SRV Yhtiöt Oyj — Earnings Release 2016

Feb 2, 2017

SRV's financial statement release, January–December 2016: Revenue, operating profit and order backlog grow

SRV's financial statement release, January–December 2016: Revenue, operating profit and order backlog grow

Espoo, Finland, 2017-02-02 12:00 CET (GLOBE NEWSWIRE) -- SRV GROUP PLC
FINANCIAL STATEMENT RELEASE 2.2.2017, AT 13:00

SRV's financial statement release, January–December 2016: Revenue, operating
profit and order backlog grow

January-December 2016 in brief:

-- Revenue increased to EUR 884.1 (719.1, 1-12/2015) million. Growth in
revenue was driven particularly by large business construction projects in
Finland as well as developer-contracted housing units completed in growth
centres, a total of 499 (323) of which were recognised as income.
Developer-contracted housing units had an impact of EUR 144 (90) million on
revenue.
-- Operating profit rose to EUR 27.7 (24.4) million, primarily due to improved
business margins in Finland. Operating profit from International
Operations decreased to EUR -4.2 (-0.1) million.
-- The result before taxes was EUR 16.4 (17.6) million. The result was
burdened by a EUR -4.7 (-3.3) million fair value revaluation of a ten-year
interest rate hedge.
-- Earnings per share were EUR 0.15 (0.25).
-- At year-end, the order backlog stood at EUR 1,758.5 (1,583.4) million. The
largest new projects announced in 2016 included Hospital Nova in Central
Finland, the Ring Road I tunnel project, and a contractor agreement for the
second phase of the expansion of the Tapiola city centre.
-- Equity ratio was 38.3 (42.5) per cent and gearing was 83.4 (83.3) per cent,
both remaining at a good level.

October-December 2016 in brief:

-- Revenue increased to EUR 328.7 (226.6, 10-12/2015) million. In
October-December, 389 (228) developer-contracted housing units were
recognised as income; most of these units affected year-end earnings.
Housing units recognised as income had an impact of EUR 127.0 (77.3)
million on revenue.
-- Operating profit decreased to EUR 16.2 (17.0) million. Operating profit was
impacted particularly by International Operations, whose operating profit
weakened to EUR -2.8 (-0.6) million.
-- The result before taxes rose to EUR 19.4 (14.9) million. The result was
increased by a EUR 3.1 (-0.5) million fair value revaluation of interest
rate derivatives.
-- Earnings per share were EUR 0.26 (0.27).

Events after the end of the review period:

-- SRV has signed a framework agreement with LocalTapiola for the construction
of nearly 528 rental housing units. The total value of the agreement is
approximately EUR 100 million and the agreement includes the construction
of housing units in the Helsinki Metropolitan Area, Turku and Jyväskylä.
The project-specific agreement will be signed before each project. All of
the units will be completed over the years 2018-2019.

Outlook for 2017

-- Full-year consolidated revenue for 2017 is expected to increase and
operating profit to improve on 2016 (revenue EUR 884 million and operating
profit EUR 27.7 million). A profitability level in accordance with the
strategy will not be attained, however, until the end of the strategy
period 2019–2020.
-- Developer-contracted housing will be completed on a steadier schedule than
in 2016, but a significant part of operating profit will still be made in
the second half of the year. Based on current schedules, SRV estimates that
a total of 816 developer-contracted housing units will be completed during
2017.
-- The operating currency of all of SRV’s subsidiaries and associated
companies in Russia was changed to the rouble in 2016. This accounting
change will make SRV more susceptible to fluctuations in the rouble
exchange rate and may impact on full-year operating profit.

This interim report has been prepared in accordance with IAS 34, and the
disclosed information is unaudited.

CEO's review

“The order backlog peaked at more than EUR 2 billion in 2016 and remained at a
record high all year. Growth was driven particularly by business construction
projects in Finland. Order backlog growth bolsters our position as one of
Finland’s major urban centre developers. Although we didn't receive any major
new orders in the last months of 2016, our order backlog remains at a record
high and we're expecting more interesting new entries in our order book in
2017.

In addition to our order backlog, the trend in our revenue has also been
positive. In 2016, we posted revenue of over EUR 800 million for the first time
– and in the years ahead we intend to aim even higher. Despite strong revenue
growth SRV`s main goal is to improve profitability according to our strategical
objectives.

In 2016, in the growing market, we focused on the implementation of development
projects and prudently engaged in tender-based contracting. Furthermore, in the
housing business, we stepped up our developer-contracted units, which has
contributed to our earnings.

The lengthy recession in Russia is naturally being reflected in our operations,
for example, in temporary rent discounts granted to shopping centre tenants. In
view of the circumstances, our shopping centres in St Petersburg are performing
excellently. This was particularly evident in visitor numbers at the end of
2016 and also in early 2017.

Measures to achieve the strategic objectives are progressing as planned, and we
have many concrete examples showing we are on the right course. For this, a big
thank you is due to our highly dedicated personnel”, says CEO Juha Pekka Ojala.

Overall review

Group key figures 1-12/ 1-12/ change change 10-12/ 10-12/
(IFRS, EUR million) 2016 2015 , % 2016 2015

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Revenue 884.1 719.1 165.1 23.0 328.7 226.6
Operating profit 27.7 24.4 3.2 13.2 16.2 17.0
Financial income and -11.3 -6.8 -4.5 3.2 -2.1
expenses, total*)
Profit before taxes 16.4 17.6 -1.2 -7.1 19.4 14.9
Order backlog 1,758.5 1,583.4 175.1 11.1
New agreements 1,013.1 1,393.5 -380.4 -27.3 183.2 286.9
Operating profit, % 3.1 3.4 4.9 7.5
Net profit 13.9 14.0 -0.1 -0.9 16.4 12.3
Net profit, % 1.6 1.9 5.0 5.4

*) - of which accounted -4.7 -3.3 -1.4 3.1 -0.5
for by derivatives

January-December 2016

In January-December 2016, the Group’s order backlog rose to EUR 1,758.5
(1,583.4) million (up 11.1%). The largest new projects announced in 2016
included a new central hospital in Central Finland, the Ring Road I tunnel
project, a contractor agreement for the second phase of the expansion of
Tapiola city centre, as well as the construction of a new campus building for
Aalto University and retail premises in the Metro Centre, both in Otaniemi,
Espoo. The order backlog saw growth in operations in Finland in particular,
largely in the second quarter. No significant new orders were announced in
October-December with the exception of the agreement of Aleksintori in Kerava.

The Group’s revenue rose by 23 per cent to EUR 884.1 (719.1) million. Growth in
revenue was driven by large business construction projects in Finland and
particularly by the developer-contracted housing units completed and sold in
the latter part of the year. The major business premises projects agreed on
during the spring have entered the construction phase and are now generating
revenue. The recognition of income from 499 (323) developer-contracted housing
units contributed to revenue growth.

The Group's operating profit rose to EUR 27.7 (24.4) million, primarily due to
improved profitability and higher revenue in SRV's operations in Finland. The
operating profit was weakened by a rise in the costs of certain projects under
construction and by expenses incurred in the aftermath of some completed
projects.

Operating profit from International Operations decreased to EUR -4.2 (-0.1)
million. The rouble exchange rate improved operating profit by a net amount of
EUR 1.3 million. Operating profit was weakened by temporary rent discounts
granted to tenants, depreciation according to plan and amortisation of EUR 2.5
million.

Operating profit and its relative level are also lowered by the elimination of
a share equivalent to SRV's ownership from the profit margins of shopping
centre projects under construction (Okhta Mall, 4Daily and REDI), which will be
recognised as income only when the investment is sold.

The Group’s profit before taxes was EUR 16.4 (17.6) million. The result was
weakened by higher interest expenses and a EUR -4.7 million fair value
revaluation of a ten-year interest rate hedge.

The Group's earnings per share were EUR 0.15 (EUR 0.25). Earnings per share
were impacted by the relative increase in the number of shares due to a share
issue as well as the non-recurring cost of repaying the hybrid bond.

Variation in SRV's operating profit and operating profit margin is affected by
several factors. SRV’s own projects are recognised as income upon delivery; the
part of the order backlog that is continuously recognised as income based on
the level of completion mainly consists of low-margin contracting; and the
nature of the company's operations (project development).

The Group’s equity ratio stood at 38.3 per cent (42.5, 12/2015) and the gearing
was 83.4 per cent (83.3, 12/2015). The changes in equity ratio and gearing were
due to an increase in interest-bearing debt. Net debt totalled EUR 246.3
(230.8) million and liquid assets EUR 54.6 (35.0) million.

October-December 2016

In October-December, the Group’s revenue rose to EUR 328.7 (226.6) million.
Growth in revenue was driven by ongoing large business construction projects as
well as 389 developer-contracted housing units that were largely recognised as
income in December.

The Group’s operating profit was EUR 16.2 (17.0) million. The operating profit
was weakened by a rise in the costs of certain projects under construction and
by expenses incurred in the aftermath of some completed projects. Operating
profit from International Operations was EUR -2.8 (-0.6) million. The rouble
exchange rate improved operating profit by a net amount of EUR 1.3 million.
Operating profit was weakened by temporary rent discounts granted to tenants,
depreciation according to plan and the amortisation of one property (EUR 2.5
million).

The Group’s profit before taxes was EUR 19.4 (14.9) million. The result was
increased by a EUR 3.1 million fair value revaluation of a ten-year interest
rate hedge, but burdened by higher interest expenses.

Group key figures 1-12/ 1-12/ change change,
(IFRS, EUR million) 2016 2015 %

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Equity ratio, % 38.3 42.5

Net interest-bearing debt 246.3 230.8 15.5 6.7

Gearing ratio, % 83.4 83.3

Return on investment, % 6.1 5.9

Return on equity, % 5.0 5.6

Earnings per share, EUR *) 0.15 0.25 -0.10 -40.6

Equity per share, EUR *) 4.25 3.90 0.35 9.0

Share price at end of period, EUR 5.43 3.10 2.33 75.2

Weighted average number of shares 59.3 42.6
outstanding, millions *)

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Proposal for the distribution of profits

The parent company’s distributable funds on 31 December 2016 are
EUR 171,197,174.26

of which the loss for the financial year is
EUR 4,140,646.47

The Board of Directors proposes to the Annual General Meeting that
distributable funds be disposed of as follows:

A dividend of EUR 0.10 per share be paid to shareholders, or
EUR 6,049,957.50

The amount to be transferred to shareholders' equity is
EUR 165,147,216.76

No material changes have taken place in the company’s financial position after
the close of the financial year. The company’s liquidity is good and, in the
view of the Board of Directors, the proposed dividend payout does not
compromise the company’s solvency.

Annual General Meeting

SRV Group Plc’s Annual General Meeting will be held on Thursday, 23 March 2017.
The General Meeting will deal with the matters specified in Article 11§ of the
Articles of Association and any other proposals made by the Board of Directors.
The Board will decide on the notice of meeting and its proposals at a later
date.

Invitation to a press conference: SRV’s financial statement 2016

The financial statement release will be presented to the media and analysts at
the press conference which will take place on Thursday 2 February at 14.00. at
Living Lab -test environment, address Kaasutehtaankatu 1, rakennus 6, 3rd
floor, 00540 Helsinki.

The press conference will be held in Finnish. CEO Juha Pekka Ojala and CFO
Ilkka Pitkänen will be present.

The report can be found for example on the company's website
www.srv.fi/en/investors.

A live webcast of the press conference will be available on the company’s
website www.srv.fi/en/investors. The webcast will be in Finnish. The
presentation material will be published both in Finnish and English at the
company's website after the press conference.

Espoo, 2 February 2017

Board of Directors

All forward-looking statements in this review are based on management’s current
expectations and beliefs about future events, and actual results may differ
materially from the expectations and beliefs such statements contain.

For further information, please contact

Juha Pekka Ojala, CEO, +358 (0)40 733 4173, jp.ojala@srv.fi

Ilkka Pitkänen, CFO, +358 (0)40 667 0906, ilkka.pitkanen@srv.fi

Päivi Kauhanen, SVP, Communications, +358 (0)50 598 9560, paivi.kauhanen@srv.fi

www.srv.fi

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