightly due to the rapid pace of new construction, but in 2018 renovations bounced back to a growth path. A significant portion of renovation growth comes from renovating residential buildings in growth centres. The general economic situation has a far less significant impact on renovations than it does on new construction. The need for technical renovations such as pipeline, sewer, electric and facade renovations have a much greater impact.

Obtaining skilled workforce is a challenge that hinders the growth of renovation construction. In Finland, education in the field is focused on new construction, and renovation construction requires more versatile skills, such as the ability to solve problems caused by old structures both in the planning stage and at the work site. Competition for talent in the field is not limited to contractors but it is also visible in planning and amongst developers. In addition, there is an ongoing trend in the construction industry in general where the number of parties on an individual work site is growing, which makes managing the whole challenging. The lack of skilled professionals combined with the large amount of parties at work sites unfortunately often times makes it challenging to stick to cost estimates and schedules. 

The fact that renovation construction is so focused on residential buildings at the moment is largely explained by the age of the building stock. A large number of residential buildings were built soon after the World War II, and apartment buildings were built at an especially fast pace during the 1970s. At the moment primarily buildings from the 1960s and 1970s are being renovated. Buildings other than residential buildings are often younger. Although the lifespan of commercial and office premises is often shorter than residential buildings, there renovations needs are expected to grow in upcoming years all the way to the year 2030.

The Confederation of Finnish Construction Industries RT estimates that renovation construction will continue to grow approximately 1.5 percent in 2019. Euroconstruct estimates that renovation construction will grow 1.8 percent. According to Euroconstruct, residential building renovations will grow 2.0 percent and renovations of other than residential buildings will grow 1.6 percent.

In addition to the aging building stock, renovation construction, building technology and maintenance needs are maintained by heightened energy efficiency requirement, urbanisation, the need to modify the use of buildings for new purposes, the development of building technology and the aging population’s need for accessible buildings. Climate change also adds to the need of facade renovations and servicing, in particular.

Outlook for 2019

Renovation growth is expected to continue in 2019. In its November outlook, Euroconstruct estimated that Finland’s renovation market will grow 1.8 percent from the previous year. The general economic situation typically has a significant impact on new construction, but a much lesser impact on renovations.

Consti estimates that its operating result for 2019 will improve compared to 2018.

Press conference

A press conference for analysts, portfolio managers, and media will be arranged 7 February 2018 at 10:00 at Hotel Glo conference room Video Wall at Kluuvikatu 4, Helsinki. The conference is hosted by CEO Esa Korkeela and CFO Joni Sorsanen.

Financial reporting in 2019

Consti will publish its Financial Statements, Board of Directors’ Report, Auditors’ Report, and Corporate Governance Statement on the company website during week 11/2019.

Consti Group Plc’s Annual General Meeting shall be arranged on Tuesday 2 April 2019 in Helsinki. Invitation to the Annual General Meeting will be published later as a separate Stock Exchange release.

Consti Group Plc shall publish three interim reports during 2019:

• Interim report 1-3/2019 published 26 April 2019
• Half-year financial report 1-6/2019 published 26 July 2019
• Interim report 1-9/2019 published 25 October 2019

CONSTI GROUP PLC

Further information:

Esa Korkeela, CEO, Consti Group Plc, Tel. +358 40 730 8568

Joni Sorsanen, CFO, Consti Group Plc, Tel. +358 50 443 3045

Distribution:

Nasdaq Helsinki Ltd.

Major media

www.consti.fi

Consti is a leading Finnish company concentrating on renovation and technical services. Consti offers comprehensive building technology, pipeline renovation, renovation contracting, façade renovation and other demanding construction and maintenance services for residential and commercial buildings. In 2018, Consti Group’s net sales amounted to 316 million euro. It employs over 1000 professionals in renovation construction and building technology.

Consti Group Plc is listed on Nasdaq Helsinki. The trading code is CONSTI. www.consti.fi

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