Financial performance and targets 2013
We concentrated on operational efficiency
The construction market situation in Finland remained challenging and construction activity concentrated in urban growth centres and their immediate surroundings. Our net sales in Finland decreased when compared to the previous year. Our business volume reduced most in competitive contracting in building construction where the margin level has been low in the past few years. However, the construction of underground city-centre premises increased, which kept demand for specialised contracting in infrastructure construction, one of our core businesses, at a good level.
In the Scandinavian countries and Russia, the general market situation in construction was brighter than in Finland. In Sweden, Norway and Denmark, demand for infrastructure construction was boosted by the investments in infrastructure development made by the public sector as well as by increasing investments in the energy supply sector. The growing Scandinavian infrastructure market has attracted plenty of construction companies from around Europe, which has intensified price competition in the industry. Our business volume in infrastructure construction in Scandinavia has already reached the EUR 500 million milestone, but our result in 2013 was negative. In addition to intensified competition, our result was burdened by project failures, unprofitable maintenance contracts and expense items related to internal efficiency measures, among other things.
The decline in the Russian economy and the downward trend in the exchange rate of the rouble did not decrease demand for comfort-class apartments in St Petersburg. The official permit process in St Petersburg has returned to normal, which was also reflected as an increase in our residential construction activity in 2013. In the Baltic countries and Russia, demand for infrastructure construction remained roughly on a par with the previous year.
Net sales, operating profit and order backlog by business segment, EUR million
|Net sales *
|Technical building services||222||230||↓|
|Other operations and Group eliminations||-61||-84|
|Operating profit *
|Technical building services||-2||4||↓|
|Operating profit without non-recurring items||-5||50||↓|
|Technical building services||88||108||↓|
* The figures for 2012 do not include discontinued operations.
** Includes EUR 66 million as expenses from the District Court´s decision on damages related to the asphalt cartel.
DISTRIBUTION OF NET SALES BY BUSINESS IN 2013
|Other infrastructure construction, 21%||21|
|Building construction, contracting, 18%||18|
|Building construction, development, 17%||17|
|Technical building services, 11%||11|
Net sales by country, EUR million
Net sales and order book
Our net sales remained roughly on a par with the previous year. The most significant change took place in contracting for building construction in Finland, the net sales of which were nearly EUR 100 million lower than in the previous year. The business operations outside Finland continued to grow steadily and, in 2013, they accounted for 42 per cent (40) of our net sales.
During the past three years, the share of infrastructure construction has been more than 50 per cent of all of our business operations. Currently, our single largest business area is paving, accounting for approximately a third of our Group’s net sales. We are the second largest paving contractor in our market area.
Our order book continued to grow and, at the end of the financial period, it was nearly EUR 400 million above the previous year’s level. In Finland, our order book was increased by specialised contracting in infrastructure construction and in Russia and Sweden by building construction.
Challenges in international operations and significant one-offs made our result clearly negative in 2013. The prolonged and snowy winter delayed the start of the paving season in particular and increased costs in all of our operating countries. We could not fully close this gap during the excellent third quarter of the year. In addition, due to the slow permit process in St Petersburg, our residential construction in Russia got off to a good start only towards the end of the year.
In 2013, there were also several non-recurring expense items, the largest of these being EUR 66 million for damages related to the asphalt cartel and EUR 20 million of write-downs mainly related to commercial properties. Furthermore, we recorded in our result approximately EUR 16 million in costs related to efficiency measures and the divestment of parts of the telecommunications network business.
Right at the end of the year, we were forced to make margin impairments in projects in Russia, Sweden and Norway. The declining margins were due to failures in project and risk management, two factors which we have now paid particular attention to. For example, we have reviewed our decision-making authorisations, increased consideration of risks at the tender calculation phase and improved the efficiency of margin control during projects.
Building construction in Sweden and infrastructure construction in the Baltic countries achieved better results than in the previous year. In building construction in Finland, the operational result without inventory impairments also improved year-on-year.
The improvement of operational efficiency is still the most important goal for us. The efficiency programme launched in the autumn 2013 aims at lightening of the cost structure by approximately EUR 30 million in the latter half of 2014. As a part of the efficiency measures, we will reduce our personnel by approximately 500 man-years. By the end of the year, the reduction in Finland was nearly 300 man-years and in other countries approximately 100 man-years. In some of our operating countries, the process is still ongoing. In addition, we closed or merged 13 business units in Finland and 11 in Norway. In 2014, efficiency measures will still be continued outside Finland and especially in Russia.
The negative result also had an impact on our solvency
The negative result impaired our shareholders’ equity and had an impact on our solvency. In 2013, our equity ratio did not meet our long-term strategic target, standing at 27 per cent (37). Our gearing increased and was 101 per cent (63). We will continue improving operational efficiency; our primary goal is to improve profitability and to strengthen our equity ratio. Our means for achieving this goal are improving project management, ensuring efficiency measures especially outside Finland and accelerating housing sales both in Finland and in Russia.
Positive cash flow through more efficient working capital management
Despite the clearly weaker result, our 2013 cash flow from operating activities was positive: EUR 8 million (58). Our cash flow was increased by efficiency measures targeted at working capital management, for example. Our working capital decreased and stood at EUR 325 million (427) at the end of the year. We have paid particular attention to the timeliness of invoicing and the optimisation of the turnover of trade receivables and trade payables.
Our debt portfolio is centred around commercial papers; we prepared for damages
Our interest-bearing debt increased to EUR 408 million (371). Of this, the share of short-term debt was 85 per cent. For us, the single most important debt instrument is commercial papers, accounting for more than a third of our debt portfolio. At the end of the financial period, we also had binding, unused credit limits amounting to EUR 175 million (140). In 2014, we will face the refinancing of the EUR 60 million bond that will mature in the autumn.
In March, we agreed on a financing arrangement totalling EUR 255 million and comprising two separate (EUR 185 million + EUR 70 million) syndicated credit facilities. This arrangement replaced the EUR 160 million credit facility that was agreed earlier. With these arrangements and sufficient cash reserves, we prepared ourselves for possible damages related to the asphalt cartel. At the beginning of January 2014, we used our cash reserves to pay EUR 60 million in damages, in accordance with the District Court’s decision. In addition, we made a EUR 6 million cost provision concerning claims that are still waiting to be processed in the District Court. At the end of 2013, we terminated the EUR 70 million credit facility, considering it unnecessary.
Our net finance costs increased and amounted to EUR 27 million (21). The increase in interest-bearing debt, increasing currency hedging costs and increasing financing limits renewed in March contributed to the increase in finance costs.
OUR DEBT PORTFOLIO ON 31 DECEMBER 2013, EUR million
|Commercial papers, 150 (87)||150|
|Loans from financial institutions, 41 (55)||41|
|Pension loans, 22 (44)||22|
|Finance lease liabilities, 58 (58)||58|
|Bonds, 60 (60)||60|
|Project loans, 73 (67)||73|