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ANNUAL REVIEW 2018
CONTENT SRV IN BRIEF .............................................................................................................. 2 CEO’S REVIEW 2018 ............................................................................................ 4 KEY FIGURES 2018 .............................................................................................. 7 MAJOR ENCOUNTERS IN 2018 ..................................................................... 8 MEGATRENDS AND CRITICAL SUCCESS FACTORS ..................... 13 SRV’S STRATEGY .................................................................................................. 14 Strategic development programmes ............................................................ 15 The group’s strategic financial objectives for the strategy period 2018–2022 ............................................................ 19 SRV’s value creation model ............................................................................... 20 OPERATIONS IN FINLAND ............................................................................... 24 Housing construction in Finland ....................................................................... 25 Business construction in Finland...................................................................... 26 INTERNATIONAL OPERATIONS ................................................................... 28 SUSTAINABILITY ................................................................................................... 30 Sustainable decisions support strategy ....................................................... 31 Reporting evolves and develops ...................................................................... 33 Themes and goals are presented in the sustainability programme ....................................................................... 35 SRV is a major employer and taxpayer ......................................................... 37 Environmental work rapidly increasing in importance ......................... 40 A workplace that promotes safety and development .......................... 44 Achieving sustainability targets requires cooperation ........................ 48 SRV is a bold developer and innovator in the construction industry. Communications support the achievement of strategic targets .... 51 We want to offer the best customer experience as a constructor of Stakeholders’ expectations ................................................................................ 52 urban town centres, while also being the most inspiring workplace in CORPORATE GOVERNANCE ......................................................................... 53 the industry. We bring genuine cooperation and enthusiasm to every Corporate Governance Statement 2018 (CG Statement) .............. 54 interaction. Sustainability and responsibility can be seen in all of our Risks, risk management and corporate governance ............................ 60 operations. Our company was established in 1987 and was listed on Board of directors .................................................................................................... 61 the Helsinki Stock Exchange in 2007. We operate in growth centres in Corporate executive team ................................................................................. 62 Finland and Russia. In 2018, our revenue amounted to EUR 960 million Information for investors ..................................................................................... 64 and we employed more than 1,000 people. Our projects also employ More information ..................................................................................................... 65 a network of almost 4,000 subcontractors. SRV ANNUAL REVIEW 2018 / CONTENT 1
YEAR 2018 MEGATRENDS AND STRATEGY OPERATIONS SUSTAINABILITY CORPORATE GOVERNANCE INFORMATION FOR INVESTORS
SRV IN BRIEF
Revenue (2018) We are constructing a new neighbourhood in Tampere:
TAMPERE DECK
EUR 959.7 MILLION THE NEW CHILDREN’S
HOSPITAL
was completed two months ahead of schedule.
Order backlog (31 Dec. 2018)
The hospital received the 2018
What are we working on?
EUR
Finlandia Prize for Architecture.
We are also building the Siltasairaala
1.8
Schools and Hospital, Central Finland Central
Homes educational institutions Hospital (Hospital Nova),
30% 11% and TAYS Etupiha.
BILLION
of revenue of revenue
FOUR SHOPPING CENTRES
three in Russia
Shopping centres Renovation construction
one in Finland
17% 2%
We are aiming to build around of revenue of revenue
O B JECTIV ES A ND VA LU ES
10,000–15,000 Mission Vision Values
new homes Hospitals Infrastructure construction
Our mission is to
improve quality of
SRV creates the
best customer
•
•
Sustainability
Enthusiasm at work
in growth centres over
23% 6% life through sustain-
able solutions for the
experience as a
constructor of
•
•
Courage in development
Result driven
the next 10 years. of revenue of revenue built environment. urban town centres. • Open collaboration
We employ 1,000 employees 32,478 workers on 20,406 workers 103 sites in 2018
and 4,810 subcontractors annually SRV sites in 2018 completed orientation in 2018
SRV ANNUAL REVIEW 2018 / SRV IN BRIEF 2
YEAR 2018 MEGATRENDS AND STRATEGY OPERATIONS SUSTAINABILITY CORPORATE GOVERNANCE INFORMATION FOR INVESTORS
In 2018, SRV’s business segments were Operations in Finland, International Operations, and Other Operations.
Operations in Finland are divided into property development, housing construction, and business construction,
which includes retail, office and logistics construction, earthworks, and specialised and rock construction
operations. International Operations comprises SRV’s business activities in Russia and Estonia. The Other
Operations segment primarily consists of the parent company, SRV Group Plc's group operations, property and
project development operations in Finland, and equipment service for Finnish construction sites. The latter was
divested to Ramirent Finland Oy in December 2018.
SRV’s new business areas as of 1 January 2019 are Construction and Investments. Construction encompasses
property development, housing construction, and business construction. Our new Investments segment largely
consists of operations that were previously classified as International Operations, while operations that were classified
as Other Operations have been transferred to Construction.
OPERATIONS IN FINLAND INTERNATIONAL OPERATIONS
Housing construction Business construction (retail, office and logistics construction,
earthworks, and specialised and rock construction)
PERCENTAGE OF REVENUE 30 per cent. 69 per cent. 1 per cent.
SEGMENTS SRV focuses its housing construction on urban growth centres. SRV primarily focuses its business construction on urban growth In Russia, SRV mainly operates in Moscow and St. Petersburg.
Our largest construction projects are located in Helsinki, Espoo, centres. Our largest construction projects are located in Helsinki, The Okhta Mall and Pearl Plaza shopping centres are located
Vantaa, Jyväskylä, Turku, Tampere and Oulu. Espoo, Vantaa, Jyväskylä, Turku and Tampere. in St. Petersburg. The 4Daily shopping centre is in Moscow.
MARKET POSITION One of Finland’s largest housing constructors in urban growth One of the main operators in Finland. One of the largest constructors and managers of shopping centres
centres. abroad.
CUSTOMERS Households, private persons, and institutional investors. Companies, the public sector, and institutional investors. Institutional investors, shopping centre tenants and customers.
MAIN COMPETITORS YIT, Bonava, Skanska, NCC, Peab, Hartela, Lehto, Lujatalo, JM, YIT, Skanska, NCC, Peab, Hartela, Destia. International and local companies.
Lapti, and smaller local companies in various towns and cities.
STRENGTHS Thanks to its strong project development, SRV has plots in urban SRV is known for its demanding construction projects, many SRV partially owns and manages some of the most modern
growth centres next to good transport connections. SRV has been of which it also partially owns. SRV is one of Finland’s largest shopping centres in Russia. SRV has won awards for its shopping
able to increase its number of developer-contracted housing sites constructors of healthcare and hospital projects. SRV currently centre management, such as its successful marketing.
for several years. has several ongoing alliance projects that have the potential for
additional earnings in addition to ordinary income recognition.
PREMISES SRV designs and implements apartment blocks in growth centres. Hospitals, schools and educational institutions, shopping centres, Shopping centres in Russia’s major cities and housing in Vyborg.
SRV sells some apartment blocks directly to consumers and private infrastructure construction, industrial and logistics properties,
investors through its own salespeople (developer contracting). public transport facilities. As projects, both new construction and
Other projects are carried out for and sold directly to investors renovation sites.
(investor sales). SRV also builds some apartments for clients such
as SATO, which offers rental housing.
ROLES Constructor, developer, owner, consultant. Constructor, developer, owner, user. Constructor, developer, owner, consultant, operator, user, and
property service provider.
SRV ANNUAL REVIEW 2018 / SRV IN BRIEF 3
YEAR 2018 MEGATRENDS AND STRATEGY OPERATIONS SUSTAINABILITY CORPORATE GOVERNANCE INFORMATION FOR INVESTORS
CEO'S REVIEW 2018
Construction has been a strong economic driver in Finland in recent years, and construction costs have
risen. As a pioneer in urban construction, SRV has grown during this time, and has created new kinds of living
environments that are built around a good location, easy access to services and diverse traffic connections.
Our personnel’s perseverance, professional skill and entrepreneurism can be seen in both the buildings we
have constructed and their surroundings – and this impact will be felt not only now but also in the future.
In 2018, we had many great projects under construction and 2,759 housing units under construction, of which 60 per cent
103 sites with favourable trends in safety. Occupational safety are in the Helsinki Metropolitan Area. We intend to build another
is our lifeblood, and SRV makes considerable investments in 15,000–20,000 new homes over the next ten years.
the continual development of safety in all operations.
Housing construction was brisk in growth centres, and a Hospital and school construction
total of 523 developer-contracted units were completed in 2018. are close to our heart
Other completed sites worthy of mention include the REDI shop- The construction of hospitals and wellness centres has
ping centre, the New Children’s Hospital, and Karuselli shopping become one of our strongest cornerstones in business con-
centre. Helsinki’s New Children’s Hospital was completed two struction, accounting for as much as around 23 per cent of
months ahead of schedule and opened in September 2018. The our revenue in 2018. Professional skill and experience are par-
REDI shopping centre also opened on schedule. In the Tampere ticularly important in specialised construction, and we are a
Deck project, work has begun on the deck’s support structures pioneer in these areas. We have many major projects under
and shell tile, and the parking facility and population shelter are construction in the field of school and hospital construction,
also under construction. During the fourth quarter, we entered such as Jämsänkoski comprehensive school, the Kurittula
the expansion of Terminal 2 at Helsinki-Vantaa airport and the school in Masku, the Jätkäsaari primary school and Lautta-
subterranean Espoonlahti metro station into our order backlog. saari school in Helsinki, the Jokirinne Learning Centre in Kirkko-
nummi, Hospital Nova in Jyväskylä, a new building at Tam-
Housing construction focuses on growth centres pere University Hospital, and HUS’s Siltasairaala Hospital in
Housing construction accounts for 30 per cent of SRV’s revenue. Helsinki.
Fewer housing units were recognised as income than during SRV will take end-to-end responsibility for the Jokirinne
the previous year. Our order backlog contains EUR 250 million Learning Centre project in the Vesitorninmäki district of
in developer-contracted housing units whose construction is Kirkkonummi, and the service agreement also covers lifecycle
ongoing or will be launched in 2019. By ‘developer-contracted’, responsibility for the learning centre for 10 years. It will be
we mean a project that is developed by SRV and which has not implemented using a lifecycle model, which is still a relatively
been sold when construction begins. In projects such as this, we new method of implementing construction projects in Finland.
shoulder both the construction and sales risk ourselves. At the In such a project, a private company takes on end-to-end
end of 2018, a total of 1,329 units were under construction for responsibility for the implementation of a public project and
investors, mainly in Helsinki, Espoo, Vantaa and Kerava. building maintenance. Construction of the learning centre
SRV’s housing construction focuses on locations in growth began with earthworks in autumn 2018, and the centre is
centres with good transport connections. We currently have scheduled for completion by the end of 2020.
SRV ANNUAL REVIEW 2018 / CEO'S REVIEW 4
YEAR 2018 MEGATRENDS AND STRATEGY OPERATIONS SUSTAINABILITY CORPORATE GOVERNANCE INFORMATION FOR INVESTORS
Solid shopping centre expertise in Russia, Our new organisation, which is divided into the Construction
expertise harnessed for REDI and Investments segments, came into force at the beginning of
“ OUR NEW SRV operates shopping centres in Russia and Finland, and our
shopping centre business accounts for 17 per cent of our rev-
2019. We believe that the new business areas will result in sharp-
er leadership, enhance capital management, and increase trans-
ORGANISATION, enue. The REDI shopping centre opened in September in the
Kalasatama neighbourhood of Helsinki, and during the autumn
our investments have focused on creating awareness and in-
parency. In Construction, we are focusing on efficient project
management and implementation, as well as high-quality con-
struction and an excellent customer experience. We have gath-
WHICH IS DIVIDED creasing visitor numbers. Visitor numbers fell somewhat short
of targets in the first few months, but we believe that 2019 will
ered all of our property investment expertise together under
Investments. This leaves us better equipped to succeed in the
INTO THE bring the desired results. In Russia, visitor numbers rose to 8.4
million at the Okhta Mall in St Petersburg, and 4Daily in Moscow
face of increasing competition and changing market conditions.
We have started to change our operating culture. We are
CONSTRUCTION achieved an occupancy rate of 77 per cent. Visitor numbers at
Pearl Plaza in St Petersburg rose by five per cent to 9.6 million in
2018. Strong sales growth was also seen. The Pearl Plaza shop-
seeking a standardised and target-oriented approach that
can swiftly react to deficiencies. We launched the process with
supervisors during 2018, and this year we will mobilise the
AND INVESTMENTS ping centre is now ready for sale, and we are currently looking
into this. This demonstrates that we have succeeded in both
changes throughout the entire organisation. We will focus
on promoting occupational safety by setting higher targets
SEGMENTS, SHARPENS creating functional commercial services and doing the right
things in operation and marketing in Russia.
for safety observations and taking an uncompromising attitude
toward safety issues.
LEADERSHIP, Financial targets set the basic principles
for our operations
We have clear goals for 2019: efficient construction in our
projects, improving profitability, and further developing our bal-
ance sheet structure. We believe that 2019 will yield a better
ENHANCES CAPITAL Our main objective is to improve profitability. Although we
rigorously screen new ventures and are continually gaining
result, and that both our operating result and cash flow will be
in the black. Rental income from our shopping centres is also
MANAGEMENT experience in implementing complex projects, the sector’s rapid
growth rate has been reflected in cost pressures and poor earn-
expected to rise in both Finland and Russia.
In spite of the sector’s strong growth and cost pressures,
AND INCREASES ings trends in too many projects. This is why we were forced to
issue a profit warning in September. In particular, the higher-
than-expected costs of the REDI shopping centre and continued
many of our projects progressed well. We’re in a good position
going forward. I’d like to extend a big thank you for the past year
to our dedicated personnel and all of our partners!
TRANSPARENCY.” geopolitical uncertainty in Russia pushed SRV’s full-year result
for 2018 into the red.
Work to improve our balance sheet structure and liquidity is
progressing. During 2018, we released over EUR 90 million in cap-
ital tied up in the balance sheet, mainly by boosting working capi-
tal and divesting plots. In December, we divested the entire share Juha Pekka Ojala
capital of SRV Kalusto Oy to Ramirent Finland for EUR 21 million. President and CEO
This transaction has enabled us to create an even better founda-
tion on which to further develop equipment rental and construc-
tion processes on our construction sites.
SRV ANNUAL REVIEW 2018 / CEO'S REVIEW 5
YEAR 2018 MEGATRENDS AND STRATEGY OPERATIONS SUSTAINABILITY CORPORATE GOVERNANCE INFORMATION FOR INVESTORS
SRV CREATES
THE BEST
CUSTOMER
EXPERIENCE AS
A CONSTRUCTOR
OF URBAN CITY
CENTRES.
SRV ANNUAL REVIEW 2018 / YEAR 2018 6
YEAR 2018 MEGATRENDS AND STRATEGY OPERATIONS SUSTAINABILITY CORPORATE GOVERNANCE INFORMATION FOR INVESTORS
KEY FIGURES 2018 02
02
Operative operating profit11 and operating profit
Revenue declined by 14 per cent to EUR 959.7 million. Operative operating profit amounted Operative operating profit and operating profit
(EUR million)
to EUR -10.0 million. The order backlog rose to EUR 1.8 billion. (EUR million)
30
01 27.7 26.3 27.0
05 30
24.9 24.4 27.0
25 27.7 26.3
24.9 24.4
25
20
Revenue (EUR million) Revenue by operations 2018 (%) 20 15.3
15 15.3
15
10
1,200 10
1,114.4
5
959.7 5 -19.8 -10.0
1,000 0 -19.8 -10.0
884.1 0
-5
800 -5
719.1
684.4 -10
Operations in Finland (99%) -10
600
Business premises 1 (70%) -15
-15
400
Housing construction 1 (30%) -20
-20 2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
200 International Operative operating profit Operating profit
Operative operating profit Operating profit
operations (1%) Change from 2017: XX% (Operative operating profit); XX% (Operating profit)
0 Change from 2017: XX% (Operative operating profit); XX% (Operating profit)
1
In order to improve comparability in the case of actual earnings, SRV has adopted the new
2014 2015 2016 2017 2018 1
Inconcept
order toofimprove comparability
operative in the
operating profit ascase
of 20ofJuly
actual earnings,
2017. It differsSRV has
from theadopted the newof
IFRS definition
concept
operativeofprofit
operative operatingthe
by eliminating profit as of 20 differences
calculated July 2017. It in
differs fromexchange
currency the IFRS definition
rates andof
their
Change from 2017: -13.9% 1
Share of revenue, Operations in Finland. operative
potential profit
hedgingby impacts
eliminating the calculated
included differences
in financial in currency
items in Russian exchange
operations. As rates and their
the operating
potential
currencyhedging impacts
was changed included in financial
in September 2016, theitems in from
figures Russian operations.
2013–2015 As the
are not operating
effected by
currency wasinchanged
differences currencyinexchange
September 2016,
rates andthe figures
their from hedging
potential 2013–2015 are not effected by
impacts.
differences in currency exchange rates and their potential hedging impacts.
03 04 05
Equity ratio (%) Order backlog1 (EUR million) Personnel (persons)
50 2,000 1,200
1,832.0 1,134 1,129
1,089
43.0 1,758.5
42.5 937 1,008
38.3 1,583.4 1,547.9 1,000
40
35.5 1,500
800
28.5
30
1,000 600
860.4
20
400
500
10 200
0 0 0
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Change from 2017: -19,5% Change from 2017: 18.4% Change from 2017: -0.4%
1
At the period-end.
SRV ANNUAL REVIEW 2018 / KEY FIGURES 2018 7
YEAR 2018 MEGATRENDS AND STRATEGY OPERATIONS SUSTAINABILITY CORPORATE GOVERNANCE INFORMATION FOR INVESTORS
MAJOR ENCOUNTERS IN 2018 Safety video featuring Roni Back
and the Confederation of Finnish
Construction Industries RT
There were many roofing celebrations, foundation stone laying What is vlogger-of-the-year Roni Back
ceremonies, shopping malls openings and other happy encounters doing 100 metres above the ground on
during the year. the construction site of Finland’s tallest
residential building? Check out Roni’s
Movie night for customers, video, which was made in collaboration
stakeholders and personnel with the Confederation of Finnish
On 7 March, SRV held its traditional Construction Industries RT and other
movie night with customers, stakeholder industry operators.
representatives and personnel for
the 28th time.
JANUARY FEBRUARY MARCH APRIL MAY
| | | | | |
Central Deck and Arena Construction site Safety Week Jokirinne
project is launched visit for REDI Majakka During the Safety Week, com- Learning Centre
and construction begins shareholders panies invested in holding both The Jokirinne
The Central Deck and Arena A construction site visit their own and joint events, some Learning Centre in
will unite the eastern and organised for Majakka of which were held in Finland’s the Vesitorninmäki
western sides of Tampere. shareholders on 11 March three Safety Parks. Over 250 district of Kirkko-
The first phase involves attracted 203 visitors. students visited SRV at the nummi is SRV’s first
covering the southern railway Future residents had the RUDUS Safety Park in Espoo lifecycle project.
yard with a deck on which the chance to check out the to get acquainted with safety The learning centre
arena, a training hall, a hotel, view from their ‘own’ during hoisting and lifting. is scheduled for
and two towers will be built. windows, and to hold completion in 2020.
The second phase will private conversations
encompass the northern with SRV personnel. New Children’s Hospital is completed
deck and three towers. “You rarely see so many Construction of the New Children’s Hospital in Meilahti,
smiling and satisfied Helsinki was completed in April. “Building the New
people in a Finnish Children’s Hospital was a matter of honour for all of
elevator,” commented us. Team spirit, dedication and a genuine desire to Capital Markets Day
one of the visitors. build the world’s best children’s hospital were some in Tampere
of the feelings shared by all the parties involved in SRV met with investors
the project. It was a unique experience that will be during the Capital Markets
difficult to match,” says SRV’s Site Manager Matti Julin. Day in Tampere on 23 May.
SRV ANNUAL REVIEW 2018 / MAJOR ENCOUNTERS IN 2018 8
YEAR 2018 MEGATRENDS AND STRATEGY OPERATIONS SUSTAINABILITY CORPORATE GOVERNANCE INFORMATION FOR INVESTORS
Russian Roofing celebration for Partnership meeting
Property Tour the Ring Road I concrete tunnel in Tampere
Russian real estate About 150 guests took part in the Partners, subcontractors Foundation stone laid
professionals visited roofing celebration for Ring Road I’s and suppliers met on 25 for Siltasaari Hospital
REDI and other concrete traffic tunnel. The concrete September at Hotel Torni The cornerstone for Silta-
construction sites. tunnel is 440 metres long and will be in Tampere. We are seeking saari Hospital was laid
covered by a pleasant park area. competitiveness and efficiency on 26 September. About
Team Rynkeby through cooperation, innova- 4,400 truckloads of rock
Along with Team Rynkeby–God Morgon Espoo, SRV took tion and key partnerships, but have been excavated from
part in a charity cycling trip from Helsinki to Paris. The trip transparency and responsibil- the construction site over
raised money for Sylva ry and the Aamu Foundation to help ity are also important. the first nine months.
children and young people with cancer, and to promote
research and treatment development for childhood cancers.
JUNE JULY AUGUST SEPTEMBER
| | | | |
SRV Living Room Bryga Park
The REDI Living Room Kalasatama
also opened on the residents got
second floor of the the chance to name
shopping centre. the public park that
SRV renovates Here, SRV personnel was built in REDI on
Antilooppi’s can meet customers, top of the Itäväylä
historic office Helsinki residents, highway. It was
property in Kamppi and other stakeholders. named Bryga.
City Life housing fair in Jätkäsaari
SRV is renovating
Helsinkians were able to check out Bunkkeri
the property at Ruoho-
(the Bunker) on 4–6 September during
lahdenkatu 21 with
the Jätkäsaari Housing Fair.
respect for its historical REDI Shopping
origins. SRV has a lot of Centre opens
experience in historical The REDI Shopping Centre,
property renovation, one of Finland’s largest shop-
including Brondan- ping centres, opened its doors
kulma, the Helsinki on 20 September in Helsinki’s
Telia Helsinki DataCenter opens Tikkurilan Sokeriherne University properties Kalasatama neighbourhood.
The Telia Helsinki DataCenter is both the most Buyers started moving into Tikkurilan Tiedekulma and The centre boasts just over
modern datacentre in Europe and the largest Sokeriherne as soon as the keys were Kaisa, and Helsinki 200 premises and almost
in the Nordic countries. It opened in Helsinki. handed out. City Theatre. 180 operators.
SRV ANNUAL REVIEW 2018 / MAJOR ENCOUNTERS IN 2018 9YEAR 2018 MEGATRENDS AND STRATEGY OPERATIONS SUSTAINABILITY CORPORATE GOVERNANCE INFORMATION FOR INVESTORS
Maalisuora, an interior SRV to build Espoonlahti Terminal 2
decorating event metro station and expansion and
The interior decorating bus terminal for alteration project
event Maalisuora was held the Western Metro is launched
in Keimolanmäki, Vantaa on SRV and Länsimetro Oy Preparatory work was
7 October. TV celebrity interior signed an agreement for the launched in the alliance
designers Teuvo Loman and construction of the Western project to expand and
Niina Ahonen demonstrated Metro’s Espoonlahti metro alter Terminal 2 at
how to personalise your new station and bus terminal. Helsinki-Vantaa Airport.
apartment to make it The contract is valued This included estab-
a distinctive home. at about EUR 48 million. lishing the construction
site, demolition work,
and earthworks for the
new parking facility. Copyright: Finavia
OCTOBER NOVEMBER DECEMBER
| | | |
The New Children’s Karuselli Shopping SRV is building First section of Pressi
Hospital received the Centre opens the Monikko is completed and sold
2018 Finlandia Prize The Karuselli shopping educational SRV signed an agreement
for Architecture centre opened on centre in with the Julius Tallberg
In spite of its large size, 1 November in downtown Leppävaara, Real Estate Corporation for
the building was skilfully Kerava. Karuselli was Espoo. the sale of the first office
tailored to the demanding given a LEED Gold envi- The project building in the Pressi Smart
dimensions of its environ- ronmental rating, and is encompasses the Premises. This office building
ment. Its architectural the first shopping centre renovation of the in Vantaankoski is scheduled
colour scheme, both in Finland to be certified existing, protected for completion in late 2019.
internally and externally, using the latest, stricter school building
is also bold and positive. version of the LEED 4 and the construction
High-quality planning and standard. of a new adjoining
construction has ensured building. Monikko
completion of the world’s will serve nearly
best hospital for children 1,300 pupils.
Foundation stone laid for Supercell property SRV Kalusto Oy
and their carers.
On 29 October, the cornerstone was laid for the office is divested
building in Wood City, Finland’s largest wooden quarter, SRV divested the entire share
in Jätkäsaari, Helsinki. The eight-storey wooden office capital of its equipment
building will be game company Supercell’s new head- business (SRV Kalusto)
quarters and is scheduled for completion in 2020. to Ramirent Finland Oy
on 19 December.
SRV ANNUAL REVIEW 2018 / MAJOR ENCOUNTERS IN 2018 10YEAR 2018 MEGATRENDS AND STRATEGY OPERATIONS SUSTAINABILITY CORPORATE GOVERNANCE INFORMATION FOR INVESTORS
‘‘ATTRACTIVE AND
EVOLVING CITY CENTRES
LIE AT THE HEART OF
SRV’S STRATEGY.”
SRV ANNUAL REVIEW 2018 / MEGATRENDS AND STRATEGY 11YEAR 2018 MEGATRENDS AND STRATEGY OPERATIONS SUSTAINABILITY CORPORATE GOVERNANCE INFORMATION FOR INVESTORS
CASE:
A business environment revolution
Digitalisation is all around us. In the future, it will be vital for services to be both easy to use and readily available. The financial sector
is helping to promote a sustainable economy. How will these changes be reflected in housing, communities and construction?
“D igitalisation will enable a great leap forward in construction site
productivity by providing employees and work supervisors with
a better overview of the situation on site. Technology has advanced
“T he increased importance of responsible
investment* is being supported by the
ongoing debate on sustainable financing.
to a point at which we can obtain real-time data about weather The European Commission estimates that,
conditions, current work progress, and the location and movements in order to reach the environmental targets
of the people, materials and equipment on a site. For example, we can of the Paris Agreement, annual investments
observe and measure a valuable work stage and improve productivity by of EUR 180 billion will be required in low-carbon and energy-
reducing the time spent on resolving issues and searching for and moving things.” efficient technologies in Europe. Cash flows must be channelled
Olli Seppänen, Professor, Aalto University into environmentally and socially sustainable projects.
The European Commission has launched initiatives to create
“T he urbanisation megatrend is generating significant
opportunities to create new approaches to how we live.
SRV’s task is to go over and above the stereotypes of urbanisation
legislation on how sustainability should be taken into consideration
in investment decisions, investment advice and investors’ own
reporting. An initiative has also been launched to create a set of
and create appropriate, sustainable, functional and elegant EU-level criteria for “sustainability”. The EU legislation now under
solutions for everyday life. If SRV can take the unpredictability development will have an impact on investors’ and financiers’ future
in people’s daily and general lives and make it a good thing decisions, as they will seek to channel an increasing percentage of
– and also create a way of managing this change – then SRV will be their cash flows into sustainable projects and companies – and this
able to be something more than just a construction company.” will also be true for the construction sector.”
Mikko-Pekka Hanski, Co-founder Idean Sanna Pietiläinen, Director, Responsible Investment, eQ Asset Management Ltd
* Eurosif, European SRI Study 2018
SRV ANNUAL REVIEW 2018 / MEGATRENDS AND STRATEGY 12YEAR 2018 MEGATRENDS AND STRATEGY OPERATIONS SUSTAINABILITY CORPORATE GOVERNANCE INFORMATION FOR INVESTORS
Megatrends and critical success factors form the foundation of our strategy.
MEGATRENDS AND We use them to evaluate how our company should operate and develop its
business in order to address changes and build a strategy that will support
CRITICAL SUCCESS FACTORS future development.
ECONOMIC AND BUSINESS WELL-BEING, FREEDOM SUSTAINABILITY CRISIS
URBANISATION IS PRIORITIES ARE SHIFTING OF CHOICE AND A SENSE – CLIMATE CHANGE AND NEW
A GROWTH DRIVER GLOBALLY DIGITALITY IS ALL AROUND US OF COMMUNITY TECHNOLOGIES IN THE SPOTLIGHT
More and more of us want to live in cities, The world is open to everyone everywhere – Our society is undergoing a revolution. We increasingly want to live in the here and People everywhere are being affected by
as urban life is perceived to be easier thanks also in terms of business and the economy. Digitalisation has paved the way for successful now. Our values are steering us towards climate change and a scarcity of natural
to the availability of jobs and services. A successful global company is no longer tied change. It challenges us to question existing greater freedom of choice in all areas of life, resources. Decision-making is increasingly
At the same time, the countryside is in to one place. Thanks to digitalisation, business operating methods and transform them into from work and ownership to leisure time, based on sustainability – new metrics are
decline, which further strengthens migration. can be conducted wherever and whenever. something more functional and flexible. community and individuality. When it comes arising from energy-efficiency and circular
We need to find homes for everyone in the Networks are becoming increasingly important, The solutions brought by digitalisation have to services, ease, speed and availability are economy demands. Climate change and new
city, and new construction is often the best and continual global changes, whether in terms increased the use of various services in our paramount. Many of us have greater spending technologies will have a major impact on
solution. Energy consumption is also being of money, raw materials or human needs, have daily lives. power in our daily lives, but at the same time construction and the real estate sector. Properties
increasingly regulated by legislation and, an immediate impact on everyone. the differences in income increase, which also must be sustainable from the perspective of
combined with efforts to curb climate Even the structure of our cities and transport affects what kinds of housing and services are energy efficiency, circular economy and the
emissions, our more energy-efficient Companies must plan for the future, but must systems will change substantially. Information required. retention of their economic value.
approach to life is driving us to live in more also live in the moment. They must be highly – and above all high-quality data – is power,
compact societies. responsive in order to keep pace with change and data collection and utilisation will Ownership is no longer as important to us as The circular economy is an effective means of
and predict future requirements. increase dramatically. it was to previous generations. We want to use curbing the climatic impacts of construction itself.
our money more freely, which makes rental The growing market for renovation seeks to bring
housing a good option. Communities are existing building stock closer to a sustainable
CONCENTRATION growing in significance, and we want suitable
spaces and digital solutions to support them.
level, while supplementary construction helps to
create a denser urban structure. Energy
OF SOCIETY RESOURCES production will harness more forms of renewable
energy, and new regional end-to-end solutions
AND MARKETS and methods of energy storage will be used.
WORKING Investors and financiers have also woken up to
the reality of the sustainability crisis, and are
AND MOVING
putting companies under great pressure to
MORE LIVING change.
ENERGY AND
SUSTAINABILITY
U R BA N I SATI O N DEMOGRAPHIC CLIMATE CHANGE GLOBALISATION TECHNOLOGICAL
A N D S OC I A L C H A N G E S A N D R E SO U RC E SCA RC IT Y DEVELOPMENT
SRV ANNUAL REVIEW 2018 / MEGATRENDS AND STRATEGY 13YEAR 2018 MEGATRENDS AND STRATEGY OPERATIONS SUSTAINABILITY CORPORATE GOVERNANCE INFORMATION FOR INVESTORS
SRV’S STRATEGY
In early 2018, changes were made to some strategic development programmes that had achieved their major objectives and been
integrated into routine operations. At the same time, we also revised our strategic financial targets and their schedules.
SRV’s strategy revolves around our objective of developing and
building homes, spaces and environments where people can
live comfortably and enjoy life. Our strengths include long-term
development work and a profound understanding of custom-
ers’ needs – things SRV has been doing for over 30 years. SRV
operates in Finland’s growth centres and in the cities of St Pe-
tersburg and Moscow in Russia. All our operations seek to fur-
ther strengthen SRV’s role as a sustainable, high-calibre and
customer-oriented constructor and property developer, and for
SRV to become the most desirable workplace in the industry.
Our strategy and routine operations are based on long-
term cooperation. Our own personnel number just over
1,000, and we also employ almost 4,000 partners through
our unique network. SRV’s entrepreneurial spirit can genu-
inely be seen in daily work at all levels of the organisation.
Attractive and evolving city centres lie at the heart of SRV’s
strategy. Cooperation with various parties, such as cities,
investors, financiers, planners and designers, plays a key role
in making cities even better places to live.
SRV’s business is even more tightly focused on major
projects in which the company is involved as both an owner
and a constructor. These projects are mainly located in
growth centres where there is sufficient demand.
For some time now, SRV has been one of the largest
housing construction companies in Finland. In line with our
strategy, we will continue to focus on developer-contracted 60 per cent of which are located in the metropolitan area. of expertise, such as lifecycle models, hospital construction,
housing projects and investor projects in Finnish growth We intend to build another 15,000–20,000 new homes over and infrastructure construction. Hospital construction is
centres. Our goal is to increase the market share of SRV’s the next ten years. SRV has a project portfolio of almost currently worth a total of almost EUR 750 million of SRV's
housing business accounted for by market-financed apart- 5,000 planned housing units whose construction is sched- revenue.
ment block production in the Helsinki and Tampere re- uled to start up within the next couple of years. SRV’s international operations will continue to focus
gions to over 15 per cent by 2020, and thereby significantly In our business premises, we are placing a greater fo- on Russia, where we own, operate and develop shopping
increase revenue from the housing business. SRV current- cus on project management through the use of cooperation centres for sale. All of the shopping centres owned by SRV
ly has more than 2,750 housing units under construction, models. SRV is seeking growth opportunities via new areas also have the potential for further development.
SRV ANNUAL REVIEW 2018 / MEGATRENDS AND STRATEGY 14YEAR 2018 MEGATRENDS AND STRATEGY OPERATIONS SUSTAINABILITY CORPORATE GOVERNANCE INFORMATION FOR INVESTORS
STRATEGIC DEVELOPMENT
PROGRAMMES
In 2018, the primary focus of our development efforts re-
mained on improving profitability and lightening the balance
sheet.
Improving profitability and
the cost-effectiveness of projects
One of SRV’s main strategic goals is to improve profitability.
This will be achieved through the more prudent selection of
new projects, that is, by limiting participation in weaker margin
tenders and increasing the percentage of developer-contract-
ed projects. Profitability is also being improved by boosting
operational efficiency and further developing our processes.
The focal point of our process development in 2018 has
been enhancing cooperation in planning, procurement and pro-
duction. This has been put into practice by revising the plan-
ning and decision-making process in our developer-contract-
ed projects. Project steerability has been improved with the
introduction of control point monitoring and by updating our
practices for project steering meetings.
In our efforts to improve operational efficiency, we have fo-
cused on controlling additional and alteration work, systemati-
cally reducing unplanned work paid at hourly rates, and making
competitive procurements for major contract performances. customer relationships (such as those with property inves-
In the future, our efforts to improve profitability and project tors), or occur when homebuyers first move into their new
cost-effectiveness will focus on promoting more effective pro- homes. CUSTOMER SATISFACTION
curements and developing preplanning guidelines for produc- The customer service process for consumer customers
tion. Shortening lead-times in developer-contracted projects has been enhanced by various means, such as involving resi-
INCREASED DURING THE
will also be a particular focal point. dents early on before construction commences, and making an YEAR. THE NPS NUMBER ON
even more thorough assessment of what future homebuyers
Providing an unbeatable customer experience want from their homes. We will continue to work on creat-
THE HOUSING AND BUSINESS
Customer experience is the sum of all the experiences that a ing a systematic process to identify future customer needs, CONSTRUCTION IS OVER 40.
customer has through various interactions with SRV. SRV aims and we will also make an even more concerted effort to im-
to provide the best customer experience in the business, and prove the customer experience of our corporate customers.
thus every interaction must go so smoothly that the customer The warranty repair process for housing construction was
is prepared to recommend SRV to others. Interactions are renewed in early 2019 with the goal of improving the customer
emphasised in all our operations, whether they are with home- experience, accelerating the completion of warranty work, and
buyers or users of commercial premises, involve long-term increasing subcontractors’ commitment to warranty repairs.
SRV ANNUAL REVIEW 2018 / MEGATRENDS AND STRATEGY 15YEAR 2018 MEGATRENDS AND STRATEGY OPERATIONS SUSTAINABILITY CORPORATE GOVERNANCE INFORMATION FOR INVESTORS
We measure the SRV customer experience regularly
using an NPS (Net Promoter Score) survey. For example,
information is collected from homebuyers after the sale CASE:
has been completed, when they are moving, and two years
after completion of the site. We ask them about issues such
as their satisfaction with the apartment, SRV’s operations
in general, the salesperson’s behaviour, whether alteration
work was successfully implemented, and the quality of basic
interior decoration materials. SRV’s full-year NPS for hous-
ing rose to 40.5 in 2018 (2017: 28). We began measuring the
Bringing premises
corresponding customer experience for commercial prem- planning to life
ises in several project phases during 2017, and the first full with VR goggles
year resulted in an NPS of 42.
The construction site is still nothing more
Harnessing digitalisation and new technology than a pit in Kirkkonummi. However, the
SRV harnesses digitalisation and new technologies in, for teachers are excited, as they are already
instance, project development and planning, technical walking around their future workplace
building systems, construction site management, commu- – wearing virtual reality goggles. SRV
nications and marketing, and the products and services we Planning Manager Anu Raatikainen
provide. Our strategic development programme seeks to is accompanying them on their tour.
systematise digitalisation and the adoption of new tech- The teachers are on a virtual tour
nologies. of the Jokirinne Learning Centre, which
Digitalisation can already be seen in our use of infor- is scheduled for completion in December The new learning centre will have room for 1,100 pupils in grades 1–9 of basic
mation modelling during the project design and construc- 2020. Music teacher Tuuli Lehtomäki and education plus 240 children in daycare.
tion phases. Information modelling is employed in project her colleagues have come to Kirkkonummi
management, the inspection and harmonisation of plans, to get a taste of how their new school will shoes? How will the canteen operate in new way of getting acquainted with a new
cost accounting and schedule management, procurement, look and, above all, get the chance to relation to the rest of the school? And what school and also pretty neat,” says Ruokamo.
and the planning, steering and supervision of logistics and influence the final result themselves. about the gym? After the virtual tour, the “The VR goggles really brought the school
work. 3D modelling is used on construction sites, and the As a user-oriented approach was teachers’ feelings and any suggested to life and helped me get a much better idea
images can be viewed both as printed illustrations and on required in the design of the learning improvements are noted down. The virtual of how things will be,” says Lehtomäki.
mobile phones. The final 3D model combines both pre- centre, a decision was made to use VR school is currently unfurnished, so the Ruokamo and Lehtomäki intend to rec-
cise architectural, structural and HVACE plans with any technology. VR goggles enable end users teachers will have to imagine the furniture ommend the virtual tour of the new school
required special plans. After the construction phase has to experience the school’s premises (and pupils) themselves. However, the to all of their colleagues. SRV’s Anu Raatikai
been completed, the model is also made available to the solutions in a completely different way teachers still hope to see the virtual school nen confirms that the teachers who visited
developer for property management. to just looking at floorplans. again – this time with furniture. the site enjoyed the VR tour immensely.
During 2018, we continued to accelerate our digitalisa- Tuuli Lehtomäki and class teacher Both teachers are happy with the experi- “And we also got very valuable infor-
tion and technology programme, and also put a great deal Johanna Ruokamo can get acquainted ence: the school both looks and feels good. mation on how to move forward with the
of effort into the development and harnessing of new digital with the school on a grassroots level. Where The VR session has brought their future work- design and development of the learning
product features, tools and channels. We focused on defining will the children put their bags and outdoor place to life. “For me, this was a completely centre,” says Raatikainen.
strategy-based focal areas for longer-term development in
SRV ANNUAL REVIEW 2018 / MEGATRENDS AND STRATEGY 16YEAR 2018 MEGATRENDS AND STRATEGY OPERATIONS SUSTAINABILITY CORPORATE GOVERNANCE INFORMATION FOR INVESTORS
digitalisation, and also on revising the shorter-term con-
crete measures that support this development. In 2019,
we will start moving towards the targets set in our action CASE:
plan. Digitalisation is becoming established as a routine
aspect of everyday work throughout the entire organisation.
In addition to systematically developing digitalisation
and harnessing information modelling, other key develop-
ment areas in 2018 included digital service channels and
project and property management systems. In digital ser-
vice channels, we continued to focus on developing the
Construction
digital service package aimed at meeting the everyday through a child’s
needs of people living in the REDI residential towers. We will eyes
put the finishing touches to this system in spring 2019, and the
services can be tested more extensively after the first resi- For several years, the REDI Shopping Centre
dential tower, Majakka, is completed in summer 2019. construction site has been an object of
interest for local children. The ever-changing
Building future growth construction site has gotten children think-
Urbanisation is not only one of the strongest megatrends, ing about questions such as “How do build-
but also one of the major driving forces of change in Finland ings stay up?” and “What do workmen do
today. Even the Helsinki master plan is based on the fore- on construction sites?” They’ve wondered:
cast that the city will have about 860,000 residents (growth “That REDI is really, really big. How did the
of 35 per cent) and 560,000 jobs by 2050. There is, there- workmen know where they should go?” Over
fore, a great need for new housing in the metropolitan 3,000 guests have visited the construction When chatting with the workmen, The children have been thinking about
area’s growth centres. As house prices in growth centres site to find the answers to these and other the kids found out that concrete is cast construction. Small hands have expertly
have risen and stricter bank regulation has made it more construction-related questions, including a on-site and that wooden moulds are made drawn the cranes and other large machinery
difficult for Finns to obtain mortgages, there is a need for group of preschoolers from the Kalasatama for casting the concrete. “Just like at the that they’ve been watching either from
various types of – and above all more affordable – housing daycare centre. beach,” one kid notes. You need more home or on their way to and from daycare
in growth centres. The employees – in their helmets and hands at the beach, but otherwise it’s the over the last few years.
A growing number of municipalities have an ageing yellow and orange clothing – know exactly same process. Big machines do a lot of the In an area under construction, open
building stock on their hands, but less money and fewer re- where the building has to be built. The chil- work on a construction site. Concrete is dialogue between the site and stakeholders
sources to maintain them or erect new buildings. Likewise, dren know that the colour of the workmen’s transported to the site in a large vehicle: in the surrounding neighbourhood has been
more daycare centres and schools will be needed in growth clothing is an important aspect of safety, a concrete truck with a revolving drum important. Changes to access routes and
centres. The focus in public service construction is expect- as the bright colours make them stand out that mixes the concrete. the impacts of various work stages have
ed to shift even more strongly towards privately financed well. They also understand that construction all been openly communicated to those in
construction and lifecycle building. In the lifecycle model, has been carefully thought out in advance, Living nextdoor to a large the neighbourhood. Numerous groups have
the service provider takes responsibility for project design, as measurements are taken to ensure that construction site visited the site, which also has helped to
construction and maintenance over a long contractual the buildings are both the correct size and Living nextdoor to a large construction site create opportunities for discussion. The site
period, typically 15–25 years. This is a new project format are erected in the places marked on the has no doubt sparked off construction- would like to thank all of its neighbours for
for SRV, but it sits well with the SRV Approach and we will drawings. related discussions and questions at home. their cooperation!
further develop its role in SRV’s future business operations.
SRV ANNUAL REVIEW 2018 / MEGATRENDS AND STRATEGY 17YEAR 2018 MEGATRENDS AND STRATEGY OPERATIONS SUSTAINABILITY CORPORATE GOVERNANCE INFORMATION FOR INVESTORS
In recent years, SRV has developed and implemented
several new kinds of shopping centre projects in both Finland
and Russia, and we are therefore constantly seeking new CASE:
opportunities to turn shopping centres into experience centres.
In addition to housing services, the public-sector construction
model and the shopping centre market, SRV is seeking and
investigating new business opportunities in areas such as energy
self-sufficient construction and nursing home construction.
Developing sustainability
We continued our target-oriented efforts to improve sustaina-
bility, and sustainability is rapidly carrying increasing weight in
generating and assuring value in business. Thanks to the steps
taken in recent years, sustainability has become an aspect of
day-to-day work at SRV, and is therefore no longer treated as
a separate development programme, but as part of routine
operations. For more on the sustainability measures carried out
during 2018 and our future development programmes, see the
Sustainability section starting on page 30. Working to improve
profitability
In recent years, our strategic development In addition, we have made savings in in late 2018 we introduced our revised
programmes have primarily focused on subcontracting, reduced the costs incurred planning and design process for residential
improving profitability. In 2018, we by additional and alteration work, and scaled development projects. The process enables
PROFITABILITY IS ALSO BEING launched a new programme that seeks back work charged on an hourly basis. We closer and earlier cooperation between
IMPROVED BY BOOSTING to lighten our balance sheet, improve the have also overhauled our key construction planning and design, production, and
cost-effectiveness of our projects, and processes and standardised our working procurement. The goal is to clarify tasks,
OPERATIONAL EFFICIENCY enhance construction processes. methods. Although these measures have responsibilities and schedules, thereby
AND FURTHER DEVELOPING Over the past year, we have managed had an impact, they are still only first-aid. improving profitability in our residential
to lighten our balance sheet by over The New Children’s Hospital is one good development projects.
OUR PROCESSES. EUR 90 million by, for example, making example of a successful and cost-effective We will continue to improve our prof-
more efficient use of working capital. project. We managed to stick to the planned itability and the cost-effectiveness of our
We have sold plots that have been in the costs and even finished ahead of schedule. projects over the coming year.
balance sheet for a long time, and have We are also extremely proud of the many “By taking a good attitude and a firm
accelerated sales of existing smaller-scale awards that the hospital has already grip, we’ve been able to achieve the targets
investments and unsold residential units. received, such as the 2018 Finlandia Prize we’ve been set. We will now continue these
We are also aiming to manage the capital for Architecture. efforts to create a culture of high performance
tied up in our balance sheet by acquiring Developments in construction process- and renew our leadership culture,” says CFO
new plots for plot funds. es are also visible in housing. For example, Ilkka Pitkänen.
SRV ANNUAL REVIEW 2018 / MEGATRENDS AND STRATEGY 18YEAR 2018 MEGATRENDS AND STRATEGY OPERATIONS SUSTAINABILITY CORPORATE GOVERNANCE INFORMATION FOR INVESTORS
THE GROUP’S STRATEGIC
FINANCIAL OBJECTIVES Financial objectives for the strategy period 2018–2022
FOR THE STRATEGY PERIOD
2018–2022 TARGETS SET
FOR 2022
STATUS IN
12/2018
SRV’s strategy and all of its operations are guided by the 2018–2022 OPERATIVE OPERATING OPERATING PROFIT: the strategic profitability
strategic financial objectives that were approved in February 2018: 8 -1.0 target will not be achieved until the latter part of
PROFIT MARGIN (%)
the strategy period by the year 2022. Of this
objective, 6 percentage points will be generated by
• After a phase of rapid revenue growth, SRV primarily seeks construction and 2 percentage points by shopping
centre rental income as part of associated company
to increase annual operative operating profit. RETURN ON EQUITY (%) At least 15 -12.1
holdings.
• The operative operating profit margin objective is 8 per cent.
Of this objective, 6 percentage points will be generated by
construction and 2 percentage points by shopping centre CAPITAL: Capital has been committed especially
RETURN ON to shopping centre projects (Pearl Plaza, Okhta
rental income as part of associated company holdings. At least 12 -2.9
Mall, 4Daily and REDI), and it will be released only
INVESTMENT (%)
• Return on equity will be at least 15 per cent by the end when the investments are sold.
of the strategy period.
• Return on investment will be at least 12 per cent by the end
of the strategy period. EQUITY RATIO: In addition to the loss-making
• The equity ratio will remain above 35 per cent. result, the equity ratio was affected by the
EQUITY RATIO (%) Above 35 28.5 weakened exchange rate of the ruble. The equity
• The longer-term objective is to distribute dividend of ratio will start to improve as a result of a decline
30–50 per cent of the annual result, taking into account in capital employed.
the capital needs of business operations.
DIVIDEND: The long term objective is to
The achievement of these strategic objectives will be based Dividend of
distribute dividend of 30–50 per cent of the
DIVIDEND (EUR) 30–50 per cent of 0.00*
on moderate but steady economic growth in Finland, and Russia’s the annual result annual result, taking into account the capital
needs of business operations.
economy stabilising at a slightly stronger level. Growth in SRV’s
developer-contracted projects is also required. SRV seeks to
* Dividend proposal by the Board of Directors
divest shopping centres that are in the management phase when 6 February 2019.
the market situation allows. Projects in Russia may be started
when the Group’s capital structure allows and the financial criteria
of the properties are fulfilled.
In the next two years, the key objective is to improve profitabili-
ty and effectively implement the new construction project process.
Reaching the profitability targets requires not only boosting the effi-
ciency of the company’s own operations, but also the more prudent
selection of new projects with regard to profitability and capital com-
mitment. The company anticipates that it will achieve its strategic
earnings level by the end of 2022.
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