CEO's review

Dear Lemminkäinen shareholders,

In 2013, we focused on improving our operational efficiency and preparing our new strategy aimed at 2018. The positive effects of the last couple of years’ efficiency programmes are beginning to show in the operational result of our operations in Finland.

Despite all the actions taken, I cannot be satisfied with the 2013 financial result, which was clearly negative. This was mainly due to the challenges in international operations and significant non-recurring items, the largest of which were the damages related to the asphalt cartel case, decided in the District Court of Helsinki last November, and write-downs, related primarily to commercial properties in Finland.

Ever more efficient

We have carried out two large efficiency programmes in Finland, and their impact is beginning to show in our operational result. Our cost structure is lighter, and our corporate structure and service offering simpler. Furthermore, we have harmonised our business processes and information systems.

Efficiency programmes in other countries were started later. We expect to see results from this year onwards. In addition to cost discipline, we have to improve our everyday operations, starting from project management, which last year failed in several projects. We have tremendous potential in improving efficiency and competitiveness, as the market situation in Russia, Norway, Sweden and Denmark is much better than in Finland.

It is obvious that we must learn new ways to operate – and unlearn those that do not work for us anymore.

  • We will adjust the number of employees, increase subcontracting and strengthen our year-round service offering in order to minimise the effects of seasonal fluctuation.
  • We will reduce project risks with better planning, more accurate pricing and improved project monitoring. We will deal with any irregularities promptly.
  • We will continue to keep our costs down. In Finland and Norway, for instance, we will continue to reduce the number of our regional units in locations where the market situation is the most difficult and where we have not achieved our financial goals.

To increase the cash flow we will boost housing sales to both consumers and investors in Finland and Russia. We intend also to strengthen our position in specialised infrastructure construction projects. We will make sure that the good results and best practices obtained in our working capital optimisation project will continue to be applied.

When we do the everyday work better, our result for 2014 will clearly improve from previous years.

Insightful solutions

Efficiency, profitability and solvency form the foundation on which we will build our strategy which extends to the year 2018. Our vision in the new strategy is: Insightful solutions above ground and underground. With insightful solutions we want to bring added value both to our customers and the users of the built environment. We are convinced that this will make us a better partner for our customers and, at the same time, differentiate us from the more traditional operators in the construction industry.

We have been actively involved in developing new operating models in the industry. In Tampere, we are renewing the Rantaväylä route in a unique alliance contract with customers. Together with Etera, a mutual pension insurance company, we developed a cooperation model to build three modern office blocks in the Töölö Bay area in the heart of Helsinki. In addition, there was room for our own residential development and construction in this prime location. The attractiveness of the area was further enhanced by the underground parking facility we built under the Finlandia Hall. In Kuopio and Oulu, we will assume the 25-year lifecycle responsibility for the maintenance of the schools we built.

We believe that the best results are achieved when the customer and the service provider plan projects together in genuine cooperation, and all parties share the same vision of the objective and the end result. In the coming years, we wish to assume an even bigger role as an innovator of operating models for construction.

Insightful solutions are economical for our customers and profitable for us. But they require that the conventional production methods are critically evaluated and upgraded, and planning is more efficient. They will also require new kinds of partnerships and networks, and new competences from both customers and service providers. For example, the significance of sustainable development is increasing, particularly in terms of energy and material efficiency. This requires, in turn, that we continuously develop our production and services.

In addition to our customers, our other stakeholders such as residential property investors, owners and decision makers are increasingly interested in sustainability issues. We believe that operating according to the principles of sustainable development will give us a competitive advantage.

Construction concentrating in urban growth centres

Our new strategy is based on megatrends, particularly on increasing urbanisation.

In Finland, residential construction is concentrating in urban growth centres, and major commercial construction projects in the Helsinki metropolitan area in particular. Concern for the vitality of other areas is increasing. Both the major traffic projects and the basic infrastructure improvement are focused in urban growth centres, as well. At the same time elsewhere in Finland, asphalt-paved roads are retrograded back into gravel roads because of cuts in public spending.

In Russia, roads between large population centres are being renovated. In large cities, the demand for centrally located, high quality housing continues to be steady despite the unstable economy. Vast new residential areas are arising near the traditional urban growth centres. Construction quality and energy efficiency are becoming more and more important.

Urbanisation has been faster in Norway, Sweden and Denmark than in Finland. In each of these countries the government wants to maintain the national competitive advantage, and has started long-term investment programmes to develop, for example, the energy supply sector and maintain and repair the road and rail networks, particularly around and between urban growth centres.

At Lemminkäinen, we view the changes in the operating environment first and foremost as opportunities. We have experience and references of solutions for carrying out challenging projects in city centres—be it new housing, renovations of prestigious properties, underground parking facilities or traffic routes.

Building a strong foundation

Lemminkäinen is a 103-year-old company that does not want to be a prisoner of history. We have a strong will for renewal and, at the same time, to reshape the whole construction industry. After a difficult 2013, we know that we must first focus our efforts on building a strong foundation. On that foundation we will build an even more insightful and trustworthy Lemminkäinen.

I want to thank our employees for their hard efforts last year. Thanks to you, we started 2014 with improved efficiency, and with a record-high order backlog. I thank our customers for good cooperation, which will hopefully become even closer in the years to come. My thanks also go to our shareholders for their patience and confidence in us. It is now our task to repay that confidence.

Timo Kohtamäki