FINANCIAL STATEMENTS

SRV

Content

Report of the Board of Directors 2020 ... 3
Financial indicators of the group ... 25
Calculation of key figures ... 26
Shares and Shareholders ... 28
Consolidated Financial Statements, IFRS ... 29
Statement Of Comprehensive Income ... 29
Consolidated Balance Sheet ... 30
Consolidated cash flow statement ... 31
Consolidated statement of changes in equity ... 32
Notes to the consolidated Financial statements ... 33
Parent Company's Financial Statements, FAS ... 68
Income statement of the Parent Company and Balance sheet of the Parent Company ... 68
Cash flow statement of the parent company ... 69
Notes to parent company financial statements ... 70
Signatures to the Financial Statements and Report of the Board of Directors, auditor's note ... 77
Auditor's Report (Translation of the Finnish Original) ... 78
Group and Segment information by quarter ... 82
Information for shareholders ... 84

Board of Directors' report
Financial statements

SRV | THE BOARD OF DIRECTORS' REPORT 2020

Report of the Board of Directors 2020

FINANCIAL YEAR 1 JANUARY-31 DECEMBER 2020 IN BRIEF:

The Group's revenue declined by 8.1 per cent to EUR 975.5 million (1,060.9 1–12/2019). Revenue declined mainly because fewer developer-contracted housing units were recognised as income than in the comparison period, a total of 515 (833).

The Group's operative operating profit amounted to EUR 5.8 (-96.8) million. Operative operating profit was improved particularly by construction sites' favourable earnings trends. Operative operating profit was significantly negatively impacted by changes in the valuation of balance sheet items in the Investments segment, which had a combined impact of around EUR -12.3 million. The decrease in rental income from shopping centres due to the coronavirus pandemic also had a negative impact on operative operating profit. Operative operating profit for the comparison period was burdened by impairments of EUR 96.5 million, the weakening of margins by EUR 11 million and other exceptional items amounting to EUR 7.9 million.

The Group's operating profit was EUR 1.5 (-93.0) million. Operating profit was influenced by the change in the exchange rate of the rouble, which had a net impact of EUR -4.4 (3.8) million. The exchange rate impact, which largely had no effect on cash flow, was caused by the valuation of the euro-denominated loans of associated companies in roubles, hedging expenses and changes in the market value of hedges.

Construction sites' favourable earnings trends contributed to the Construction business's operating profit of EUR 27.4 million. The EUR -22.4 million operating profit of the Investments business was affected particularly by revaluations and the restrictions imposed by the Russian authorities on shopping centre operations and the effect of exchange rates.

At period-end, the Group's order backlog stood at EUR 1,153.4 (1,344.2) million. New agreements valued at EUR 707.1 (487.6) million were signed in January–December, a year-on-year increase of 45.0 per cent. The sold share of the order backlog was 86.4 (80.5) per cent.

Financial income and expenses amounted to EUR -29.4 (-29.3) million. Net financial expenses included EUR 3.7 (4.1) million in dividend and interest income, exchange rate differences amounting to EUR -8.2 (4.3) million arising from the conversion of subsidiary and associated company loans, which did not have an impact on cash flow, interest paid on derivatives and fair value changes amounting to EUR -1.9 (-3.7) million and interest expenses of EUR -12.3 (-13.1) million, of which EUR 0.5 (0.7) million was capitalised in accordance with IAS 23 as from the beginning of the year. In addition, financial expenses included EUR -5.7 (-6.5) million in interest under IFRS 16 and EUR -1.5 (-10.8) million in impairments, and EUR -4.1 (-4.2) million in other financial expenses, including expenses related to financing arrangements.

The Group's profit before taxes totalled EUR -28.0 (-122.4) million. This includes currency exchange rate losses with no cash flow impact of EUR -18.0 million (exchange rate gains of 11.9). In addition, the result includes a total of EUR -13.8 million in revaluations with no cash flow impact.

The Group's earnings per share were EUR -0.15 (-1.52). The comparison figure has been adjusted for share issues.

During the first half of the year, the company carried out a significant number of measures to improve its balance sheet and liquidity as part of its recovery programme. These measures improved both the equity ratio and gearing. Rouble exchange rate movements and revaluations in turn weakened the equity ratio and gearing. The equity ratio was 22.6 (21.2) per cent and gearing was 159.7 (240.3) per cent. Excluding the impact of IFRS 16, equity ratio was 27.8 (26.4) per cent and gearing was 82.1 (151.2). Equity ratio in accordance with the loan covenant calculation was 28.7 per cent. The equity ratio level was affected by the high amount of cash and cash equivalents on the balance sheet date, EUR 96.7 million. The company can improve its equity ratio by using cash and cash equivalents to repay debts.

In spite of the effects of the coronavirus pandemic, we have been able to keep our construction sites in operation and the sites have for the most part continued to operate as planned. That said, precautionary measures against the pandemic have caused additional costs. The pandemic slowed down housing sales in the second quarter, but sales recovered towards the end of the year. The restrictions imposed by the Russian authorities on shopping centre operations impacted on the result for the review period.

The company publishes alternative key figures that have been adjusted to remove the impact of IFRS 16 Leases on the balance sheet and result. The company also discloses its operative operating profit, which is determined by deducting the calculated rouble exchange differences included in financial items and their potential hedging impacts from operating profit.

SRV | THE BOARD OF DIRECTORS' REPORT 2020
4

OVERALL REVIEW

GROUP KEY FIGURES

IFRS, EUR million	1-12/2020	1-12/2019	Change	Change, %
Revenue	975.5	1,060.9	-85.4	-8.1
Operative operating profit^{1}	5.8	-96.8	102.6
Operative operating profit, %	0.6	-9.1
Operating profit*	1.5	-93.0	94.5
Operating profit, %	0.2	-8.8
Operating profit, excl. IFRS 16^{2} *	-2.7	-94.3	91.6
Operating profit, %, excl. IFRS 16^{2}	-0.3	-8.9
Financial income and expenses, total**	-29.4	-29.3	-0.1
Profit before taxes	-28.0	-122.4	94.4
Net profit for the period	-25.1	-103.6	78.5
Net profit for the period, %	-2.6	-9.8
Order backlog (unrecognised)^{3}	1,153.4	1,344.2	-190.9	-14.2
New agreements	707.1	487.6	219.4	45.0
* net effect of currency exchange fluctuations	-4.4	3.8	-8.1
** derivatives included in financial income and expenses	-1.9	-3.7	1.9

Operative operating profit for 2020 is determined by deducting the calculated rouble exchange differences included in financial items and their potential hedging impacts from operating profit. Net exchange rate differences during the review period amounted to EUR -4.4 (3.8) million, of which the effect of currency hedging was EUR 5.5 (-3.8) million.
The figure has been adjusted to remove the impacts of IFRS 16.
The Group's order backlog consists of the Construction business.

GROUP KEY FIGURES

IFRS, EUR million	1-12/2020	1-12/2019	Change	Change, %
Equity ratio, %	22.6	21.2
Equity ratio, %, excl. IFRS 16^{1}	27.8	26.4
Net interest-bearing debt	289.1	422.0	-133.0	-31.5
Net interest-bearing debt, excl. IFRS 16^{1}	152.9	271.9	-119.0	-43.8
Net gearing ratio, %	159.7	240.3
Net gearing ratio, %, excl. IFRS 16^{1}	82.1	151.2
Return on investment, %	-0.8	-15.2
Return on investment, %, excl. IFRS 16^{1}	-2.0	-17.5
Capital employed	566.8	625.3	-58.6	-9.4
Capital employed, excl. IFRS 16^{1}	436.0	479.4	-43.4	-9.1
Return on equity, %	-14.1	-50.6
Earnings per share, EUR^{3}	-0.15	-1.52	1.37
Equity per share (without hybrid bond), EUR^{3}	0.65	1.31	-0.66	-50.4
Share price at end of period, EUR^{3}	0.59	1.36	-0.77	-56.6
Weighted average number of shares outstanding, millions^{3}	173.9	72.1

The figure has been adjusted to remove the impacts of IFRS 16.
The comparison figures have been adjusted to reflect share issues.
The comparison figures have not been adjusted to reflect share issues.

SRV | THE BOARD OF DIRECTORS' REPORT 2020

REVENUE

EUR million	1-12/2020	1-12/2019	Change	Change, %
Construction	970.0	1,057.7	-87.7	-8.3
Investments	4.8	5.9	-1.1	-18.5
Other operations and eliminations	0.7	-2.6	3.3
Group, total	975.5	1,060.9	-85.4	-8.1

OPERATIVE OPERATING PROFIT

EUR million	1-12/2020	1-12/2019	Change	Change, %
Construction	27.4	7.0	20.3	288.8
Investments	-18.0	-96.3	78.3
Other operations and eliminations	-3.5	-7.6	4.0
Group, total	5.8	-96.8	102.6

OPERATIVE OPERATING PROFIT

%	1-12/2020	1-12/2019
Construction	2.8	0.7
Investments	-	-
Group	0.6	-9.1

OPERATING PROFIT

EUR million	1-12/2020	1-12/2019	Change	Change, %
Construction	27.4	7.0	20.3	288.8
Investments*	-22.4	-92.5	70.1
Other operations and eliminations	-3.5	-7.6	4.0
Group, total*	1.5	-93.0	94.5
* Effect of currency exchange fluctuations	-4.4	3.8	-8.1

OPERATING PROFIT

%	1-12/2020	1-12/2019
Construction	2.8	0.7
Investments	-	-
Group	0.2	-8.8

CAPITAL EMPLOYED¹

EUR million	1-12/2020	1-12/2019	Change	Change, %
Construction	386.8	372.9	13.9	3.7
Investments	171.9	245.7	-73.9	-30.1
Other operations and eliminations	8.1	6.7	1.4	20.4
Group	566.8	625.3	-58.6	-9.4

RETURN ON INVESTMENT

%	1-12/2020	1-12/2019
Construction	7.6	3.0
Investments	-14.3	-32.6
Group	-0.8	-15.2

RECOVERY PROGRAMME MEASURES H1/2020:

> On 31 October 2019, SRV announced the commencement of a recovery programme. The short-term target was to ensure that operative operating profit and cash flow in 2020 would be in the black and to return operative operating profit for 2021 to its 2017 level. The recovery programme focused on renewing the organisation and operating culture, lightening the balance sheet, strengthening cash flow and achieving cost-savings.

> In February, SRV divested its holding in the REDI project to its co-investors as part of its recovery programme. The company also sold five-sixths of its holding in the Ranta-Tampella housing project (which is part of the Tampere Deck and Arena project), and three-fourths of its shares and partnership interests in the Tampere Deck and Arena project. After these transactions, SRV was left with an approximately 8.33 per cent holding in the Tampere Deck and Arena project.

> In February, as part of its recovery programme, the company agreed on the replacement of its EUR 100 million revolving credit facility with the banks that had granted it. The facility was replaced with two separate revolving credit facilities, one of EUR 60 million and one of EUR 40 million. The latter facility will be used to finance construction projects. At the end of June, the company made an agreement with the banks that granted the credit facility whereby the undrawn portion of the EUR 60 million credit facility would be terminated. The remaining amount of the facility was EUR 51 million.

> At the end of May, SRV carried out written procedures to extend the one-year tenor of its EUR 100 million (of which EUR 62.1 million is outstanding) senior unsecured callable fixed-rate notes due 23 March 2021 and the one-and-a-half-year tenor of its EUR 75 million senior unsecured callable fixed-rate notes due 27 March 2022 as well as to amend certain terms and conditions of these notes.

> In May, the company organised a directed share issue for hybrid holders. In the issue, about EUR 75 million of the EUR 92 million principal of the hybrid bonds and accrued interest was converted into shares. As a result of the implementation of the share issue, the total outstanding principal of the 2016 hybrid bonds is approximately EUR 11.8 million and the outstanding principal of the 2019 hybrid bonds is approximately EUR 3.6 million. The share issue increased the total number of SRV shares by 71,468,395 to 131,967,970. The new shares were entered in the Trade Register on 19 May 2020.

> The company held a rights issue in June. The rights issue yielded gross proceeds of about EUR 50 million for the company. Due to the share issue, SRV's number of shares rose by 131,049,371 from 131,967,970 to a total of 263,017,341 shares. The new shares were entered in the Trade Register on 18 June 2020.

> At the end of June, the company terminated the undrawn portion, amounting to EUR 9 million, of its EUR 60 million credit facility. The remaining credit facility will be repaid in the amount of EUR 11 million in December 2021 and EUR 40 million in January 2022.

SRV | THE BOARD OF DIRECTORS' REPORT 2020

OUTLOOK FOR 2021

SRV Group Plc's new strategy and long-term financial objectives for 2021-2024 aim to develop long-term competitive advantage, provide an excellent customer experience, tap into opportunities for lifecycle services, improve profitability and reduce indebtedness. The company's objective is to create a new lifecycle-wise reality, where decisions related to construction ensure well-being, value and profitability – for years and generations to come.

During 2021, SRV's revenue and result will be affected by several factors in addition to general economic trends, such as: the timing and amount of income recognition for SRV's own projects, which are recognised as income upon delivery; the part of the order backlog that is recognised as income over time mainly consists of contracting; trends in the order backlog's profit margins; the start-up of new contracts and development projects; and the rouble exchange rate and the development of the Russian economy. To date, the impacts of the pandemic have been moderate on the whole, but its effects on the construction market are unclear and cause uncertainty regarding the outlook for the future. The result for 2021 is also affected by the fact that the company has not been able to start up developer-contracted housing projects in line with the target schedule of the recovery programme. In 2021, the company will continue to focus on reducing indebtedness and seeks strong cash flow.

SRV will revise the definition of operative operating profit in order to improve comparability and transparency in reporting in 2021. The old definition of operative operating profit has been used in this financial statements, with the exception of the outlook for 2021:

Consolidated revenue for 2021 is expected to amount to EUR 900–1,050 million (revenue in 2020: EUR 975.5 million).
Operative operating profit is expected to improve on 2020 and to amount to EUR 16–26 million (operative operating profit for 2020 in accordance with the new definition: EUR 15.8 million).

The new definition of operative operating profit also adjusts items affecting comparability. The new definition used in providing the outlook for 2021 is:

Operative operating profit = Operating profit +/- exchange rate gains and losses of associated companies and joint ventures as well as income and expenses from currency hedging +/- items affecting comparability

Items affecting comparability = Impairments of asset items and their reversal, gains and losses from exceptional handovers of asset items, and income and expenses due to changes in the Group structure

RECONCILIATION OF OPERATIVE OPERATING PROFIT

IFRS, EUR million	1-12/2020
Operative operating profit in accordance with the new definition	15.8
+/- exchange rate gains and losses of associated companies and joint ventures and
+/- income and expenses from currency hedging	-4.4
+/- Items affecting comparability
+/- Impairments of assets items and their reversal	-12.3
+/- gains and losses from exceptional handovers of asset items	2.3
+/- income and expenses due to changes in the Group structure	0
+/- Items affecting comparability in total	-9.9
Operating profit	1.5

EARNINGS TRENDS FOR THE SEGMENTS

The Construction segment covers all of SRV's construction activities, including the capital and plots required for developer-contracted housing production. It is SRV's intention to develop, build and sell these plots to a faster schedule than those we report on in the Investments segment. Construction encompasses housing construction, business construction, infrastructure construction, project development, technical units and procurement, as well as internal services in Finland and Russia. Operationally, Construction is divided into four business units: 1) Regional Units, 2) Housing, Helsinki Metropolitan Area, 3) Business Premises, Helsinki Metropolitan Area and 4) construction within Operations in Russia and Estonia.

Investments encompasses both complete and incomplete sites in which the company is a long-term investor. Plots that SRV will develop itself, and whose expected profits will be generated through development and long-term ownership, are also reported on under Investments. The Investments segment focuses on the management and realisation of the Group's real estate investments; the creation and ownership of new joint investment structures; and the operation of properties.

Other operations and eliminations includes the parent company's (SRV Group Plc) strategic project development, finance and financing, communications and marketing, information management, and business development. Group eliminations are also included in this unit.

VALUE CREATION

For executive management, sustainable business means creating added value for business through sustainability. Management must read the changes in the operating environment and ensure that their company's product and service portfolio meets the future demands of strong changes in the operating environment and that it will remain competitive.

Sustainability programme

SRV seeks to ensure that, in addition to considering business sustainability and environmental perspectives, we also operate in a socially and ethically sustainable manner. Certified management systems -- ISO9001 (quality), ISO14001 (environmental) and ISO45001 (occupational health and safety) -- ensure compliance and create a credible base for our sustainability efforts. The sustainability programme is part of these efforts.

The themes of SRV's sustainability programme have been built around value creation. Our goal is to ensure that the sustainability programme's themes support business development and the attainment of SRV's strategic targets in the best possible way. During 2021, we will go through the sustainability programme and update its targets to align with our new strategy.

Moderate progress was made towards our objectives in 2020. The Compliance Team started its work in autumn 2020. An SDG analysis has been performed and its results are summarised on SRV's website. We continued our efforts to improve overall quality by, for example, introducing a new audit form and on-site HSEQ kick-off meetings.

We have continued to take a strict approach towards safety, even though the coronavirus has caused a great deal of extra work and has required special arrangements on construction sites. Management is highly committed and has allocated more resources to safety. The declining trend in job satisfaction has ended: we achieved an AA PeoplePower rating and SRV was recognised as one of Finland's Most Inspiring Workplaces in Eezy Spirit's comparison.

Environmental perspectives and other sustainability topics have been added to the supplier questionnaire, which suppliers fill in at the registration. We have continued our discussions with suppliers on preventing labour exploitation during indirect procurement. Carbon footprints have been calculated for several properties and another tool has been introduced in the form of RTS environmental classification. A performance target has been set for SRV's environmental activities and it will be updated as our new strategy is put into practice.

MARKETS

The second wave of the coronavirus pandemic put the brakes on economic growth towards the end of 2020. Finland's GDP is expected to contract by 3.3 per cent in 2020. Economic decision-makers are more bullish about the future thanks to the rollout of vaccines in the spring. The Finnish economy is expected to recover in 2021 and GDP to swing to growth of 2.5 per cent. Efforts to manage the pandemic and support measures will maintain public expenditure at a high level, and the general government deficit will remain large. (Source: Ministry of Finance)

Urbanisation continues in Finland and the population shift maintains demand for both housing and business construction, especially in growth centres, which are SRV's strategic focal points. Although the measures taken to combat the pandemic restricted economic activity in many sectors, construction activity outperformed expectations in 2020 and was almost as high as in the previous year. However, a decline in the number of permits and tighter financing indicate that the contraction will accelerate, and the Confederation of Finnish Construction Industries predicts that construction will fall by 4 per cent in 2021. As financing becomes tighter, construction will increasingly focus on large cities. (Source: Confederation of Finnish Construction Industries RT)

Thus far, housing construction has withstood the impacts of the pandemic better than expected and the volume of housing construction remained relatively high in 2020 (about 35,000 housing start-ups). The tighter financing for housing production and general uncertainty will reduce production this year and the number of housing start-ups is expected to decline to 31,000 units. However, low interest rates and consumers' desire to buy homes will maintain demand at a good level. (Source: Confederation of Finnish Construction Industries RT)

The slowdown in business construction is felt particularly outside large cities. The volume of public construction is continuing to decline to 4.9 million cubic metres. Public construction is supported by urbanisation and the ageing of both the building stock and the population. Retail and office construction will remain at a historical low of 4.1 million cubic metres and the outlook is weakened by the uncertainty surrounding demand for premises due to the pandemic. The strong drop in industrial construction in the previous year will level off and in 2021 the volume of start-ups will remain at the 2020 level of 8.7 million cubic metres. The implementation of planned large-scale projects complicates forecasting. (Source: Confederation of Finnish Construction Industries RT)

The coronavirus crisis muted the investment market in spring 2020. However, interest among foreign and Finnish investors in properties located in Finnish growth centres has strengthened -- these properties represent an attractive investment category for capital looking for stable returns. The coronavirus crisis has impacted different real-estate sectors in different ways. Due to the crisis, investor demand has increasingly focused on rental apartments in large cities and this demand is expected to remain strong in the years ahead, too. Investors are also interested in logistics, public services premises, good offices

SRV | THE BOARD OF DIRECTORS' REPORT 2020

and grocery store properties. On the other hand, the crisis has weakened the outlook for shopping centre properties. Interest in hotel properties is currently low, too, but this sector is expected to recover quickly. (Source: KTI & Newsec)

The Russian economy was severely impacted by the plunging oil market and the coronavirus pandemic in 2020. Service sectors such as hospitality and restaurants have suffered from the measures taken to limit the pandemic. Russia's GDP is estimated to have contracted by around 4 per cent in 2020, but it is expected that consumer and corporate confidence will improve this year due to the introduction of coronavirus vaccines. Moderate growth of 2-3 per cent is forecast for 2021-2022. (Source: Bofit & East Office)

CONSTRUCTION

SRV provides efficient, top-quality and end-to-end project management contracting and construction services for both its own and its customers' development projects. This segment focuses on housing, business and infrastructure construction in selected urban growth centres, as per the company's strategy. It is also responsible for housing sales, services for residents, and the lifecycle maintenance of commercial properties.

One of Construction's main objectives is to enhance the profitability of SRV's business and provide an excellent customer experience as a professional in project management and production implementation. It takes the SRV Approach, which is based on understanding customer needs and the effective implementation of projects in collaboration with our extensive network of professional partners.

Revenue from Construction decreased to EUR 970.0 million (1,057.7 1-12/2019) in the January-December period. Revenue from housing construction was down 23.4 per cent. Revenue declined mainly because fewer developer-contracted housing units were recognised as income than in the comparison period, a total of 515 (833).

CONSTRUCTION

EUR million	1-12/2020	1-12/2019	Change	Change, %
Revenue	970.0	1,057.7	-87.7	-8.3
- business construction	680.7	679.7	1.0	0.1
- housing construction	289.3	377.9	-88.6	-23.4
Operating profit	27.4	7.0	20.3	288.8
Operating profit, %	2.8	0.7
Capital employed^{2}	386.8	372.9	13.9	3.7
Return on investment, %^{2}	7.6	3.0	4.6	152.9
Order backlog^{1}	1,153.4	1,344.2	-190.9	-14.2
- business construction	718.2	861.5	-143.3	-16.6
- housing construction	435.2	482.7	-47.5	-9.8
Group, total^{1}	1,153	1,344	-191	-14.2
- sold order backlog	997	1,082	-85	-7.9
- unsold order backlog	157	263	-106	-40.3
- sold order backlog, %	86.4	80.5
- unsold order backlog, %	13.6	19.5

1 The Group's order backlog consists of the Construction business.
2 The allocation of deferred tax assets and liabilities has been changed. They are now fully allocated to the Other operations and eliminations unit. The key figure also includes assets designated as held for sale in the balance sheet.

Construction's operating profit rose to EUR 27.4 (7.0) million. Operating profit was improved particularly by construction sites' favourable earnings trends. The profitability trend was particularly favourable in business construction. On the other hand, fewer apartments were completed and recognised as income than in the comparison period, which had a negative impact on operating profit. Operating profit for the comparison period was burdened by the weakening of margins by EUR 11 million and other exceptional items amounting to EUR 7.9 million.

Construction's order backlog stood at EUR 1,153.4 (1,344.2) million. Several of the new projects entered into the order backlog during the January-December period were for investors and public-sector organisations of good financial standing, and none of SRV's capital will be tied up in these projects. The company has enhanced its project selection process in the manner described in the recovery programme. Although the order backlog has declined, it remains at a good level, and 86.4 (80.5) per cent of the order backlog has been sold. New agreements valued at EUR 707.1 (487.6) million were recognised in the order backlog in January-December.

The most significant projects recorded in the order backlog in the fourth quarter of the year were a school project in Helsinki, three rental housing projects in Tampere, an office and retail premises project in Tikkurila and the Kuhankoski hydroelectric power plant. Projects entered into the order backlog in the third quarter included premises for the Finnish Security and Intelligence Service, a design contract for the Uusikaupunki education and wellness campus, and a housing project with 47 units for Tampereen Vuokra-asunnot. Major projects recognised in the second quarter were the basic renovation of operating theatres at HUS Jorvi Hospital, the Siuntio education and wellness campus, which will be implemented as a lifecycle project, the Jousenkaari school in Espoo, the Hovirinta school in Kaarina, the Ojanko bus depot in Vantaa and the residential buildings Lumo One and Piispanristi for Kojamo. The basic renovation project for the Finnish National Theatre was recognised in the first quarter. Work on the basic renovation project of the Finnish National Theatre has begun in phases. The renovation of the section completed in the 1950s is ongoing. Due to a complaint lodged with the Administrative Court about the deviation decision concerning the building permit of the project, the startup of work on the section completed in the 1930s has been postponed until the complaint has been resolved.

Construction's capital employed totalled EUR 368.8 (372.9) million.

HOUSING CONSTRUCTION

Revenue from housing construction declined to EUR 289.3 million (377.9 1-12/2019) in the January-December period. Revenue declined mainly because fewer developer-contracted housing units were recognised as income than in the comparison period, a total of 515 (833). The order backlog in housing construction was EUR 435.2 (482.7) million.

Housing under construction

SRV's strategic focus in housing production has shifted from developer contracting projects to development projects in growth centres with good transport connections. For some time now, SRV has been one of the largest housing constructors in the Helsinki metropolitan area. At the end of December, SRV had a total of 2,127 (2,142 housing units under construction in Finland, mostly in growth centres. No housing units were under construction in Russia.

SRV is currently building housing as developer-contracted, development, and contracted projects. A developer-contracted residential project is a project that is developed by SRV and which has not been sold when construction

SRV | THE BOARD OF DIRECTORS' REPORT 2020

begins. SRV bears the risks involved in both the sale and construction of such projects, which are recognised as income when the project has been completed and as the units are sold. A residential development project is a project that is developed by SRV, but which is sold to an investor before construction begins. SRV bears the construction risks in such projects, which are recognised as income according to the percentage of completion. Construction contracts are construction projects that are launched by other parties but implemented by SRV. They are recognised as revenue on the basis of the percentage of completion or as set out in the agreement.

There were 383 (835) developer-contracted housing units under construction at the end of

December. The number of developer-contracted units currently under construction will affect SRV's result in the future when the units are sold. The average construction period is about 18 months. The company has decided to initiate developer-contracted projects for housing in Louhela (Vantaa) and Toppila (Oulu). RS sale readiness has not been achieved yet for these projects and they are not included in the order backlog. In December, one developer-contracted housing construction project was started in Pitäjänmäki, Helsinki after being on hold for 1.5 years.

The Kalasatama towers being built in Kalasatama, Helsinki comprise the largest construction project in SRV's history. By the end of December, a total of 181 housing units in the second residential tower, Loisto, had been either sold or reserved. Loisto will rise to a height of 124 metres above sea level. Its 249 apartments are located on top of the REDI shopping centre, on floors 6-32. Construction is proceeding according to plan and Loisto is scheduled for completion in autumn 2021. Residents moved into the first tower, Majakka, during November and December 2019. The construction of the third residential tower, Lumo One (previously called Kompassi), began in April 2020 for Kojamo.

At the end of December, a total of 1,375 (1,032) units were under construction for investors, mainly in Helsinki, Espoo, Vantaa and Tampere.

In March 2020, SRV and Kojamo Oyj signed a cooperation agreement valued at about EUR 197 million to build rental housing in Helsinki and Espoo. The agreement is for six housing construction projects with a total of 676 units, to be built as development projects. The units are primarily studio flats and one-room flats with a living room. The construction of four of these projects, with 547 housing units, has begun. Three of these projects were recorded in the order backlog in March and the fourth in April. The realisation of the individual projects included in the agreement requires the fulfilment of customary contractual terms and conditions.

The agreement signed in March is a continuation of the cooperation agreement signed in August 2019, which is valued at about EUR 120 million and covers the construction of rental

HOUSING CONSTRUCTION, GROUP

Units	1-12/2020	1-12/2019	Change, units
Units sold, total	1,266	937	329
- developer contracting	354	649	-295
- investor sales	912	288	624
Developer contracting
- start-ups	68	780	-712
- completed	520	808	-288
- recognised as income	515	833	-318
- completed and unsold	92	87	5
Under construction, total	2,127	2 142	-15
- contracts	0	80	-80
- negotiated contracts	369	195	174
- sold to investors	1,375	1 032	343
- developer contracting	383	835	-452
- sold	210	371	-161
- unsold	173	464	-291
- sold, %	55	44
- unsold, %	45	56

ORDER BACKLOG, HOUSING CONSTRUCTION

EUR million	12/2020	12/2019	Change
Contracts and negotiated contracts	202	141	60
Under construction, sold developer contracting	77	79	-2
Under construction, unsold developer contracting	128	232	-104
Completed and unsold developer contracting	28	30	-2
Housing construction, total	435	483	-48

THE GROUP'S LARGEST DEVELOPER-CONTRACTED HOUSING PROJECTS UNDER CONSTRUCTION IN FINLAND

Project name	Location	SRV, contract value, EUR million	Completion date (estimated)*	Units	Sold*	For sale*
REDI Loisto	Helsinki	105	04/2021	249	132	117
Väinämöisenrinne	Helsinki	22	02/2021	66	64	2
Ilmarisenpuisto	Helsinki	20	02/2022	68	14	54

Total value of projects approx. EUR 147 million
* Situation at 31 December 2020.

THE LARGEST ONGOING HOUSING PROJECTS IN FINLAND, INVESTOR PROJECTS AND HOUSING CONTRACTING

Project name	Location	Developer	Completion level, %*	Completion date (estimated)*
Tikkurila Central Block	Vantaa	NREP	84	02/2021
Louhenlinna	Helsinki	LocalTapiola	91	01/2021
Tammelan Kustaa	Tampere	OP	84	01/2021
Kullervonkoti	Helsinki	Kojamo	52	03/2021
Runoratsunkatu 11	Espoo	Kojamo	51	04/2021
Joukahaisenpiha	Helsinki	Kojamo	33	04/2021
Kannen Opaali	Tampere	Tampere Towers	21	04/2022
Piispanristi	Espoo	Kojamo	19	03/2022
Lumo One	Helsinki	Kojamo	40	03/2022
Tammelan Engel	Tampere	Taaleri	3	02/2022

Total value of projects approx. EUR 287 million
* Situation at 31 December 2020.

housing in Helsinki, Espoo, Vantaa and Kerava. The agreement is for six housing construction projects with a total of 527 units, to be built as development projects. The units are primarily studio flats and one-room flats with a living room. The realisation of the individual projects included in the agreement requires the fulfilment of customary contractual terms and conditions. The first project was completed in Kerava in autumn 2019. A contractor agreement for the second project, comprising 95 housing units, was signed in June. Its construction in Matinkylä, Espoo began in July.

The most significant housing construction projects under development

Kivenlahti

In January 2016, the Trade and Competitiveness Division of the Espoo City Board reserved an area for SRV and VVO Group Plc, the current Kojamo Oy, to design the Kivenlahti Metro Centre. The plans for the area comprise about 1,300 housing units and about 35,000 square metres of commercial, office and service premises, plus park-and-ride spaces. Espoo City Council approved the city plan for the area on 29 April 2019, but a complaint was lodged against the area's parking solutions. The Administrative Court rejected this complaint and the Supreme Administrative Court did not grant permission to appeal. The city plan is thus now in force in all respects. Construction will begin once the plot conveyance has been completed (current estimate 2021). The Metro Centre is scheduled for completion in conjunction with the opening of the Western Metro extension.

Espoonlahti

Apartments covering approximately 100,000 square metres of floor area will be built next to the future Espoonlahti metro station (Espoonlahden keskus/Mårtensbro).

SRV is seeking a holding of around 30 per cent. The plan for the Espoonlahti Centre came into force in March 2017.

The City of Espoo has leased the plot to serve as provisional premises for the Lippulaiva shopping centre until 2022, which means construction can begin only when Pikkulaiva has been moved out of the way.

Keilaniemi

SRV is continuing the preparation of its residential tower project in Keilaniemi, Espoo. A total of four residential towers -- two of them SRV's -- and a parking facility are planned for Keilaniemi. The area's city plan is in force, and the project hinges on tunnelling for Ring Road I. The tunnel was opened to traffic in June 2019, and the finishing works on the park deck were completed at the end of 2019.

As part of the overall implementation of the project, SRV bought together with Hypo the plots for two residential towers from the City of Espoo on 29 October 2019. SRV has not as yet made a final decision on the construction of the towers. Construction begins no earlier than in 2022. The final construction decision will be based on the market situation. If realised, the Keilaniemi residential towers would be the tallest residential buildings in Finland, with the tallest soaring to a height of almost 145 metres.

Vermonniitty and Säteri along the Raide-Jokeri rapid tramline

Raide-Jokeri is a rapid tramline that will link Itäkeskus in Helsinki to Keilaniemi in Espoo. It will also enable numerous residential sites to be built along the line. For instance, SRV is planning to build housing in the vicinity of the future Vermonniitty station in cooperation with SATO and Ilmarinen. It will have a total of almost 2,000 housing units.

Processing of the city plan for Säterinkallionkulma in Leppävaara is in progress. The city is planning housing for about 800 people in Säterinkulma. A complaint on the city plan has been lodged with the administrative court.

Lapinmäentie

The Lapinmäentie project in Munkkivuori, Helsinki, is progressing well. SRV is continuing to develop the area in accordance with the city plan approved in August 2016. Seven new residential towers are planned for the area in addition to the existing Tower A, which will remain. Plans for wellness and health services are being developed for Tower A, and negotiations with the tenants are under way. Tower A may contain shops, care services, premises for other services, and office space. In December 2019, the project was granted a deviation decision in the city plan, which permits care and assisted living facilities to be located in Tower A.

The demolition of the Pohjola Building has been completed and the first apartment building for LocalTapiola was completed in August. Construction of the second apartment building sold to LocalTapiola is under way. Construction of the third apartment building for Kojamo was launched in March. 800 apartments have been planned for the area.

Completed housing units

A total of 520 (808) developer-contracted housing units were completed in January-December. The number of unsold housing units has remained low. At the end of December, there were 92 (87) unsold completed housing units, 92 (76) in Finland. All the remaining units in Russia were sold during the year and no new housing projects were started up. Housing sales slowed in April as a result of the pandemic-related restrictions placed on meetings and public viewings. Housing sales showed signs of picking up in May-June. During the summer and autumn, sales returned to almost normal levels, and the rest of the year went well. Demand from private housing investors has declined compared with the previous year. Demand is currently focusing on small apartments in good locations. A total of 354 (649) developer-contracted housing units were sold during January--December.

Housing units recognised as income

In January-December, 515 (833) developer-contracted housing units were recognised as income, generating total revenue of EUR 107.2 million. A developer-contracted residential project is a project that is developed by SRV and which has not been sold when construction begins. SRV bears the risks involved in both the sale and construction of such projects, which are recognised as income when the project has been completed and as the units are sold.

BUSINESS AND INFRASTRUCTURE CONSTRUCTION

Revenue from business construction rose slightly to EUR 680.7 million (679.7 1--12/2019) and the order backlog contracted by 16.6 per cent to EUR 718.2 (861.5) million.

SRV is currently building several public construction projects, such as hospitals and schools, and underground premises, such as the Espoonlahti Metro Station. These are primarily implemented as alliance projects or project management contracts. Alliance projects offer the potential for extra earnings in addition to the basic profit margin if the project is completed under budget or ahead of schedule, or if the quality criteria are met. Project management contracts are based either on a target price and guaranteed maximum price or a target budget. Like alliance projects, they offer the potential for extra earnings.

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Major ongoing business and infrastructure construction projects

Siltasairaala Hospital

Construction work on HUS Bridge Hospital, SRV's most significant ongoing hospital project, has been carried out on schedule as planned. SRV's share of this cooperative project management contract being implemented under a target budget is around EUR 245 million. Interior construction and building system installation are ongoing on the site. According to the target schedule, they will be completed in June 2022, making it possible to open the hospital in 2023.

Basic renovation and modernisation of Siltasaari 10

Real estate investment company Antilooppi Oy's development project, Siltasaari 10, will combine three properties with a total of 36,075 gross square metres into a unique complex to serve urban residents and employees. SRV will be the main contractor in accordance with the project management contract signed with Antilooppi. The project was entered into SRV's order backlog in November 2019.

Expansion of Helsinki Airport and renovation of Terminal 2

Helsinki Airport's Terminal 2 extension project involves building a new section for check-in, security control, baggage drop and greeting passengers, as well as a travel centre combining different forms of transport and a parking facility. The current departure and arrival halls of Terminal 2 will be transformed into a gate area.

The Terminal 2 extension project was entered into SRV's order backlog in November 2018 and the total cost of the first phase is estimated to be around EUR 260 million. The actual contract for the implementation phase of the project was signed in June 2019. The terminal extension section has progressed to the interior construction stage, and the first section – a new parking facility next to the existing P5 facility – was completed in summer 2020. In January 2021, Finavia also decided to gradually start alteration works on Terminal 2, which are included in SRV's contract package, ahead of schedule. This involves the complete refurbishment of the arrival and departure halls, measuring 35,000 m², and their integration into the flight gate area and centralised baggage hall.

Espoonlahti Metro Station

Construction of the Espoonlahti Metro Station and bus terminal is progressing as planned. The project was recognised in SRV's order backlog in November 2018 and it is valued at around EUR 48 million. The station will be implemented as a project management contract. Work on Espoonlahti Metro Station began in December 2018 and will continue as per the schedule agreed on with the client, the Western Metro. Construction will end and commissioning begin in summer 2022.

Tampere Deck and Arena

In February, SRV sold approximately 75 per cent of its holding in the Deck and Arena to its co-investors. These co-investors also acquired five-sixths of the Ranta-Tampella housing project. After the transaction, SRV's holding in the project is 8.3 per cent. SRV's role as a project contractor has not changed. SRV recognised an earlier profit margin elimination equivalent to this holding during the review period, and from now on the construction project margin will be recognised as income as the project is completed.

The Deck and Arena project will be built in the heart of Tampere on top of the railway station. It includes a multipurpose arena, residential towers, office and business premises, and a hotel. Topaasi ja Kruunu – to be built on the Tampere Deck – is a hybrid building. A residential tower with 105 housing units will be built on top of its office section. The sale of Topaasi apartments is under way. At the end of December, 63 per cent had been either reserved or sold. Opaali, the second tower to be built on the Tampere Deck, will be a modern 16-storey building with 148 apartments. The sale of Opaali apartments is under way.

The total value of the project is approximately EUR 550 million, and the Phase I agreements recognised in SRV's order backlog in 2017-2019 amount to about EUR 317 million of this.

Wood City

For many years, SRV has been developing Wood City in the Jätkäsaari neighbourhood of Helsinki. Wood City will comprise an office building, hotel, and two apartment buildings for HEKA. In addition, a shared-use multi-storey car park has been completed for the quarter. Housing Production's apartments were completed in February 2019. At the beginning of the fourth quarter, SRV handed over the completed multi-storey car park and Supercell office building on schedule. SRV

THE LARGEST ONGOING BUSINESS CONSTRUCTION PROJECTS

Project	Location	SRV total contract value, EUR million	Project type	Completion level, %	Completion (estimate)
DEVELOPMENT PROJECTS
Deck, southern deck and infra**	Tampere	*	Infrastructure	93	04/2021
Deck, multipurpose arena**	Tampere	*	Retail	55	04/2021
Deck, arena hotel**	Tampere	*	Retail	52	04/2021
Topaasi ja Kruunu**	Tampere	*	Hybrid	81	03/2021
Vantaan Lumijälki	Vantaa	*	Logistics	53	03/2021
BUSINESS PREMISES
Monikko Learning Centre	Espoo	39	Public sector	90	02/2021
Finnish-Russian School	Helsinki	25	Public sector	64	03/2021
Espoonlahti Metro Station	Espoo	48	Public sector	69	03/2021
Siltasaari 10	Helsinki	51	Retail	37	03/2021
T2 Alliance, phase 1	Vantaa	260	Public sector	67	01/2022
Kirkkonummi Wellbeing Centre	Kirkkonummi	32	Public sector	25	02/2022
Siuntio education and wellness campus	Siuntio	37	Public sector	9	02/2022
Open Innovation House	Espoo	25	Public sector	5	02/2022
Oulu Market Square Hotel	Oulu	*	Retail	32	02/2022
HUS Bridge Hospital	Helsinki	243	Public sector	69	04/2022
STUK commercial premises	Vantaa	46	Public sector	28	04/2021
HUS Jorvi, basic renovation of operating theatres	Espoo	39	Public sector	8	01/2023
Basic renovation of the Finnish National Theatre	Helsinki	40	Public sector	7	02/2023
Helsinki Upper Secondary School of Languages and Upper Secondary School for Adults	Helsinki	38	Public sector	0	03/2023

Situation at 31 December 2020.
The value of individual contracts has not been made public
*The total value of the Tampere Deck and Arena project is EUR 550 million, of which EUR 317 million has been entered into SRV's order backlog to date.

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intended to start building the hotel planned for the Wood City quarter in spring 2020, but investor negotiations had to be halted due to the coronavirus pandemic. The outlook for the hotel market currently still looks uncertain. If the outlook improves, the project can be started up on a rapid schedule in 2021.

The most significant business and infrastructure construction projects under development

Bunkkeri in Jätkäsaari

SRV is highly involved in revitalising the Jätkäsaari district of Helsinki. It is intended that Bunkkeri will be a 13-storey landmark in Jätkäsaari, featuring a wide range of fitness facilities, a swimming hall, and about 300 housing units. The development of Bunkkeri was delayed in autumn 2017, when the Administrative Court of Helsinki overturned an acquisition decision that had been made in April 2016 concerning the sale of Bunkkeri to SRV. The Administrative Court held that the deal did not constitute a public procurement, but a real estate transaction. After this ruling, the City of Helsinki resumed its preparatory work. On 11 April 2018, the Helsinki City Council decided to sell the plot to SRV. SRV and the City of Helsinki signed the implementation agreement in October 2018.

A complaint has been lodged with the Administrative Court of Helsinki on the decision of the City Council to sell Plot 5 in Block 20811 in District 20 (Länsisatama) of the City of Helsinki and the Bunkkeri building located there as well as the related implementation of the decision. With its decision on 15 June 2018, the Administrative Court rejected the complainant's demand to forbid and halt the execution of the sale decision. With its decision on 5 October 2018, the Supreme Administrative Court upheld the decision of the Administrative Court and did not forbid the execution of the sale decision. The complaint on the sale decision of the City Council was rejected by the Administrative Court in June 2020. Permission to appeal has been sought from the Supreme Administrative Court.

New projects

The most significant new business construction contracts entered into the order backlog in January–December were: in the fourth quarter, the Helsinki Upper Secondary School of Languages and Upper Secondary School for Adults as well as business premises for Sponda in Vantaa; in the third quarter, premises for the Finnish Security and Intelligence Service, a design contract for the Uusikaupunki education and wellness campus, and the start of the implementation phase of the Market Square Hotel in Oulu; in the second quarter, the basic renovation of operating theatres at HUS Jorvi Hospital, the Siuntio education and wellness campus, which will be implemented as a lifecycle project, the Jousenkaari school in Espoo, the Hovirinta school in Kaarina and the Ojanko bus depot in Vantaa; and in the first quarter, the basic renovation contract for the Finnish National Theatre, new STUK business premises being built for Senate Properties, and the Lumijälki 2 logistics premises for Sagax in Vantaa.

Hanhikivi-1 nuclear power plant project

In 2015, SRV announced its participation in the Hanhikivi-1 nuclear power plant construction project as both an investor and project manager. SRV has made a financing commitment equating to a 1.8 per cent holding in the project to Fennovoima's main owner, Voimaosakeyhtiö SF. SRV will have the same rights and obligations as other Voimaosakeyhtiö SF shareholders. SRV has also signed a co-operation agreement with Rusatom Group and the main contractor Titan-2. SRV will act as the project manager, and the exact nature of its activities will be confirmed at a later date. The related negotiations on SRV's role are ongoing, and their content and schedule will be specified later. In April 2020, Fennovoima announced that construction will start in 2021. No building permit has been granted yet and therefore no decision on the startup of construction has been made thus far.

INVESTMENTS

SRV's investments focus on the management and realisation of the Group's real estate investments; the creation and ownership of new joint investment structures; and the operation of selected properties. Investments' key objectives are to increase SRV's financing capacity with the aid of joint financing structures; harness the value chains created by projects more extensively through longer-term ownership; diversify capital risk; and generate positive cash flow. SRV's investment strategy revolves around the Group's strategy of building urban centres and harnessing the key megatrends that are affecting the built environment. "Building urban centres" primarily means the construction and ownership of central urban premises, such as housing, offices and retail premises.

Investments' revenue totalled EUR 4.8 million in the January–December period (5.91–12/2019). It mainly consists of revenue from shopping centre management. In accordance with SRV's operating model, revenue from associated companies' projects and joint ventures is reported under the Construction segment.

The operative operating profit totalled EUR -18.0 (-96.3) million. In addition to SRV's Group companies, the result contains shares of the results of the associated companies that own the Okhta Mall and Pearl Plaza shopping centres, including not only their operating margin, but also depreciation, financial expenses and taxes. Operative operating profit was significantly negatively impacted by changes in the valuation of balance sheet items in the Investments segment, which had a combined impact of around EUR -12.3 million. Pearl Plaza was reclassified as a holding in associated companies and joint ventures during the fourth quarter when sales negotiations ended without reaching an agreement. Due to this reclassification, an impairment recognised in 2019 was reversed, with a positive impact of about EUR 6.9 million on operative operating profit for 2020. The value of the additional sales price of the REDI shopping centre was decreased by EUR 13.0 million during the fourth quarter on the basis of an updated cash flow-based forecast. In addition, a write-down of about EUR 5.4 million for SRV's holding in Okhta Mall and a write-down

INVESTMENTS SEGMENT	1-12/2020	1-12/2019	Change	Change, %
EUR million
Revenue	4.8	5.9	-1.1	-18.5
Percentage of associated companies' profits	-13.4	2.8	-16.2
- of which exchange rate gains/losses	-9.9	7.6	-17.5
Currency hedging, net	5.5	-3.8	9.4
Operative operating profit	-18.0	-96.3	78.3
Operating profit*	-22.4	-92.5	70.1
Capital employed	171.9	245.7	-73.9	-30.1
Return on investment, %	-14.3	-32.6	18.3
* Net effect of currency exchange fluctuations	-4.4	3.8	-8.1

SRV | THE BOARD OF DIRECTORS' REPORT 2020

of EUR 0.8 million for the Ratsumestarinkatu 6 commercial property in Porvoo were recognised in operative operating profit. The company also recognised EUR 0.5 million in income with a cash flow impact due to the final dissolution of the investment in the VTBC fund. The decrease in rental income from shopping centres due to the coronavirus pandemic also had a negative impact on operative operating profit.

In the case of the Russian subsidiary, a EUR 3.1 million provision for expenses that was recognised in the second quarter of the year was dissolved in the third quarter when the court of the second instance overturned the ruling on compensation by the court of the first instance. The dissolution of the provision had an impact of EUR 2.7 million at the September exchange rate, and thus the euro-denominated result for the review period is burdened by expenses of EUR 0.4 million. The applicant appealed to the third instance and the proceedings had not yet been initiated at the balance sheet date. However, in February 2021, the third instance had already dismissed the plaintiff's appeal. The plaintiff still has the right to appeal to the Supreme Court. The lawsuit concerned an agreement for an electrical connection that was never implemented.

The coronavirus pandemic that began at the end of the first quarter of 2020 has negatively impacted shopping centre operations by undermining tenants' ability to do business. The authorities restricted the opening of stores in March-August, which weakened the operational capabilities of shopping centres and reduced their rental income. Shopping centres opened gradually in the third quarter, which was reflected in the rising visitor numbers and sales in August to September. Shopping centres remained open in October-December, but the coronavirus restrictions continued to have an impact on the business of some of the tenants. The decline in rental income has short-term impacts on the

liquidity and loan management capabilities of shopping centres. SRV has agreed on arrangements with banks and co-investors in the shopping centres to secure financing for the shopping centres during the period in which the restrictions set by the authorities are in effect.

The coronavirus restrictions imposed in Russia vary from city to city. In St Petersburg, most of the tenants in the shopping centres managed by SRV closed their doors on 28 March, in compliance with official regulations, and only essential services such as pharmacies and grocery stores remained open. Most of the shops could be opened again in July-August. In Moscow, shopping centres closed their doors about one week earlier than in St Petersburg, and the operations of tenants there returned closer to normal earlier than in St Petersburg as restrictions were gradually lifted.

Investments' operating profit was EUR -22.4 (-92.5) million. The net effect of currency exchange fluctuations was EUR -4.4 (3.8) million, which arose from valuation of the euro-denominated loans of associated companies in roubles and the net impact of currency hedging. Exchange rate differences with no impact on cash flow vary in each interim report in line with fluctuations in the exchange rate of the rouble.

Capital employed totalled EUR 171.9 million (245.7 12/2019). Capital employed was reduced by the divestment of SRV's holding in REDI and a change in the value of its additional sales price receivable in the last quarter, as well as a decrease in the company's holding in the Tampere Deck and Arena project in the first quarter. In addition, a capital return of about EUR 7 million from Pearl Plaza in the first quarter reduced capital employed. However, the reclassification of Pearl Plaza in the fourth quarter increased capital employed by around EUR 7 million compared with the previous year. Capital employed was reduced by write-downs of two properties and increased by investments in the Okhta Mall parking facility

CAPITAL EMPLOYED

EUR million	31 December 2020	31 December 2019
Okhta Mall, shopping centre	67.1	88.6
Pearl Plaza, shopping centre	17.3	25.3
Tampere Deck and Arena	9.0	25.8
4Daily, shopping centre	5.6	7.0
REDI, shopping centre and parking facility	0	24.6
Plots and other holdings	72.9	74.4
Total	171.9	245.7

Capital employed largely consists of investments in subsidiaries, joint ventures and associated companies; loans issued; accrued income from associated companies; and their impairment and expense entries. Capital employed also includes assets designated as held for sale. Fluctuations in the rouble exchange rate also affect the amount of capital employed.

and Voimaosakeyhtiö SF. In addition, the weakening of the rouble exchange rate also affected capital employed. Capital employed was reduced by a net exchange rate impact of EUR -4.4 million included in operating profit and exchange rate losses on financial expenses amounting to EUR -8.2 million. Translation differences had a total impact of EUR -18.6 million on capital employed. Total capital employed decreased by about EUR 73.8 million compared with the beginning of the year.

The return on investment was -14.3 (-32.6) per cent. When calculating the return on investment, the income from interest on loans granted to associated companies and changes in the value of loans are also taken into consideration.

SRV is a co-investor in three shopping centre projects through its associated companies. SRV is also responsible for leasing, marketing and managing premises in completed shopping centres. SRV intends to sell its holdings once stable rental income has been achieved or the market situation allows. Stable rental income is usually reached 3-4 years after opening. The coronavirus pandemic that began during the first quarter of 2020 has negatively impacted shopping centre operations by undermining tenants' ability to do business. This has temporary negative impacts on shopping centres' rental income.

However, as mentioned in the risk section, due to the coronavirus pandemic and economic uncertainty in Russia, it is possible that the sale of Russian shopping centres may be postponed.

Shopping centres

REDI, Helsinki

The company sold its holding of about 40 per cent in the REDI shopping centre in February 2020 and recorded a EUR 13.5 million sales price receivable related to the possible additional future sales price of EUR 50 million agreed in connection with the transaction. Due to the updated cash flow-based forecast for the REDI shopping centre, SRV has booked a change in the value of the additional sales price receivable, which has a negative impact of about EUR 13 million on operative operating profit for 2020.

The business operations of SRV REAM Oy, which was responsible for operating the REDI shopping centre, were sold to CBRE Finland on 25 June 2020. Its employees, a total of eight persons, transferred to the employ of CBRE Finland on 1 September 2020 under their existing terms of employment. The transaction had a very minor impact on the company's income statement and balance sheet.

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Pearl Plaza, St Petersburg

This shopping and entertainment centre in St Petersburg is fully leased. Visitor numbers fell by 29 per cent year-on-year during the January–December period as a result of the coronavirus pandemic that began in March. Sales in roubles saw a decline of 23.0 per cent compared with the corresponding period of the previous year. Visitor numbers and sales grew in the first quarter, but when the coronavirus restrictions came into force in the second quarter, both visitor numbers and sales plummeted. Strong recovery was seen in August–September and it continued in October–December, especially in sales figures, which rebounded to almost the same level as a year earlier.

Negotiations on the sale of Pearl Plaza progressed well in early 2020, when it was considered highly likely that a deal would be made. The coronavirus pandemic slowed down the negotiations. The second wave of the pandemic was ultimately the major reason why the sales negotiations ended without reaching an agreement. The property was reclassified as a holding in associated companies and joint ventures. In line with its strategy, SRV will continue to develop the property and intends to sell its holding when the market situation allows.

Okhta Mall, St Petersburg

The Okhta Mall in downtown St Petersburg opened its doors in August 2016. SRV owns 45 per cent of the Okhta Mall directly, and another 15 per cent indirectly through the property investment company Russia Invest. Leasing has progressed according to plan. The shopping centre's occupancy rate stood at about 95.8 per cent at the end of December. About 91 per cent of its stores were open in December. Sales decreased by 22 per cent in January–December and visitor numbers fell by 35 per cent as a result of the coronavirus pandemic that began in March. Visitor numbers and sales grew in the first quarter, but when the coronavirus restrictions came into force in the second quarter, both visitor numbers and sales plummeted. Strong recovery was seen in August–September and it continued towards the end of the year, especially in sales figures, which rebounded to almost the same level as a year earlier.

Okhta Mall's parking facility is under construction and it will be completed in the first quarter of 2021. Its construction is valued at about EUR 20 million. SRV also owns the Okhta City plot – a major future development project – next to the Okhta Mall. The majority of the Okhta City plot is currently being used as a car park for the Okhta Mall, but the construction of the multi-storey car park will free up the plot for further development.

4Daily, Moscow

The 4Daily shopping centre in the Moscow region opened its doors in April 2017. SRV owns 19 per cent of the shopping centre. By the end of December, about 86 per cent of the centre's premises were leased. In December, 73 per cent of its stores were open. In the January–December period, sales rose by 31 per cent and visitor numbers by 2 per cent on the comparison period. Visitor numbers and sales grew in the first quarter, but when the coronavirus restrictions came into force in the second quarter, both visitor numbers and sales plummeted. The recovery that began in the third quarter remained strong during the rest of the year.

Although the shopping centre's occupancy rate, and therefore its profitability, are still at an insufficient level, the change in the tenant structure and growing visitor numbers are creating a foundation for increasing the occupancy rate. SRV also owns the Mira-II plots next to 4Daily. The plots will enable further development in the area when premises demand permits. SRV has an agreement with the international sports store giant Decathlon for the construction of a store building and the sale of part of the Mira-II plot. Construction of the Decathlon store building has been started up. The value of the contract was recognised in SRV's order backlog in December.

Other projects

On 7 February 2020, SRV sold five-sixths of its holding in the Ranta-Tampella housing project (which is part of the Tampere Deck and Arena project) to its co-investors, as well as three-fourths of its shares and partnership interests in the Tampere Deck and Arena project. After these transactions, SRV was left with an approximately 8.33 per cent holding in the Tampere Deck and Arena project.

SRV owns 50 per cent of the Etmia II office project in downtown Moscow. Bankruptcy proceedings have been started for the company. The financing bank will realise the property held as collateral for its loan receivables. The bankruptcy proceedings will not have an impact on SRV's result.

Plots held for future development in Russia include the previously mentioned Okhta City plot next to the Okhta Mall in St Petersburg, the Mira-II plots in Mytishchi, and a 51 per cent holding in the Eurograd plot in St Petersburg.

MOST SIGNIFICANT COMPLETED INVESTMENT PROJECTS, 31 DECEMBER 2020

Project	Holding, %	Opened	Floor area (m²)	Occupancy rate 12/2020, %	Target sales date**
Pearl Plaza, shopping centre, St Petersburg	SRV 50	August	Gross floor area	Binding lease	2021-
	Shanghai Industrial	2013	96,000	agreements 100
	Investment		Leasable area
	Company 50		48,000
Okhta Mall, shopping centre, St Petersburg	SRV 45	August	Gross floor area	Binding lease	2021-
	Russia Invest 55**	2016	144,000	agreements 95.8
			Leasable area
			78,000
4Daily, shopping centre, Moscow	Vicus 26	April	Gross floor area	Binding lease	2022-
	SRV 19	2017	52,000	agreements 86
	Blagosostoyanie 55		Leasable area
			25,500

Russia Invest's shareholders are Finnish institutional investors. Ilmarinen owns a 40 per cent stake in Russia Invest, Sponda and SRV have 27 per cent holdings, and Conficap owns six per cent.
** Due to the coronavirus pandemic and economic uncertainty in Russia, it is possible that the sale of Russian shopping centres may be postponed.

LAND RESERVES	Business construction	Housing construction	Investments	Total
31 December 2020
Unbuilt land areas, land acquisition commitments and rented plots
Building rights1, 1 000 m²	131	274	522	927
Land development agreements
Building rights1, 1 000 m²	61	201	0	262

1 Building rights also include the estimated building rights/construction volume of unzoned land reserves and land areas covered by agreements in projects that are wholly or partly owned by SRV.

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In addition, SRV owns a commercial property in Porvoo (Ratsumestarinkatu 6), and has a 1.8 per cent holding in Voimaosakeyhtiö SF and a 6.4 per cent holding in Vicus Oy.

FINANCING AND FINANCIAL POSITION

In February 2020, the company agreed on the replacement of its EUR 100 million liquidity facility with the syndicate banks; the facility was replaced with two separate facilities, one of EUR 60 million and one of EUR 40 million. At the end of June, the company made an agreement with the syndicate banks whereby the undrawn portion of the facility, amounting to EUR 9 million, of the EUR 60 million facility will be terminated. The remaining amount of the facility was EUR 51 million. According to the repayment plan updated in April, the amount remaining of the facility on 31 December 2020, EUR 51 million, will be repaid in December 2021 by an amount of EUR 11 million and in January 2022 by an amount of EUR 40 million. The liquidity facility of EUR 40 million will be used to finance future construction projects. It falls due in January 2022 or within another repayment period agreed for separate construction projects. At the end of December, EUR 30.5 million of the EUR 40 million liquidity facility remained unused.

As part of its recovery programme, the company implemented many measures in April-June to improve its balance sheet position, finance ability and liquidity. In April and June, the company agreed on changes to the payment schedule of two liquidity facilities with the syndicate banks and agreed to halve the minimum operating margin levels contained in their agreements, as a precautionary measure against potentially weakened profit margins resulting from the coronavirus pandemic.

In May, the company organised a directed share issue for the holders of the two outstanding hybrid bonds. In the issue, about EUR 75 million of the EUR 92 million principal of the hybrid bonds and accrued interest was converted into shares. As a result of the implementation of the share issue, the total outstanding principal of the 2016 hybrid bonds is approximately EUR 11.8 million and the outstanding principal of the 2019 hybrid bonds is approximately EUR 3.6 million. The share issue increased the total number of SRV shares by 71,468,395 to 131,967,970. The new shares were entered in the Trade Register on 19 May 2020.

At the end of May, SRV carried out written procedures to extend the one-year tenor of its EUR 100 million (of which EUR 62.1 million is outstanding) senior unsecured callable fixed-rate notes due 23 March 2021 and the one-and-a-half-year tenor of its EUR 75 million senior unsecured callable fixed-rate notes due 27 March 2022 as well as to amend certain terms and conditions of these notes. The new due dates are 23 March 2022 for the EUR 100 million senior unsecured callable fixed-rate notes (whose outstanding principal amounts to EUR 62.1 million) and 27 September 2023 for the EUR 75 million senior unsecured callable fixed-rate notes.

Thanks to the abovementioned arrangements and the positive development of cash flow, the company's balance sheet position and liquidity improved substantially. That said, impairments of investments and the additional sales price receivable of REDI weakened the balance sheet position and key figures, but did not impact on cash flow and liquidity. At the end of the period, the Group's financing reserves totalled EUR 116.8 million (40.0 12/2019), consisting of unused project loans (EUR 20.0 million) and cash and cash equivalents (EUR 96.7 million). At the end of December, the company's equity ratio (excluding the impact of IFRS 16) was 27.8 per cent (26.4 1-12/2019) and gearing (excluding the impact of IFRS 16) was 82.1 per cent. The equity ratio calculated as per the covenants of financing agreements was 28.7 per cent, as the covenant calculation took into account the recognition of income from developer-contracted projects on the basis of percentage of completion. The equity ratio level was affected by the high amount of cash and cash equivalents on the balance sheet date. The company can manage the equity ratio level by repaying its debts.

The financial covenants of SRV's financing agreements are equity ratio, net gearing, minimum operating margin, minimum cash, the interest coverage ratio and certain other restrictions. The interest coverage ratio is the ratio of the Group's operating margin (EBITDA) to its net financial expenses. The interest cover ratio is tested only if and when new loan financing is withdrawn; the covenant does not prevent the refinancing of existing sources of financing. The main covenants of the financing agreements are presented in note 29 to the financial statements.

The covenant levels of these financing agreements are determined on the basis of the accounting principles in force when the loan agreements were signed. Recognition of income on the basis of percentage of completion in developer contracting projects and the inclusion of capital loans into equity are taken into consideration in the calculation of the equity ratio covenant. The loan agreements also contain some other deviations from traditional covenant calculation methods. The covenants for all loan agreements were met on 31 December 2020.

Net interest-bearing debt totalled EUR 289.1 (422.0) million at the end of the review period. Net interest-bearing debt saw a year-on-year decrease of EUR 132.9 million. Excluding the impact of IFRS 16, net interest-bearing debt totalled EUR 152.9 million, representing a fall of EUR 119.0 million on the comparison period. Housing corporation loans account for EUR 40.7 (50.4) million of the interest-bearing debt. Cash flow from operating activities was EUR 46.3 (-10.7) million and cash flow from investing activities was EUR 26.6 (-5.9) million.

IFRS

EUR million	31 December 2020	31 December 2019	Change, %
Equity ratio, %	22.6	21.2	6.4
Equity ratio, %, excl. IFRS 16^{1}	27.8	26.4	5.3
Net gearing ratio, %	159.7	240.3	-33.5
Net gearing ratio, %, excl. IFRS 16^{1}	82.1	151.2	-45.7
Shareholders' equity	181.0	175.6	3.1
Capital employed	566.8	625.3	-9.4
Net interest-bearing debt	289.1	422.0	-31.5
Net interest-bearing debt, excl. IFRS 16^{1}	152.9	271.9	-43.8
Interest-bearing debt	385.8	449.7	-14.2
- of which short-term	17.4	25.6	-32.2
- of which long-term	368.4	424.1	-13.1
Interest-bearing debt, excl. IFRS 16^{1}	249.7	299.6	-16.7
Cash and cash equivalents	96.7	27.7	248.9
Unused binding liquidity limits and account limit agreements	0.0	10.0	-100.0
Unused project loans that can be drawn immediately	20.0	2.3	771.5

1 The figure has been adjusted to remove the impacts of IFRS 16.

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Cash flow from operating activities was boosted by capital released due to the sale of contract sites to investors and the handover of developer-contracted housing in the latter part of the year and negatively impacted by the acquisition of new plots. VAT payment arrangements agreed upon with the tax authorities also had a positive impact, while the significant decrease in factoring had a negative impact on cash flow. The cash flow from investments was positively affected by the sale of holdings in REDI and Tampere Deck and Arena. The cash flow impact of share issues, after expenses, was EUR 46.4 million during the review period, including the EUR 9 million capital loan converted into shares.

Net financial expenses since the beginning of the year totalled EUR -29.4 (-29.3) million. Net financial expenses included EUR 3.7 (4.1) million in dividend and interest income, exchange rate differences amounting to EUR -8.2 (4.3) million arising from the conversion of subsidiary and associated company loans, which did not have an impact on cash flow, interest paid on derivatives and fair value changes amounting to EUR -1.9 (-3.7) million and interest expenses of EUR -12.3 (-13.1) million, of which EUR 0.5 (0.7) million was capitalised in accordance with IAS 23 as from the beginning of the year. In addition, financial expenses included EUR -5.7 (-6.5) million in interest under IFRS 16, EUR -1.5 (-10.8) million in impairments, and EUR -4.1 (-4.2) million in other financial expenses, including expenses related to financing arrangements.

SRV's investment commitments totalled EUR 26.4 (51.7) million at the end of December, and mainly consisted of investments in Fennovoima's Hanhikivi-1 nuclear power plant project and the Tampere Deck and Arena project.

SRV is exposed to changes in the exchange rate of the rouble through its Russian subsidiaries, associated companies and joint ventures. The weakening rouble led to translation differences of EUR -18.6 (11.5) million, which impacted both shareholders' equity and the comprehensive result for the period. In addition to currency exchange rate losses with no cash flow impact amounting to EUR -8.2 (4.3) million in financial income and expenses, the Group also entered similarly derived currency exchange rate losses of EUR -9.8 (7.6) million with no cash flow impact under the profit accounted for by associated companies, which are due primarily to the conversion of currency-denominated loans to roubles and the weaker rouble exchange rate. Currency exchange rate losses were reduced by EUR 5.5 (-3.8) million in net hedging returns. The total impact on shareholders' equity was EUR -31.1 million. The exchange rate risk position is presented in note 29 to the financial statements.

HR ISSUES, SOCIAL RESPONSIBILITY AND HUMAN RIGHTS

SRV employed an average of 991 people in January–December (1,080 1–12/2019). On average, 810 (867) people worked in Construction and 124 (139) people worked in Investments. 56 (74) people worked in Group operations.

During the second quarter, the company started up numerous new sites and carried out a recruiting campaign that led to the hiring of more employees, especially for site supervision tasks. The company continued its recruitment campaign in the third quarter and hired employees for expert roles and on-site managerial positions.

In April, SRV reached, for the first time, the highest safety level in the annual classification carried out by the Vision Zero Forum of the Finnish Institute of Occupational Health: I – World Class Achievement. A total of 29 companies reached the highest level in this nationwide classification of occupational safety. SRV was the only construction company among them. The company's aim is zero accidents at every site.

HR ISSUES, SOCIAL RESPONSIBILITY AND HUMAN RIGHTS
	31 December	31 December	Percentage of Group personnel, 31 Dec 2020
Personnel by segment at end of period	2020	2019
Construction	768	836	82
Investments	114	132	12
Other operations	50	76	5
Group, total	932	1 044	100

Training and internal communication

At SRV, the impacts of the coronavirus pandemic were reflected as a decrease in training and events for personnel in 2020. The number of training days per person in Finland was 1.0 (2.1). Face-to-face training was possible for some internal training sessions with a low number of participants, but otherwise training and events were held using a variety of distance learning solutions. In August, we released three new SRV Approach e-courses on the topics of financial control, schedule management and environmental activities. Online study has not been included in the calculation of the number of training days.

A two-part online coaching course was arranged for all supervisors on team development and support for wellbeing and coping at work. This training began in December and continued into 2021. The SRV Trainee programme continued, and a total of about 80 construction students worked under this programme during summer 2020. At the end of the year, we launched an extensive campaign to support wellbeing in collaboration with Firstbeat Technologies Oy. Wellbeing webinars were held and the Firstbeat Life measurement solution was offered to all SRV personnel for 3 months.

Topics covered by SRV's internal communications during the first half of the year included the recovery programme. Change projects – and an associated results-hungry culture – were covered during the latter half of the year. The coronavirus pandemic dominated internal communications from the spring onward. Guidelines and templates were created for changing circumstances. Efforts were also made to support personnel and, above all, ensure they were able to work safely. A variety of virtual events helped to brighten up everyone's daily lives.

Performance management and the development of a results-hungry culture are key themes for 2021. The development of the employer image and measures to enhance the attractiveness of the industry in turn ensure long-term competitiveness.

Occupational health and safety

SRV's safety activities are always based on exceeding legal requirements and being a safety pioneer in the construction industry. We also require the same standard of operations from our subcontractors and other partners. In occupational safety, SRV's operations are steered by the Group's health and safety policy and our certified occupational health and safety management system (ISO 45001).

In 2020, a total of 40,348 (30,438) access rights were granted to 27,697 individuals for SRV construction sites in Finland. More than 20,000 digital induction courses were carried out via distance learning. In 2020, the digital induction materials were updated and 79 (39) corporate executive safety inspections were carried out at different sites.

In 2020, the themes of our occupational safety efforts were developing our safety culture and the activities of the Safety Support Group, updating and further developing tools and operating instructions, internal audits in accordance with ISO 45001 and updates to orientation materials. The special themes in TTT reviews (occupational health and safety reviews) were content

quality and conducting work risk assessments (WRAs). Audits also examined safety plans and the number of safety observations entered into SRV Safety.

SRV's long-term target is to reach a level of zero accidents. The short-term target is to reduce the accident frequency by 10 per cent every year. In our own operations, we have committed to practices that are in line with these targets.

Level of occupational safety

In 2020, the accident frequency rate at SRV sites was better than in the previous year. For SRV's own employees, the accident frequency rate was 4.8/million hours worked (8.9). For contractors, the accident frequency rate was 17.9/million hours worked (16.6), which is roughly the same as in 2019. SRV has firmly established a culture of making safety observations. A total of 17,178 (17,765) safety observations were made in 2020. SRV's observation frequency rate for 2020 was 2,445 safety observations per million hours worked (the industry average is circa 1,000 safety observations per million hours worked).

A total of 123 accidents leading to absence occurred on SRV construction sites during 2020, 10 of which were serious (+30 days' absence). 96.0 per cent was SRV's 2020 goal for the TR measurements taken during the statutory weekly safety inspection required on building construction sites. The company fell short of this target by a fraction, with an average TR measurement of 95.97 per cent in 2020. Our systematic and ambitious safety efforts will continue in line with our updated 2021 guidelines towards our goal of zero accidents.

The most important safety objectives for 2021 concern further strengthening management's commitment, enhancing the quality of accident investigation, developing safety management, clarifying the overview as well as improving operational transparency and responsible procurement in our anti-grey economy efforts.

Equality and human rights

In accordance with its Code of Conduct, SRV is committed to respecting human rights. Human rights are best promoted by example and through supervision in the supply chain. A company's human rights impact and risks strongly depend on its sector and products. From the perspective of SRV and the entire construction industry, the most significant are the right to life and the right to health.

Compared to other sectors, construction work carries a higher-than-average risk, and this poses a threat to the life and health of employees. Local residents' right to life and health must also be ensured with regard to, for example, dust management, noise management and site traffic. For our customers, product responsibility is another aspect of protecting human rights.

Bans on slave labour and forced labour are also fundamental human rights. Labour exploitation can also be encountered in Finland.

The protection of personal security protects people from physical or mental threats against their person. For example, bullying and harassment (including sexual harassment/abuse) in the workplace, or threats and harassment towards minorities.

The right to just and favourable working conditions covers things such as appropriate working conditions and appropriate terms and conditions of employment. Risks in this area include life- or safety-threatening working conditions or employees not being properly paid for their work.

Principles of equality and non-discrimination run through all human rights norms. These principles require that human rights are ensured for everyone regardless of their personal characteristics (such as gender, ethnic background, religion, etc.). Examples of situations relating to these principles include discrimination in recruitment, compensation, promotion or customer service.

Everyone at SRV is treated equally regardless of gender or gender identity, language, religion, nationality or ethnic origin, opinions, family relations, age, union or political affiliations, and health. Discrimination or harassment is not tolerated under any circumstances. The equality plan is part of our HR plan, which is updated annually.

SRV has been assessing human rights impacts since 2018. In conjunction with this, we went through human rights norms, partially linking them together and also adding examples of the human rights impacts of SRV's operations. In 2020, we revised our list of the most important human rights. We continued our discussions with labour hire agencies on the issue of preventing labour exploitation, and the feedback from these discussions has been constructive. SRV's human rights work has been presented to external stakeholders at seminars arranged by, among others, HEUNI and the Finland Chamber of Commerce. In the report published by the SIHTI (Status of Human Rights Performance of Finnish Companies) project in January 2021, SRV was assessed as being well above average. The SIHTI project examined how Finnish companies are fulfilling their human rights responsibilities in relation to expectations set out in the UN Guiding Principles on Business and Human Rights.

The goal for 2021 is to assess the experiences of our own staff and all those working on construction sites in relation to possible discrimination and harassment, and for the supply chain to further identify the risks associated with the realisation of direct purchase human rights for some significant categories.

Supervision of the supply chain

SRV has to ensure that its subcontractors and suppliers meet these requirements and do not cause an increased risk to projects. We use contractual means, such as the Construction Contract Programme, to ensure the commitment of our suppliers and subcontractors.

SRV's Supplier Code of Conduct supplements the requirements of the Construction Contract Programme. When it comes to the role that procurement plays as an enabler of sustainable operation, closer cooperation with suppliers, competence development and increased understanding are all important targets. In 2020, we finished some additional questions for our supplier registration process, which ask suppliers to provide information about themselves and responsibility themes. In other words, companies are asked to provide this information as soon as they register as SRV partners.

This information is used to assess suppliers, who may be asked to provide additional information later on, either in connection with a competitive tender or if SRV is considering them as a new partner. This work will continue into 2021 with the goal of making sustainability themes an integral part of our supplier path all the way from initial registration to post-work/contract assessments.

During 2020, we focused on preventing labour exploitation in the supply chain and held meetings with our year-round labour hire partners. Meetings with these labour hire agencies covered both the development measures being implemented by our partners and the current situation, mainly in relation to the challenges posed by foreign workers and vulnerable groups. This work will continue as part of our standard cooperation with partners, and the answers we have received will also be utilised in our competitive tendering for labour hire agencies in spring 2021.

One of our longer-term objectives is to continuously (and verifiably) improve the level of sustainability in our partner network and to integrate the management of contractual partner risks into our normal process, also with respect to sustainability. This will also support our aim of increasing awareness of sustainable operations in SRV's partner network.

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CODE OF CONDUCT

Ethical operations based on transparency

SRV's values – sustainability, enthusiasm, profitability, bold in development and open in co-operation – will continue to create a firm foundation for further development. Our Code of Conduct creates a sustainable foundation for everything we do. All of SRV's companies, Board members, management and employees are obligated to comply with the Code of Conduct regardless of their station. SRV also seeks to get third parties, such as subcontractors and other cooperation partners, to commit to the Code of Conduct.

SRV has an Ethics Channel through which anyone can anonymously report observed or suspected behaviour that contravenes the Code of Conduct. We received three reports via the Ethics Channel in 2020. Three reports were received through other channels. In addition, the Ethics Channel received some safety observations, which were addressed in SRV Turva. All reports were investigated in accordance with the agreed process.

In 2020, SRV established a Compliance Team to enhance compliance. The Compliance Team seeks to enhance awareness of compliance issues and their importance in the Group as well as to improve the flow of information and coordination on the issues between units. It also aims to increase knowledge of existing compliance guidelines and assess the need for new instructions and training. The Team can also review reported cases of misconduct and internal audit findings, and use these to develop compliance functions.

Prevention of bribery and corruption

SRV complies with legislation and official regulations in all of its operations and requires the same of its employees, subcontractors and other partners. The company only works with reliable and reputable partners. We check the backgrounds of subcontractors and other partners before engaging in any cooperation.

As set out in the Code of Conduct, no one at SRV accepts or gives gifts that could impact business-related decision-making. Business-related hospitality should be moderate and of minimal value. Anti-corruption practices are an unconditional requirement of SRV's operations, and subcontractors and other partners are also required to have zero tolerance for corruption.

Combatting the grey economy

SRV is committed to the prevention of economic crime, and is continually developing its operating methods and new tools to improve the transparency, legality and controllability of the entire operating chain. The company's efforts are based on both long-term cooperation with the authorities and considerable investments in the development of its own processes. Preventing economic crime is a natural part of overall construction quality and project management.

Construction site orientation and advance checks of partners' social obligations are important tools in the fight against the grey economy. In addition to the above, the company also has the SRV Network Register (which SRV developed for official reporting) and an electronically managed process for compliance with the Act on the Contractor's Obligations and Liability.

On Anti-Grey Economy Days, we highlight problematic areas and provide guidance for personnel. Four Anti-Grey Economy Days were held in 2020. On these days, construction sites inspected the documents required by contractors and their subcontractors under the Act on the Contractor's Obligations and Liability.

The sites also inspected the personal IDs of all those working on site, determined their employers and tax numbers, and ensured they had received proper orientation.

The results of the Anti-Grey Economy Days showed that the challenges we face are still employees not clocking in to construction sites and employees without personal IDs and orientation stickers. The clocking-in rate is being improved by, for example, better fencing around construction sites, the use of turnstiles, and more effective management of SRV Network Register access permits.

A good level has been attained with regard to subcontractors and issues relating to the Act on Contractor's Obligations and Liability. No temporary prohibitions or other sanctions were issued by the authorities during inspections relating to occupational safety, foreigners and the Act on the Contractor's Obligations and Liability on SRV's construction sites in 2020.

In 2020, we finished some additional questions for our supplier registration process, which ask suppliers to provide information about themselves and responsibility themes. The information about suppliers in particular will be used to further strengthen our fight against the grey economy.

SRV adheres to official procurement procedures in the management of all new suppliers and existing supplier relationships, and the SRV Network Register is an element of this. The Network Register is an IT system that helps SRV to combat the grey economy, promote co-operation with the authorities, increase construction site safety, and ensure a continuous overall picture of large projects.

The Network Register is continually updated to meet both the practical needs of SRV's work and authorities' requirements and wishes. In 2020, we further developed the SRV Network Register with regard to features such as digital time cards and integrations with Power BI systems that will facilitate security status reporting.

ENVIRONMENT

The concrete consequences of climate change on both individuals and companies can be seen in stakeholders' growing interest in environmental issues. SRV's responds to these requirements with legislative compliance, environmental protection, operational development, and continuous improvement with the aid of the ISO 14001 environmental system. We also require our subcontractors and partners to follow the same principles.

In accordance with our environmental policy, the goals of SRV's environmental activities are developing material efficiency and waste management on sites, reducing the energy consumption of sites, implementing projects and buildings that place a smaller burden on the environment, and encouraging partners to develop more sustainable operating methods.

Environmental impacts

The environmental impacts of construction sites are mainly caused by construction waste, disturbances to the surrounding area, transportation, and the consumption of energy, water and materials. The management of storm water, trench water and chemicals is of key importance in preventing environmental contamination. At SRV's sites in Finland, environmental activities are based on the environmental plan, waste management plan, and other plans drafted to address the special characteristics of the site. The environmental risks of subcontractors and means of preventing them are reviewed during contract negotiations, weekly site meetings and the risk assessments of each work phase.

We seek to minimise impacts on the surrounding environment when planning construction sites. Impacts arise from factors such as dust, noise, vibration, traffic arrangements, and changes in the ecosystem. Both the authorities and those in the surrounding area are kept informed about the impacts and timetables of construction sites. Special natural features, such as protected habitats and species, are taken into consideration when planning construction.

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Environmental objectives

When on-site operations begin, an HSEQ kick-off meeting is held and an environmental officer is appointed for each site. In our own construction projects, we define project-specific environmental targets together with our customers. The aim is to provide customers with enough information on factors with a significant bearing on environmental impacts for use in their decision-making, starting from the design phase. Environmental indicators are monitored with a browser-based system into which information on waste volumes and energy and water consumption is entered. Statistics on the previous year are compiled and analysed at the beginning of the year for annual reporting and management reviews. Management reviews specify the objectives of environmental system development and the measures to be taken.

Material efficiency and minimising the amount of waste are two of the main objectives of SRV's environmental activities. By steering both projects and design, we are able to influence material choices and technical solutions. Good design, in particular, can enable successful procurement. A waste management plan is drawn up on every construction site in cooperation with the waste management contractor, and this helps to ensure that the sorting of site waste at its source is properly planned and implemented. Since 2016, new projects have been covered by targets for the specific waste volume and sorting-at-source rate, which are set by the type of building.

Sites use a great deal of energy in different forms. Due to climate conditions in the north, the greatest amount of energy is used on heating. SRV is seeking to improve energy efficiency in a variety of ways, such as optimising and modernising equipment, and naturally by choosing the heating system that best suits the situation. Energy needs can also be impacted by the careful implementation of through-holes, the covering of holes, and weather protection. Energy consumption is monitored in every project. Environmental deviations are monitored not only with regular TR measurements, but also with an observation tool that studies both accidents at work and environmental damage.

The waste targets for 2020 were as follows: recovery rate 92%, sorting rate 45-70% and specific waste volumes 2.5-14 kg / rm3 depending on the type of site. When SRV's operations are examined as a whole, waste targets were achieved in 2020, even though certain targets were not achieved on some sites. There is still some variation between sites when it comes to waste indicators, although this is expected to decrease in the future through enhanced operational quality. However, SRV has a broad spectrum of projects and there are regional differences in waste management services. It is therefore important for management reviews to run through the reasons for our successes and challenges - and for us to learn from them. Promoting these targets has been facilitated by our partners and the entire chain that utilises raw materials.

No major damage occurred in 2020. The most common deviations related to oil and fuel leaks, which were most often caused by subcontractors' machinery. As a consequence, we have further emphasised the importance of proper maintenance and inspection for machinery, and have also urged our subcontractors to keep absorption agents near machinery to aid in the speedy clean-up of any damage. Changing climatic conditions, such as increased precipitation and milder winters, are also affecting construction. Windstorm damage was also reported in 2020.

The 2020 objective of carrying out a broader analysis of climate risks and reporting on them in greater detail has been postponed to 2021. In addition, SRV will update its long-term environmental objectives in line with its strategy, which is heavily focused on sustainability.

CHANGES IN THE CORPORATE EXECUTIVE TEAM

Changes occurred in both the Team's composition and areas of responsibility on 3 December 2020, when Henri Sulankivi was appointed to the Team with responsibility for Regional Units. At the same time, Juha Toimela's area of responsibility changed to Business Premises, Helsinki Metropolitan Area (formerly Business Premises, Regional Units and Infrastructure) and Kimmo Kurki took responsibility for Internal Services and Infrastructure (formerly Internal Services). The Group's Corporate Executive Team saw further changes on 1 January 2021, when Jarkko Rantala was appointed CFO in addition to his previous area of responsibility. Miia Eloranta was appointed Senior Vice President, Communications and Marketing as of 4 January 2021, and Kristiina Sotka Senior Vice President, Human Resources as of 1 February 2021.

The members of SRV's Corporate Executive Team are

Saku Sipola, President and CEO
Timo Nieminen, Executive Vice President, Deputy CEO, Senior Vice President, Strategic Project Development
Jarkko Rantala, CFO (as from 1 January 2021)
Kim Jolkkonen, Senior Vice President, Housing, Helsinki Metropolitan Area
Henri Sulankivi, Senior Vice President, Regional Units (as from 3 December 2020)
Jussi Tuisku, Senior Vice President, Russia and Estonia
Miia Eloranta, Senior Vice President, Communications and Marketing (as from 4 January 2021)
Kristiina Sotka, Senior Vice President, Human Resources (as from 1 February 2021)
Johanna Metsä-Tokila, Senior Vice President, General Counsel
Antti Nummi, Senior Vice President, Business Development
Kimmo Kurki, Senior Vice President, Internal Services and Infrastructure
Jouni Forsman, Senior Vice President, Business Premises, Helsinki Metropolitan Area (as from 15 March 2021)

Maija Karhusaari left the Group and the Corporate Executive Team on 4 January 2021, Ilkka Pitkänen resigned from the employ of the Group on 31 January 2021 and stepped down from the Corporate Executive Team on 31 December 2020, and Juha Toimela left the Group and the Corporate Executive Team on 1 March 2021.

The changes have no impact on reporting.

RISKS, RISK MANAGEMENT AND CORPORATE GOVERNANCE

SRV has published a separate Corporate Governance Statement in its Annual Review and on the company's website. More detailed information about the company's financial risks and financial risk management has been provided in Note 29 to the Financial Statements.

The most significant risks concern negative changes in SRV's and its customers' operating environment and currently the coronavirus pandemic in particular, capital employed in major projects, SRV's earnings trend, availability of financing for SRV and its projects, the development of the situation in Russia, the rouble exchange rate and key project implementation risks.

Demand for SRV's products and services might be weakened by negative changes in, for instance, general economic development, the business environment of SRV and its customers, the functionality of financial markets and the political operating environment. SRV's business

opportunities would be weakened by the deterioration of the operating conditions of business premises customers, the weakening of corporate and consumer confidence and purchasing power, an increase in interest rates, more difficult availability of financing or financial problems in public administration. In particular, a decline in the need for business premises, growth in the yield requirements of investors, tighter investment criteria, a decrease in the demand for and prices of apartments, and the weakening of investment opportunities in public administration may pose a substantial risk to the company's financial position and profitability.

The main risk is currently posed by the coronavirus pandemic and its impact not only on the operating conditions and business of SRV, its customers and other partners, but also its broader effects on general economic development. Any cases of illness, quarantines and the restrictions imposed by countries have a negative impact on the business performance of various parties because they weaken or prevent access to personnel resources and materials. The uncertainty caused by this situation also weakens the confidence of companies and private individuals and their outlook for the future. This reduces investments and consumption, and temporarily puts economic development in reverse.

Many countries started to lift restrictions in the early summer 2020, but had to tighten them again in the latter part of the year as the pandemic took a turn for the worse. The seriousness of the situation will be significantly impacted if the pandemic is prolonged further. The scheduling and effectiveness of Covid-19 vaccinations will be decisive. In spite of the pandemic, construction activity in Finland remained at a higher level than expected in 2020. However, the Confederation of Finnish Construction Industries estimates that construction will decline by about 4 per cent in 2021. Thus far, the coronavirus pandemic has only caused relatively minor problems to SRV's construction operations in Finland. SRV is closely assessing the developing impacts of the pandemic and is proactively taking the necessary measures to maintain health and wellbeing, prevent the spread of the pandemic and ensure business continuity. Over the longer term, the population shift into SRV's main business areas in Finland's key growth centres will continue, laying down a good foundation for operations when the situation returns to normal. The aforementioned risks have been addressed in the accounting principles of the financial statements.

SRV's ongoing major projects and completed shopping centre projects are tying up a great deal of capital, as does developer-contracted construction. The availability and price of financing are critical to the company's business. As part of its previously announced recovery programme, the company carried out numerous measures, such as divestments of assets, refinancing and two share issues during the first part of 2020. As a result, the company's balance sheet and financing position and liquidity improved significantly by the end of the second quarter. However, availability of financing for developer contracting projects and certain guarantees remains challenging.

Financing for developer-contracted projects is ensured with sales of projects, project-specific credit and the use of the company's general financing reserves. The company only starts up projects for which financing has been secured. The implementation of new orders recognised in the order backlog in 2020 will not require any financing from SRV, with the exception of developer-contracted housing projects. The company will only consider launching other new projects if there is sufficient demand and the necessary financing can be assured with the aid of the company's general financing reserves and the sale of project-specific receivables to financial institutions and project-specific loans negotiated separately before the start-up of the project in question. Receivables can be sold for the purpose of liquidity management only within the limits allowed.

Net rental income from SRV's shopping centre investments typically reaches its target level about 3--5 years after opening. Once this occurs, it is SRV's strategy to sell the investment. Developments in rental income are impacted by factors such as general economic trends, consumer behaviour, successful shopping centre management, the shopping centre's reputation and, in Russia, also the rouble exchange rate. Weaker-than-planned developments in different factors and the assumptions made, both when starting up shopping centres and on the scheduled sale date, may result in a need to lower the shopping centre's value in the balance sheet. The prolongation of the coronavirus pandemic and economic uncertainty in Russia might mean that the sale of Russian shopping centres will be postponed. SRV's investments in shopping centres are minority interests in associated companies. The initiation of their sale or the timing of the sale are agreed upon in the shareholder agreement of each investment. That is, SRV cannot decide on the sale of projects or their date of sale on its own. If, on the other hand, the shareholder agreement permits the other shareholders to sell the property before it reaches its optimal financial value, and they decide to do so, this may lead to the need to reduce the balance sheet value of the shopping centre.

Negotiations on the sale of the Pearl Plaza shopping centre ended without reaching an agreement during the review period. In line with its strategy, SRV still intends to divest the shopping centre, but it is not possible to predict when exactly it will do so.

SRV has made a financing commitment equating to a 1.8 per cent holding in the Hankikivi-1 nuclear power plant project to Fennovoima's main owner, Voimaosakeyhtiö SF. SRV has the same rights and obligations as other Voimaosakeyhtiö SF shareholders. In April 2020, Fennovoima announced that construction will start in 2021. The balance sheet value of the investment is EUR 10.7 million, which corresponds to the amount that SRV has invested in the project. The current and future value of the investment involves risks, particularly with regard to the longer-term price of electricity.

In its Russian business, fluctuations in the rouble exchange rate expose SRV to translation and transaction risks. A ten per cent weakening of the rouble against the euro on the reporting date would have had an impact of about EUR -6.3 million on the Group's equity translation differences. A ten per cent weakening in the exchange rate would correspondingly have an impact of about EUR -4.9 million on SRV's earnings if the effect of currency hedging were not taken into account. The exact rouble hedging rate varies over time. SRV's transaction risk largely comprises the euro-denominated loans of associated companies that are partly owned by SRV. The remaining exchange rate risk is hedged in accordance with the hedging policy approved by the Board of Directors.

SRV Group Plc's Russian subsidiary, of which SRV Group Plc indirectly owns 51 per cent, is involved in legal proceedings in Russia. A court of first instance ruled that SRV's subsidiary must pay EUR 3.1 million in compensation to a counterparty. This sum was recognised in full as a provision for expenses in the second quarter. In the third quarter the court of second instance overturned the ruling of the court of first instance. The dissolution of the provision had an impact of EUR 2.7 million at the September exchange rate, and thus the euro-denominated result for the review period is burdened by expenses of EUR 0.4 million. The applicant appealed to the third instance and the proceedings had not yet been initiated at the balance sheet date. However, in February 2021, the third instance had already dismissed the plaintiff's appeal. The plaintiff still has the

SRV | THE BOARD OF DIRECTORS' REPORT 2020

Risks related to HR issues, social responsibility, human rights, climate and environmental issues, and the prevention of bribery and corruption

right to appeal to the Supreme Court. The lawsuit concerned an agreement for an electrical connection that was never implemented.

To increase the comparability of operations, the company reports operative operating profit in addition to operating profit. Operative operating profit differs from the IFRS definition of operating profit in that it eliminates the calculated currency exchange differences included in financial items in Russian operations and their potential hedging impacts. SRV also reports certain key figures without the impact of IFRS 16.

Competitive project operations with products and services comprise a critical success factor for SRV's business and may be subject to significant risks. SRV seeks to implement profitable contracting projects for developers and to develop profitable developer contracting projects and property projects together with its partners. A key challenge is to ensure that the portfolio consists of viable projects in each economic cycle and market situation.

The company continuously monitors the needs of customers and the market situation, and seeks to react rapidly to changes. Large development projects that tie up a great amount of capital are especially vulnerable to fluctuations and risks. In its own development projects, the company is currently pursuing more projects carried out with partners, and in contracting it seeks to utilise cost-flexible means of implementation that do not require financing from the company. The company might also lose markets to new or growing competitors or business models. SRV seeks to manage these risks by retaining its position as one of the top companies in its field by investing in the development of its systems and own customer-focused, flexible and networked operating model (SRV Approach).

Retention of skilled employees, hiring of competent new employees and maintaining a partner network for professional implementation

also pose risks to operations. The company takes care of the health and safety of its employees with well-run health services, systematic guidelines and monitoring. In addition, the company continuously offers its personnel opportunities to engage in training, development and communal activities. Efficient and committed action to achieve the company's objectives also reduces the likelihood that various risks will materialise.

Success in project planning and implementation and the management of the partner network also involve risks related to issues such as operational quality, costs, scheduling, safety, the shadow economy and the environment. The operations system that guides SRV's functions incorporates ISO-certified quality, environmental, occupational health and safety systems as well as a procurement system and the SRV Network Register. Project operations are developed proactively. The key perspectives include not only costs, quality and customer service, but also responsibility and harnessing digitalisation.

Sustainability risks

Identified risks relate to issues such as serious accidents, the grey economy, labour exploitation, working conditions in the supply chain, adapting to climate change, climate risks, meeting investors' requirements, and our reputation through stakeholders' eyes. The coronavirus has brought new risks, not only in the form of a physical threat but also to coping and satisfaction at work. These risks are different in on-site and office work.

The physical effects of climate change, such as extreme weather phenomena, may hinder construction and property maintenance. Climate impacts are increasingly being considered in financing decisions as well. Integrating climate risks into financing costs is an effective means of encouraging companies to act in the best interests of the environment. Green taxonomy is part of the EU's sustainable finance

Subarea	Major risks identified	Risk identification and management
All subareas		• Code of Conduct
• Supplier Code of Conduct
• Ethics Channel
• Internal audit
• Compliance Team
• Construction Contract Programme
HR issues, social responsibility and human rights	• Accidents at work
• Work exhaustion due to heavy work load
• Negligence of terms of employment or working conditions
• Work-related discrimination and harassment
• Labour exploitation in supply chain
• Negligence of societal obligations
• Health and safety of local communities
• Product responsibility to customer customers	• ISO 45001 occupational safety management system
• ISO9001 quality system
• Audits and management reviews
• Corporate executive safety inspections at sites
• External audits
• Internal cross-audits
• HSEQ kick-off meetings at sites
• TTT reviews
• Safety Support Groups
• SRV Safety system
• 15-minute safety information sessions
• Safety observations
• TR measurements
• Personnel survey
• SRV Network Register
• Operating process and guidelines for harassment or discrimination incidents
• Responsible Procurement Steering Group
• Supplier cooperation
• Collecting and processing customer feedback
Environmental issues	• Environmental damage and accidents
• Physical climate risks	• ISO14001 environmental management system
• External audits
• Project risk management process
• Process risk identification and management
• Environmental plan
• HSEQ kick-off meetings at sites
• Site guidance
• Internal audits
Adaptation to climate change	• Statutory requirements and increased regulation
• Business requirements set by customers, investors and financiers	• Energy and lifecycle services
• Carbon footprint, lifecycle calculation
• RTS environmental classification tool
• Development of ESG reporting
• Solutions and concepts in line with the new strategy
Prevention of bribery and corruption	• Illegal or inappropriate activities
• Neglect of social responsibilities	• Compliance training
• Information to be collected in the supplier register
• Anti-Grey Economy Day
• Responsible Procurement Steering Group
• SRV Network Register
• Background studies on procurements

SRV | THE BOARD OF DIRECTORS' REPORT 2020

action plan, and it provides the financial sector with tools for assessing the sustainability of potential investments.

In recent years, labour exploitation has also been exposed in supply chains in Finland. Due to workforce mobility and the complex nature of supply chains, it is important that all parties are aware of their rights and obligations. Companies influence human rights on a daily basis through their subcontractors, partners, customers and other stakeholders.

Together with the Sustainability Director, SRV's senior management and risk management organisation are responsible for identifying and reporting sustainability risks, and for implementing risk management measures. We are continually working to control and reduce risks in both our own operations and our subcontractor network.

SRV's Code of Conduct for its own personnel and suppliers creates a foundation for compliance. The SRV Construction Contract Programme defines the basic sustainability requirements for our partners and subcontractors. For example, subcontractor chaining is limited to two tiers. Certified management systems create a strict framework for operation and require continual improvement and development, including risk management. Risk management is also enhanced by SRV's internal Compliance Team, which was established in autumn 2020.

SRV's new strategy, which was published in February 2021, takes a firm stand on the role that business plays in combating climate change and adapting to a changing business environment. SRV is launching a spearhead programme, which incorporates lifecycle wisdom with all construction and cooperation from the selection of construction sites to maintenance and services.

Thanks to this new strategy, the physical threats and business opportunities and risks associated with climate change will be analysed more comprehensively. We will continue to assess human rights impacts in 2021, so that we can use this information to implement practical measures in both our own operations and our supply chain.

The adjacent table presents the identified risks and the measures taken to manage them.

CORPORATE GOVERNANCE AND THE DECISIONS OF THE ANNUAL GENERAL MEETING

SRV Group Plc's Annual General Meeting (AGM) was held on Thursday, 26 March 2020. The meeting adopted the financial statements and remuneration policy for governing bodies as well as discharged the Board of Directors and the President & CEO from liability for the financial period 1 January–31 December 2019.

Dividend payment

Based on the adopted balance sheet and the Board of Directors' proposal, the Annual General Meeting decided that no dividend will be distributed for the financial year ending 31 December 2019.

The Members and Chair of the Board of Directors and remuneration

The number of members of the Board of Directors was confirmed to be six (6). Minna Alitalo, M.Sc. (Econ.), Olli-Pekka Kallasvuo, Master of Laws, LL.D.h.c., Timo Kokkila, M.Sc. (Tech.) and Tomi Yli-Kyyny, M.Sc. (Tech.) were re-elected to the Board of Directors. Hannu Leinonen, M.Sc. (Tech.) and Heikki Leppänen Lic.Sc. (Tech.) were elected as new members to the Board of Directors. Tomi Yli-Kyyny was elected as the Chairman of the Board of Directors. The term of office of members of the Board of Directors will end at the close of the 2021 Annual General Meeting.

The Annual General Meeting resolved that the remuneration for the members of the Board of Directors shall be EUR 5,000 per month for the Chairman, EUR 4,000 per month for the Vice Chairman and EUR 3,000 per month per member as well as a EUR 700 fee per member per Board and committee meeting. In addition, travel expenses arising from work for the Board of Directors shall be reimbursed in accordance with the company's travel policy.

Auditor and remuneration

PricewaterhouseCoopers Oy, a firm of authorised public accountants, was elected as auditor of the company for a term until the close of the Annual General Meeting of 2021. PricewaterhouseCoopers Oy has announced that Samuli Perälä, Authorised Public Accountant, will serve as the responsible auditor. The auditors' remuneration was confirmed as payable on the basis of an approved invoice.

Amendment of the Articles of Association

The Board of Directors resolved that article 4 of the Articles of Association is amended as follows:

4 § The Board of Directors of the company consists of the minimum of five (5) and the maximum of eight (8) ordinary members. The Board of Directors shall elect a Vice Chair from among its members. The term of office of the Board members expires upon the closing of the first Annual General Meeting of Shareholders following the election.

The General Meeting of Shareholders shall elect a chairman for the same term of office.

Financing arrangement and related authorisations to issue shares

Relating to the planned financing arrangement, the Annual General Meeting resolved on an authorisation to issue shares as proposed by the Board of Directors.

Authorisation for directed share issue

The Annual General Meeting authorised the Board of Directors to resolve on a directed share issue as follows:

The shares to be issued under the authorisation are new shares. Under the authorisation, a maximum of 100,000,000 shares can be issued.

Under the authorisation, new shares would be issued in a directed share issue, i.e. in deviation from the shareholders' pre-emptive rights, to the holders of the hybrid notes issued by the company on 22 March 2016 (ISIN code FI4000198114) and holders of the hybrid notes issued by the company on 23 May 2019 (ISIN code FI4000384185). Subscriptions would be paid by setting off hybrid bonds against their nominal value and accrued interest. A directed share issue always requires a weighty financial reason for the company.

The Board of Directors was authorised to resolve on all other terms and conditions of the share issue.

The authorisation is valid until 30 September 2020.

The authorisation revokes prior unused authorisations granted by the General Meeting to the Board of Directors to resolve on share issues, transfers of shares held by the company and/or the granting of special rights entitling to shares as referred to in Chapter 10, Section 1 of the Finnish Companies Act. The authorisation shall not, however, revoke any other share issue authorisations to be passed at the same General Meeting.

Authorisation for rights issue

The Annual General Meeting authorised the Board of Directors to resolve on a share issue as follows:

The shares to be issued under the authorisation are new shares. Under the authorisation, a maximum of 500,000,000 shares can be issued.

The shareholders have a pre-emptive right to the new shares in the same proportion as they

SRV | THE BOARD OF DIRECTORS' REPORT 2020

already hold shares in the company. However, shares not subscribed by shareholders may be offered on a secondary basis for subscription by other shareholders or by other persons. The Board of Directors is entitled to decide to whom the shares that remain unsubscribed will be offered. Subscriptions would be paid in cash.

The Board of Directors was authorised to resolve on all other terms and conditions of the share issue.

The authorisation is valid until 30 September 2020.

Authorisation to decide on the acquisition of the company's own shares

The Annual General Meeting authorised the Board of Directors to resolve on the acquisition of the company's own shares using the company's unrestricted equity as follows:

The Board of Directors is authorised to acquire a maximum of 5,000,000 shares in the company so that the number of shares acquired on the basis of the authorisation, when combined with the shares already owned by the company and its subsidiaries, does not at any given time exceed a total of 10 per cent of all shares in the company.

Shares may be acquired in public trading arranged by Nasdaq Helsinki Ltd at the market price at the moment of acquisition. Own shares may be acquired otherwise than in proportion to

the existing holdings of the shareholders. Shares may be acquired in one or several instalments.

Treasury shares can be acquired for use as payment in corporate acquisitions, when the company acquires assets relating to its business, as part of the company's incentive programmes, or to be otherwise conveyed, held or cancelled.

The Board of Directors is authorised to resolve on all other terms and conditions of the acquisition of the shares.

The authorisation is valid for 18 months from the date of the decision of the General Meeting. It revokes the authorisation granted to the Board of Directors at the Annual General Meeting on 19 March 2019 to decide on the repurchase of the company's own shares.

Authorisation to decide on a share issue and on the issue of special rights

The Annual General Meeting authorised the Board of Directors to resolve on a share issue and granting of special rights as follows:

The Board of Directors may decide on the issuance of new shares or the reissuance of shares held by the company and/or granting of other special rights entitling to shares as referred to in Chapter 10, Section 1 of the Finnish Companies Act either for consideration or free of consideration in one or several instalments.

Under the authorisation, the number of shares to be issued or the number of reissued shares held by the company, including the shares issued on the basis of the special rights, shall not exceed 12,000,000 shares. Any shares issued on the basis of special rights entitling to shares are included in the aforementioned aggregate amount.

New shares may be issued, the company's own shares held by the company reissued and/or other special rights entitling to shares pursuant to Chapter 10, Section 1 of the Finnish Companies Act may be granted in deviation from the pre-emption rights of shareholders only if there

exists a weighty financial reason for the company. A directed share issue may be free of consideration only if there exists, for the company and taking into account the interests of all its shareholders, a particularly weighty financial reason.

The authorisation may be used inter alia when issuing new shares or conveying shares as consideration in corporate acquisitions, when the company acquires assets relating to its business, in order to strengthen the company's capital structure and for implementing incentive schemes. However, the authorisation may not be used in connection with the financing arrangement pursuant to Section 17 of the notice to the Annual General Meeting ("Approval of a planned financing arrangement and related authorisations to issue shares").

The Board of Directors was authorised to resolve on all other terms and conditions of the share issue.

The authorisation shall be in force for 18 months from the decision of General Meeting. The authorisation revokes prior unused authorisations granted by the General Meeting to the Board of Directors to resolve on share issues or the granting of share options and other special rights entitling to shares. The authorisation shall not, however, revoke any other share issue authorisations to be passed at the same General Meeting.

Establishment of a Shareholders' Nomination Board

The Annual General Meeting resolved to establish a Shareholders' Nomination Board whose task is to prepare proposals concerning the composition and remuneration of the Board of Directors to the Annual General Meeting.

The Shareholders' Nomination Board comprises of four (4) members. The three largest shareholders of the company are each entitled to nominate one member. The Chairman of the

Board of Directors serves as the fourth member of the Nomination Board.

The right to appoint a member lies with those three shareholders whose share of the votes of all shares in the company is largest, based on the company's shareholders' register held by Euroclear Finland Ltd as of August 31 of the preceding calendar year of the Annual General Meeting.

In the event that a shareholder who has an obligation in accordance with the Securities Market Act to make notifications regarding changes in ownership (shareholder subject to flagging notification) notifies the Chairman of the Board of Directors of the matter in writing at the latest on 30 August of the preceding calendar year of the Annual General Meeting, the shareholdings of such a shareholder divided between several funds or registers shall be counted as one. In the event that a shareholder does not wish to use his/her right to appoint a member, the right to appoint shall be transferred to the next largest shareholder.

The Annual General Meeting confirmed the Charter for the Shareholders' Nomination Board. The Company's Charter for the Shareholders' Nomination Board is available on SRV Group Plc's website at www.srv.fi/agm

THE ORGANISATION OF SRV GROUP PLC'S BOARD OF DIRECTORS AND THE COMPOSITION OF ITS COMMITTEES

SRV Group Plc's Board of Directors held its organisational meeting on 26 March 2020. The Board of Directors elected a Vice Chair and the members of its Board Committees for a term ending at the closing of the Annual General Meeting in 2021. Olli-Pekka Kallasvuo was selected as Vice Chair of the Board of Directors.

SRV | THE BOARD OF DIRECTORS' REPORT 2020

Minna Alitalo was elected as Chair and Hannu Leinonen and Timo Kokkila as members of the Audit Committee. Tomi Yli-Kyyny was elected as Chair and Olli-Pekka Kallasvuo and Heikki Leppänen as members of the HR and Nomination Committee.

CHANGES TO THE MULTI-YEAR INCENTIVE SCHEME OF THE PRESIDENT AND CEO

On 17 December 2020, the Board of Directors of SRV Group Plc decided on changes to the share-based incentive scheme of President and CEO Saku Sipola. The changes concern the number of acquisition rights, the subscription price of the acquisition rights and the periods during which the acquisition rights can be exercised. The purpose of the changes is to ensure that the incentive effect of the scheme remains at its previous level by taking into account the changes in the number of the company's shares caused by SRV's 2020 rights issues. The incentive effect of the scheme is based on the value increase of SRV Group Plc's shares.

As a result of the changes, Sipola has the right to acquire 1,000,000 shares at a subscription price of EUR 0.55 per share. The basis for determining the subscription price is the volume-weighted average price of SRV's share on Nasdaq Helsinki in continuous trading from 1 August to 30 November 2020. After the changes, the acquisition rights can be exercised in the following three periods: the first begins on 1 March 2022 and ends on 28 February 2023, the second begins on 1 March 2023 and ends on 31 August 2024, and the third begins on 1 September 2024 and ends on 31 August 2026. During the first and second exercise periods, the acquisition rights holder is entitled to exercise 300,000 acquisition rights and during the third period 400,000 acquisition rights.

The share-based incentive scheme has been described in Note 7.

SHARES AND SHAREHOLDERS

SRV Group Plc's share capital is EUR 3.1 million. The share has no nominal value and the number of shares outstanding is 263,017,341. The company has one class of shares.

Before the two share issues organised in May and June, the number of registered shares was 60,499,575.

In the directed share issue held in May, a total of 71,468,395 new SRV shares were issued with a subscription price of EUR 1.05 per share. The subscriptions were paid by setting off hybrid bonds issued by SRV and the interest accrued on them up to 30 April 2020. The new shares were registered on 19 May 2020 in the Trade Register maintained by the Finnish Patent and Registration Office. Trading in the new shares began on 20 May 2020 on the stock exchange list maintained by Nasdaq Helsinki Ltd.

A total of 131,049,371 new shares were subscribed for in the rights issue in June. The subscription price of the shares was EUR 0.38 per share. The shares were registered on 18 June 2020 in the Trade Register maintained by the Finnish Patent and Registration Office. Trading in the new shares began on 22 June 2020 on the stock exchange list maintained by Nasdaq Helsinki Ltd. As a result of the registration of the new shares, the total number of shares issued by SRV is 263,017,341.

On 6 July 2020, SRV announced that it had assigned a total of 67,950 treasury shares to the members of the company's share-based incentive plan. The earnings period for the scheme was the calendar years 2017-2019. After the assignment, SRV Group Plc holds 850,649 treasury shares (0.3 per cent of the total number of shares and combined number of votes).

The closing price at Nasdaq Helsinki on 31 December 2020 was EUR 0.59 (EUR 1.00 on 31 December 2019, change -41.0%). The highest share price during the reporting period was EUR 1.10 and the lowest EUR 0.45. The highest and lowest prices quoted for the review period and the price at the end of the previous year are adjusted for share issues. At the end of the period, SRV's equity per share excluding the hybrid bond was EUR 0.65. On 31 December 2020, SRV had a market capitalisation of EUR 154.7 million, excluding the Group's treasury shares. 45.5 million shares were traded during the review period with a trade volume of EUR 28.8 million.

FINANCIAL OBJECTIVES

SRV's strategy and all of its operations are guided by the 2021-2024 strategic financial objectives that were approved in February 2021:

Operative operating profit: 6 per cent by the end of the period.
Gearing excluding the impact of IFRS 16: 40-60 per cent by the end of the period.
As the company gradually reduces its indebtedness, SRV expects that it will pay dividends in accordance with its dividend policy no earlier than for the 1 January–31 December 2023 financial year. The longer-term objective is to distribute dividend of 30–50 per cent of the annual result, taking into account the capital needs of business operations.

The updated definition of operative operating profit is used in these financial objectives (see Outlook for 2021).

PROPOSAL FOR THE DISTRIBUTION OF PROFITS

The parent company's distributable funds on 31 December 2020 are EUR 262,165,834.13, of which net profit for the financial year is EUR -11,924,838.45. The Board of Directors proposes to the General Meeting that no dividend be paid for the 2020 financial year.

EVENTS AFTER THE PERIOD

SRV announced its new strategy and long-term financial objectives for 2021-24 on 4 February 2021.
On 14 January 2021, SRV appointed Jouni Forsman as Senior Vice President, Business Premises in the Helsinki metropolitan area and as a member of the Corporate Executive Team.
On 13 January 2021, SRV specified its estimate of operative operating profit for 2020 due to changes in the valuation of certain balance sheet items in the Investments segment.

GENERAL MEETING

The Annual General Meeting of SRV Group Plc is scheduled for Monday 29 March 2021, starting at 4 pm. The Annual General Meeting will deal with the matters specified in Article 11 of the Articles of Association and any other Board proposals. The Board of Directors will convene the Annual General Meeting separately at a later date.

Espoo, 2 March 2021

Board of Directors

FINANCIAL INDICATORS OF THE GROUP

Revenue	EUR million	2020	2019	2018	2017	2016
Revenue	EUR million	975.5	1,060.9	959.7	1,114.4	884.1
Operative operating profit^{1}	EUR million	5.8	-96.8	-10.0	27.0	26.3
Operative operating profit, % revenue	%	0.6	-9.1	-1.0	2.4	3.0
Operation profit	EUR million	1.5	-93.0	-19.8	15.3	27.7
Operation profit, % revenue	%	0.2	-8.8	-2.1	1.4	3.1
Operation profit, excl. IFRS16^{1}	EUR million	-2.7	-94.3	-19.8	15.3	27.7
Operation profit, % revenue excl. IFRS16^{1}	%	-0.3	-8.8	-2.1	1.4	3.1
Profit before taxes	EUR million	-28.0	-122.4	-37.3	4.6	16.4
Profit before taxes, % of revenue	%	-2.9	-11.5	-3.9	0.4	1.8
Net profit attributable to equity holders of the parent company	EUR million	-22.8	-104.4	-30.1	6.0	13.9
Return on equity, %	%	-14.1	-50.6	-12.1	2.0	5.0
Return on investment, %	%	-0.8	-15.2	-2.9	3.1	6.1
Return on investment % excl. IFRS16^{1}	%	-2.0	-17.5	-2.9	3.1	6.1
Capital employed	EUR million	566.8	625.3	611.0	604.5	596.2
Capital employed excl. IFRS16^{1}	EUR million	436.0	479.4	611.0	604.5	596.2
Equity ratio %	%	22.6	21.2	28.5	35.5	38.3
Equity ratio excl. IFRS16, %^{1}	%	27.8	26.4	28.5	35.5	38.3
Net interest-bearing debt	EUR million	289.1	422.0	282.8	297.6	246.3
Net interest-bearing debt excl. IFRS16^{1}	EUR million	152.9	271.9	282.8	297.6	246.3
Net gearing ratio, %	%	159.7	240.3	121.1	105.0	83.4
Net gearing ratio excl. IFRS16, %^{1}	%	82.1	151.2	121.1	105.0	83.4
Order backlog^{2 3}	EUR million	1,153.4	1,344.2	1,816.0	1,547.9	1,758.5
New agreements	EUR million	707.1	487.6	1,133.0	771.4	1,013.1
Personnel on average		991	1,080	1,129	1,134	1,089
Earnings per share^{4}	EUR	-0.15	-1.52	-0.46	0.04	0.12
Earnings per share (diluted)^{4}	EUR	-0.15	-1.52	-0.46	0.04	0.12
Equity per share^{4}	EUR	0.71	2.46	3.26	3.95	4.13
Equity per share (excluding hybrid bond)^{4}	EUR	0.65	1.31	2.65	3.33	3.51
Dividend per share^{4}	%	0.00	0.00	0.06	0.10	0.10
Dividend payout ratio, %^{4}	%	neg.	neg.	neg.	254.1	81.9
Dividend yield, %^{4}		0.0	0.0	3.5	2.8	1.8
Price per earnings ratio (P/E-ratio)^{4}		neg.	neg.	neg.	91.5	44.5
Share price development
Share price at the end of the period	EUR	0.59	1.36	1.70	3.60	5.43
Average share price	EUR	0.60	1.36	2.63	4.60	4.07
Lowest share price	EUR	0.45	1.25	1.66	3.52	2.60
Highest share price	EUR	1.10	2.19	4.12	5.74	5.58
Market capitalisation at the end of the period^{4}	EUR million	154.7	98.1	122.7	259.7	390.4
Trading volume^{4}	1,000	45.524	14.412	6.580	6.362	6.355
Trading volume, %^{4}	%	26.2	20.0	9.1	8.8	8.8
Weighted average number of shares outstanding^{4}	1,000	173.891	72.149	72.149	72.099	71.868
Weighted average number of shares outstanding (diluted)^{4}	1,000	173.925	72.149	72.149	72.099	72.143
Number of shares outstanding at the end of the period^{4}	1,000	262.167	72.149	72.149	72.149	71.899
Effect of currency exchange fluctuations	EUR million	-4.4	3.8	-9.8	-11.7	1.3

1 Alternative performance measures used in interim reporting

The company discloses certain other widely used performance measures that can for the most part be derived from the income statement and balance sheet. The formulas for these performance measures are provided in the next page. In the company's view, these measures clarify the result of operations and financial position based on the income statement and balance sheet

SRV presents key figures for operative operating profit and operating profit margin in the interim report

The key figure for operative operating profit is considered to provide a better picture of the Group's operations when comparing the reported period to earlier periods. In accordance with IFRS, the currency exchange rate gains and losses of associated companies as well as income and expenses from hedging are eliminated from operating profit. The currency exchange rate gains and losses of associated companies are included above operating profit on the line "share of results of associated companies". Income and expenses from currency hedging are included above operating profit on the line "other operating expenses"

SRV presents key figures excluding effect of IFRS16 standard

The company publishes alternative key figures, that is, IFRS 16 key figures that have been adjusted to exclude the impact of the IFRS 16 Leases standard on the balance sheet and result. SRV is applying a simplified approach to adopting this standard, which is why the figures for the comparison period have not been adjusted to comply with the standard. The figures are considered to provide a better comparability to previous year figures.

2 At the end of the period
3 The Group's order backlog consists of the Construction business.
4 The comparison figures have been adjusted to reflect share issue.

CALCULATION OF KEY FIGURES

Return on equity, % = 100 x	Total comprehensive income for the period
	Total equity, average
Capital employed =	Total assets – non-interest bearing debt – deferred tax liabilities – provisions
Capital employed, excl. IFRS16 =	Total assets – non-interest bearing debt – deferred tax liabilities – provisions – property, plant and equipment, right-of-use asset – inventories, right-of-use asset
Return on investment, % = 100 x	Operating profit + interest and other financial income (incl. exchange rate gains and losses) + Financial receivables
	write-down and sales loss
	Invested capital, average
Return on investment, % excl. IFRS16 = 100 x	Operating profit + interest and other financial income (incl. exchange rate gains and losses)
	Capital employed excl. IFRS16, average
Equity ratio, % = 100 x	Total equity
	Total assets – advances received
	Total equity – IFRS16 depreciations, leases and interest and financial expenses recognised in income statement - IFRS16 Retained earnings
Equity ratio,% excl. IFRS16 = 100 x	Total assets – advances received – IFRS16 depreciations, leases and interest and financial expenses recognised in income statement
	Interest-bearing debt – cash and cash equivalents
Net interest-bearing debt =	Interest-bearing debt – cash and cash equivalents
Net interest-bearing debt excl. IFRS16 =	Interest-bearing debt - interest-bearing lease liabilities – cash and cash equivalents
Net gearing ratio, % = 100 x	Net interest-bearing debt
	Total equity
Net gearing ratio,% excl. IFRS16 = 100 x	Interest-bearing debt - interest-bearing lease liabilities – cash and cash equivalents
	Total equity – IFRS16 depreciations, leases, interest and financial expenses recognised in income statement
Earnings per share attributable to equity holders of the parent company =	Result for the period – non-controlling interest – hybrid bond interest, tax adjusted
	Average number of shares
Earnings per share attributable to equity holders of the parent company (diluted) =	Result for the period – non-controlling interest – hybrid bond interest, tax adjusted
	Average number of shares at end of period
Equity per share =	Shareholders' equity attributable to equity holders of the parent company
	Average number of shares at end of period
Equity per share (without hybrid bond) =	Shareholders' equity attributable to equity holders of the parent company – hybrid bond
	Average number of shares at end of period
Price per earnings ratio (P/E-ratio) =	Share price at end of period
	Earnings per share

Dividend payout ratio, % = 100 x	Dividend per share
	Earnings per share
Dividend yield, % = 100 x	Dividend per share
	Share price at end of period
Average share price =	Number of shares traded in euros during the period
	Number of shares traded during the period
Market capitalisation at the end of the period =	Number of shares outstanding at the end of the period x share price at the end of the period
Trading volume =	Number of shares traded during the period and their percentage of the weighted average number of shares outstanding
Operative operating profit =	Operating profit -/+ currency exchange rate gains and losses -/+ income and expenses from hedging

SHARES AND SHAREHOLDERS

Share price trend and trading of shares

The shares of SRV Group Plc are quoted on the Nasdaq Helsinki Exchange. The trading with SRV Group Plc's shares started on the Main list of OMX on 15 June 2007. During 2020 the highest price was EUR 1.10 and the lowest price EUR 0.45. The average share price for 2020 was EUR 0.60 and the closing price EUR 0.59, giving the com

pany a market capitalisation of EUR 154.7 million as of 31 December 2020. 45.5 million shares were traded in OMX which corresponds to $26.2\%$ of the weighted average number of SRV shares outstanding. The trading value of the shares was EUR 28.8 million.

Shareholders on 31 December 2020

Shareholder	Number of shares	Holding and voting rights, %
PONTOS CAPITAL AS	47,306,787	18
KESKINÄINEN ELÄKEVAKUUTUSYHTIÖ ILMARINEN	33,295,636	12.7
KOLPI INVESTMENTS OY	23,776,663	9
OP-HENKIVAKUUTUS OY	18,683,268	7.1
POHJOLA VAKUUTUS OY	15,896,954	6
HAVU CAPITAL OY	15,741,398	6
TIIVISTE-GROUP OY	13,373,642	5.1
LAREALE INVESTMENTS OY	6,926,660	2.6
TUNGELIN INVESTMENTS OY	6,926,660	2.6
KOKKILA LAURI TAPANI	6,494,422	2.5
KOKKILA TUOMAS TAPANI	6,494,422	2.5
VALTION ELÄKERAHASTO	2,340,000	0.9
NORDEA HENKIVAKUUTUS SUOMI OY	1,754,385	0.7
KESKINÄINEN TYÖELÄKEVAKUUTUSYHTIÖ VARMA	1,433,332	0.5
TELIAN ELÄKESÄÄTIÖ	1,059,796	0.4
SUOMEN MERIMIES-UNIONI SMU RY	1,051,118	0.4
SEFLO AB	989,920	0.4
AKSIDENSSI OY	917,206	0.3
SRV YHTIÖT OYJ	850,649	0.3
DREAM BROKER OY	777,777	0.3
20 largest shareholders	206,090,695	78.3
Nominee registration	3,948,937	1.5
Other	52,977,709	20.1
Total number of shares	263,017,341	100.0

The authorisations of the Board of Directors

The Annual General Meeting of SRV Group Plc resolved on March 26, 2020, to authorise the Board of Directors to decide on the repurchase of company shares as proposed by the Board of Directors. The authorisation of repurchase of company shares is valid 18 months from the decision of Annual General Meeting (note 25).

Management shareholding

The Members of the Board of SRV Group Plc as well as the President and CEO and the Deputy CEO owned directly a total of 16,854,372 shares on 31 December 2020 which corresponds to $6.4\%$ of SRV shares and voting rights. Timo Kokkila owns SRV shares through Havu Capital Oy.

Breakdown of share ownership on 31 December 2020 By number of shares owned

Number of shares	Number of shareholders	% of shareholders	Number of shares	% of shares
1-100	1,274	11.5	67,716	0.0
101-500	3,017	27.1	874,268	0.3
501-1,000	1,874	16.9	1,508,257	0.6
1,001-5,000	3,312	29.8	8,269,763	3.1
5,001-10,000	836	7.5	6,355,114	2.4
10,001-50,000	639	5.7	13,836,297	5.3
50,001-100,000	70	0.6	5,087,300	1.9
100,001-500,000	66	0.6	13,997,486	5.3
500,001-	28	0.3	213,021,140	81.0
Total	11,116	100.0	263,017,341	100.0
of which nominee registrations	9		3,948,937	1.5

By shareholder category

	% of shares
Corporations	31.6
Financial and insurance institutions	15.4
Public institutions	14.5
Households	19.0
Non-profit organisations	1.0
Non-Finnish shareholders	18.5
Total	100.0

SRV | FINANCIAL STATEMENTS 2020
29

Consolidated Financial Statements, IFRS

CONSOLIDATED INCOME STATEMENT

EUR 1,000	Note	2020	2019
Revenue	3	975,534	1,060,949
Other operating income	4	2,166	627
Change in inventories of finished goods and work in progress		-828	-79,800
Use of materials and services^{1}		-868,172	-897,233
Employee benefit expenses	7	-69,427	-73,063
Share of profits of associated and joint venture companies	16	-13,562	2,784
Depreciations	6	-7,387	-8,705
Impairments	6	-11,487	-81,339
Other operating expenses^{1}	5	-10,874	-13,421
Income and expenses on currency derivatives^{2}	5	5,506	-3,847
Operating profit		1,468	-93,047
Financial income	9	3,710	8,441
Financial expenses	9	-33,136	-37,745
Financial income and expenses, total		-29,426	-29,304
Profit before taxes		-27,958	-122,351
Income taxes	10	2,851	18,743
Net profit for the financial year		-25,107	-103,608
Attributable to
Equity holders of the parent company		-22,807	-104,355
Non-Controlling interests		-2,301	747
Earnings per share attributable to equity holders of the parent company	11	-0.15	-1.52
Earnings per share attributable to equity holders of the parent company (diluted)	11	-0.15	-1.52

1 The company has clarified the presentation between the lines.
2 The company has separated income and expenses on currency derivatives on its own row from 1.1.2020 and restated the presentation for the year 2019.

STATEMENT OF COMPREHENSIVE INCOME

EUR 1,000	Note	2020	2019
Net profit for the financial year		-25,107	-103,608
Other comprehensive income
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
Gains and losses arising from translating the financial statements of a foreign operation		-3,260	2,389
Share of other comprehensive income of associated companies and joint ventures	16	-15,060	9,148
Other comprehensive income for the year, net of tax		-18,320	11,537
The share of comprehensive income attributable to equity holders of the parent company		-18,569	11,498
Non-controlling interests in comprehensive income		249	39
Total comprehensive income for the year		-43,427	-92,071
Total comprehensive income attributable to:
Equity holders of the parent company		-41,375	-92,857
Non-Controlling interests		-2,052	786

SRV | FINANCIAL STATEMENTS 2020

CONSOLIDATED BALANCE SHEET

EUR 1,000	Note	2020	2019
ASSETS
Non-current assets
Property, plant and equipment	13	3,755	5,456
Property, plant and equipment, Right-of-use asset¹	13	10,699	12,005
Goodwill	14	1,734	1,734
Other intangible assets	14	1,210	1,510
Shares in associated and joint venture companies	16	48,144	59,530
Other financial assets	15, 17	22,220	11,858
Receivables	15, 18	9,389	15,857
Loan receivables from associated companies and joint ventures	15, 21	44,281	43,995
Deferred tax assets	19	41,585	36,391
Non-current assets, total		183,017	188,336
Current assets
Inventories	20	355,262	376,121
Inventories, Right-of-use asset¹	20	118,752	132,904
Account and other receivables	15, 22	143,534	118,673
Loan receivables from associated companies and joint ventures	15, 21	1,601	62
Current tax receivables		5	184
Cash and cash equivalents	23	96,748	27,728
Assets classified as held for sale	24	-	69,326
Current assets, total		715,901	724,998
ASSETS TOTAL		898,918	913,334
EUR 1,000	Note	2020	2019
---	---	---	---
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent company
Share capital	25	3,063	3,063
Invested free equity fund	25	264,680	142,543
Translation differences	25	-19,953	-1,385
Hybrid Bond	25	15,360	82,900
Retained earnings		-78,183	-49,522
Equity attributable to equity holders of the parent company, total		184,967	177,598
Non-controlling interests		-4,016	-2,009
Equity, total		180,951	175,589
Non-current liabilities
Deferred tax liabilities	19	2,352	2,439
Provisions	26	12,384	10,907
Interest-bearing liabilities excluding lease liabilities	15, 27	234,857	276,453
Interest-bearing lease liabilities¹	27	133,588	147,672
Other liabilities	15, 28	20,817	20,858
Non-current liabilities, total		403,998	458,329
Current liabilities
Account and other payables	15, 28	284,463	244,306
Current tax payable		713	668
Provisions	26	11,430	8,828
Interest-bearing liabilities excluding lease liabilities	15, 27	14,796	23,160
Interest-bearing lease liabilities¹	27	2,566	2,454
Current liabilities, total		313,968	279,415
Liabilities, total		717,966	737,745
EQUITY AND LIABILITIES, TOTAL		898,918	913,334

¹ Items related to IFRS 16 standard

SRV | FINANCIAL STATEMENTS 2020

CONSOLIDATED CASH FLOW STATEMENT

EUR 1,000	2020	2019
Cash flows from operating activities
Cash receipts from customers	953,556	1,061,778
Cash receipts from other operating income	3,331	627
Cash paid to suppliers and employees	-888,665	-1,043,614
Net cash before interests and taxes	68,222	18,790
Interests received and other financial income	7,637	325
Interests paid and other expenses from financial costs	-29,560	-29,300
Income taxes paid and received	38	-542
Cash flow from operating activities	46,337	-10,727
Cash flows from investing activities
Purchase of tangible and intangible assets	-819	-1,957
Sale of tangible and intangible assets	834	0
Purchase of investments	-4,586	0
Proceeds from sale of investments	11,030	5,500
Investments in associated companies and joint ventures	-7,396	-15,971
Associated companies and joint ventures sold	28,004	987
Increase in loan receivable from associated companies and joint ventures	-2,742	-5,970
Decrease in loan receivable from associated companies and joint ventures	2,500	26,524
Loans granted	-177	-15,746
Proceeds from repayments of loans	0	684
Net cash used in investing activities	26,648	-5,948
Cash flows from operating and investing activities in total	72,985	-16,675
EUR 1,000	2020	2019
---	---	---
Cash flow from financing activities
Net cash from share issue	40,798	0
Share issue costs	-3,378	0
Proceeds from loans	9,000	64,978
Repayment of loans	-17,352	-41,735
Proceeds from Hybrid bond	0	58,400
Repayment of hybrid bond	0	-20,500
Hybrid bond costs	0	-1,136
Hybrid bond interests	-427	-4,240
Change in housing corporation loans	-9,705	-27,843
Net change in short-term loans	-18,500	-73,294
Dividends paid	-70	0
Repayment of lease liabilities	-2,609	-3,854
Net cash flow from financing activities	-2,243	-49,224
Net change in cash and cash equivalents	70,742	-65,899
Cash and cash equivalents at the beginning of period	27,728	93,074
Effect of exchange rate changes in cash and cash equivalents	-1,724	554
Cash and cash equivalents at the end of period	96,748	27,728

SRV | FINANCIAL STATEMENTS 2020

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Equity attributable to equity holders of the parent company

EUR 1,000	Share capital	Invested free equity fund	Translation differences	Hybrid Bond	Retained earnings	Total	Non-controlling interests	Equity Total
Equity, total, 1 Jan 2020	3,063	142,543	-1,385	82,900	-49,522	177,598	-2,009	175,589
Net profit for the financial year	-	-	-	-	-22,807	-22,807	-2,301	-25,107
Other comprehensive income items (with the tax effect)
Foreign currency translation differences for foreign operations	-	-	-3,508	-	-	-3,508	249	-3,260
Share of other comprehensive income of associated companies and joint ventures	-	-	-15,060	-	-	-15,060	-	-15,060
Other financial assets	-	-	-	-	-	-	-	-
Other comprehensive income total	-	-	-18,569	-	-	-18,569	249	-18,320
Comprehensive income for the review period	-	-	-18,569	-	-22,807	-41,375	-2,051	-43,427
Transactions with the owners
Dividends paid	-	-	-	-	-	-	-70	-70
Share-based incentive plan	-	-	-	-	489	489	-	489
Right issue	-	49,799	-	-	-	49,799	-	49,799
Hybrid bond conversion, 2016	-	14,017	-	-12,700	-1,053	264	-	264
Hybrid bond conversion, 2019	-	61,025	-	-54,840	-4,948	1,237	-	1,237
Cost related to share issues excl. taxes	-	-2,703	-	-	-	-2,703	-	-2,703
Hybrid bond interests	-	-	-	-	-342	-342	-	-342
Other changes	-	-	-	-	-	-	114	114
Transactions with the owners, total	-	122,138	-	-67,540	-5,854	48,744	44	48,788
Equity, total, 31 Dec. 2020	3,063	264,680	-19,953	15,360	-78,183	184,967	-4,016	180,951
Equity, total, 1 Jan 2019	3,063	142,543	-12,884	45,000	58,651	236,372	-2,760	233,612
Net profit for the financial year	-	-	-	-	-104,355	-104,355	747	-103,608
Other comprehensive income items (with the tax effect)
Foreign currency translation differences for foreign operations	-	-	2,350	-	-	2,350	39	2,389
Share of other comprehensive income of associated companies and joint ventures	-	-	9,148	-	-	9,148	-	9,148
Other financial assets	-	-	-	-	-	-	-	-
Other comprehensive income total	-	-	11,498	-	-	11,498	39	11,537
Comprehensive income for the review period	-	-	11,498	-	-104,355	-92,857	786	-92,071
Transactions with the owners
Dividends paid	-	-	-	-	-	-	-35	-35
Share-based incentive plan	-	-	-	-	63	63	-	63
Sale of treasury shares	-	-	-	-	-	-	-	-
Purchase of treasury shares	-	-	-	-	-	-	-	-
Share issue	-	-	-	-	-	-	-	-
Tax cost related to share issue	-	-	-	-	-	-	-	-
Hybrid Bond, 2016	-	-	-	-20,500	-3,393	-23,893	-	-23,893
Hybrid Bond, 2019	-	-	-	58,400	-485	57,915	-	57,915
Other changes	-	-	-	-	-	-	-	-
Transactions with the owners, total	-	-	-	37,900	-3,815	34,085	-35	34,050
Equity, total, 31 Dec. 2019	3,063	142,543	-1,385	82,900	-49,522	177,598	-2,009	175,589

SRV | FINANCIAL STATEMENTS 2020
33

Notes to the consolidated financial statements

Description of operations

SRV Group Plc and its subsidiaries (SRV Group) comprise one of Finland's leading project management contractors that builds and develops commercial and business premises, housing as well as industrial and logistics projects in Finland, Estonia and Russia.

In line with the Group's strategy, business operations are organised into two segments: Construction and Investments. The main companies are SRV Construction Ltd and SRV Russia Oy.

The Construction segment covers all of SRV's construction activities including the capital and plots required for developer-contracted housing production. It is SRV's intention to develop, build and sell these plots to a faster schedule than those we report on in the Investments segment. Construction encompasses housing construction, business construction, technical units and procurement, as well as internal services in Finland and Russia.

The Investments segment encompasses both complete and incomplete sites in which the company is a long-term investor. Plots that SRV will develop itself, and whose expected profits will be generated through development and longer-term ownership, are also reported on under Investments. The Investments segment focuses on the management and realisation of the Group's real estate investments; the creation and ownership of new joint investment structures; and the operation of selected properties.

Other operations and eliminations include the group functions of the parent company, SRV Group Plc, and the Project Development Unit's property and project development activities. Group eliminations are also included in this unit. Deferred tax assets and liabilities have been allocated in full to Other operations and eliminations.

The Group's parent company, SRV Group Plc (the Company), is a Finnish public limited company that is domiciled in Espoo, Finland. The Company's registered address is Tarvonsalmenkatu 15, 02601 Espoo.

The Company's Board of Directors approved these consolidated financial statements on 2 March 2021.

Accounting policies

Basis of presentation

The consolidated financial statements have been prepared on 31 December 2020 in accordance with IFRS (International Financial Reporting Standards). International Financial Reporting Standards refer to the standards and their interpretations issued and approved for application within the EU in accordance with the procedure prescribed in EU regulation (EC) 1606/2002. The financial statements are presented in thousands of euros unless otherwise stated.

The consolidated financial statements have been prepared based on a historical cost basis, except for financial assets and liabilities at fair value through income statement, financial assets and liabilities measured at fair value through income statement and derivative contracts measured at fair value as well as share-based payments which are measured at fair value.

Following standards, interpretations and amendments have been applied beginning from 1.1.2020:

Definition of Material - Amendments to IAS 1 and IAS 8

The IASB has made amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors which use a consistent definition of materiality throughout International Financial Reporting Standards and the Conceptual Framework for Financial Reporting, clarify when information is material and incorporate some of the guidance in IAS 1 about immaterial information.

The Group has taken into account the definition of materiality when preparing the consolidated financial statements.

Definition of a Business - Amendments to IFRS 3

According to the revised definition of a business, the acquired activities and assets must consist of inputs and a substantive process that must together significantly contribute to creating outputs. The definition of "output" is amended such that it focuses on providing goods and services to customers, generating investment returns and other income, and does not include returns in the form of lower costs or other economic benefits.

Due to the amendments, it is likely that more acquisitions than before will be treated as acquisitions of assets. The change has no significant impact on the consolidated financial statements.

Revised Conceptual Framework for Financial Reporting

Changes to the conceptual framework of IFRSs. Key changes are following: increasing the prominence of stewardship in the objective of financial reporting, reinstating prudence as a component of neutrality, defining a reporting entity, which may be a legal entity, or a portion of an entity, revising the definitions of an asset and a liability, removing the probability threshold for recognition and adding guidance on derecognition, adding guidance on different measurement basis, and stating that profit or loss is the primary performance indicator and that, in principle, income and expenses in other comprehensive income should be recycled where this enhances the relevance or faithful representation of the financial statements. The change has no significant impact on the consolidated financial statements.

Changes in IFRS 9, IAS 39 and IFRS 7 standards

The amendments modify some specific hedge accounting requirements to provide relief from potential effects of the uncertainty caused by the IBOR reform. In addition, the amendments require companies to provide additional information to investors about their hedging relationships

which are directly affected by these uncertainties. The change has no significant impact on the consolidated financial statements.

The following standards, amendments and interpretations shall be applied as from the financial period beginning on 1 January 2021 or thereafter. The Group's management is reviewing the impact of future standards, amendments and interpretations on the consolidated financial statements:

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest

The IASB has issued amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 that address issues arising during the reform of benchmark interest rates including the replacement of one benchmark rate with an alternative one. Given the pervasive nature of IBOR-based contracts, the amendments could affect companies in all industries.

The amendments cover:

Accounting for changes in the basis for determining contractual cash flows as a result of IBOR reform
Additional temporary exceptions from applying specific hedge accounting requirements to avoid failure of hedge relationships solely due to IBOR reform
Additional IFRS 7 disclosures related to IBOR reform

Impacts of the coronavirus on SRV's financial reporting

SRV continuously assesses how the coronavirus epidemic is developing and its potential impacts on financial reporting.

As part of its previously announced recovery programme, the company carried out numerous measures, such as divestments of assets, refinancing and two share issues during the first part of the year.

SRV has made use of several stimulus measures introduced in response to the coronavirus epidemic. The most significant of these are payment arrangements for VAT and compulsory employer contributions. The company is updating its accounting principles to take these arrangements into consideration. Trade and other payables related to ordinary operations that involve the obligation to pay interest when payments are delayed or when payment arrangements have been instituted are classified as non-interest-bearing liabilities even after interest is incurred. At the end of the financial period, other liabilities included EUR 47.4 million in tax liabilities for which the tax authorities had granted payment arrangements by the end of the period. In accordance with these payment arrangements, the company must repay the tax liabilities in even instalments such that they have been repaid in full in June 2022. Interest of 2.5 per cent is paid on the liabilities covered by the payment arrangement.

The potential risks arising from the coronavirus pandemic that, if realised, could impact the company's result, balance sheet and cash flows are described below. Other potential coronavirus-related risks to SRV's business have been described in the section of the report of the Board of Directors titled ‘Risks, risk management and corporate governance'.

Potential financial risks associated with the coronavirus pandemic

It is difficult to forecast the impacts of the coronavirus pandemic (including the timing, duration and extent of these impacts) on the global economy, on the economy in SRV's operating countries, and on SRV's business and that of its subcontractors and customers, particularly as both the situation and resulting government measures are changing very rapidly.

The pandemic and its associated restrictions are affecting both the company's subcontractors and employees. Impacts on subcontractors may lead to a rise in material prices and increased problems and disruptions in material delivery logistics. Combined with sickness absences and restrictions on the movement of SRV personnel, they could lead to delays or the suspension of work on construction sites. This could in turn have a negative impact on the amount of revenue that can be recognised from projects and when it can be recognised, and also on project profit margins and the profitability of SRV's business.

An epidemic or pandemic may significantly impact the financial position and financing of SRV's customers, which can in turn lead to development projects being delayed, temporary shutdowns of construction sites, cancellations of agreed orders, and the postponement of start-ups. A deterioration in customers' financial positions may also lead to an increase in SRV's credit losses as trade receivables decrease in value.

The coronavirus-related restrictions placed on the business activities of shopping centre tenants, including any potential rent reductions for tenants have led and may lead to lower income from the shopping centres operated by SRV in Russia. They may have an impact on the value of loan receivables, either those from the associated companies that own the Russian shopping centres or those of SRV's holdings in associated companies. Lower-than-expected rental income could also affect the additional sale price that may potentially be obtained from the sale of the REDI Shopping Centre. The value of the additional sales price of the REDI shopping centre was decreased by EUR 13.0 million during the fourth quarter on the basis of an updated cash flow-based forecast.

The pandemic could also affect demand for SRV's projects and services, such as commercial premises and housing. Reduced demand could have a negative impact on SRV's future revenue, cash flow, liquidity and, for example, whether SRV will be able to meet the covenants for its financing agreements. The pandemic may also affect the availability of project and working capital financing. A protracted pandemic could also lead to a reduction in the value of SRV's financial assets, deferred tax assets, unbuilt plots, and any development projects classified as inventories. In addition, the progress of the pandemic in Russia may affect the exchange rate of the rouble and, consequently, the valuation of SRV's assets located in Russia.

Use of estimates

The preparation of financial statements in accordance with IFRS requires the Group's management to make certain estimates and exercise judgement in applying accounting policies. The estimates and assumptions have an effect on balance sheet assets and liabilities as well as on revenues, expenses and contingent liabilities for the reporting period. Estimates and assumptions have been used for example in the impairment testing of goodwill, property, plant and equipment and intangible assets, in the revenue recognition of construction contracts, in the measurement of current assets, in the measurement of warranty and other provisions, in the valuation of investments in associates and joint ventures, in the recognition of current income tax assets and liabilities, and the measurement of assets held for sale.

This Financial statement has been prepared on a going concern basis, as SRV's management considers that there are no material uncertainties concerning the ability to continue as a going concern. In addition to the coronavirus-related risks detailed above, the future development of the Group's operations will be affected by factors such as its earnings trend, availability of financing for projects that tie up capital, sufficiency of liquidity, and the development of the situa

SRV | FINANCIAL STATEMENTS 2020
35

tion in Russia and the rouble exchange rate. The Group's management has made estimates of the future revenues, operating margins, investments, financial position, the expected cash flows from investments and loan receivables of associated and joint ventures and working capital requirements of the companies.

When it is probable that total costs necessary to complete a project will exceed total revenue obtained from the project, the expected loss is recognised immediately as an expense.

Development and developer-contracted projects may include variable considerations that may result, for example, from delay penalties and lease liabilities. Recognition of revenue is deferred for the estimated rental liability and this estimated share of project revenue is recognised as an advance received. Rental security deposits reduce project-related advances received. Uncertainties associated with signed lease agreements are taken into account in recognition of revenue.

The Group carries out an annual impairment testing of goodwill and intangible assets having an indefinite useful life. The recoverable amounts of cash-generating units have been defined on the basis of value in use calculations. The preparation of these calculations requires use of estimates.

Warranty provisions and 10-year warranty provisions are recorded when the amount of the provision can be estimated reliably. The recorded amount is the best estimate of the expected cost that will be required to meet the claim as of the balance sheet date. The estimate concerning probability of costs is based on previous similar events and previous experience and it requires judgement from the Group management.

When preparing the financial statements the Group estimates the net realisable value of current assets and the possible consequent need for write down. Estimates of net realisable value are based on the most reliable evidence available at the time the estimates are made as to the amount the inventories are expected to realise. Assessing the need for impairment of inventory items may require management to make estimates of matters such as the future costs of development and construction, the future income and expenses accruing from the item, the market return requirement at the time of realisation and the sale value of the item.

The Group's relevant holdings in associated companies and joint ventures are investments in construction projects, particularly shopping centres, together with other investors. The Group assesses the value of these investments in connection with financial statements and when there are indication of impairment. Based on an assessment of the value of the associated companies and joint ventures that own completed properties, a valuation calculation is prepared for properties. For significant investments, the Group obtains external property assessments, if necessary. The determination of the present value of investments is subject to assessment because present value calculations include, for example, future rental income, rental discounts given, turn-over based rental income, occupancy rate, the running costs of the property, the required return (yield) and, with respect to shopping centres in Russia, assumptions about changes in the currency exchange rate.

When preparing the financial statements the Group especially estimates if there is a need for recognition of deferred taxes. The Group prepares an estimate about the probability of the profits of group companies against which the unused tax losses or unused tax credits can be used.

SRV has estimated the impacts of the risks caused by the coronavirus epidemic on the Financial Statement income statement and balance sheet. In particular, the company has assessed whether there are indications of the impairment of assets or the need to update provisions or other accounting estimates.

On 31 December 2019, SRV's holding in the Pearl Plaza shopping centre was designated as an asset held for sale and measured at its probable selling price less costs of sale, as its sale during the next 12 months was considered likely. Negotiations on the sale of Pearl Plaza progressed well in early 2020, when it was considered highly likely that a deal would be made. The coronavirus pandemic slowed down the negotiations. The second wave of the pandemic was ultimately the major reason why the sales negotiations ended without reaching an agreement. Pearl Plaza was reclassified as a holding in associated companies and joint ventures during the fourth quarter when the sales negotiations ended without reaching an agreement. Due to this reclassification, an impairment recognised in 2019 was reversed, with a positive impact of about EUR 6.9 million on operating profit for 2020 and combined retrospectively its share of the joint venture result for the financial year 2020.

In addition, a write-down of about EUR 5.4 million for SRV's holding in Okhta Mall and a write-down of EUR 0.8 million for the Ratsume-starinkatu 6 commercial property in Porvoo were recognised in operative operating profit. The company also recognised EUR 0.5 million in income with a cash flow impact due to the final dissolution of the investment in the VTBC fund.

Consolidated Financial Statements

Subsidiaries

The consolidated financial statements comprise all such companies that belong to parent company SRV Yhtiöt Oy where the Group has authority. The Group has authority in a company if the Group, by being involved in it, is susceptible to or entitled to its changing revenue, and is capable of exerting an impact on the revenue concerned by applying its authority in a manner that affects the company concerned. The subsidiaries will be combined within the consolidated financial statements from the day that authority is transferred to the Group, and the combination will end on the day when this authority ceases. The balance sheet items of self-sufficient construction projects are comprised within the consolidated financial statements.

The financial statements of the SRV Group have been consolidated using the purchase method. Acquisition cost is determined by taking into account funds given as consideration and measured at fair value, and liabilities assumed, as well as the direct costs of an acquisition. Acquired and identifiable assets and liabilities are measured at fair value at the acquisition date, irrespective of the size of any non-controlling interests. The amount by which the cost exceeds the fair value of Group's share of the net identifiable assets acquired is recorded as goodwill. If the acquisition cost is less than the fair value of the acquired subsidiary's net assets, this difference is recorded directly to the income statement.

The accounting policies of subsidiaries have been changed as necessary to correspond the Group's accounting policies. Intra-group transactions, receivables and liabilities as well as unrealised gains on intra-group transactions are eliminated in the consolidated financial statements. Unrealised losses are eliminated if the loss is not caused by impairment.

The group recognizes non-controlling interests in an acquired entity either at fair value or at the non-controlling interest's proportionate share of the acquired entity's net identifiable assets.

Non-controlling interests have been presented separately after Net profit for the period and in Total equity. Losses applicable to non-controlling interests in a subsidiary are allocated to non-controlling interests, even if doing so causes the non-controlling interests to have a negative balance.

Changes in the ownership share of the parent company in the subsidiary that do not lead to the loss of authority are treated as business operations affecting equity. When the authority of the Group ceases, the remaining ownership share is valuated to the fair value of authority on the loss date, and the change in book value is entered as an effect on income. This fair value functions as an original book value when the remaining share is later treated as an associated company, joint venture or as financial assets. In addition, amounts entered previously into other comprehensive income-based items respective to the enterprise concerned will be treated as if the Group had directly transferred the assets and liabilities connected with them. This may mean that amounts entered previously into other comprehensive income-based items will be transferred as effect on income.

Associated companies and Joint ventures

Associated companies are all enterprises in which the Group has considerable influence, but not authority. This is generally based on share ownership that generates 20--50% of the voting rights.

A joint arrangement is an arrangement of which two or more parties have joint control. Joint control is the jointly agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. A joint arrangement is either a joint operation or a joint venture. A joint venture is an arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement, whereas in a joint operation the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to arrangement.

The Group has applied the IFRS 11 standard to all joint arrangements from the outset of 2014 onwards. According to IFRS 11, the joint arrangements are classified as joint operations or joint ventures in compliance with the investors' contractual rights and obligations. The Group has assessed the character of its joint arrangements and has determined that they are joint ventures.

The associated companies and joint ventures are combined in the consolidated financial statements by using the capital share method. If the Group's share of associated company and joint venture losses exceeds the book value of the investment, the investment will be entered into the balance sheet with a value of zero, and the losses exceeding book value will be combined, unless the Group is not obligated to fulfilling the obligations of the associated company and joint venture. Associated company and joint venture investment contains the goodwill that has been generated from its acquisition. Non-realized profits and losses between the Group and associated companies and joint ventures are eliminated in accordance with the Group's ownership share. Non-realized losses are not eliminated if the transaction suggests a reduction in value of the transferred asset. The Group's ownership share from the share of financial year results from an associated company and joint venture is presented before business profit. The Group's share of the comprehensive income items of associated companies and joint ventures is presented, however, in consolidated comprehensive income. These arise particularly from the Group's share of the translation differences of associated companies and joint ventures operating in foreign currency.

The financial statement formulation principles observed by an associated company and joint venture have been amended as required to comply with the principles the Group observes.

In accordance with the Group's accounting principles, Group management judges the depreciation period for the finished asset as beginning after a period of two years, when the probability of sale, occupancy rate and other important criteria will be evaluated. Depreciation entries on asset items must begin no later than three years after the completion of the asset item.

Foreign currency transactions

Functional and presentation currency

Items of each group company included in the consolidated financial statements are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to Group Company (the functional currency). The functional currency of a group company may therefore differ from the currency used in its country of location. The consolidated financial statements are presented in euros, which is the parent company's functional currency.

Group companies

The income statements of those subsidiaries whose functional currency is not Euro are translated into euros using the average monthly rate. The balance sheets of subsidiaries are translated into euros using the rates at the balance sheet date. The translation differences arising from the use of different exchange rates are recorded in Translation differences under equity. In so far as the loans between the group companies are considered part of net investment in foreign subsidiaries, the currency exchange differences are recorded in Translation differences. When a foreign subsidiary is sold, the cumulative translation differences are recognised in the income statement as part of the capital gain or loss.

Transactions and balance sheet items

Transactions denominated in foreign currency are recorded using the exchange rate on the date of the transaction. Monetary foreign currency items in the balance sheet are measured using the exchange rate at the closing date. Non-monetary items denominated in foreign currency are measured using the exchange rate on date of the transaction. Exchange rate gains and losses on business operations are included in corresponding items above operating profit. Exchange rate differences of financing items are included in financial income and expenses.

Income recognition

Construction contracts

Sales revenue is recognised when control over goods or services is transferred to the customer. The customer obtains control when it is able to direct the use of goods or services and to obtain the benefit from them.

The Group's sales revenues consist of various types of residential and commercial projects as well as other sales. The revenue recognition practice is described in more detail in Note 3.

A share equivalent to SRV's own holding is eliminated from the margin of construction carried out for associated companies and joint ventures. This elimination is recognised as a reduction in revenue and is entered into the balance sheet under Advances received. The margin is realised when the holding is sold to an external party.

Order backlog

A construction project is included in the order backlog when the construction contract of

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the project has been signed or the decision to start construction has been made, and the contract agreement has been signed in developer contracting projects. In developer-contracted projects, the order backlog includes the plot in addition to construction. Moreover, in own-development projects, the order backlog may include the plot, and in revenue recognition it is part of the project. The order backlog consists of the share of the projects not yet recognised as revenue (including the plot). The order backlog also includes completed and unsold housing and business properties. The value of the order backlog is the expected amount of revenue to be recognised for projects.

Borrowing costs

Borrowing costs in projects that are implemented for clients outside the Group are recognised as expenses in the period in which they are incurred. In developer contracted housing projects, part of interest on borrowing costs is activated during the construction period (this is described in the section of the accounting policies covering inventories) and is recognised as an expense when the project is sold. These interest expenses are entered as project expenses above operating profit. In developer contracting of business premises, interest expenses are activated on the basis of management's estimates, as the sales prices of projects are not always known in advance.

Research and development expenditure

SRV Group does not have any actual research and development expenses. The Group has business-related project development costs, and the treatment of these is described in the section of the accounting policies covering inventories.

IFRS 16 Leases

According to the standard, all leases, except those subject to special exemptions under the standard, are recognised in the balance sheet. For all leases, a right-of-use asset (the right to use the leased asset) is recognised as an asset in the balance sheet and a financial liability representing the obligation to make lease payments is recognised in liabilities. In the income statement lease expenses are presented in depreciation and in financial expenses line. In the cash flow statement, lease payments are presented in the item 'interest paid and other expenses from financial costs' and the items 'proceeds from loans' and 'repayment of lease liabilities' under the cash flow from financing activities.

Group leasing activities and their accounting treatment

Land leases form the most significant proportion of the right-of-use assets on SRV Group's balance sheet. Land leases are usually long-term and are typically made on behalf of a real estate company being established. When the real estate company is sold and its management is transferred to the buyer, the lease and its obligations transfer to the buyer of the property. In addition to land leases, other significant leases include, for example, leases for the company's fixed operating locations, particularly in Finland and Russia, and leases for site equipment and vehicles. Leases for offices are generally made initially for a fixed term. The duration of the fixed term is generally 5 to 10 years, after which the lease continues for an indefinite period with 6-12 months' notice of termination. Leases for site equipment are generally made for an indefinite period with no specific notice of termination. Equipment is typically leased for 1 month to 12 months. Leases for vehicles are made for fixed terms and their duration is generally 24 months.

In its reporting, the company applies two exemptions included in the standard that relate to short-term leases and to leases where the underlying asset is of low value. Leases whose lease term is no more than 12 months and indefinite leases whose notice of termination is less than 12 months are considered to be short-term leases. The most significant short-term leases are mainly for site equipment. Low-value assets mainly include IT equipment and small items of office furniture. In addition, some minor leases, for example for vehicles and IT equipment are treated as a group according to the bundling principle.

At the commencement of the contract, the lease liability is valued at the present value of the lease payments payable over the lease term. In determining the present value of lease payments, an estimate of the lease term is required in some circumstances. Such situations, for example, relate to leases that have options to extend or terminate the lease. Such an option is taken into account in determining the lease term if it is reasonably certain that the option will be exercised. The lease liability also includes the amount to be paid on the basis of any residual value guarantee and the possible exercise price of a purchase option, if it is reasonably certain that the option will be exercised. There may also be penalty payments for terminating the lease. Such penalties are included in the amount of the lease liability if it is considered during the lease term that the Group will exercise this option.

Lease payments are discounted at the interest rate implicit in the lease if the interest rate is readily determinable, otherwise the interest rate on the lessee's incremental borrowing rate is used. Under IFRS 16, the lessee's incremental borrowing rate is the rate of interest that the lessee would have to pay to borrow, over a similar term and with similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. Land leases account for more than 90% of SRV Group's right-of-use assets, and the interest rate implicit in the leases is always used as their discount rate. For other leases, the rate implicit in the lease is primarily used and, alternatively, the incremental borrowing rate. The incremental borrowing rate is an estimate of what the company would have to pay to borrow, over a similar term and with similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The incremental borrowing rate used by the company in the last financial period was 5%.

The acquisition cost of a right-of-use asset consists of the liability initially measured under the lease, any lease payments paid by the commencement date of the lease, any initial direct costs incurred by the lessee and the costs of restoration to the original condition. Any incentives received are deducted from the acquisition cost of the underlying asset. Subsequent measurement of the right-of-use asset is based on the acquisition cost model, whereby the right-of-use asset is measured at acquisition cost less depreciation and impairment. Depreciation is recognised on a straight-line basis over the lease term. If the lease transfers the ownership of the underlying asset to the lessee by the end of the lease term or if the acquisition cost of the underlying item takes into account that the lessee will exercise the option to purchase, the underlying asset is amortised over its useful life.

The Group is exposed to possible increases in variable rents based on an index or price that are not taken into account in the lease liability until they occur. When changes in rents based on an index or price occur, the lease liability is reassessed and adjusted against the right-of-use asset.

The rents paid are allocated to capital and financial expenses. Financial expenses are recognised through profit and loss over the lease term,

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such that the interest rate of the outstanding liability is the same in each period.

Accounting principle for plot leases

The SRV Group presents right-of-use assets related to leased plots as inventories, because plots directly owned by the Group are presented as inventories and the same principle is also applied in the presentation of right-of-use assets. From the beginning of construction, the depreciations of the leased plots are recognised as part of the cost of the construction project. The interest expense on the lease liability presented in balance sheet liabilities is capitalised as part of the cost of the construction project.

Accounting principle for premises leases

The SRV Group presents right-of-use assets related to premises in balance sheet non-current assets and in financial liabilities in respect of the obligation to make lease payments in liabilities. The most significant premises leases in the SRV Group are the lease for the company's head office leases and leases for regional offices in Finland and Russia.

Accounting principle for site equipment leases

Leases for site equipment are almost without exception typically leases with an indefinite lease term. Such leases generally entitle the company to decide to terminate the contract for each leased item at its chosen time. Site equipment is generally leased to the site for a special work stage, in which case the lease term is usually for less than 12 months. Due to the short lease terms and flexible termination conditions, the exemption for short-term leases under IFRS 16 is generally applied to site equipment leases. If, however, a site equipment lease is made for a fixed term, and the lease is not low value, the lease is subject to the same accounting principle as described above for premises leases.

Accounting principle for office equipment leases

Leases for IT equipment typically concern office IT equipment such as printers, multifunction devices and computers. The exemption for low-value asset items is applied to these assets. Leases for IT equipment also include contracts that cannot be considered to be low value and short term. Such agreements include, for example, IT server leases. The same accounting principle as described above for premises leases is applied to such leases, but such that the asset items are treated as a single entity in accordance with the bundling principle. IT equipment lease terms are typically 24 or 48 months long.

Accounting principle for leased vehicles

Leases of leased vehicles are subject to the same accounting principle as described above for premises leases, but such that the asset items are treated as a single entity in accordance with the bundling principle. Leases for leased vehicles are typically 24 months long.

Property, plant and equipment

Property, plant and equipment is entered into the consolidated balance sheet at acquisition cost less accumulated depreciation and any accumulated impairment losses. Acquisition cost includes the expenses directly related to acquiring the asset. Assets are subject to straight-line depreciation over the estimated useful financial life of the asset. Land and water areas are not depreciated because the useful financial life of these assets cannot be determined.

Depreciation is recognised as an expense over the estimated useful financial life of an asset as follows:

Buildings: 40–60 years
Production machinery and equipment: 3–10 years
Office fittings: 3–10 years
IT equipment: 3–5 years
Vehicles and rolling stock: 5 years
Other tangible assets: 5–10 years

The carrying amounts and economic lives of property, plant and equipment are estimated and values adjusted as needed. The Group estimates at every balance sheet date if there is a need for impairment. If the carrying amount of an asset item exceeds the estimated recoverable amount, the carrying amount is lowered to correspond the recoverable amount. When controlling interest is lost in the current asset company in a transaction carried out, its remaining holding is measured at fair value.

Capital gains and losses on property, plant and equipment are included in the income statement, other operating income or other operating expenses.

Intangible assets

Intangible assets which have a limited useful life are valued at historical cost and amortised over their estimated economic life (3–5 years). Intangible assets which have an unlimited useful life are tested yearly for impairment.

Goodwill is the excess of the cost of the business combination over the fair value of the Group's share of acquired net assets. Goodwill is subject to an annual impairment test. For this purpose, goodwill has been allocated to cash-generating units. Goodwill is measured at historical cost less impairment. Impairment is expensed directly to the income statement.

Assets that are depreciated or amortised are always tested for impairment when events or changes in circumstances indicate the carrying amount may not be recovered. Impairment is recorded through profit and loss to the extent that the carrying amount of the asset item exceeds the recoverable amount. The recoverable amount is the higher of the following: the fair value of the asset item less selling costs or its value in use.

Financial assets and liabilities

The Group classifies its financial assets and liabilities in the following groups:

Financial assets: Financial assets at amortised cost or at fair value through profit or loss

Financial liabilities: Financial liabilities recognised at fair value through profit or loss, or at amortised cost using the effective interest rate method.

The Group measures financial assets at amortised cost when the objective of the business model is to hold the assets and collect all the contractual cash flows, and when the contractual cash flows of the instrument consist only of payments of principal and interest. All other financial assets are recognised and measured in the Group at fair value through profit or loss.

A Group entity records financial assets and liabilities in its balance sheet when – and only when – it becomes a party to the contractual terms and conditions of the instrument. When an entity recognises a financial asset for the first time, it must classify financial assets and financial liabilities into the categories specified above.

A Group entity derecognises a financial asset item from the balance sheet when the contractual rights to the cash flows from the financial asset cease to exist or when it transfers the financial asset to another party and a significant part of the risks and benefits of ownership have been transferred to the other party.

A financial liability is derecognised from the balance sheet when the obligation specified in the contract has been discharged, cancelled or expired.

Financial assets are long-term when their maturity is over 12 months and short-term when the remaining maturity is less than 12 months. Other financial assets are included in long-term fi

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nancial assets unless there is an intention to relinquish the investment within 12 months of the balance sheet date.

Financial liabilities are classified as short-term if their maturity is under 12 months or if the Group does not have the absolute right to repay them at least 12 months after the end of the reporting period. Otherwise, they are classified as long-term.

Derivative instruments

The Group designates derivative instruments at the time of entering into the contract as either cash flow hedges of business or financing cash flows or as hedges of investments in foreign entities. Derivatives are entered into for hedging purposes and on their basis the receivables and liabilities in the balance sheet are small. Contracts concluded with the counterparties of derivative instruments are based on the ISDA Master Agreement. According to the terms of the arrangements, if certain events occur (such as payment default), the net receivable or liability position of an individual counterparty in the same currency is designated as a liability and all related arrangements are terminated. As SRV does not have a legally enforceable offsetting right at the closing date, said amounts have not been deducted from each other in the balance sheet.

Group's Treasury unit is responsible for the hedge transactions according to the policy approved by the Board of Directors. During the fiscal year 2020 and 2019 there were no hedges qualifying for IFRS hedge accounting.

Items recognised at fair value through profit or loss

The derivative instruments used by the Group are classified at fair value through profit or loss. Derivatives are initially recognised in the balance sheet at fair value on the transaction day and thereafter measured at fair value on each balance sheet date. The fair value of interest rate swaps is usually zero at the original time of recognition. Changes in fair values of interest rate swaps are recognised in the income statement under other financial income and expenses and in the balance sheet under financial assets or liabilities. Foreign exchange option premiums are considered to amount to the fair value at the time of acquisition.

Changes in the fair values of foreign exchange forward contracts and options are recognised in the income statement under other financial income and expenses, because they are used primarily to hedge against currency rate gains and losses included in the share of associated companies' income.

Other financial assets may include both quoted and non-quoted shares and they are measured at fair value through profit or loss. The fair value of the investment is determined on the basis of the investment's bid price. In the event that there are no quoted bid prices for the other financial assets, the Group will apply various valuation methods to their valuation. These are, for example, recent transactions between independent interests, discounted cash flows, or other similar types of instrument valuations.

Measured at amortised cost

Financial assets measured at amortised cost are trade receivables, other receivables and loan receivables from associated companies.

Financial assets measured at amortised cost are initially measured at fair value less transaction costs. After initial recognition, they are recognised at amortised cost. Interest is recognised in the income statement over the maturity of the loan using the effective interest method.

Impairment

The project customers are mainly large, well-known companies with solid finances. If there is no information on the customer's solvency, the information is checked from public trade and credit information registers, with a security deposit required if necessary. For international commercial premises projects, more detailed customer background checks are carried out for new customers.

Due to the business model and customer profile described in the previous paragraph, the Group has not incurred any material credit losses over the last few years, and no material credit losses are expected regarding the items included in the balance sheet at closing date.

Loan receivables from associated companies and joint ventures are tested for impairment using a three-stage model.

The Group's management first reviews the expected cash flows for the loan receivables from associated companies and joint ventures together with the associated company investments and regularly assesses whether the credit risk related to the receivables has increased significantly after they were initially recorded. If the credit risk associated with a receivable is deemed to be low or if the credit risk has not significantly increased after it was initially recorded, the receivable is included in Stage 1 and the impairment is measured based on an estimate of the probability of credit losses occurring within 12 months. The Group's management has estimated that the loan receivables in the balance sheet at closing date are mainly included in Stage 1, with no material credit losses expected for them. However, the Group's management continuously assesses the likelihood of credit loss risks and monitors any developments in the situation.
If it is discovered that the credit risk concerning a loan receivable has increased significantly, the loan receivables are transferred to Stage 2, in which case the associated likelihood of loss is assessed over the entire lifetime. In this case, the credit loss is recorded for the entire lifetime of the loan receivable and calculated by comparing future estimated cash flows for the entire lifetime with contractual cash flows. At closing date, the balance sheet included no loan receivables included in Stage 2.
If loan receivables are found to be impaired as a result of credit risk, they are transferred to Stage 3

Cash and cash equivalents

Cash and cash equivalents consist of cash, current bank deposits as well as other current liquid investments with a maturity not exceeding three months. Bank overdrafts are included in current liabilities in the balance sheet.

Non-current assets held for sale

Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell.

An impairment loss is recognised for any initial or subsequent write-down of the asset to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset, but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the noncurrent asset is recognised at the date of derecognition.

Non-current assets are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities related to non-current assets classified as held for sale continue to be recognised.

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Non-current assets classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities related to non-current assets classified as held for sale are presented separately from other liabilities in the balance sheet.

Hybrid bonds

The hybrid bonds (equity loans) do not have maturity dates at which the holder of the loan can demand repayment of the loan. The hybrid bonds are unsecured and subordinated to the Company's other debt instruments but senior to other equity instruments. However, the hybrid bonds do not confer shareholders' rights to bondholders.

Financial liabilities measured at amortised cost

Financial liabilities measured at amortised cost are initially recognised at fair value. Transaction costs have been included in the original carrying amount of financial liabilities. Interest is recognised in the income statement over the maturity of the loan using the effective interest method. Financial liabilities are recognised under non-current and current liabilities and they can be interest-bearing or non-interest-bearing.

The liability for repaying the principal and interest on company loans is transferred to the buyer of the apartment at apartment assignment. Regardless of whether the project is completed or not, but not yet assigned to the buyer, the principal and interest for the share of liabilities is presented in full in SRV's consolidated balance sheet, calculated until the due date of the loan. Interest and principal are removed from the table only when control is assigned.

Inventories

The costing of raw materials and consumables is measured using weighted average cost method.

The balance sheet item "Work in progress" comprises the cost of construction work and plot for uncompleted construction projects not yet expensed. The acquisition costs included in the Work in progress are raw materials, direct cost of labour, other direct costs, indirect costs of purchase and construction as well as borrowing costs in certain cases.

In SRV's developer-contracted housing projects, part of interest expenses on borrowing is capitalized during the construction period in current assets in accordance with the Group's capitalization rate. During the reporting period, SRV changed its capitalization practice such that, with respect to developer-contracted housing projects, interest expenses on borrowing are capitalized primarily using the project-specific financing cost. If the proportion of project-specific financing is not significant, the Group's capitalization rate is used in capitalizing interest expenses.

The significance of project financing obtained for developer-contracted housing projects has grown during the reporting period and, in addition, the cost of borrowing is currently significantly lower than the Group's average interest rate, so the new practice will, in the company's view, result in a more correct capitalization of interest expenses.

In the comparison year, the Group's general financing was mainly used for developer-contracted housing projects, and as a result, the revision of the capitalization practice would not, in the company's view, have a substantial impact on the comparison periods presented in the financial statements.

The balance sheet item "Land areas and plot-owning companies" comprises costs of development stage projects. The costs that are considered to increase the value of land areas and plot-owning companies are capitalised.

The balance sheet item "Shares in completed housing corporations and real-estate companies" comprises unsold completed projects.

The balance sheet item "Advance payments" comprises advance payments in connection with the inventories.

The balance sheet item "Other inventories" comprises share capitals from projects of which the decision to start construction has not yet been made and the property bought for resale.

Inventories are valued at the lower of cost and net realisable value. In ordinary business, net realisable value is the estimated selling price which is obtainable, less the estimated costs incurred in bringing the product to its present condition and selling expenses.

The net realisable value of land areas and plot-owning companies is based on their expected use. The net realisable value of land areas and plot-owning companies expected to be used in project operations is evaluated as part of the net realisable value of the entire project. Land areas and plot-owning companies are impaired only if it is forecast that the project as a whole will result in a loss. If it is expected that a land area or plot-owning company will be realised by sale, the net realisable value is based on the estimated market price. The net realisable value of work in progress and completed housing corporations and real-estate companies is based on their selling price at the expected time of sale.

Rental costs remitted to an external party can be activated to book value for the asset assigned to rent; such as, e.g. the rental agency's fees. Sales and marketing costs are not activated costs. In preparing the asset, the activated rental costs should be entered as expenditure along with the average duration of the rental agreements. The margin generated from rental services sold by the associated company and joint venture should be eliminated in relation to the ownership share.

Expenses arising from construction plans for plots managed mainly by SRV and classified as current assets are deemed eligible for activation when they can be reliably to have a positive impact on the value of the plot or project.

These expenses can be capitalised before a decision is made on the launch of construction.

Income taxes

Tax expense in the income statement comprises current taxes and deferred taxes. Current tax is calculated based on the taxable income for the financial period using the statutory tax rate that is force in each country at the balance sheet date (and local tax legislation). Taxes are recognised in the income statement, other than those related to items of other comprehensive income or items directly recognised as equity.

Taxes are adjusted for any taxes for previous periods.

Deferred tax assets or liabilities are recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. The deferred tax asset is recognized for unused losses and all temporary differences.

Deferred taxes are not recognised in connection with investments made in subsidiaries when the Group can control the timing of the reversal of the temporary difference, and the temporary difference will probably not be reverse in the foreseeable future. A tax asset is recognised to the extent when it is probable that the asset can be utilised against future taxable income. If a Group company has made a loss in the immediate past then, of the taxable loss, an imputed tax asset is recognised only up to the amount where the company has sufficient taxable temporary differences or other convincing evidence of the ability to utilise the taxable loss.

SRV | FINANCIAL STATEMENTS 2020

Employee benefits

Pension liabilities

Group companies have various pension plans in accordance with the local regulations and practices of each country of operation. Pension plans are funded through contributions paid to insurance companies based on paid salaries and wages. The Group has only defined contribution plans. The payments in connection with Group's defined contribution plans are recognised in the income statement in the period which they relate to.

Share-based payment

The Group applies IFRS 2 Share-based Payment standard on its share-based incentive schemes. Share-based incentive scheme share settled transaction are valued at fair value by using the share price at the time of granting and paid in cash are valued at fair value in every interim and annual closing. Changes in value are recognised in the income statement over their effective period. The share-based payments of the Group are cash or share settled transactions.

Provisions

A provision is recognised when the company has a legal or constructive obligation as a result of a past event, the payment obligation is probable and the amount of obligation can be reliably estimated. If compensation can be received from a third party for a part of the obligation, the compensation is recognised as a separate item when it is virtually certain that the compensation will be received. A provision is recognised for a loss-making contract when the costs required to meet the obligations exceed the benefits received from the contract.

SRV and its subsidiaries are re-engaged in several legal proceedings which relate to ordinary business or to other processes. The result of these legal proceedings and processes is difficult to predict. In case of litigation a provision is recognised in the financial statements according to the mentioned accounting policies when there is a legal or constructive obligation against third-party, payment obligation is probable and the amount of an obligation can be reliably estimated.

Warranty provisions comprise the costs resulting from the repair of completed projects if the warranty period is still in effect at the balance sheet date. A warranty provision is recognised at the time of the project hand-over, and the amount of provision is based on prior experience of the materialisation of warranty expenses. It is expected that warranty provisions are used during the two years from the completion of the project.

The level of the construction industry's 10-year warranty provision is based on index-adjusted historical information or the estimated total costs of certain individual projects. It is expected that a 10-year provision will be used over the ten years following the completion of the project.

Dividends

The dividend pay-out proposed by the Board of Directors to the Annual General Meeting is recognised in the financial statements when the company's shareholders have approved the relevant resolution at the Annual General Meeting.

SRV | FINANCIAL STATEMENTS 2020
42

1 SEGMENT INFORMATION

Segment information has been presented in accordance with IFRS 8 and following the accounting principles of the consolidated financial statements and the Group's management and organisational structure.

Pricing of transactions between segments takes place at current market prices. The assets and liabilities of segments are business items which the segments use in their operations or which on a reasonable basis can be allocated to the segments. Unallocated items include income tax and financial items as well as items common to the entire Group.

Operating segments

SRV Group has the following operating segments:

Construction

The Construction segment, which has operated since the beginning of 2019, covers all of SRV's construction activities, including the capital and plots required for developer-contracted housing production. It is SRV's intention to develop, build and sell these plots to a faster schedule than those we report on in the Investments segment. Construction encompasses housing construction, business construction, technical units and procurement as well as internal services in Finland and Russia. Construction employs approximately 800 people, i.e. the most of SRV's personnel.

Investments

The Investments segment, which has operated since the beginning of 2019, focuses on the management and realisation of the Group's real estate investments, the creation and ownership of new joint investment structures, and the operation of selected properties. Investments en compasses both complete and incomplete sites in which the company is a long-term investor. Plots that SRV will develop itself, and whose expected profits will be generated through development and longer-term ownership, are also reported on under Investments.

Other operations and elimination

Other operations and eliminations include the group functions of the parent company, SRV Group Plc, and the Project Development Unit's property and project development activities. Group eliminations are also included in this unit. Deferred tax assets and liabilities are allocated in full to Other operations and eliminations

Operating segment information

Segment information is reported in a manner consistent with internal reporting to the Chief Operating Decision Maker (CODM, as per IFRS 8). The CODM is the Group President & CEO, who is assisted decision-making by the Corporate Executive Team. Internal management reporting is consistent with segment reporting.

In financial year 2020, the Group had one significant customers under the IFRS 8 definition in the Construction operating segment. In 2019, there was two. The largest customer accounted for approximately 11% of the Group's revenue.

2020	Construction	Investments	Other operations and eliminations	Total
EUR 1,000
Revenue
Revenue recognition at a point in time	107,238	0	0	107,238
Revenue recognition over time	851,456	3,149	0	854,606
Other revenue	11,329	1,637	724	13,690
Total	970,024	4,787	724	975,534
Revenue, external	969,317	4,722	1,495	975,534
Revenue, internal	706	65	-771	0
Total	970,024	4,787	724	975,534
Included in operating profit:
Depreciations and write-downs, excluding Right-of-use asset	-1,405	-11,896	-477	-13,778
Depreciations and write-downs, Right-of-use asset	-3,859	-92	-1,146	-5,097
Operating profit	27,395	-22,382	-3,545	1,468
Segment's assets
Shares in associated and joint venture companies	2,360	45,784	0	48,144
Inventories total, excluding right-of-use asset	299,848	56,347	-933	355,262
Land areas and plot-owning companies	92,185	53,669	0	145,854
Work in progress	181,502	0	-886	180,616
Shares in completed housing corporations and real estate companies	22,085	2,672	0	24,757
Other inventories	4,076	5	-48	4,034
Loan receivables from associated companies and joint ventures	1,601	44,281	0	45,882
Right-of-use asset	119,236	1,057	9,157	129,450
Other assets	264,904	31,121	24,157	320,181
Total	687,949	178,589	32,381	898,919
Segment's liabilities, excluding Lease Liabilities	393,158	160,232	28,422	581,812
Segment's liabilities, Lease Liabilities	125,462	1,104	9,588	136,154
Total	518,621	161,336	38,010	717,966
Invested capital
At the end of period	386,796	171,875	8,088	566,759
Return on investment, %	7.6	-14.3		-0.8
Order backlog¹	1,153,364	-	-	1,153,364
Business construction	718,165
Housing construction	435,198

SRV | FINANCIAL STATEMENTS 2020
43

2019	Construction	Investments	Other operations and eliminations	Total
EUR 1,000
Revenue
Revenue recognition at a point in time	214,614	0	0	214,614
Revenue recognition over time	831,889	3,995	0	835,885
Other revenue	11,174	1,875	-2,599	10,450
Total	1,057,677	5,871	-2,599	1,060,949
Revenue, external	1,056,648	5,679	-1,378	1,060,949
Revenue, internal	1,029	192	-1,221	0
Total	1,057,677	5,871	-2,599	1,060,949
Included in operating profit:
Depreciations and write-downs, excluding Right-of-use asset	-1,683	-81,964	-359	-84,006
Depreciations and write-downs, Right-of-use asset	-4,801	-119	-1,118	-6,038
Operating profit	7,047	-92,511	-7,583	-93,047
Segment's assets
Shares in associated and joint venture companies	1,380	58,151	0	59,530
Inventories total excluding right-of-use asset	312,216	64,264	-360	376,121
Land areas and plot-owning companies	85,826	60,989	269	147,084
Work in progress	190,750	0	-580	190,170
Shares in completed housing corporations and real estate companies	30,508	3,267	0	33,775
Other inventories	5,132	8	-48	5,091
Loan receivables from associated companies and joint ventures	160	43,897	0	44,057
Right-of-use asset	133,331	1,358	11,264	145,953
Other asset	175,128	84,528	28,018	287,673
Total	622,214	252,198	38,922	913,334
Segment's liabilities, excluding Right-of-use asset	364,593	153,141	69,885	587,619
Segment's liabilities, Right-of-use asset	138,295	1,389	10,441	150,125
Total	502,888	154,531	80,326	737,745
Invested capital
At the end of period	372,868	245,744	6,717	625,328
Return on investment, %	3.0	-32.6		-15.2
Order backlog¹	1,344,219	0	0	1,344,219
Business construction	861,491
Housing construction	482,729

¹ The Group order backlog consists of the Construction business. The unrecognised margin corresponding to the holding is no longer included in the order backlog comparison figures. Capital employed and order backlog are unaudited.

2 ACQUISITIONS AND DISPOSALS

The company has sold business operations of SRV REAM Oy, which was responsible for operating the REDI shopping centre. The sale happened on 25 June 2020 to CBRE Finland. Its employees, a total of eight persons, transferred to the employ of CBRE Finland on 1 September 2020 under their existing terms of employment. The transaction had a very minor impact on the company's income statement and balance sheet. No business operations were acquired during the financial year. No new business operations were acquired or sold during the comparison period.

3 SALES REVENUE FROM CUSTOMER CONTRACTS

EUR 1,000	2020	2019
Revenue¹	975,534	1,060,949
Attributable to
Revenue recognition at a point in time	107,238	214,614
Revenue recognition over time	854,606	835,885
Other revenue	13,690	10,450
Total	975,534	1,060,949

¹ A breakdown of revenue by segment is reported in Note 1 Segment information.

Sales revenue for the following SRV project types is recognised at a point in time:
Developer-contracted residential project and commercial project

Sales revenue for the following SRV project types is recognised over time:
Fixed-price contract, project management contract, turnkey contract (overall responsibility for the construction), alliance contract, residential development project, commercial development project and shopping centre management.

EUR 1,000	2020	2019
Assets and liabilities based on customer contracts:
The Group's trade receivables and trade payables are mainly based on customer contracts. The Group's balance sheet includes the gross amount due related to customer contracts and other short-term advance payments.
Gross amount due based on customer contracts	13,011	12,545
Advance payments related to customer contracts	86,014	74,116

SRV | FINANCIAL STATEMENTS 2020
44

EUR 1,000	2020	2019
Sales revenue recognised related to liabilities based on customer contracts
Sales revenue recognised that was included in contract-based liabilities at the beginning of the period	74,116	119,675
Sales revenue recognised for performance obligations fulfilled in earlier periods	12,545	16,037

Customer contract performance obligations and significant judgment-based solutions

The Group's most common project types are project management contract, turnkey contract (overall responsibility for the construction), alliance contract, fixed-price contract, lifecycle project, residential development project, commercial development project, developer-contracted residential project and commercial project.

In SRV's contractor agreements and development projects, the management tasks and structural engineering work of a construction or renovation project management contact concerning a property owned by the customer have typically been agreed with the customer. Contract projects may include a number of different work stages and tasks. These mainly, however, form a single integrated entity that is handled as one performance obligation.

In developer-contracted projects, buyers of apartments may be offered a parking space or a removal service. In that case, the parking space and removal service are considered to be separate performance obligations. Typically, these are handed over and recognised as revenue at the same time as the apartment itself. Any possible consideration exemptions are equivalent to discounts and these are taken into account as an adjustment to the selling price.

The Group's contract projects include variable considerations resulting, for example, from penalties or from undershooting or overshooting the target price. Group management monitors and assesses variable considerations at the end of each reporting period. The transaction price used in revenue recognition is based on the most likely estimate. Of the estimated amount of variable consideration, only that portion is included in the transaction price and revenue only recognised up to an amount such that it is highly likely that no significant reversal will have to be made to the amount of accrued recognised sales revenue.

Development and developer-contracted projects also include variable considerations that may result, for example, from delay penalties and lease liabilities. Recognition of revenue is deferred for the estimated rental liability and this estimated share of project revenue is recognised as an advance received. Rental security deposits reduce project-related advances received. Uncertainties associated with signed lease agreements are taken into account in recognition of revenue.

Assets recognised as revenue over time are controlled by the customer, and the revenue and expenses of these customer projects are recognised as revenue and expenses based on percentage of completion, when the outcome of the project can be reliably estimated. Percentage of completion is determined by calculating for each project the share of expenses accrued by the balance sheet date relative to total expenses estimated for each project. The amount corresponding to the percentage of completion is recognised as revenue. When it is probable that total costs necessary to complete a project will exceed total revenue obtained from the project, the expected loss is recognised immediately as an expense. If the expenses and recorded profits arising from a customer project exceed the amount of progress billings, the difference is disclosed in the balance sheet item "trade and other re

ceivables". If expenses and recorded profits arising from a customer project are less than the amount of progress billings, the difference is disclosed in the balance sheet items "trade and other payables". Tables of payments are used in customer billing, and terms of payment for contracts typical for the industry are agreed.

Customer projects recognised as revenue at a point in time are recognised after control of the asset has been transferred and at the earliest after the completion of the project. The share of revenue and expenses corresponding to the percentage of sale at the time of completion is recognised as revenue for the projects.

Development and developer-contracted projects may include a separate financing component. A significant financing component may arise in factoring projects in which the factoring costs are charged from the client. On average, the construction time in Group factoring and developer contracting projects is less than two years, in which case the average financing period is less than a year. In these, the Group will apply the "practical expedient" for periods of less than a year as set out in IFRS 15.63. The Group also has projects with an average financing period of more than one year. In such projects, the treatment procedure for a substantial financing component is applied and the item recognised as a reduction in revenue and an adjustment of interest income on financial items.

Customer project warranty provisions comprise the costs resulting from the repair of completed projects if the warranty period is still in effect at the balance sheet date. A warranty provision is recognised at the time of the project handover, and the amount of provision is based on prior experience of the materialisation of warranty expenses. It is expected that warranty provisions will be used during the two years following the completion of the project. The level of the construction industry's 10-year warranty provision is based on index-adjusted historical information or the estimated total costs of certain individual projects. It is expected that a 10-year provision will be used over the ten years following the completion of the project.

The plots of development projects are recognised as revenue over time. The timing of the revenue recognition of plots is always assessed on a case-by-case basis, however.

EUR 1,000

Transaction price allocated to the remaining performance obligations of customer contracts		Within 1 year	Within 2 years	Within 3 years	Within 4 years
		71.9 %	22.6 %	5.6 %	0.0 %
The aggregate amount of the transaction price allocated to long-term customer project contracts that are partly or completely unfulfilled	984,986	708,075	222,142	54,769	0

In practice, the table reflects the amount of order backlog sold and its recognition as revenue in future years.

Assets from obtaining or fulfilling customer contracts

Sales commissions may be associated with projects recognised as revenue over time. Expenses arising from obtaining these contracts are capitalised in project costs and recognised as an expense over the term of the contract. During the reporting period and in the comparison period, the Group did not have any related assets.

SRV | FINANCIAL STATEMENTS 2020
45

4 OTHER OPERATING INCOME

EUR 1,000	2020	2019
Equipment and intangible assets	612	84
Rental income	932	529
Other income	622	14
Total	2,166	627

5 OTHER OPERATING EXPENSES

EUR 1,000	2020	2019
Equipment and intangible assets	53	0
Rental expenses	665	889
Voluntary indirect personnel expenses	1,382	2,163
Car and travel expenses	660	1,035
Entertainment and marketing	432	1,053
Communications and IT	2,864	3,182
Other external services	2,632	3,369
Other fixed expenses	2,186	1,731
Total operating expenses	10,874	13,421
Income and expenses on currency derivatives	-5,506	3,847
Total	5,368	17,268

Auditing fees

EUR 1,000	2020	2019
Audit	434	443
Auditors' statements	2	31
Tax services	0	16
Other services	269	917
Total	705	1,407

PricewaterhouseCoopers Oy has provided non-audit services to the entities of SRV Group in total of 271 thousand euros during financial year 2020 (964 thousand).

6 DEPRECIATION AND IMPAIRMENTS

EUR 1,000	2020	2019
Depreciation, excluding Right-of-use asset
Intangible assets
Other intangible assets	421	576
Property, plant and equipment
Buildings and structures	428	615
Machinery and equipment	1,329	1,391
Other tangible assets	113	84
	2,291	2,666
Depreciation, Right-of-use asset
Land areas	2,899	3,761
Buildings and structures	1,438	1,428
Machinery and equipment	760	849
Other tangible assets	0	0
	5,097	6,038
Depreciations	7,387	8,705
Impairment in associated and joint ventures¹	11,487	81,339

¹ Impairments in 2020 includes EUR 6,9 million reversal of the 2019 impairment loss on the joint venture investments Pearl Plaza shopping center, and a EUR 5.4 million impairment loss on the Okhta Mall associated investment, a write-down of EUR 0.8 million on the investment in the Ratsumestarinkatu 6 commercial property in Porvoo and a write-down of EUR 13.0 million on REDI's additional purchase price receivable on long-term receivables. Impairments in 2019 includes EUR 78.4 million impairment recognized in assets classified as held for sale (Note 24)

7 EMPLOYEE-BENEFIT EXPENSES

EUR 1,000	2020	2019
Wages and salaries¹	57,956	60,972
Pension expenses - defined contribution plans	8,613	10,315
Share-based incentive scheme	489	-98
Other indirect personnel expenses	2,369	1,874
Total	69,427	73,063

¹ Information on management's compensation as well as employee benefits is disclosed in Section Related party transactions. SRV Group has only defined contribution plans in connection with the pensions.

Average number of personnel	2020	2019
Construction	810	867
Investments	124	139
Other operations and eliminations	56	74
Total	991	1,080

SRV | FINANCIAL STATEMENTS 2020
46

Share-based incentive schemes

Grant year	2014	2017^{1}	2019^{2}	Total
Reward principle	Employment	Set targets	Employment
Original exercise price	3.14	-	1.62
Dividend and right issue adjusted exercise price
31.12.20	2.61		0.55
Subscription period	2015-2021	2017-2019	2021-2026
Total amount	720,000	1,000,000	1,000,000
Share incentives 1.1.2019	432,000	129,000	0	561,000
Additions	0	0	600,000	600,000
Share incentives used	0	0	0	0
Share incentives returned or expired	432,000	16,350	0	448,350
Share incentives 31.12.2019	0	112,650	600,000	712,650
Share incentives 1.1.2020	0	112,650	600,000	712,650
Additions	0	0	400,000	400,000
Share incentives used	0	67,950	0	67,950
Share incentives returned or expired	0	44,700	0	44,700
Share incentives 31.12.2020	0	0	1,000,000	1,000,000
IFRS-Costs 2019, EUR 1,000*	0	140	-42	98
IFRS-Costs 2020, EUR 1,000*	0	-332	-157	-489
Shares granted based on incentives, 2019	0	0	0	0
Shares granted based on incentives, 2020	0	67,950	0	67,950

In February 2017, the Board of Directors decided on a new share-based incentive scheme for the Group's key personnel. The scheme covers 40 key SRV personnel. The scheme will be in effect from 2017 to 2019 and rewards are tied to Group's result and specific business indicators. The potential reward will be paid partly as shares in the company and partly in cash. The proportion to be paid in cash will cover taxes and tax-related costs arising from the reward. A maximum of 1,000,000 SRV Group shares will be granted to key employees. The original cost of the share-based incentive scheme is calculated by using the share price EUR 5.20, which makes the IFRS-cost for the scheme EUR 5.5 million with the addition of the cash payments. Actual cost is based on how the company will achieve the financial targets and the market value of the share. If a key person's employment or service ends during said restriction period, he/she must return the shares rewarded under the scheme to the company. On 6 July 2020, SRV announced that it had assigned a total of 67,950 treasury shares to the members of the company's share-based incentive plan
The Board of Directors of SRV Group Plc has made the decision for a share-based incentive scheme for the President & CEO for 2019-2026. Under the scheme, Saku Sipola has been given 600,000 acquisition rights, entitling him to acquire the number of SRV Group Plc's shares corresponding to the acquisition rights EUR 1.62 per share. Under the scheme, new shares or treasury shares in the possession of the company can be issued. The company's Board of Directors will make a decision on the manner of implementation separately each time. Under the terms of the scheme, the acquired shares are subject to a transfer restriction, which is valid for two years from the acquisition of the shares. The acquisition rights can be exercised in three two-year long exercise periods, the first of which begins on 1 March 2021 and ends on 28 February 2023, the second begins on 1 September 2022 and ends on 31 August 2024, and the third begins on 1 September 2024 and ends on 31 August 2026. During each exercise period, the acquisition rights holder is entitled to exercise 200,000 acquisition rights. The total recognised IFRS cost of the incentive scheme 2019-2026 is approximately EUR 0.3 million. On 17 December 2020, the Board of Directors of SRV Group Plc decided on changes to the share-based incentive scheme of President and CEO Saku Sipola. The changes concern the number of acquisition rights, the subscription price of the

acquisition rights and the periods during which the acquisition rights can be exercised. The purpose of the changes is to ensure that the incentive effect of the scheme remains at its previous level by taking into account the changes in the number of the company's shares caused by SRV's 2020 rights issues. The incentive effect of the scheme is based on the value increase of SRV Group Plc's shares. As a result of the changes, Sipola has the right to acquire 1,000,000 shares at a subscription price of EUR 0.55 per share. The basis for determining the subscription price is the volume-weighted average price of SRV's share on Nasdaq Helsinki in continuous trading from 1 August to 30 November 2020. After the changes, the acquisition rights can be exercised in the following three periods: the first begins on 1 March 2022 and ends on 28 February 2023, the second begins on 1 March 2023 and ends on 31 August 2024, and the third begins on 1 September 2024 and ends on 31 August 2026. During the first and second exercise periods, the acquisition rights holder is entitled to exercise 300,000 acquisition rights and during the third period 400,000 acquisition rights.

IFRS-Costs recognised in the income statement.

8 RESEARCH AND DEVELOPMENT EXPENSES

9 FINANCIAL INCOME AND EXPENSES

EUR 1,000	2020	2019
Financial income
Interest income from associated and joint venture companies	1,863	2,670
Interest income from the other receivables	1,572	997
Foreign exchange gains	0	4,346
Other financial income	275	429
Total	3,710	8,441
Financial expenses, excluding Lease Liabilities
Expenses for financial liabilities at amortised cost	-13,383	-13,082
Financial assets and liabilities at fair value	-178	-2,122
Foreign exchange losses	-8,159	0
Other financial expenses^{3}	-5,728	-16,025
Financial expenses, Lease Liabilities
Interests expenses	-5,688	-6,517
Total	-33,136	-37,745
Financial income and expenses, total	-29,426	-29,304

Other financial expenses include impairment losses of EUR 1.5 million (10.8) on financial assets of associated companies and joint ventures.

SRV | FINANCIAL STATEMENTS 2020
47

10 INCOME TAXES

Income taxes in the income statement

EUR 1,000	2020	2019
Current taxes	668	346
Taxes for previous financial years	-1	178
Other taxes	0	51
Deferred taxes, Right-of-use asset	-298	-1,043
Deferred taxes	-3,220	-18,276
Total	-2,851	-18,743
Effective income tax rate	10.2%	15.3%

The income taxes in the consolidated income statement differ from the statutory income tax rate in Finland (20 per cent in 2020 and in 2019) as follows:

Income tax reconciliation

EUR 1,000	2020	2019
Profit before taxes	-27,958	-122,351
Income taxes at statutory tax rate in Finland	-5,592	-24,470
Differing tax rates of foreign subsidiaries	-9	-31
Tax exempt income	-93	-647
Realization of previously unrecognized deferred tax receivables	-	-277
Non-deductible expenses	-282	0
Unrecognized and reversed tax losses	444	7,062
Taxes for previous financial years	-1	178
Share of profits of associated and joint venture companies	2,682	-557
Adjustments	0	0
Income taxes	-2,851	-18,743

Income taxes recognized in other items in comprehensive income were not material.

The income tax credited directly to equity

EUR 1,000	2020	2019
Hybrid Bond interests tax	405	279
Share issue tax	676	-
Total	1,080	279

11 EARNINGS PER SHARE

EUR 1,000	2020	2019¹
Profit/loss for the year attributable to equity holders of the parent	-22,807	-104,355
Profit/loss for the year attributable to Hybrid Bond investors, tax adjusted	-3,732	-5,666
Profit/loss for the calculate the earnings per share	-26,539	-110,022
Number of shares	2020	2019
Weighted average number of shares outstanding, (1 000)	173,891	72,149
Weighted average number of shares outstanding (diluted), (1 000)	173,925	72,149
Earnings per share attributable to equity holders of the parent company, eur per share	-0.15	-1.52
Earnings per share attributable to equity holders of the parent company (diluted), eur per share	-0.15	-1.52

¹ The comparison figure has been adjusted for share issues.

12 DIVIDEND PER SHARE

Dividends were not paid in 2020 and 2019. A proposal for the Annual General Meeting on 29 March 2021 is that dividend from the year 2020 will not be paid.

SRV | FINANCIAL STATEMENTS 2020
48

13 PROPERTY, PLANT AND EQUIPMENT

Tangible assets, excluding Right-of-use asset 2020

EUR 1,000	Land and water areas	Buildings and structures	Machinery and equipment	Other tangible assets	Total
Historical cost, 1 Jan.	41	10,321	18,811	999	30,172
Increases	0	0	720	29	749
Decreases	0	-313	-575	-77	-965
Transfer	0	277	16	0	293
Foreign exchange differences	0	-11	-134	-58	-203
Historical cost, 31 Dec.	41	10,274	18,838	893	30,046
Accumulated depreciation and impairments, 1 Jan.	0	-9,729	-14,487	-497	-24,714
Depreciation	0	-428	-1,329	-113	-1,870
Accumulated depreciations of decreases	0	0	0	0	0
Writedowns	0	0	0	0	0
Foreign exchange differences	0	47	231	33	311
Transfer	0	0	-15	0	-15
Accumulated depreciation and impairments, 31 Dec.	0	-10,109	-15,600	-578	-26,289
Carrying amount, 31 Dec.	41	164	3,237	313	3,755

Tangible assets, Right-of-use asset 2020

EUR 1,000	Buildings and structures	Machinery and equipment	Total
Historical cost, 1 Jan.	11,502	2,782	14,283
Increases	493	558	1,051
Decreases	-81	-131	-212
Transfer	0	0	0
Foreign exchange differences	-24	-12	-36
Historical cost, 31 Dec.	11,890	3,197	15,087
Accumulated depreciation and impairments, 1 Jan.	-1,429	-849	-2,278
Depreciation	-1,438	-760	-2,198
Accumulated depreciations of decreases	65	0	65
Writedowns	0	0	0
Foreign exchange differences	0	0	0
Transfer	16	7	23
Accumulated depreciation and impairments, 31 Dec.	-2,786	-1,603	-4,388
Carrying amount, 31 Dec.	9,105	1,594	10,699

Tangible assets, excluding Right-of-use asset 2019

EUR 1,000	Land and water areas	Buildings and structures	Machinery and equipment	Other tangible assets	Total
Historical cost, 1 Jan.	41	10,315	17,458	779	28,593
Increases	0	0	1,580	191	1,771
Decreases	0	0	-297	0	-297
Transfer	0	0	0	0	0
Foreign exchange differences	0	6	70	30	105
Historical cost, 31 Dec.	41	10,321	18,811	999	30,172
Accumulated depreciation and impairments, 1 Jan.	0	-9,107	-13,048	-405	-22,560
Depreciation	0	-615	-1,391	-84	-2,091
Accumulated depreciations of decreases	0	0	6	0	6
Foreign exchange differences	0	-7	-64	-9	-80
Transfer	0	0	0	0	0
Accumulated depreciation and impairments, 31 Dec.	0	-9,729	-14,487	-497	-24,714
Carrying amount, 31 Dec.	41	592	4,323	502	5,456

Tangible assets, Right-of-use asset 2019

EUR 1,000	Buildings and structures	Machinery and equipment	Total
Historical cost, 1 Jan.	0	0	0
Increases	11,502	2,990	14,492
Decreases	0	-209	-209
Transfer	0	0	0
Foreign exchange differences	0	0	0
Historical cost, 31 Dec.	11,502	2,782	14,283
Accumulated depreciation and impairments, 1 Jan.	0	0	0
Depreciation	-1,428	-849	-2,277
Accumulated depreciations of decreases	0	0	0
Writedowns	0	0	0
Foreign exchange differences	0	0	0
Transfer	-1	0	-1
Accumulated depreciation and impairments, 31 Dec.	-1,429	-849	-2,278
Carrying amount, 31 Dec.	10,073	1,933	12,005

SRV | FINANCIAL STATEMENTS 2020
49

14 GOODWILL AND OTHER INTANGIBLE ASSETS

2020

EUR 1,000	Intangible rights	Goodwill	Other capitalised expenditure	Total
Historical cost, 1 Jan.	911	1,734	3,904	6,549
Foreign exchange differences	0	0	-3	-3
Increases	13	0	293	306
Decreases	-17	0	-9	-26
Transfers	0	0	-91	-91
Historical cost, 31 Dec	907	1,734	4,094	6,735
Accumulated amortisation, 1 Jan.	-581	0	-2,724	-3,304
Amortisation	-1	0	-420	-421
Accumulated depreciations of decreases	-34	0	0	-34
Writedowns	0	0	0	0
Foreign exchange differences	0	0	-32	-32
Accumulated amortisation, 31 Dec.	-615	0	-3,176	-3,791
Carrying amount, 31 Dec.	292	1,734	918	2,944

2019

EUR 1,000	Intangible rights	Goodwill	Other capitalised expenditure	Total
Historical cost, 1 Jan.	934	1,734	3,461	6,130
Foreign exchange differences	0	0	1	1
Increases	0	0	1,191	1,191
Decreases	-23	0	-750	-773
Historical cost, 31 Dec.	911	1,734	3,904	6,549
Accumulated amortisation, 1 Jan.	-566	0	-2,269	-2,834
Amortisation	-1	0	-575	-576
Accumulated depreciations of decreases	-14	0	159	145
Writedowns	0	0	0	0
Foreign exchange differences	0	0	-39	-39
Accumulated amortisation, 31 Dec.	-581	0	-2,724	-3,304
Carrying amount, 31 Dec.	330	1,734	1,180	3,244

SRV Group's goodwill is allocated to operating segments:

Goodwill EUR 1,000	2020	2019
Construction	1,734	1,734
Total	1,734	1,734

Impairment test

The recoverable amount of cash-generating units is based on value in use calculation model in which cash flows are based on base year figures and on business units growing cash flows for the next five years strategy period. In the impairment test of goodwill performed in December 2020, a growth factor of 2 per cent was used and it does not exceed the actual long-term growth of the business. The main factors in impairment test are operating profit margin and discount factor. The discount factor used is the latest weighted average cost of capital (WACC) before taxes. In the value in use calculation a WACC of 10.0 per cent was used. The calculation parameters of WACC are risk-free interest rate, market risk and company-specific premium, industry-specific beta, the cost of liabilities and equity ratio.

The recoverable amount exceeded the carrying amounts significantly in all cash-generating unit with goodwill. According to the impairment tests there were no need for impairments.

Sensitivity analysis

The performed sensitivity analysis does not cause impairments for cash-generating units when using moderate changes in default factors.

SRV | FINANCIAL STATEMENTS 2020
50

15 FINANCIAL ASSETS AND LIABILITIES BY MEASUREMENT CATEGORIES

2020

EUR 1,000	Financial assets and liabilities at fair value through profit and loss	Financial assets and liabilities measured at amortised cost	Carrying amounts by balance sheet item	Fair value	Note
Non-current financial asset
Long-term interest bearing receivables	0	8,889	8,889	8,889	18
Long-term receivables	500	0	500	500	17.18
Loan receivables from associated companies and joint ventures	0	44,281	44,281	44,281	21
Other financial assets	22,220	0	22,220	22,220	17
Current financial assets
Accounts receivables	0	56,199	56,199	56,199	22.29
Other interest bearing receivables	0	15,824	15,824	15,824	22
Derivative instruments	0	0	0	0	31
Loan receivables from associated companies and joint ventures	0	1,601	1,601	1,601	21
Cash and cash equivalents	0	96,748	96,748	96,748	23
Total	22,720	223,542	246,262	246,262
Non-current financial liabilities
Interest bearing liabilities	0	234,857	234,857	207,438	27
Derivative instruments	8,977	0	8,977	8,977	28.31
Other non-current liabilities	0	11,840	11,840	11,840	28
Current financial liabilities
Interest bearing liabilities	0	14,796	14,796	14,796	27
Accounts payables	0	59,640	59,640	59,640	28
Total	8,977	321,134	330,111	302,692

SRV | FINANCIAL STATEMENTS 2020
51

2019

EUR 1,000	Financial assets and liabilities at fair value through profit and loss	Financial assets and liabilities measured at amortised cost	Carrying amounts by balance sheet item	Fair value	Note
Non-current financial asset
Long-term interest bearing receivables	0	15,857	15,857	15,857	18
Loan receivables from associated companies and joint ventures	0	43,995	43,995	43,995	21
Other financial assets	11,858	0	11,858	11,858	17
Current financial assets
Accounts receivables	0	46,923	46,923	46,923	22, 29
Other interest bearing receivables	0	38	38	38	22
Derivative instruments	-402	0	-402	-402	31
Loan receivables from associated companies and joint ventures	0	62	62	62	21
Cash and cash equivalents	0	27,728	27,728	27,728	23
Total	11,456	134,603	146,059	146,059
Non-current financial liabilities
Interest bearing liabilities	0	276,453	276,453	262,977	27
Derivative instruments	8,799	0	8,799	8,799	31
Other non-current liabilities	0	12,059	12,059	12,059	28
Current financial liabilities
Interest bearing liabilities	0	23,160	23,160	23,160	27
Accounts payables	0	81,101	81,101	81,101	28
Total	8,799	392,774	401,573	388,097

Carrying amounts do not differ substantially from Fair value, excluding bonds. The fair values of the bonds are based on 31.12.2020 market prices. Counterparty price quotations are used to determine the fair value of derivatives. These price quotations are based on predominant market circumstances and generally accepted pricing models. Carrying amounts of financial assets represent the maximum amount of credit risk at the balance sheet date.

SRV | FINANCIAL STATEMENTS 2020

16 SHARES IN ASSOCIATED AND JOINT VENTURE COMPANIES

Shares in associated and joint venture companies

EUR 1,000	2020	2019
Shares in associated companies	30,154	53,136
Shares in joint venture companies	17,990	6,395
Total	48,144	59,530

Shares in associated and joint venture companies are investments into construction projects together with other investors.

Information about the substantial associated companies

	Domicile	Direct ownership (%)
Name		2020	2019¹
Jupiter Realty 1 B.V	Netherlands	45	45

The associated company is investing in Okhta Mall project in St Petersburg. SRV is investing in the project also through partnership in Russia Invest. SRV will receive a proportion of the project's income corresponding at least to its holding. The final distribution of the project's income is subject to conditions that entitle SRV to a higher proportion of the profits than its investment holding should income exceed the pre-agreed level.

Financial information about the substantial associated companies

Domicile		Direct ownership (%)
Name		2020	2019²
Netherland Pearl Plaza B.V	Netherlands	50	50
KSK Redi Ky (REDI)	Finland	-	40
KSK Parking I Ky (REDI)	Finland	-	40

Netherland Pearl Plaza B.V the joint venture company is investing in Pearl Plaza project in St Petersburg. REDI joint venture companies are investing in construction of Helsinki Kalasatama shopping center and parking facility. The REDI holdings was sold at their balance sheet value during the 2020 financial year.

EUR 1,000	Jupiter Realty 1 B.V		Netherland Pearl Plaza B.V
	2020	2019	2020	2019
Cash and cash equivalents	-	-	3,252	-
Other short term assets	18,145	13,722	1,028	-
Short term assets	18,145	13,722	4,281	-
Long term assets	137,401	175,104	110,777	-
Long term liabilities	23,729	8,295	25,334	-
Long term financial liabilities	-	-	55,036	-
Long term liabilities	108,603	127,179	-	-
Other long term liabilities	108,603	127,179	55,036	-
Net sales	0	0	13,735	-
Depreciation	-	-	-2,797	-
Interest income	-	-	1,831	-
Interest expenses	-	-	-8,245	-
Income taxes	-	-	1,351	-
Profit for the financial period	-18,942	2,096	-4,138	-
Other comprehensive income	-15,193	8,937	-11,888	-
The reconciliation of the associated companies financial information to Group's unbooked book value:
Group's ownership, %	45	45	50	-
Group's share of net assets	10,446	24,008	17,344	-
Adjustment to purchase price of associated companies	15,381	15,381	-	-
The combined share of cumulative indirect profit	-14,086	-3,650	-	-
The balance sheet value of the associated companies in Group balance sheet	11,741	35,738	17,344	-

¹ Netherland Pearl Plaza B.V and REDI as well as the KSK Parking I Ky joint venture investments was classified as assets held for sale in the financial statements of 31 December 2019.

SRV | FINANCIAL STATEMENTS 2020
53

Summary of financial information

	Other associated companies		Other joint venture companies
	2020	2019	2020	2019
The Group's share of the profit²	-2,815	30	-154	992
The total book value in Group's balance sheet	18,413	17,397	646	6,395

Share of profits of associated and joint venture companies

	2020	2019
The substantial associated company Jupiter Realty 1 B.V	-8,524	943
The substantial joint venture company Netherland Pearl Plaza B.V.²	-2,069	3,348
REDI joint venture company classified as held for sale	-	-2,529
Other associated companies	-2,815	30
Other joint venture companies	-154	992
Total	-13,562	2,784

Other comprehensive income

	2020	2019
The substantial associated company Jupiter Realty 1 B.V	-6,837	4,022
The substantial joint venture company Netherland Pearl Plaza B.V.²	-5,944	3,647
Other associated companies	-2,279	1,676
Other joint venture companies	-	-196
Total	-15,060	9,148

² Comparison year figure Includes consolidation of the result of assets classified as held for sale.

SRV | FINANCIAL STATEMENTS 2020
54

17 OTHER FINANCIAL ASSETS AND LONG-TERM RECEIVABLES

Other financial assets may include quoted or unquoted shares. The valuation methods and the fair value hierarchy of the available-for-sale financial assets are presented in note 29.

EUR 1,000	2020	2019
Opening balance at 1 Jan.	11,858	18,320
Increases	24,113	61
Changes in fair value	-13,000	-
Decreases	-250	-6,523
Closing balance, 31 Dec.	22,720	11,858
Non-current	22,720	11,858
Current	0	0
Unquoted shares	22,220	11,858
Long-term receivables	500

18 RECEIVABLES

EUR 1,000	Carrying amount	Carrying amount
	2020	2019
Non-current receivables
Loan receivables related to a construction project	0	11,817
Long-term receivables	500	-
Long-term interest bearing receivables	8,889	4,039
Total	9,389	15,857

19 DEFERRED TAX ASSETS AND LIABILITIES

2020		Recog-nised in the income statement	Recog-nised in compre-hensive income	Recog-nised in equity	Acquisi-tions and disposals of business	Exchange rate difference	31 Dec.
EUR 1,000	1 Jan.
Deferred tax assets
Tax losses	33,891	2,024	0	0	0	0	35,915
Financial assets at fair value through profit and loss	202	-51	0	0	0	0	151
Accrual differences in developer contracting	363	697	0	0	0	0	1,060
Undeductible depreciations in taxation	1,133	-83	0	0	0	0	1,049
Other temporary differences	-241	455	0	2,261	0	-407	2,069
Right-of-use assets deferred tax receiv-ables	1,043	298	0	0	0	0	1,341
Total	36,391	3,340	0	2,261	0	-407	41,585
Deferred tax liabilities
Borrowing costs	1,018	-21	0	0	0	0	997
Cumulative depreciation differences	111	-17	0	0	0	0	94
Other temporary differences	1,310	-141	0	0	0	92	1,261
Total	2,439	-179	0	0	0	92	2,352
Net deferred taxes	33,952	3,519	0	2,261	0	-498	39,233
2019		Recog-nised in the income statement	Recog-nised in compre-hensive income	Recog-nised in equity	Acquisi-tions and disposals of business	Exchange rate difference	31 Dec.
---	---	---	---	---	---	---	---
EUR 1,000	1 Jan.
Deferred tax assets
Tax losses	12,653	21,238	0	0	0	0	33,891
Employee-benefits	18	-18	0	0	0	0	0
Financial assets at fair value through prof-it and loss	202	0	0	0	0	0	202
Accrual differences in developer contract-ing	744	-381	0	0	0	0	363
Undeductible depreciations in taxation	3,854	-2,721	0	0	0	0	1,133
Other temporary differences	1,083	-2,478	0	926	0	227	-241
Right-of-use assets deferred tax receiv-ables	0	1,043	0	0	0	0	1,043
Total	18,555	16,682	0	926	0	227	36,391
Deferred tax liabilities
Borrowing costs	1,021	-3	0	0	0	0	1,018
Cumulative depreciation differences	104	7	0	0	0	0	111
Other temporary differences	3,950	-2,640	0	0	0	0	1,310
Total	5,075	-2,636	0	0	0	0	2,439
Net deferred taxes	13,480	19,318	0	926	0	227	33,952

SRV | FINANCIAL STATEMENTS 2020
55

On 31 December 2020, The Group's accumulated losses for which no deferred tax assets have been recognised were EUR 20,608 thousand (EUR 15,421 thousand) because realisation of the tax benefit is not considered probable.

Deferred tax assets have been recognized for right-of-use assets EUR 1,341 thousand (EUR 1,043 thousand).

The deferred tax liability has been recognised in the consolidated financial statements in connection with the undistributed profits of subsidiaries whose income tax is determined on the basis of profit distribution. The deferred tax liability has not been recognised when Group is able to control the timing of profit distribution and the distribution is not probable at the balance sheet date.

20 INVENTORIES

EUR 1,000	2020	2019
Inventories excluding Right-of-use assets	355,262	376,121
Raw materials and consumables	104	134
Work in progress	180,616	190,170
Land areas and plot-owning companies	145,854	147,084
Shares in completed housing corporations and real estate companies	24,757	33,775
Advance payments	985	4,065
Other inventories	2,944	893
Inventories, Right-of-use asset	118,752	132,904
Inventories, total	474,013	509,025

With respect to developer-contracted housing projects, interest expenses on borrowing are capitalised primarily using the project-specific financing cost. If the proportion of project-specific financing is not significant, the Group's capitalisation rate is used in capitalising interest expenses. Capitalisation rate used was 5.0% on average. During the financial year capitalized interests the amount of which was EUR 1,465 thousand (2019: EUR 681 thousand) was included in the value of work in progress.

The carrying amount of completed inventories used as security for loans in 2020 amounted to EUR 21,145 thousand (EUR 15,772 thousand), the carrying amount of inventories under construction in 2020 was EUR 94,252 thousand (2019 EUR 93,151 thousand) and the carrying amount of land area was EUR 21,263 thousand (EUR 34,867 thousand).

During the financial year 2020 there was impairment losses in shares in completed housing companies for EUR 808 thousand. During the financial year 2019 there was impairment losses in land area for EUR 13,935 thousand and in completed housing companies for EUR 1,000 thousand. There was no reversed impairment losses in financial year 2020 and 2019.

21 LOAN RECEIVABLES FROM ASSOCIATED COMPANIES AND JOINT VENTURES

EUR 1,000	2020	2019
Long term loan receivables from associated companies	43,835	47,578
Increases	3,949	4,585
Decreases	-348	-7,573
Writedown, level 3	-1,500	0
Foreign exchange difference	-1,655	-755
Total	44,281	43,835
Long term loan receivables from joint ventures	160	19,692
Increases	0	150
Decreases	-160	-19,682
Total	0	160
Short term loan receivables from joint ventures	62	4,596
Increases	1,601	0
Decreases	-62	-4,535
Total	1,601	62

22 ACCOUNTS RECEIVABLES AND OTHER RECEIVABLES

EUR 1,000	Carrying amount	Carrying amount
	2020	2019
Accounts receivables	56,199	46,923
Loan receivables	11,824	38
Gross amount due from customers related to construction contracts	13,011	12,545
Accrued income and prepaid expenses	56,831	56,917
Other receivables	5,670	2,250
Total	143,534	118,672
Interest bearing receivables	11,824	38
Non-interest bearing receivables	131,710	118,634
Total	143,534	118,672

Carrying amount does not substantially differ from fair value. In 2020 the Group's accounts receivables were on average EUR 52 million. The accounts receivables are non-interest bearing and they are normally about 21 days by age. More information about credit risks in note 29.

SRV | FINANCIAL STATEMENTS 2020
56

23 CASH AND CASH EQUIVALENTS

EUR 1,000	2020	2019
Cash and cash equivalents	96,748	27,728
Total	96,748	27,728

24 ASSETS HELD FOR SALE

EUR 1,000	2020	2019
Shares in associated and joint venture companies
REDI shopping centre and Parking	-	22,032
Pearl Plaza shopping centre	-	25,322
Tampereen Central Deck and Arena investments	-	19,472
Loan and financial receivables, REDI Parking	-	2,500
Total	-	69,326

The holdings and loan receivables of the REDI and Tampereen Central Deck and Arena projects classified as held for sale in 2019 were sold at their balance sheet value during the reporting period. On 31 December 2019, SRV's holding in the Pearl Plaza shopping centre was designated as an asset held for sale and measured at its probable selling price less costs of sale, as its sale during the next 12 months was considered likely. Negotiations on the sale of Pearl Plaza progressed well in early 2020, when it was considered highly likely that a deal would be made. The coronavirus pandemic slowed down the negotiations. The second wave of the pandemic was ultimately the major reason why the sales negotiations ended without reaching an agreement. The property was reclassified as a holding in associated companies and joint ventures. Due to this reclassification, an impairment recognised in 2019 was reversed, with a positive impact of about EUR 6.9 million on operating profit for 2020 and combined retrospectively its share of the joint venture result for the financial year 2020.

25 EQUITY

Share capital and Invested free equity fund

	Number of shares
1 Jan. 2019	59,580,976
Return of treasury shares	0
Transfer of treasury shares	0
Share issue	0
31 Dec. 2019	59,580,976
1 Jan. 2020	59,580,976
Return of treasury shares	0
Transfer of treasury shares	67,950
The directed share issue	71,468,395
Share issue	131,049,371
31 Dec. 2020	262,166,692

Shares and share capital

On 31 December 2020, the total number of SRV Group Plc's shares outstanding was 262,166,692 and the share capital amounted to EUR 3,062,520. The share has no nominal value and the total number of shares is 263,017,341.

At the end of December there were 850,649 own shares in Group's possession.

Invested free equity fund

Invested free equity fund consists of the net proceeds from the Offering of SRV Group Plc reduced by the cost related to share issue as well as received and cancelled SRV shares.

In May, the company organised a directed share issue for the holders of the two outstanding hybrid bonds. In the issue, about EUR 75 million of the EUR 92 million principal of the hybrid bonds and the interest accrued on them were converted into shares. As a result of the implementation of the share issue, the total outstanding principal of the 2016 hybrid bonds is approximately EUR 11.8 million and the outstanding principal of the 2019 hybrid bonds is approximately EUR 3.6 million. The share issue increased the total number of SRV shares by 71,468,395 to 131,967,970. The new shares were entered in the Trade Register on 19 May 2020.

In June, the company organised a rights issue in which SRV received gross income of approximately EUR 50 million. Due to the share issue, SRV's number of shares rose by 131,049,371 from 131,967,970 to a total of 263,017,341 shares. The new shares were entered in the Trade Register on 18 June 2020. The capital loan of EUR 9 million drawn on 30 March was used for payment in accordance with its terms and conditions, and was converted into equity. The company has recognised the EUR 124.8 million in proceeds from the share issues in the invested unrestricted equity fund, less EUR 3.4 million in share issue-related expenses and EUR 0.7 million in tax adjustments of expenses

SRV | FINANCIAL STATEMENTS 2020
57

Translation difference

Translation difference comprises the differences of the translation of financial statements of the foreign subsidiaries to the functional currency of the parent company.

Hybrid bond

After the conversion of the directed share issue hybrid bond, equity includes an equity bond of EUR 11.8 million issued in 2016 (EUR 24.5 million). Hybrid bond has an annual coupon rate of 13.572 per cent. After the conversion of the directed share issue hybrid bond, equity includes an equity bond of EUR 3.6 million issued in 2019 (EUR 58.4 million). Hybrid bond has an annual coupon rate of 12.00 per cent.

The hybrid bond has no maturity dates at which the holder of the loan can demand repayment of the loan. The hybrid bond is unsecured and subordinated to other debt instruments. The hybrid bonds do not confer shareholders' rights to bondholders.

Dividends

The Board of Directors will not propose a dividend to be paid from the year 2020.

26 PROVISIONS

2019
EUR 1,000	Warranty provisions	10-year warranty	Other provisions for construction contracts	Other provisions	Total
1 Jan.	11,538	7,664	533	0	19,735
Currency exchange differences	0		-53	0	-53
Increase in provisions	7,577	1,770	349	0	9,696
Provisions used	-4,499	-248	-518	0	-5,265
Reversals of unused provisions	0	0	-300	0	-300
31 Dec.	14,617	9,186	11	0	23,814
Non-current	5,943	6,430	11	0	12,384
Current	8,674	2,756	0	0	11,430
Total	14,617	9,186	11	0	23,814
2019
---	---	---	---	---	---
EUR 1,000	Warranty provisions	10-year warranty	Other provisions for construction contracts	Other provisions	Total
1 Jan.	11,614	7,428	534	0	19,576
Currency exchange differences	7		32	0	39
Increase in provisions	4,020	414	110	0	4,544
Provisions used	-4,049	-178	-143	0	-4,370
Reversals of unused provisions	-54	0	0	0	-54
31 Dec.	11,538	7,664	533	0	19,735
Non-current	5,009	5,365	533	0	10,907
Current	6,529	2,299	0	0	8,828
Total	11,538	7,664	533	0	19,735

Other provisions for construction contracts include warranty for potential disputes and other provisions for construction contracts. The level of the construction industry's 10-year warranty provision is based on index-adjusted historical information or the estimated total costs of certain individual projects.

27 INTEREST-BEARING LIABILITIES

Interest-bearing liabilities, excluding lease liabilities

EUR 1,000	Carrying amount 2020	Fair value 2020	Carrying amount 2019	Fair value 2019
Non-current
Loans from financial institutions	41,896	41,896	69,392	69,392
Bonds	135,625	108,206	136,526	123,051
Housing corporation loans	40,681	40,681	50,379	50,379
Other debt	16,655	16,655	20,157	20,157
Total	234,857	207,438	276,453	262,977
Current
Loans from financial institutions	14,765	14,765	4,622	4,622
Commercial papers	0	0	18,500	18,500
Bonds	0	0	0	0
Housing corporation loans	31	31	38	38
Total	14,796	14,796	23,160	23,160

Carrying amounts do not differ substantially from Fair value, excluding bonds. The fair values of the bonds are based on 31.12.2020 market price indications.

SRV | FINANCIAL STATEMENTS 2020
58

Interest-bearing lease liabilities

2020 EUR 1,000	Land-Areas	Buildings and structures	Machinery and equipment	Total
Pitkäaikainen	124,258	8,373	957	133,588
Lyhytaikainen	719	1,156	691	2,566
Yhteensä	124,977	9,529	1,648	136,154

Interest-bearing lease liabilities

2019 EUR 1,000	Land-Areas	Buildings and structures	Machinery and equipment	Total
Non-current	137,352	9,199	1,121	147,672
Current	511	1,105	837	2,454
Total	137,863	10,304	1,958	150,125

In addition to the above-mentioned lease liabilities, the Group has committed to enter into a lease agreement for the two Keilaniemi plots when the City of Espoo transfers the management of the plots to new buyers. By agreement, the transfer of management will take place for the first plot in 2022 and for the second plot in 2023. When management is transferred, the lease liability for the plots will be recognised in the consolidated balance sheet in accordance with IFRS 16 Leases. Before the transfer of management, the company will pay compensation to a plot fund for use of capital. Payment of the transaction price of the plots will be phased so that the total expense of leasing the plots will be approximately EUR 0.4 million in 2021, approximately EUR 0.7 million in 2022–2023, approximately EUR 1.4 million in 2024–2025 and approximately EUR 1.9 million per year from 2026.

28 OTHER LIABILITIES

EUR 1,000	Carrying amount 2020	Carrying amount 2019
Non-current
Derivative liabilities	8,977	8,799
Other liabilities	11,840	12,059
Total	20,817	20,858
Current
Accounts payables	59,640	81,101
Advance payments related to construction contracts	86,014	74,116
Other advance payments	11,525	11,775
Other current liabilities	79,221	33,289
Accrued expenses and prepaid income	48,063	44,024
Total	284,463	244,306
Accrued expenses and prepaid income
Wages and salaries and related expenses	12,278	12,180
Interest and other financial liabilities	3,198	7,090
Periodisations of project expenses	31,147	22,163
Other	1,439	2,590
Total	48,063	44,024

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59

29 MANAGEMENT OF FINANCIAL RISKS

The SRV Group is exposed to multiple financial risks in its business operations. The most significant financial risks are interest rate, exchange rate, liquidity and credit risks. The Group's financial risk management is carried out centrally by the Group's finance department. Financial risk management is implemented in accordance with the financing policy approved by the Board of Directors. The financing policy is updated on an as-needed basis to reflect changes in the market situation. The objective of the Group's financial risk management is to reduce the uncertainty that changes in the financial markets cause to the Group's performance and financial position.

Interest rate risk

The cash flows and current values of the Group's interest-bearing liabilities and receivables are affected by changes in interest rates. The interest rate risk mainly consists of short-term and long-term loans related to business financing. The Group's financing is divided into general financing and project-specific financing. Project-specific financing is financing during construction, which is typically either refinanced or paid off when a project is assigned. The Group may take out long-term loans at both floating and fixed interest rates. At the balance sheet date, the weighted average interest rate for the entire loan portfolio (including the effect of interest rate derivatives) was 5.3 per cent (2019: 4.6%). As a rule, Euribor is used as the reference rate for floating-rate loans.

Gap analysis is used to monitor and measure the interest rate risk from the perspective of the income statement. Interest rate risks are managed by adjusting the ratio of the floating rate and fixed-rate liabilities in the loan portfolio. At the balance sheet date, fixed-rate loans accounted for 59 per cent of the total loan portfolio (2019: 56 per cent). Interest rate risks are also managed through derivatives and the choice of interest rate periods. In July 2015, SRV Group Plc signed two interest rate swaps with a total capital of EUR 100 million. The interest rate swap started in July 2016, and the contracts mature in 2025. Interest rate derivatives are used for hedging against changes in market rates, and any changes in the fair value of interest rate derivatives are recognised in financial income or expenses for the period in which they arise. The fair values of derivatives correspond to the prices that the Group would receive or have to pay if it terminated the derivative contract. The fair value of interest rate derivatives has been defined based on price quotations from counterparties. These quotations are based on market conditions and generally accepted pricing models. Hedge accounting has not been applied to the interest rate derivatives that were used. The profit impact of interest rate derivative valuations would have been EUR 4.5 million (2019: EUR 5.9 million) if interest rates increased by one percentage point. If interest rates decreased by one percentage point, the profit impact would have been EUR -4.7 million (2019: EUR -6.4 million). General changes in interest rates also have direct impacts on the investment decisions of the Group's customers and, therefore, on the Group's operating cash flows. The company does not consider it likely that interest rates would decrease in the prevailing market situation.

The following IFRS 7-compliant sensitivity analysis covers the floating rate financial liabilities and receivables in the financial statements for which interest rate adjustments will take place over the next 12 months. Floating rate financial liabilities consist of project-specific company loans and floating rate loans included in the Group's general financing. Floating rate financial receivables consist of loans to associated companies. The sensitivity analysis also includes interest rate swaps.

Exchange rate risk

The Group's cash flows from international business, project financing during construction, capital in foreign currency and investments in foreign inventory companies and associated companies are subject to foreign exchange risks. In 2020, the most significant currency with exchange rate risk was the Russian rouble. In accordance with the Group's financing policy, foreign subsidiaries are responsible for identifying exchange rate risks related to their cash flows in foreign currency and for reporting such risks to the finance department. The objective of exchange rate risk management is to minimise the impact of currency fluctuations on the Group's operating result and equity. According to the Group's policy, derivatives and foreign currency loans may be used as hedging instruments to manage exchange rate risks. At the balance sheet date, the Group had short-term currency options hedging against exchange rate risks, with the total principal amounting to EUR 10 million (2019: EUR 50 million).

2020
EUR 1,000	Interest rate position	Average interest rate	Average maturity, months	Interest rate sensitivity EUR¹ Financial expenses and income		Interest rate position
				-1 %	+1 %	-1 %	+1 %
Floating rate liabilities	-95,260	3.24,%	1.6	0³	-364	-122,342	0³
Derivatives	100,000	-0.52,%⁵	3.4	-729	729	100,000	-729
Change in the fair value of derivatives	100,000			-4,707	4,481	100,000	-6,352
Receivables
Total				-5,436	4,846		-7,081

¹ The impact that one percentage point in market rates has on the Group's interest expenses or income over the next 12 months. Other variables are assumed to remain constant.
² The market forecast available at the balance sheet date for three-month and twelve-month Euribor rates per interest determination date was used for the interest rate sensitivity.
³ If market interest rates for floating rate liabilities/receivables are negative, a decrease in interest rates has no impact on the amount of interest payable because the reference rate agreed in the contracts is at least 0%.

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60

Currency risks are divided into transaction risks and translation risks. Transaction risks are related to currency-denominated cash flows for business (sales and purchases) and financing (loans). Translation risks encompass investments made in foreign subsidiaries, associated companies and inventories companies operating in currencies other than the euro, the accounting effects of which are recorded in the translation differences for shareholders' equity in the consolidated figures. Changes in the collateral value of the assets used as collateral for the financing of projects in Russia may also be deemed to be an exchange rate risk due to changes in the value of the rouble. A decrease in the collateral value of a project may result in the need for additional project collateral or, alternatively, the loan terms and amount may need to be renegotiated.

Group's sensitivity to exchange rate changes

The rouble-denominated currency position that poses a translation risk was EUR 68.4 million (2019: EUR 107.3 million). The rouble-denominated currency position that poses transaction risks was EUR 58.9 million (2019: EUR 80.2 million). At the balance sheet date, the currency hedging position hedging against transaction risks was EUR 10 million (2019: EUR 50 million). The currency hedging position consisted of a short-term currency option. The positions are presented in the table below. The total reduction in the value of the net investments in the Group's equity resulting from changes in exchange rates was EUR -32.2 million (2019: EUR 20 million) compared to the end of the previous year, consisting of EUR -18.6 million (2019: EUR 11.5 million) for changes due to translation risks, -18 million (2019: EUR 11.9 million) for changes in transaction risks, EUR 5.5 million (2019: EUR -3.8 million) for the currency hedging effect and EUR -1.1 million (2019: EUR 0.4 million) for the tax effect of currency hedging.

Currency position in roubles (EUR million)	31.12.2020	31.12.2019
Translation risk position
Equity of Group companies	13.5	25.6
Equity of associated companies and joint ventures	54.8	81.7
Total	68.4	107.3
Transaction risk position
Receivables or liabilities for the euro-denominated loans of Group companies	19.5	22.5
Receivables or liabilities for the euro-denominated loans of associated companies and joint ventures	39.4	57.7
Total	58.9	80.2
Currency position in roubles, total	127.2	187.5
Currency hedging position protecting against transaction risk	10.0	50.0

For translation risks, a 10% depreciation or appreciation of the rouble against the euro would have had a negative or positive impact on the Group's equity translation differences of approximately EUR 6.3 million at the balance sheet date (2019: EUR 10 million). SRV's transaction risk largely consists of the euro-denominated loans of associated companies and subsidiaries in Russia that are partly owned by SRV. For these, a 10% depreciation at the balance sheet date would have had a negative impact on SRV's result amounting to approximately EUR 4.6 (2019: EUR 5.6 million), with the positive effect of a 10% appreciation being EUR 4.9 million (2019: EUR 5.2 million). The transaction risk sensitivity takes into account the impact of hedges at the balance sheet date.

Management of liquidity and refinancing risks

Liquidity and refinancing risks may have an effect on the Group's financial results, cash flow and the implementation of the Group's developer contracting projects if the Group is unable to ensure sufficient financing for its operations. The Group's management monitors the adequacy of financing through regular short-term and long-term liquidity planning and monitoring. The Group maintains sufficient liquidity through efficient cash management.

The Group's main sources of financing are project-specific loans, committed revolving credit facility and bonds. Financing for developer contracting projects is ensured through sales of projects, project-specific credit facilities and the use of the company's general financing reserves. The Group only starts projects for which financing has been secured. Individual receivables may also be sold within the limits allowed for the purpose of liquidity management, as necessary. Receivables are transferred with risks and benefits with no repurchase obligations and are therefore fully excluded from the balance sheet. The arrangement involves a risk characteristic of factoring financing with the counterparty in the arrangement having the option to terminate the receivables arrangement unilaterally, in which case the receivables can no longer be sold.

The liquidity and refinancing risk indicated by the maturity distribution is managed by ensuring that the maturity of the financial liabilities corresponds with the cash flow for liabilities. In February 2020, the company agreed on the replacement of its EUR 100 million revolving credit facility with the syndicate banks; the facility was replaced with two separate facilities, one of EUR 60 million and one of EUR 40 million. At the end of June, the company concluded an agreement with the syndicate banks whereby the undrawn portion of the facility, amounting to EUR 9 million, of the EUR 60 million facility will be terminated. The remaining amount of the facility is EUR 51 million, which is fully drawn. According to the repayment plan updated in April, the amount remaining of the facility on 31 December 2020, EUR 51 million, will be repaid in December 2021 by an amount of EUR 11 million and in January 2022 by an amount of EUR 40 million. The revolving credit facility of EUR 40 million will be used to finance future construction projects. It falls due in January 2022 or within another repayment period agreed for separate construction projects. At the end of December, EUR 30.5 million of the EUR 40 million liquidity facility remained unused. The company has a EUR 100 million commercial paper programme. The company issued no new commercial papers in 2020.

At the end of May 2020, SRV carried out written procedures to extend the one-year tenor of its EUR 100 million (of which EUR 62.1 million is outstanding) senior unsecured callable fixed-rate notes due 23 March 2021 and the one-and-a-half-year tenor of its EUR 75 million senior unsecured callable fixed-rate notes due 27 March 2022 as well as to amend certain terms and conditions of these notes. The new due dates are 23 March 2022 for the EUR 100 million senior unsecured callable fixed-rate notes (with an outstanding principal of EUR 62.1 million) and 27 September 2023 for the EUR 75 million senior unsecured callable fixed-rate notes.

Due to the interest cover ratio covenant related to these notes, the total amount of SRV's drawn down loans, such as the commercial paper programme, revolving credit facility, overdraft facilities, pension insurance (TyEl) re-lending, new bonds and hybrid loans and some other loans, may amount to EUR 137 million if the interest cover ratio test is failed. At the balance sheet date, the drawn amounts

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61

for the items referred to above amounted to EUR 51 million in total. The interest cover ratio covenant is described in more detail below.

SRV's financing agreements include standard covenants. The financial covenants for the financial period included equity ratio (including revenue recognition over time), net gearing, minimum cash, minimum operating margin, interest cover ratio and some other restrictions. Minimum cash consists of the Group's cash and deposits in syndicate banks, with trade payables overdue for more than 10 days deducted. The interest cover ratio is the ratio of the Group's operating margin (EBITDA) to its net financial expenses. The covenant levels of these financing agreements are determined on the basis of the accounting principles specified in each loan agreement. The agreements include cross-default conditions.

In the financial period, covenant reporting covered the equity ratio, gearing and minimum EBITDA, which were reported on a quarterly basis and every six months. Minimum cash is reported on the basis of the situation prevailing on the last day of each month. The interest cover ratio is tested only if any new loan financing is withdrawn; the covenant does not prevent the refinancing of existing loans or other sources of financing. In the case of breaches concerning regularly reported covenants, the creditor has the right to demand immediate debt repayment. The covenants and their levels at the balance sheet date are presented later in this document in the Capital management section.

The maturity breakdown below presents the contractual payments concerning the Group's financial liabilities at the balance sheet date. The payments include interest payments and capital repayments. The maturity table does not include the future estimated payments for hybrid equity loans presented under equity. Further information on hybrid loans is provided in Note 25 Equity and accounting principles.

At the end of the reporting period, the Group's financing reserves totalled EUR 116.7 million (2019: EUR 40 million) and consisted of project loans not drawn down (EUR 20 million) and cash funds (EUR 96.7 million). At the balance sheet date, SRV's remaining purchase price receivables for developer contracting housing and commercial premises under construction in Finland amounted to EUR 24 million (2019: EUR 35.8 million), with the amount of financing for developer contracting projects not withdrawn amounting to EUR 38.6 million (2019: EUR 70.3 million). SRV estimates that EUR 29.1 million (2019: EUR 96.8 million) will be used for the completion of developer contracting projects. The sources of financing are described in table format under the maturity table.

Maturity breakdown of financial liabilities, excluding lease liabilities

2020

Maturity
EUR 1,000	Carrying value	Contractual liability^{1}	2021	2022	2023	2024	later
Bonds	135,625	156,823	7,915	68,960	79,949	0	0
Loans from financial institutions	56,661	60,134	17,270	42,864	0	0	0
Corporate loans^{2}	40,712	48,527	628	614	1,104	2,155	44,027
Commercial papers	0	0	0	0	0	0	0
Other liabilities	16,655	16,655	0	0	0	0	16,655
Other non-interest bearing liabilities	11,840	11,840	0	2,553	5,363	0	3,924
Derivative liabilities	8,977	8,618	1,768	1,768	1,768	1,768	1,544
Trade payables	59,640	59,640	59,640	0	0	0	0
Total	330,111	362,238	87,221	116,760	88,184	3,923	66,150

Maturity breakdown of financial liabilities, lease liabilities

2020

Maturity
EUR 1,000	Carrying value	Contractual liability^{1}	2021	2022	2023	2024	later
Lease liabilities	136,154	341,110	9,388	9,094	8,534	8,469	305,625

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62

Maturity breakdown of financial liabilities, excluding lease liabilities

2019

Maturity
EUR 1,000	Carrying value	Contractual liability^{1}	2020	2021	2022	2023	later
Bonds	136,526	156,603	7,925	70,021	78,656	0	0
Loans from financial institutions	74,014	77,760	7,081	68,655	2,024	0	0
Corporate loans^{2}	50,417	59,840	901	3,883	1,089	1,877	52,090
Commercial papers	18,500	18,500	18,500	0	0	0	0
Other liabilities	20,156	20,234	78	0	0	0	20,157
Other non-interest bearing liabilities	12,059	12,059	0	2,553	0	5,363	4,143
Derivative liabilities	9,201	9,201	2,113	1,674	1,562	1,450	2,403
Trade payables	81,101	81,101	81,101	0	0	0	0
Total	401,975	435,299	117,700	146,786	83,331	8,690	78,792

Maturity breakdown of financial liabilities, lease liabilities

2019

Maturity
EUR 1,000	Carrying value	Contractual liability	2020	2021	2022	2023	later
Lease liabilities	150,125	380,849	10,093	10,164	9,257	9,253	342,081

Contractual liability includes interest and other contractual payments
The liability for repaying the principal and interest on company loans is transferred to the buyer of the apartment at apartment assignment. Regardless of whether the project is completed or not, but not yet assigned to the buyer, the principal and interest for the share of liabilities is presented in full, calculated until the due date of the loan. Interest and principal are removed from the table only when control is assigned.

Financial reserves

EUR 1,000	31.12.2020	31.12.2019
Revolving credit facility^{1}	0	10,000
Project loans not drawn	20,031	2,298
Cash and cash equivalents	96,748	27,728
Total	116,778	40,026

The use of a revolving credit facility (EUR 100 million) is subject to restrictions imposed due to the interest cover ratio covenant.

Credit risk

Receivables, accrued income for long-term projects from customers and loan receivables from associated companies and joint ventures, deposits and derivative transactions are subject to credit risk. Credit risk is managed in accordance with the credit policy principles. The project customers are mainly large, well-known companies with solid finances. If there is no information on the customer's solvency, the information is checked from public trade and credit information registers, with a security deposit required if necessary. For international commercial premises projects, more detailed customer background checks are carried out for new customers. No solvency data is checked for homebuyers, but ownership of the apartment is transferred to the customer only after the purchase price has been paid in full. For transactions concerning unfinished apartments, buyers have the option, pursuant to the

Housing Transactions Act, to annul the transaction before the apartment is assigned, but cancellation is subject to the obligation to pay damages. Similarly, the construction company may annul the sale if the buyer fails to make the agreed payments.

Deposits and derivatives

The Group is not engaged in any significant investment activities. The investments made are related to day-to-day cash management and are mainly short-term bank deposits at financially solid cooperation banks. The Group's finance unit is responsible for the credit risk associated with the investment counterparties in accordance with the Board's financing policy. Derivatives are entered into for hedging purposes and thus the receivables in the balance sheet are minor. Contracts concluded with the counterparties of derivative instruments are based on the ISDA Master Agreement. According to the terms of the arrangements, if certain events occur (such as payment default), the net receivable or liability position of an individual counterparty in the same currency is designated as a liability and all related arrangements are terminated. As SRV does not have a legally enforceable offsetting right at the closing date, said amounts have not been deducted from each other in the balance sheet. The credit risk related to both deposits and derivatives is considered to be minor.

Trade receivables and accrued income from customer projects

Business units manage accrued income from customer projects and credit risks related to trade receivables in accordance with the Group's credit policy principles. The credit policy defines the re

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63

quirements for the credit decision process, terms of sale and debt collection. The Group's commercial counterparties are mainly listed companies or major real estate companies or institutional investment companies. In the housing business, the counterparties are mainly private individuals. In a housing transaction, the customer is granted control of the apartment when all purchase price payments have been made. Tenant procurement adheres to the same credit policies that are applied to commercial projects.

In the recognition of expected credit losses, the Group applies an approach according to which all trade receivables and contractual assets are reviewed separately and expected credit losses recognised over the entire applicable duration. Due to the business model and customer profile described in the previous paragraph, the Group has not incurred any material credit losses over the last few years, and no material credit losses are expected regarding the items included in the balance sheet at closing date. Of the EUR 18.2 million due at the end of the comparison period, no material credit losses were realised in 2020.

Competition for new orders in the construction sector is fierce, and this might affect the volume and profitability of SRV's new order backlog. Contractor agreements in the construction industry are substantial in value. Their terms and conditions require all parties to achieve the agreed targets within a set timetable and to adhere to agreed working methods. In particular, additional work and alterations may involve financial risks. Project receivables can involve additional work and alterations that are subject to complaints or disputes over the payment obligations of the client. If no mutual agreement on payment liability is reached during the final financial analysis of a project, the company may have to instigate legal proceedings against the client. The outcomes of legal proceedings involve uncertainties. Furthermore, it is not possible to accurately estimate the time required for court hearings in disputes. For income from additional work and alterations that is recognised over time, only the portion that will likely be invoiced is recognised through IFRS 15-compliant entries. The total forecast for project invoicing does not take into account items that involve a significant risk of impairment and that the company does not expect to receive.

Aging itemisation of trade receivables

EUR 1,000	2020	2019
Trade receivables not yet due	47,114	28,689
1-30 days overdue	5,173	2,904
31-60 days overdue	394	448
61-90 days overdue	411	762
91-180 days overdue	724	4,234
181-360 days overdue	2,288	7,041
Overdue by more than 361 days	94	2,845
Total trade receivables	56,199	46,923

At the balance sheet date, there were no overdue items in other financial assets.

Due to the business model and customer profile, the Group has not incurred any material credit losses over the past few years. Trade receivables and contractual assets have been examined separately and, as no material credit losses are expected, no reserve for bad debts has been recorded.

Loan receivables from associated companies and joint ventures

Loan receivables from associated companies and joint ventures are tested for impairment using a three-stage model.

The Group's management first reviews the expected cash flows for the loan receivables from associated companies and joint ventures together with the associated company investments and regularly assesses whether the credit risk related to the receivables has increased significantly after they were initially recorded. If the credit risk associated with a receivable is deemed to be low or if the credit risk has not significantly increased after it was initially recorded, the receivable is included in Stage 1 and the impairment is measured based on an estimate of the probability of credit losses occurring within 12 months. The Group's management has estimated that the loan receivables in the balance sheet at closing date are mainly included in Stage 1, with no material credit losses expected for them. However, the Group's management continuously assesses the likelihood of credit loss risks and monitors any developments in the situation.
If it is discovered that the credit risk concerning a loan receivable has increased significantly, the loan receivables are transferred to Stage 2, in which case the associated likelihood of loss is assessed over the entire lifetime. In this case, the credit loss is recorded for the entire lifetime of the loan receivable and calculated by comparing future estimated cash flows for the entire lifetime with contractual cash flows. At closing date, the balance sheet included no loan receivables included in Stage 2.
If loan receivables are found to be impaired as a result of a credit risk, they are transferred to Stage 3. In the beginning of 2020, the total amount of loans included in Stage 3 was EUR 7.0 million, with a EUR 1.5 million impairment loss recorded for the loans, and at the end of 2020, the loans included in Stage 3 totalled EUR 5.6 million.

Long-term and short-term loan receivables from associated companies and joint ventures

EUR 1,000	Level 1	Level 2	Level 3	Total
31.12.2020
Long-term loan receivables	38,661	0	5,620	44,281
Short-term loan receivables	1,601	0	0	1,601

31.12.2019

Long-term loan receivables	36,989	0	7,006	43,995
Short-term loan receivables	62	0	0	62

Financial assets and liabilities valued at fair value categorised based on the valuation hierarchy

Financial assets recognised at fair value through profit or loss

On 31 December 2020, the company had currency options and interest rate swaps recognised at fair value through profit or loss.

Derivatives recognised at fair value through profit or loss

EUR 1,000	Level 1	Level 2	Level 3	Total
31.12.2020
Derivative receivables	0	1	0	1
Derivative liabilities	0	8,977	0	8,977

31.12.2019

Derivative receivables	0	0	0	0
Derivative liabilities	0	9,201	0	9,201

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64

Other assets recognised at fair value through profit or loss

EUR 1,000	Level 1	Level 2	Level 3	Total
31.12.2020
Unquoted shares and holdings	0	606	21,614	22,219
Non-current receivables	0	0	500	500
31.12.2019
Unquoted shares and holdings	0	583	11,275	11,858

Level 1 instruments are actively traded on the market, with their current values based directly on the market price.

The fair value of Level 2 instruments is based on market data.

Instead of actual market information, the fair value of Level 3 instruments is based, for example, on quotations provided by agents, market valuation reports or cash flow-based forecasts. Valuations may also be based on acquisition costs if this is the best estimate of fair value.

Unquoted shares and investments consist mainly of shares purchased for the leisure use of personnel (Level 2), Voimaosakeyhtiö SF shares and real estate investment funds and projects (Level 3). The funds recorded for Level 3 consist mainly of SRV Voima's investment in Voimaosakeyhtiö SF (EUR 10.7 million 12/2020) and the Tampere Central Deck and Arena project (EUR 8.8 million 12/2020) and they also include investments in real estate investment funds and projects. Level 3 also includes REDI's additional purchase price receivable of EUR 0.5 million. The company sold its holding of approximately 40 per cent in shopping centre REDI in February 2020 and recorded an additional purchase price receivable of EUR 13.5 million for the additional potential future purchase price of EUR 50 million agreed in connection with the transaction. Based on an updated cash flow-based forecast for shopping centre REDI, SRV records a change in the value of the additional purchase price receivable, which will result in a negative impact of approximately EUR 13 million on the operating profit for 2020.

The following table presents the changes in Level 3 instruments for 2020

EUR 1,000	Unquoted shares and holdings and long term receivable
Opening balance 1 January 2020	11,275
Increase	24,089
Decrease	-250
Other net gains/losses recognised at fair value through profit or loss	-13,000
Final balance 31 December 2020	22,114

The following table presents the changes to Level 3 instruments for 2019

EUR 1,000	Unquoted shares and holdings
Opening balance 1 January 2019	17,759
Increase	0
Decrease	-6,484
Other net gains/losses recognised at fair value through profit or loss	0
Final balance 31 December 2019	11,275

Capital management

Efficient management of the Group's capital structure ensures that the Group is able to support its business operations and increase the ownership value of investors. The Group has no public credit rating issued by a credit institution. The Board of Directors of SRV Group Plc regularly assesses the Group's capital structure. In order to maintain its capital structure, the Group may adjust its dividend payment, issue new shares or float equity bonds. In addition, the Group may adjust its business operations and use of capital to maintain its capital structure. The Group monitors the capital structure through the Group's equity ratio and net gearing, which are also the financial covenants reported for any major loans. In the long term, the capital structure is controlled through net gearing, and the Group's financial target is to reduce the net gearing ratio to 40–60 per cent by the end of the strategy period. Total shareholders' equity includes the capital belonging to the parent company owners and non-controlling minority shareholders and an equity loan.

In May, the company organised a directed share issue for the holders of the two outstanding hybrid bonds. In the issue, about EUR 75 million of the EUR 92 million principal of the hybrid bonds was converted into shares. As a result of the implementation of the share issue, the total outstanding principal of the 2016 hybrid bonds is approximately EUR 11.8 million and the outstanding principal of the 2019 hybrid bonds is approximately EUR 3.6 million.

In June, the company organised a rights issue in which SRV received gross assets of approximately EUR 50 million. Due to the share issue, SRV's number of shares rose by 131,049,371 from 131,967,970 to a total of 263,017,341 shares. The capital loan of EUR 9 million drawn on 30 March was used for payment in accordance with its terms and conditions, and was converted into equity.

The Group's loans include covenants that are described above under "Management of liquidity and refinancing risks". The covenants are calculated in accordance with the terms of each loan agreement and they are based on either the FAS or IFRS figures. The table below describes the key covenants reported for the Group's bonds and liquidity facility in use at the end of the financial period 2020 and their levels on 31 December 2020 and 31 December 2019. The covenant levels for all loan agreements were met on 31 December 2020.

Covenants for credit agreements	Covenant value	31.12.2020	31.12.2019
Equity ratio based on percentage of completion, liquidity facility %^{1}	> 28%	28.7%	27.2%^{2}
Equity ratio based on percentage of completion, bonds %	> 26%	28.7%	27.2%
	> EUR 10 million at the end of the period,
Minimum cash^{4}	> EUR 5 million otherwise	71.3	-
Gearing ratio, %^{1}	≤ 140%	82.1 %	151.2%^{2}
	Varies between EUR 2.5–10 million
Minimum EBITDA^{3 4}	depending on the time of testing	33.9	-

1 In accordance with the terms of the loan agreements, excluding the effect of IFRS16
2 At the end of December 2019, the company made a standstill agreement with the syndicate banks that issued the credit facility, that is, the loan covenants will not be tested during the period specified.
3 Minimum EBITDA before the impact of the financial results, transaction costs and impairments of associated companies.
4 The new covenant for the liquidity facility entered into force in 2020, no reference data is available.

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30 OPERATING LEASES, COMMITMENTS AND CONTINGENT LIABILITIES

EUR 1,000	2020	2019
Collateral given for own liabilities
Real-estate mortgages given	44,260	61,641
Other commitments
Investment commitments given	26,412	51,683
Land area commitments	33,365	47,250

The Group has guaranteed obligations of its subsidiaries. The total amount of these guarantees was EUR 284,4 million (EUR 308,4 million).

The cost of rental agreements not included in lease liabilities

EUR 1,000	2020	2019
Cost related to short-term leases	-29,808	-27,721
The cost of low-value assets	-43	-50
Cost related to variable leases that are not includes in lease liabilities	-962	-1,046
Total	-30,814	-28,817

The cost of rental agreements not included in lease liabilities contains mainly costs related to site equipment (short-term lease).

Cash flow of lease liabilities

EUR 1,000	2020	2019
Total	-9,767	-11,037

Cash flow of lease liabilities are presented under the item 'Interest paid and other expenses from financial costs', and the items 'proceeds and repayment of lease liabilities' under cash flow from financing activities, instead of the item 'cash paid to suppliers and employees' under cash flow from operating activities.

31 FAIR AND NOMINAL VALUES OF DERIVATIVE INSTRUMENTS

EUR 1,000	2020		2019
Fair values of derivative instruments 1	Positive	Negative	Positive	Negative
Foreign exchange forward contracts and options	1	0	0	402
Interest rate swap	0	8,977	0	8,799
Total	1	8,977	0	9,201
EUR 1,000	2020	2019
---	---	---
Nominal values of derivative instruments
Foreign exchange forward contracts and options	10,000	50,000
Interest rate swap	100,000	100,000
Total	110,000	150,000

1 The fair values of derivative instruments are based on the price quotations of the counterparties.

32 RECONCILIATION OF DEBTS REPORTED IN FINANCING ACTIVITIES

EUR 1,000	Long term		Short term
	Interest-bearing debts	Hybrid bond	Interest-bearing debts	Total
Debt 31.12.18	284,074	45,000	91,794	420,868
Proceeds from loans	64,978	0	0	64,978
Repayment of loans	-40,441	0	-1,294	-41,735
Transfer long term/short term debts	-4,622	0	4,622	0
Change in Lease Liabilities	147,672	0	2,454	150,125
Proceeds from Hybrid bond	0	58,400	0	58,400
Repayment of hybrid bond	0	-20,500	0	-20,500
Change in housing corporation loans	-27,881	0	38	-27,843
Net change in short-term loans	0	0	-72,000	-72,000
Change in debt, non-cash:
Other non-cash changes	345	0	0	345
Debt 31.12.19	424,124	82,900	25,614	532,638
Proceeds from loans	9,000	0	0	9,000
Repayment of loans	-17,352	0	0	-17,352
Transfer long term/short term debts	-10,143	0	10,143	0
Change in Lease Liabilities	-14,083	0	112	-13,971
Proceeds from Hybrid bond	0	0	0	0
Repayment of hybrid bond	0	0	0	0
Change in housing corporation loans	-9,698	0	-7	-9,705
Net change in short-term loans	0	0	-18,500	-18,500
Other interest bearing debts	-3,502	0	0	-3,502
Change in debt, non-cash:
Effective interest	0	0	0	0
Other non-cash changes	-9,901	-67,540	0	-77,441
Debt 31.12.20	368,445	15,360	17,362	401,167

SRV | FINANCIAL STATEMENTS 2020
66

33 SUBSIDIARIES

Name	Domicile	Group's holding, %	Group's voting right, %
Shares in subsidiaries
SRV Rakennus Oy	Espoo	100.00	100.00
SRV Ream Oy	Helsinki	100.00	100.00
SRV Asumisen Palvelut Oy	Espoo	100.00	100.00
Rakennusliike Purmonen Oy	Joensuu	65.00	65.00
SRV Infra Oy	Kerava	100.00	100.00
SRV Voima Oy	Espoo	100.00	100.00
SRV Russia Oy	Espoo	100.00	100.00
000 SRV Development	Pietari	100.00	100.00
SRV Stroi 000	Moskova	100.00	100.00
000 SRV 360	Pietari	100.00	100.00
SRV Ehituse AS	Tallinna	100.00	100.00
SRV Realty B.V	Amsterdam	100.00	100.00

The list does not include project companies.

34 RELATED PARTY TRANSACTIONS

2020

EUR 1,000	Selling of goods and services	Purchase of goods and services	Interest income	Receivables	Liabilities	Financial transactions^{1}
Management and Board of Directors	0	0	0	0	0	3 188
Joint ventures	6,994	23	0	2,544	7	0
Associate company	14,811	3	2,529	54,561	1	0
Other related parties	0	0	0	0	0	42,097
Total	21,805	25	2,529	57,105	7	45,285

1 These financial transactions concern share issues involving the participation of related parties with their converted hybrid bonds and subscription rights.

2019

EUR 1,000	Selling of goods and services	Purchase of goods and services	Interest income	Receivables
Management and Board of Directors	0	0	0	0
Joint ventures	66,809	49	539	9,834
Associate company	3,853	0	2,508	55,969
Other related parties	0	0	0	0
Total	70,663	49	3,047	65,802

The related parties of Group include parent company, subsidiaries and associated companies as well as joint ventures. The related parties also include Board of Directors and Corporate Executive Team.

Other related parties include transactions carried out with other companies under the control of the Group's management or with companies under control of minority shareholders.

Goods and services are sold to related parties at market price.

Subsidiaries included in related parties are listed above in note 33 Subsidiaries. Subsidiaries are included in the consolidated financial statements and therefore the transactions between Group companies are not included in note 34 Related party transactions.

SRV | FINANCIAL STATEMENTS 2020
67

Itemisation of management salaries and employment-based benefits

EUR 1,000	2020	2019
Management salaries and other short-term employment-based benefits	2,783	1,974
Share-based payments	25	0
Post-employment benefits, statutory pensions	631	488
Post-employment benefits, voluntary additional pensions	41	118
Benefits paid upon termination	0	390
Total	3,479	2,971

The statutory occupational pension insurance of the company's employees is handled through Ilmarinen. Pension payments are made on the basis of the statutory pension percentage, 22.7 (24.7%). In 2019, severance pay remitted in connection with resignations was entered as expense in the 2019, but this was not paid until 2020.

Salaries and compensations of CEO & Board of Directors

EUR 1,000	2020	2019
Sipola Saku, President and CEO from 1 Sep 2019	645	145
Ojala Juha Pekka, President and CEO until 31 Aug 2019¹	-	463
Nieminen Timo, Deputy CEO	200	203
Members of the Board
Yli-Kyyny Tomi, Chairman from 26 Mar 2020	86	43
Kokkila Ilpo, Chairman until 26 Mar 2020	31	80
Kallasvuo Olli-Pekka, Vice Chairman	77	68
Alitalo Minna	68	57
Leinonen Hannu	38	-
Kokkila Timo	68	56
Leppänen Heikki	40	-
Hintikka Juhani, until 26 Mar 2020	24	57
Elomaa Juhani, until 19 Mar 2019	-	15
Members of the Board, total	432	375

¹ The President and CEO's employment obligation ended on 31 August 2019 and his employment ended on 31 December 2019

The CEO's period of notice is 6 months. If SRV Group Plc terminates the contract, the period of notice is twelve months.

The 2020 paid statutory occupational pension insurance of the president and CEO and deputy CEO were 191 thousand euros (165 thousand euros in 2019).

SRV | FINANCIAL STATEMENTS 2020
68

PARENT COMPANY'S FINANCIAL STATEMENTS, FAS

INCOME STATEMENT OF THE PARENT COMPANY

EUR 1,000	Note	2020	2019
Revenue	1	9,562	11,383
Other operating income	2	479	-16
Purchase during the financial year		0	-18
Personnel expenses	3	-6,418	-7,478
Indirect personnel costs
Pension costs		-815	-1,253
Other indirect personnel costs		-173	-194
Depreciation and impairment	4	-485	-366
Other operating expenses	5	-7,481	-8,448
Operating profit		-5,330	-6,391
Financial income and expenses	6	-9,734	-20,274
Profit berofe appropriations and taxes		-15,064	-26,664
Appropriations	7
Income taxes	8	3,139	5,246
Net profit for the financial year		-11,925	-21,419

BALANCE SHEET OF THE PARENT COMPANY

EUR 1,000	Note	31.12.2020	31.12.2019
ASSETS
Non-current assets
Intangible assets	9	1,134	1,398
Property, plant and equipment	9	525	513
Investments
Shares in group companies	10	299,279	295,857
Other financial assets	10	2,453	2,660
Non-current assets, total		303,391	300,427
Current assets
Inventories		4	4
Long-term receivables	12	15,813	12,748
Short-term receivables	12	181,329	169,716
Cash and cash equivalents		63,630	18,061
Current assets, total		260,777	200,530
ASSETS, TOTAL		564,168	500,956
EQUITY AND LIABILITIES
Equity
Share capital	14	3,063	3,063
Invested free equity fund	14	268,592	143,751
Retained earnings	14	5,499	26,918
Profit/loss for the financial year	14	-11,925	-21,419
Equity, total		265,228	152,313
Provisions	16	0	300
Liabilities
Non-current liabilities	17	193,892	257,149
Current liabilities	18	105,047	91,195
Liabilities, total		298,939	348,344
EQUITY AND LIABILITIES, TOTAL		564,168	500,956

SRV | FINANCIAL STATEMENTS 2020
69

CASH FLOW STATEMENT OF THE PARENT COMPANY

EUR 1,000	2020	2019
Cash flows from operating activities
Cash receipts from customers	8,816	11,076
Cash receipts from other operating income	831	891
Cash paid to suppliers and employees	-17,563	-18,128
Net cash before interests and taxes	-7,916	-6,161
Interests received and other financial income	13,737	10,855
Interests paid and other expenses from financial costs	-21,487	-23,981
Cash flow from operating activities	-15,665	-19,288
Cash flow from investing activities
Purchase of tangible and intangible assets	-234	-512
Purchase of investments	-422	0
Proceeds from sale of investments	474	5,500
Loans granted for subsidiaries	-1,892	-1,233
Loans granted for others	-4,000	0
Proceeds from repayments of subsidiary loans	537	0
Dividends received	130	0
Net cash used in investing activities	-5,407	3,756
EUR 1,000	2020	2019
---	---	---
Cash flow from financing activities
Net cash from share issue	40,799	0
Proceeds from loans	0	143,080
Repayment of loans	-9,000	-82,904
Proceeds from capital loan	9,000	0
Capital loan interests	-225	0
Net change in short-term loans	-18,500	-72,000
Change in group accounts	44,567	-39,642
Net cash from financing activities	66,641	-51,466
Net change in cash and cash equivalents	45,568	-66,998
Cash and cash equivalents at the beginning of financial year	18,061	85,059
Cash and cash equivalents at the end of financial year	63,630	18,061

SRV | FINANCIAL STATEMENTS 2020

Notes to parent company financial statements

Basic data

SRV Group Plc (reg 1707186-8) is a Finnish company founded in accordance with the Finnish law and based in Espoo, Tarvonsalmenkatu 15, 02600 Espoo, Finland

Parent company's financial statements and the comparable information

The parent company's financial statements are prepared in accordance with the principles of Finnish accounting legislation. The financial statements are prepared for 12 months in the financial period 1 January - 31 December 2020.

ACCOUNTING PRINCIPLES

Non-Current assets

Tangible and intangible asset are recognized on the balance sheet at historical cost less depreciation according to plan and impairment. Depreciation according to plan is calculated as straight-line depreciation on the basis of the estimated economic life of tangible and intangible assets. Depreciation periods are as follow:

Other intangible rights, 3–5 years
Buildings and structures, 40–60 years
Machinery and equipment, 3–10 years
IT-programs, 3–5 years

Investments are stated at the original purchase cost less accumulated impairment if the future income from the investment is probably going to be smaller compared to purchase price. No depreciation is booked on land and water areas and intangible rights. Development costs are recognized as annual costs during the year they arise.

Items denominated in foreign currency

Foreign currency business transactions are recognized at the exchange rate of transaction date.

Pensions

The statutory pension security in the parent company is provided by an external pension insurance company.

Taxes

The taxes in the income statement include the taxes for the financial year and adjustments for previous periods. The deferred tax liability and receivable is calculated from the temporary difference in bookkeeping versus taxation using the confirmed tax rate for the coming fiscal years.

The valuation of financial instruments

Financial instruments have been valued as of 1 January 2015 at fair value in accordance with the Chapter 5 Section 2(a) of Finnish Accounting Act. The fair value of derivatives is estimated based on the present value of future cash flows using market prices on the closing date. The change in fair value of the interest rate swaps are recognized in interest income and expenses in the income statement and the the cumulative change in fair values is recognized in the accrued income and expenses at the balance sheet. Hedging instruments are booked in the income statement in financial expenses and in balance sheet in accrued expenses.

Currency forward deal premium cost are recognized in financial expenses at transaction date.

Commitments

The parent company has given absolute guarantees on behalf of group companies. The guarantees are related to construction projects.

SRV | FINANCIAL STATEMENTS 2020
71

NOTES TO INCOME STATEMENT

1 REVENUE

EUR 1,000	2020	2019
Group services	8,368	10,302
Rent income	827	907
Other revenues	367	174
Total	9,562	11,383

2 OTHER INCOME

	2020	2019
Other income	479	-16

3 INFORMATION CONCERNING PERSONNEL

	2020	2019
Number of personnel on average
Office employees	63	81

4 DEPRECIATION AND IMPAIRMENTS

EUR 1,000	2020	2019
Depreciation on Intangible assets	382	261
Depreciation on Buildings and Structures	10	10
Depreciation on Machinery and Equipment	93	95
Total	485	366

5 OTHER OPERATING EXPENSES

EUR 1,000	2020	2019
Rents	1,247	1,285
Voluntary indirect personnel expenses	366	553
Car and travel expenses	246	445
Entertainment and marketing expenses	307	632
Communication and IT expenses	1,433	1,421
Other external services	1,844	2,414
Operating and maintenance costs	143	250
Other fixed expenses	1,895	1,698
Total	7,481	8,448

Auditing fees included in other operating expenses

EUR 1,000	2020	2019
Auditing	302	167
Statements	0	31
Tax advisory services	0	16
Other services	227	917
Total	529	1,131

SRV | FINANCIAL STATEMENTS 2020
72

6 FINANCIAL INCOME AND EXPENSES

EUR 1,000	2020	2019
Dividend income
From group companies	130	65
Total	130	65
Interest and other financial income
From group companies	6,346	9,054
From other companies	76	73
Fair value impact of currency forward contracts	403	0
Income from currency forward contracts	6,758	0
Total	13,583	9,128
Interest expenses
Interest expenses to group companies	-138	-223
Interest expenses to others	-16,907	-19,185
Total	-17,045	-19,407
Other financial expenses
To others
Fair value impact of interest rate swap contracts	-178	-2,122
Fair value impact of currency forward contracts	0	-1,787
Costs from currency forward contracts	0	-1,303
Structuring costs from currency forward contracts	-1,655	-758
Impairment and reversing from non-current investments	0	-963
Other financial expenses	-4,568	-3,127
Total	-6,401	-10,059
Financial income and expenses total	-9,734	-20,274

7 APPROPRIATIONS

The company did not have transactions to be recorded in appropriations during the financial year or the comparison period.

8 INCOME TAXES

EUR 1,000	2020	2019
Change in deferred taxes	3,139	5,246
Total	3,139	5,246

NOTES TO BALANCE SHEET

9 CHANGES IN NON-CURRENT ASSETS

Intangible assets

2020
EUR 1,000	Intangible assets	Other intangible expenditures	Total
Historical cost 1. Jan	715	2,261	2,976
Increase	0	209	209
Decrease	0	-91	-91
Historical cost 31. Dec	715	2,379	3,095
Accumulated depreciation and impairments, 1 Jan.	-465	-1,113	-1,579
Depreciation	0	-382	-382
Accumulated depreciation and impairments, 31 Dec.	-465	-1,495	-1,960
Carrying amount, 31 Dec.	250	884	1,134

SRV | FINANCIAL STATEMENTS 2020

2019

EUR 1,000	Intangible assets	Other intangible expenditures	Total
Historical cost 1. Jan	715	1,760	2,476
Increase	0	1,185	1,185
Historical cost 31. Dec	715	2,261	2,976
Accumulated depreciation and impairments, 1 Jan.	-465	-853	-1,318
Depreciation	0	-261	-261
Accumulated depreciation and impairments, 31 Dec.	-465	-1,113	-1,579
Carrying amount, 31 Dec.	250	1,148	1,398

Tangible assets

2020

EUR 1,000	Land and water areas	Buildings and structures	Machinery and equipment	Total
Historical cost 1. Jan	41	437	1,914	2,392
Increase	0	0	115	115
Historical cost 31. Dec	41	437	2,029	2,507
Accumulated depreciation and impairments, 1 Jan.	0	-105	-1,774	-1,879
Depreciation	0	-10	-93	-103
Accumulated depreciation and impairments, 31 Dec.	0	-115	-1,867	-1,982
Carrying amount, 31 Dec.	41	322	162	525

2019

EUR 1,000	Land, and water, areas	Buildings, and structures	Machinery, and equipment	Total
Historical cost 1. Jan	41	437	1,901	2,380
Increase	0	0	12	12
Historical cost 31. Dec	41	437	1,914	2,392
Accumulated depreciation and impairments, 1 Jan.	0	-94	-1,679	-1,773
Depreciation	0	-10	-95	-106
Accumulated depreciation and impairments, 31 Dec.	0	-105	-1,774	-1,879
Carrying amount, 31 Dec.	41	332	139	513

10 INVESTMENTS

EUR 1,000	2020	2019
Shares in subsidiaries
Historical cost, 1 Jan.	295,857	262,963
Increases	3,423	39,460
Decreases	0	-6,567
Historical cost, 31 Dec.	299,279	295,857
Other shares and holdings
Historical cost, 1 Jan.	2,660	2,778
Increases	15	15
Decreases	-222	-134
Historical cost, 31 Dec.	2,453	2,660
Investments total	301,732	298,516

11 SUBSIDIARY COMPANIES

	Domicile	2020	2019
SRV Rakennus Oy	Espoo	100.0	100.0
SRV Infra Oy	Kerava	100.0	100.0
SRV Voima Oy	Espoo	100.0	100.0
SRV Russia Oy	Espoo	100.0	100.0
SRV Ehituse AS	Tallinna	100.0	100.0
Rakennusliike Purmonen Oy	Joensuu	65.0	65.0
SRV Ream Oy	Helsinki	100.0	100.0

SRV | FINANCIAL STATEMENTS 2020
74

12 LONG-TERM AND SHORT-TERM RECEIVABLES

EUR 1,000	2020	2019
Long-term receivables
From Group companies
Loan receivables	1,640	1,640
Interest receivables	159	51
From others
Other receivables	1,751	1,933
Deferred tax receivable	12,263	9,124
Long-term receivables Total	14,014	11,057
Long-term receivables Total	15,813	12,748
Short-term receivables
From Group companies
Accounts receivable	3	141
Loan receivables	12,265	10,741
Other receivables	163,779	157,168
Accrued receivables	0	899
Total	176,047	168,949
From others
Accounts receivable	69	6
Other receivables	5,198	683
Loan receivables	0	32
Accrued receivables	15	46
Total	5,282	767
Short-term receivables, total	181,328	169,716

13 ACCRUED RECEIVABLES:

EUR 1,000	2020	2019
Fair value of currency forward	1	0
Interest	0	899
Other	14	46
Total	15	945

14 CHANGES IN EQUITY

EUR 1,000	2020	2019
Share capital 1.1.	3,063	3,063
Share capital 31.12.	3,063	3,063
Share premium reserve 1.1.	143,751	143,751
Share Issue	124,841	0
Share premium reserve 31.12.	268,592	143,751
Retained earnings 1.1.	5,499	26,918
Transfer between items	289	0
Purchase/sell of own shares	-289	0
Retained earnings 31.12.	5,499	26,918
Net profit for the financial year	-11,925	-21,419
Equity 31.12.	265,228	152,313

15 CALCULATION ON THE DISTRIBUTABLE EQUITY

EUR 1,000	2020	2019
Share premium reserve	268,592	143,751
Retained earnings	5,499	26,918
Net profit for the financial year	-11,925	-21,419
Total	262,166	149,250

16 PROVISIONS

EUR 1,000	2020	2019
Other provisions
Provision related to the selling of SRV Kalusto Oy	0	300

SRV | FINANCIAL STATEMENTS 2020
75

17 LONG-TERM LIABILITIES

EUR 1,000	2020	2019
To other companies
Hybrid Bond	15,360	58,400
Loans from financial institutions	40,000	60,000
Bonds	137,096	137,096
Other loans	1,256	1,473
Total	193,712	256,969
To Group Companies
Other loans	180	180
Long-term liabilities total	193,892	257,149

18 SHORT-TERM LIABILITIES

EUR 1,000	2020	2019
To Group Companies
Accounts payables	0	29
Other liabilities	76,661	23,198
Total	76,661	23,227
To other companies
Hybrid Bond	0	24,500
Loans from financial institutions	11,000	0
Commercial papers	0	18,500
Accounts payable	326	583
Accrued expenses	16,544	23,827
Other loans	517	558
Total	28,387	67,968
Short term liabilities total	105,047	91,195

19 ACCRUED LIABILITIES

EUR 1,000	2020	2019
Salaries including social costs	1,952	2,176
Accrued liability related to currency forward deal	0	402
Accrued liability related to interest rate swap	8,977	8,799
Interest and other financial expenses	5,603	12,410
Other	11	40
Total	16,544	23,827

20 DERIVATIVE FINANCIAL INSTRUMENTS

On the closing date, parent company had short-term foreign exchange derivative contracts, hedging against currency risk, with capital totaling EUR 10 million. By means of interest rate swap contracts, protection is sought from market interest rate changes during the financial year. Interest rate swap contracts mature during the financial year 2025.

Derivative financial instruments:
EUR 1,000	2020	2019
Interest rate swaps
Fair value negative	8,977	8,799
Nominal value of underlying instruments	100,000	100,000
Hedging instruments
Fair value positive	1	0
Fair value negative	0	402
Nominal value of underlying instruments	10,000	50,000

Fair value hierarchy of financial instruments

Fair value hierarchy of financial instruments is described in the note 29 in SRV group notes.

21 RISK MANAGEMENT

The group has a systematic and structured approach to risk management across business operations and processes. There are no separate or individual risk management policies or procedures for the Parent company. Risk management is described in the Report of the Board of Directors and in note 29 in Consolidated Financial Statement.

22 LEASING AND OTHER RENT AGREEMENTS

EUR 1,000	2020	2019
Payable in less than a year	120	183
Payable later	72	173
Total	192	355
Rental lease liabilities
Payable in less than a year	1,348	1,319
Payable later	9,671	10,471
Total	11,019	11,790

SRV | FINANCIAL STATEMENTS 2020
76

23 OTHER LIABILITIES

EUR 1,000	2020	2019
Guarantee obligations given on behalf of Group companies	284,432	308,352
Investment commitments	24,294	26,098

The group has committed to invest 24 294 thousand euros in Voimaosakeyhtiö SF in order to finance Hanhikivi 1 project. At the end of 2020 the investments made were 10 714,6 thousand euros in total.

24 RELATED PARTY TRANSACTIONS

There were no related party transactions which would not be carried out under ordinary commercial terms or which would be necessary to provide in order to give true and fair view of the transactions.

Itemisation of management salaries and employment-based benefits

EUR 1,000	2020	2019
Salaries and other benefits	1,170	735
Total	1,170	735
Salaries and other benefits of CEO
CEO, Saku Sipola, from 1.9.2019	645	145
CEO, Juha-Pekka Ojala, until 31.8.2019	0	463
Deputy Vice President, Timo Nieminen	200	203
Rewards and benefits of the members of the board:
Yli-Kyyny Tomi, puheenjohtaja from 26.3.2020	86	43
Kokkila Ilpo, puheenjohtaja until 26.3.2020	31	80
Kallasvuo Olli-Pekka, varapuheenjohtaja	77	68
Alitalo Minna	68	57
Hannu Leinonen	38	0
Kokkila Timo	68	56
Leppänen Heikki	40	0
Hintikka Juhani, until 26.3.2020	24	57
Elomaa Juhani, until 19.3.2019	0	15
Total	432	375

The former President and CEO's (Juha-Pekka Ojala) employment obligation ended on 31 August 2019 and his employment ended on 31 December 2019. The amount of the severance pay to Juha-Pekka Ojala in 2019 was EUR 518,808.

The 2019 paid statutory occupational pension insurance of the president and CEO and deputy CEO were 191 thousand euros (165 thousand euros in 2019).

SRV | FINANCIAL STATEMENTS 2020

Signatures to the financial statements and Report of the Board of Directors, auditor’s note

SIGNATURES TO THE FINANCIAL STATEMENTS AND REPORT OF THE BOARD OF DIRECTORS

Espoo, 2 March 2021

AUDITOR’S NOTE

Our auditor’s report has been issued today.

Helsinki, 4 March 2021

PricewaterhouseCoopers Oy
Authorized Public Accounting Firm

Tomi Yli-Kyyny
Chairman

Olli-Pekka Kallasvuo
Vice Chairman

Samuli Perälä
KHT

Minna Alitalo

Timo Kokkila

Heikki Leppänen

Hannu Leinonen

Saku Sipola
President and CEO

Auditor's Report (Translation of the Finnish Original)

To the Annual General Meeting of SRV Yhtiöt Oyj

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS

Opinion

In our opinion

the consolidated financial statements give a true and fair view of the group's financial position and financial performance and cash flows in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU
the financial statements give a true and fair view of the parent company's financial performance and financial position in accordance with the laws and regulations governing the preparation of the financial statements in Finland and comply with statutory requirements.

Our opinion is consistent with the additional report to the Audit Committee.

What we have audited

We have audited the financial statements of SRV Yhtiöt Oyj (business identity code 1707186-8) for the year ended 31 December 2020. The financial statements comprise:

the consolidated balance sheet, consolidated income statement, statement of comprehensive income, statement of changes in equity, consolidated cash flow statement and notes, including a summary of significant accounting policies
the parent company's balance sheet, income statement, statement of cash flows and notes.

Basis for Opinion

We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good auditing practice are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the parent company and of the group companies in accordance with the ethical requirements that are applicable in Finland and are relevant to our audit, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

To the best of our knowledge and belief, the non-audit services that we have provided to the parent company and to the group companies are in accordance with the applicable law and regulations in Finland and we have not provided non-audit services that are prohibited under Article 5(1) of Regulation (EU) No 537/2014. The non-audit services that we have provided are disclosed in note 5 to the Financial Statements.

Our Audit Approach

Overview

Overall group materiality: 4,500,000 euros
Audit scope: The group audit was focused on parent company and its Finnish subsidiaries
Revenue recognized from construction contracts over time, estimated project margins and the related receivables and payables
Valuation of investments in associated companies and joint ventures
Valuation of slow moving land areas in inventory
Financing of operations

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain.

Materiality

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial statements as a whole.

Overall group materiality

4,500,000 euros (previous year 4,500,000 euros)

How we determined it

We determined the overall materiality for the consolidated financial statements based on as a weighted average of net sales, profit before taxes and total assets.

Rationale for the materiality benchmark applied

We chose the combination described above as it, in our opinion, reflects the volume and result of the operations and the capital invested in the business.

How we tailored our group audit scope

We tailored the scope of our audit, taking into account the structure of the SRV Yhtiöt Oyj group, the accounting processes and controls, and the industry in which the group operates.

SRV Yhtiöt Oyj group consists of two business areas; construction and investments. In addition Group services are reported as the other operations. As the majority of the operations are in Finland, the focus of our audit has mainly been on the parent company and its Finnish subsidiaries.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

Key audit matter in the audit of the group

Revenue recognized from construction contracts over time, estimated project margin and the related receivables and payables

Refer to Accounting policies for consolidated financial statements and Notes 3, 15, 22 and 28

Income and costs of construction contracts are recorded over time as revenue and expenses on the basis of the percentage of completion, when the outcome of the project can be estimated reliably. The percentage of completion is calculated on the basis of the estimated total cost of a contract and the cumulative costs at the balance sheet date.

Revenue recognized based on percentage of completion includes significant management estimates affecting the recognised revenue and margin as well as the valuation of certain balance sheet items. Particularly the estimated total margin and estimated total expenses of the projects include management judgement. Estimates include also, for example, the margins of possible additional work not yet approved by customers and the possible rental liabilities related to contracts. An error in one or several of the estimates can lead to significant discrepancies in revenue recognition.

Revenue recognized from construction contracts over time is considered a key audit matter, because revenue is a significant item in the financial statements and because the percentage of completion method includes significant management judgement, which affects the revenue recognized as well as the margins of the projects.

How our audit addressed the key audit matter

Our procedures included the following but was not limited to:

We have updated our understanding of processes in relation to revenue recognition and estimates of projects as well as tested the operation of selected controls.
We have read contracts and assessed the appropriateness of accounting principles used to recognize revenue for a sample of projects.
We compared for a sample of projects the estimated net sales with the contracts.
We assessed the reliability and accuracy of management estimates by comparing the estimated margins and total cost to complete for uncompleted projects in the previous year-end to their actual outcome.
We had discussions with relevant personnel concerning the progress of the most significant projects, focusing especially on estimation uncertainties related to cost estimates, and read memos from selected project meetings.
We tested the mathematic accuracy of the spreadsheets used to determine the percentage of completion as well as the revenue and margin that was recognised based on that.
We tested a sample of new projects to ensure that they have been approved and processed in accordance with the group's decision making policy.

Valuation of investments in associated companies and joint ventures

Refer to Accounting policies for consolidated financial statements and Notes 16 and 24

The group's investments in associated companies and joint ventures are investments in construction projects together with other investors. After completion of the construction, the group can own and operate these investments.

The group estimates the value of these investments, for example commercial centers, based on their discounted future cash flows. The determination of discounted future cash flows includes estimates of future rental income, vacancy rate, operating expenses, yield, and, as concerns the commercial centers located in Russia, assumptions in relation to exchange rates.

Valuation of investments in associated companies and joint ventures is considered a key audit matter because they form a significant balance sheet item and their valuation includes management judgements.

Valuation of investments in associated companies and joint ventures

Our procedures included the following but was not limited to:

Management has acquired external valuation reports concerning the most significant completed real estate owned by the associated companies and joint ventures. We read the valuation reports and discussed the most significant assumptions in the valuation models with management. Furthermore, we ascertained that the information in the valuation reports was used by management in their impairment calculations of the investments.
We assessed the applicability of the valuation models used by management to test the impairment of the investments in associated companies and joint ventures. Furthermore, we tested by sampling the mathematical accuracy of the calculations.
We, for example evaluated the appropriateness of the yields used in the above-mentioned valuation calculations by comparing to observable market data.
We prepared sensitivity analysis for the above-mentioned calculations prepared by management for the key variables. These variables include, for example, rental income, vacancy rate and yield.
Valuation of slow moving land areas

Refer to Accounting policies for consolidated financial statements and Note 20

Inventories consist primarily of the cost of construction work and land plot for construction projects in progress, land areas and plot-owning companies related to projects under development or for which the decision to start construction has not yet been made, as well as completed unsold apartments and buildings.

Inventories in the balance sheet are valued at the lower of cost and net realizable value. Calculation of the net realizable value includes management judgement.

The net realizable value of land areas depends on the intended use of the land area. The net realizable value of a land area intended to be used in a construction project is estimated as a part of the net realizable value for the whole construction project.

Valuation of land areas is considered a key audit matter because they form a significant balance sheet item and their valuation includes management judgement.

How our audit addressed the key audit matter

Our procedures included the following but was not limited to:

We assessed the applicability of the valuation models used by management. Furthermore, we have tested the mathematic accuracy of the calculations on a sample basis.
We have discussed with management about their action plans in relation to slow moving land plots.
Specifically for the unconstructed land plots with the largest net realizable value, we investigated the construction plans and timetables as well as plans to change the intended use during the financial year.
Financing of operations

Refer to Accounting policies for consolidated financial statements and Note 29

The group's main sources of financing are project-specific loans, bonds and committed revolving credit facility. Financing agreements contain standard covenants.

The group executed multiple financing arrangements during the financial year, including conversion of the former revolving credit facility, extending the tenors of bonds and amending certain other conditions in these instruments. In addition the group executed a share issue directed to the holders of capital notes and a share issue with pre-emptive rights of shareholders.

Financing of operations is considered a key audit matter because of the significant impact of the financing arrangements to the groups balance sheet and financial position.

How our audit addressed the key audit matter

Our procedures included the following but was not limited to:

We discussed with the management about executed financing arrangements, read the financing agreements and evaluated the accounting treatment of executed transactions
We evaluated the covenant calculations prepared by the group

We have no key audit matters to report with respect to our audit of the parent company financial statements.

There are no significant risks of material misstatement referred to in Article 10(2c) of Regulation (EU) No 537/2014 with respect to the consolidated financial statements or the parent company financial statements.

Responsibilities of the Board of Directors and the Managing Director for the Financial Statementst

The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, and of financial statements that give a true and fair view in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the parent company's and the group's ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting. The financial statements are prepared using the going concern basis of accounting unless there is an intention to liquidate the parent company or the group or to cease operations, or there is no realistic alternative but to do so.

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with good auditing practice will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users

taken on the basis of these financial statements.

As part of an audit in accordance with good auditing practice, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the parent company's or the group's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of the Board of Directors' and the Managing Director's use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the parent company's or the group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the parent company or the group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events so that the financial statements give a true and fair view.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

OTHER REPORTING REQUIREMENTS

Appointment

We were first appointed as auditors by the annual general meeting on 26 March 2014.

Other Information

The Board of Directors and the Managing Director are responsible for the other information. The other information comprises the report of the Board of Directors

Our opinion on the financial statements does not cover the other information.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. Our responsibility also includes considering whether the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.

In our opinion

the information in the report of the Board of Directors is consistent with the information in the financial statements
the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.

If, based on the work we have performed, we conclude that there is a material misstatement of the report of the Board of Directors, we are required to report that fact. We have nothing to report in this regard.

Helsinki 4.3.2021

PricewaterhouseCoopers Oy

Authorised Public Accountants

Samuli Perälä

Authorised Public Accountant (KHT)

GROUP AND SEGMENT INFORMATION BY QUARTER (UNAUDITED)

SRV Group

EUR million	10-12/2020	7-9/2020	4-6/2020	1-3/2020	10-12/2019	7-9/2019	4-6/2019	1-3/2019
Revenue	292.5	209.9	265.0	208.1	403.8	227.1	207.4	222.6
Operation profit	-8.0	1.7	3.3	4.5	-86.8	-6.3	-3.2	3.3
Financial income and expenses, total	-6.5	-8.8	-3.1	-11.1	-10.4	-7.6	-7.7	-3.6
Profit before taxes	-14.5	-7.0	0.2	-6.6	-97.2	-14.0	-10.8	-0.3
Order backlog¹	1,153.4	1,280.3	1,332.4	1,361.5	1,344.2	1,592.6	1,667.2	1,782.5
New agreements	140.7	154.4	213.7	198.2	142.9	123.3	71.7	149.7
Earnings per share, eur	-0.05	-0.01	0.02	-0.11	-1.18	-0.18	-0.15	-0.02
Equity per share, eur	0.65	0.69	0.75	1.03	1.31	2.45	2.60	2.71
Share closing price, eur	0.59	0.53	0.48	0.94	1.36	1.44	1.62	1.70
Equity ratio, %	22.6	23.8	25.3	20.4	21.2	27.2	28.5	24.4
Equity ratio, % excl. IFRS16²	27.8	29.6	30.6	25.8	26.4	33.3	35.1	29.7
Net interest-bearing liabilities	289.1	341.7	307.4	400.4	422.0	513.2	480.2	490.8
Net interest-bearing liabilities excl. IFRS16³	152.9	194.9	177.0	254.1	271.9	339.7	306.6	317.3
Net gearing, %	159.7	177.4	148.5	260.2	240.3	199.1	178.9	205.8
Net gearing, % excl. IFRS16³	82.1	98.4	83.5	160.2	151.2	131.4	114.0	132.7

Revenue

EUR million	10-12/2020	7-9/2020	4-6/2020	1-3/2020	10-12/2019	7-9/2019	4-6/2019	1-3/2019
Construction	292.0	209.1	264.1	204.9	403.1	226.0	206.7	221.9
business construction	186.7	157.8	182.2	154.0	200.5	171.2	163.1	144.9
housing construction	105.3	51.3	81.9	50.8	202.6	54.7	43.6	77.0
Investments	0.9	1.1	1.2	1.6	1.7	1.4	1.5	1.3
Other operations and eliminations	-0.3	-0.3	-0.2	1.6	-0.9	-0.3	-0.8	-0.6
Group, total	292.5	209.9	265.0	208.1	403.8	227.1	207.4	222.6

Operating profit

EUR million	10-12/2020	7-9/2020	4-6/2020	1-3/2020	10-12/2019	7-9/2019	4-6/2019	1-3/2019
Construction	8.7	5.2	7.4	6.2	3.6	-3.4	2.0	4.8
Investments	-15.4	-3.8	-1.7	-1.4	-87.5	-3.1	-1.9	0.1
Other operations and eliminations	-1.3	0.3	-2.4	-0.2	-2.9	0.2	-3.2	-1.6
Group, total	-8.0	1.7	3.3	4.5	-86.8	-6.3	-3.2	3.3

Operating profit

%	10-12/2020	7-9/2020	4-6/2020	1-3/2020	10-12/2019	7-9/2019	4-6/2019	1-3/2019
Construction	3.0	2.5	2.8	3.0	0.9	-1.5	1.0	2.2
Investments	-	-	-	-	-	-	-	-
Group	-2.8	0.8	1.2	2.2	-21.5	-2.8	-1.5	1.5

¹ The Group's order backlog consists of the Construction business.
² The effects of IFRS16 have been adjusted from the figure.

Order backlog

EUR million	31.12.20	30.9.20	30.6.20	31.3.20	31.12.19	30.9.19	30.6.19	31.3.19
business construction	718.2	825.8	837.9	858.4	861.5	938.7	1,066.8	1,158.4
housing construction	435.2	454.5	494.6	503.1	482.7	653.8	600.4	624.1
Group, total¹	1,153.4	1,280.3	1,332.4	1,361.5	1,344.2	1,592.6	1,667.2	1,782.5
sold order backlog	997	1,113	1,142	1,153	1,082	1,311	1,402	1,496
unsold order backlog	157	168	191	208	263	281	265	286

¹ Group's order backlog consists only of construction segment.

Order backlog, housing construction in Group

EUR million	31.12.20	30.9.20	30.6.20	31.3.20	31.12.19	30.9.19	30.6.19	31.3.19
Negotiation and construction contracts	202	187	210	191	141	191	168	181
Under construction, sold	77	100	94	104	79	182	167	157
Under construction, unsold	128	147	162	183	232	261	244	253
Completed and unsold	28	21	28	25	30	21	22	33
Housing construction, total	435	455	495	503	483	654	600	624

Capital employed

EUR million	31.12.20	30.9.20	30.6.20	31.3.20	31.12.19	30.9.19	30.6.19	31.3.19
Construction	386.8	417.4	391.9	403.0	372.9	462.6	448.1	385.0
Investments	171.9	181.1	193.7	193.1	245.7	331.5	330.3	353.5
Other operations and eliminations	8.1	6.4	28.0	-2.3	6.7	1.0	-4.6	53.4
Group, total	566.8	605.0	613.6	593.7	625.3	795.1	773.8	791.9

Housing production in Group

(units)	10-12/2020	7-9/2020	4-6/2020	1-3/2020	10-12/2019	7-9/2019	4-6/2019	1-3/2019
Housing sales, total	327	130	445	364	269	326	139	203
sales, developer contracting	104	83	59	108	207	166	73	203
sales, negotiation contracts	223	47	386	256	62	160	66	0
Developer contracting
start-ups	68	0	0	0	65	283	8	424
completed	282	96	142	0	539	85	0	184
recognized in revenue	235	127	128	25	532	98	42	161
completed and unsold	92	45	76	60	87	84	97	139
Under construction, total	2,127	2,076	2,316	2,168	2,142	2,773	2,388	2,549
construction contracts	0	80	80	80	80	80	80	80
negotiation contracts	369	247	247	247	195	195	195	195
negotiated contracts	1,375	1,152	1,296	1,006	1,032	1,189	1,002	1,171
developer contracting	383	597	693	835	835	1,309	1,111	1,103
of which sold	210	341	385	454	371	700	632	600
of which unsold	173	256	308	381	464	609	479	503

Information for shareholders

BASIC INFORMATION ABOUT THE SHARE

SRV Group Plc's shares are quoted on Nasdaq Helsinki, under the sector heading Industrial products and Services in the small-cap group. The share's trading code is SRV1V.

The ISIN code of the share is FI0009015309.

SRV'S FINANCIAL INFORMATION IN 2021

Financial Statement Release 2020: 4 February 2021 at 8.30 am.

Annual Review 2020 (including the Financial Statements and the Report of the Board of Directors) is published on Friday 5 March 2021.

Interim Report for January–March 2021 is published on Thursday 29 April 2021 at 8.30 am.

Half-year Report for January–June 2021 is published on Wednesday 21 July 2021 at 8.30 am.

Interim Report for January–September 2021 is published on Thursday 28 October 2021 at 8.30 am.

SRV Group Plc's Annual General Meeting is planned to be held on Monday 29 March 2021 at 4.00 pm.

The Board of Directors will convene the meeting separately in due course.

SILENT PERIOD

SRV's silent period always starts 30 calendar days before the publication of an Interim Report or the Financial Statement Release. The silent period ends on the publication of an Interim Report or the Financial Statement Release.

INVESTOR RELATIONS CONTACTS

CFO

Jarkko Rantala

Telephone: +358 40 674 1949

Email: [email protected]

SVP, Communications and Marketing

Miia Eloranta

Telephone: +358 50 441 4221

Email: [email protected]

Communications Manager

Johanna Ylitalo

Telephone: +358 40 510 8604

Email: [email protected]

ORDERING PUBLICATIONS

SRV's annual reviews and other financial bulletins can be ordered from SRV's website www.srv.fi/en/investors or by email [email protected].

AI assistant

SRV Yhtiöt Oyj — Annual Report 2020

3343_rns_2021-03-05_2a767f84-886b-4a5b-ada2-267f9bb4a8fa.pdf

Content

Report of the Board of Directors 2020

FINANCIAL YEAR 1 JANUARY-31 DECEMBER 2020 IN BRIEF:

OVERALL REVIEW

GROUP KEY FIGURES

GROUP KEY FIGURES

RECOVERY PROGRAMME MEASURES H1/2020:

OUTLOOK FOR 2021

RECONCILIATION OF OPERATIVE OPERATING PROFIT

EARNINGS TRENDS FOR THE SEGMENTS

VALUE CREATION

Sustainability programme

MARKETS

CONSTRUCTION

HOUSING CONSTRUCTION

Housing under construction

The most significant housing construction projects under development

Kivenlahti

Espoonlahti

Keilaniemi

Vermonniitty and Säteri along the Raide-Jokeri rapid tramline

Lapinmäentie

Completed housing units

Housing units recognised as income

BUSINESS AND INFRASTRUCTURE CONSTRUCTION

Major ongoing business and infrastructure construction projects

Siltasairaala Hospital

Basic renovation and modernisation of Siltasaari 10

Expansion of Helsinki Airport and renovation of Terminal 2

Espoonlahti Metro Station

Tampere Deck and Arena

Wood City

The most significant business and infrastructure construction projects under development

Bunkkeri in Jätkäsaari

New projects

Hanhikivi-1 nuclear power plant project

INVESTMENTS

Shopping centres

REDI, Helsinki

Pearl Plaza, St Petersburg

Okhta Mall, St Petersburg

4Daily, Moscow

Other projects

FINANCING AND FINANCIAL POSITION

HR ISSUES, SOCIAL RESPONSIBILITY AND HUMAN RIGHTS

Training and internal communication

Occupational health and safety

Level of occupational safety

Equality and human rights

Supervision of the supply chain

CODE OF CONDUCT

Ethical operations based on transparency

Prevention of bribery and corruption

Combatting the grey economy

ENVIRONMENT

Environmental impacts

Environmental objectives

CHANGES IN THE CORPORATE EXECUTIVE TEAM

RISKS, RISK MANAGEMENT AND CORPORATE GOVERNANCE

Sustainability risks

CORPORATE GOVERNANCE AND THE DECISIONS OF THE ANNUAL GENERAL MEETING

Dividend payment

The Members and Chair of the Board of Directors and remuneration

Auditor and remuneration

Amendment of the Articles of Association

Financing arrangement and related authorisations to issue shares

Authorisation for directed share issue

Authorisation for rights issue

Authorisation to decide on the acquisition of the company's own shares

Authorisation to decide on a share issue and on the issue of special rights

Establishment of a Shareholders' Nomination Board

THE ORGANISATION OF SRV GROUP PLC'S BOARD OF DIRECTORS AND THE COMPOSITION OF ITS COMMITTEES

CHANGES TO THE MULTI-YEAR INCENTIVE SCHEME OF THE PRESIDENT AND CEO

SHARES AND SHAREHOLDERS

FINANCIAL OBJECTIVES

PROPOSAL FOR THE DISTRIBUTION OF PROFITS

EVENTS AFTER THE PERIOD

SRV Yhtiöt Oyj Annual Report 2020