Helsinki, Finland, 2015-04-23 11:10 CEST (GLOBE NEWSWIRE) -- SATO Corporation, Interim Report, 23rd April 2015 at 12.10 pm
Summary of 1 January – 31 March 2015 (1 January – 31 March 2014)
- Profit before taxes stood at EUR 58.3 (50.7) million.
- The change in the fair value of rental homes included in the profit was EUR 36.6 (24.4) million.
- Shareholders’ equity was EUR 908.1 (827.8) million, EUR 17.86 (16.28) per share.
- The return on equity was 20.4% (19.6%).
- Rental income amounted to EUR 62.1 (59.8) million.
- Investments in rental homes stood at EUR 29.3 (59.2) million.
- The occupancy rate was 96.4% (96.2%).
Operating environment
Consumer confidence returned close to the average level during the first part of the year.
Growth in the global economy is expected to accelerate, whereas the Finnish economy will recover more slowly. Inflation and reference rates are at historically low levels.
The supply of rental homes has increased in SATO's operating areas but, particularly in the Helsinki region, demand for small, low-cost rental homes is higher than supply. Rents are increasing, but at a moderate pace.
Demand for owner-occupied houses is lower than the average, and regional differences in purchase prices have increased. In the Helsinki region, the prices of homes are expected to remain stable throughout the year.
The Russian economy is expected to contract.
Erkka Valkila, President and CEO:
- SATO's rental homes are increasingly attractive because of the larger proportion of new homes and their good locations. The average size of our homes is small, which is what our customers want.
- Immigration, internal migration towards the Helsinki metropolitan area, and decreasing family sizes are trends that will continue to increase demand for rental homes. In order to continue the positive development of our business operations, we will increase and upgrade our homes through investments and focus on developing the customer experience.
Revised reporting
SATO's business operations are reported as a single segment starting from 1 January 2015. The presentation of the income statement has been changed from reporting by cost item to reporting by function. The purpose of this change is to provide investors with more accurate information about the allocation of income and costs between different business areas.
Net sales and profit
The Group's net sales increased by 30.8 percent from the reference period and totalled EUR 96.3 million (EUR 73.6 million in 1 January – 31 March 2014). Of the net sales, rental income accounted for EUR 62.1 (59.8) million.
The operating profit in the review period stood at EUR 67.5 (60.1) million.
Consolidated profit before taxes over the review period was EUR 58.3 (50.7) million. The change in the fair value of rental homes included in the profit was EUR 36.6 (24.4) million. This change was positively affected by the expiry of restrictions on some properties and the increase in the value of the Russian rouble. The result was decreased by a prudent cost provision of EUR 4.3 million made on the basis of a decision by the Court of Appeal on the construction of Asunto Oy Helsingin Tila.
Financial position and financing
The consolidated balance sheet total was EUR 2,842.7 (2,658.2) million at the end of the review period. Equity was EUR 908.1 (827.8) million. Equity per share was EUR 17.86 (16.28).
The Group's equity ratio was 31.9 (31.2) percent.
The Group's annual return on equity was 20.4 (19.6) percent. The return on investment was 10.8 (10.1) percent.
Interest-bearing liabilities at the end of the review period totalled EUR 1,611.2 (1,542.0) million, of which loans subject to market terms accounted for EUR 1,239.2 (1,159.1) million. At the end of the review period, the average loan rate was 2.5 (2.8) percent. Net financing costs during the review period totalled EUR -9.2 (-9.5) million.
EUR 43.9 million of new long-term financing was acquired during the review period. The Loan-to-Value (LTV) ratio was 56 (58) percent at the end of the period.
During the review period, the calculated impact of changes in the market value of interest hedging was EUR -0.5 (-3.1) million on equity and EUR 0.2 (0.2) million on profit before taxes.
Housing assets and fair value
The development of the value of rental homes is a key factor for SATO. Housing assets are located in areas where demand for rental homes will increase in the long term. The allocation of building repairs is based on life cycle plans and repair need specifications.
On 31 March 2015, SATO owned a total of 24,241 (24,166) homes. The number of homes increased by 68 during the review period.
The fair value of rental homes was EUR 2,585 (2,393) million, and the change in fair value totalled EUR 57 (77) million.
Of the value of homes, the Helsinki region accounts for some 80 percent, Tampere, Turku, Oulu and Jyväskylä make up 15 percent, and St. Petersburg covers 5 percent.
Investments and divestments
Investment activities prepare the ground for growth. Since the year 2000, SATO has invested a total of EUR 1.9 billion in rental homes. SATO acquires and builds entire rental buildings and single rental homes.
During the review period, the Group's investments in rental homes totalled EUR 29.3 (59.2) million, of which new construction investments accounted for 72 percent, i.e. EUR 21.0 (31.3) million. At the end of the review period, binding purchase agreements in Finland totalled EUR 68.3 (102.9) million.
A total of 773 (722) rental homes were under construction in Finland at the end of the review period.
A total of EUR 11.4 (8.2) million was spent on repairing homes and improving the quality of homes.
During the first quarter, 119 (86) homes with a total value of EUR 8.8 (7.6) million were divested in Finland. The divested homes were mainly located outside SATO's primary operating area.
Rental activities
Effective rental activities provide homeseekers with quick access to a home and the Group with steadily increasing cash flow. Rental services are mainly offered by SATO's rental offices.In addition, web-based initiatives produce an excellent match between customers’ needs and homes available.
Rental income increased by 3.7 percent to EUR 62.1 (59.8) million. The economic occupancy rate of homes in Finland was 96.4 (96.2) percent on average, and the rental home turnover rate was 39.3 (38.3) percent.
The monthly average rent per square metre was EUR 16.10 (15.49) in SATO's rental homes and EUR 8.76 (9.54) in shared ownership apartments during the review period.
Net rental income from homes stood at EUR 40.0 (37.7) million. The net rental income rate in rental homes was 6.0 (6.1) percent on an annual level.
Property development
Property development allows for new investments in rental homes and the production of owner-occupied homes in Finland. The rental capacity and value of rental homes owned by SATO are developed through renovation activities.
The book value of owned plot reserves totalled EUR 68.5 (87.1) million at the end of the period. EUR 1.5 (0.0) million of new plots were acquired during the review period.
By the end of March, 154 (298) rental and 65 (23) owner-occupied homes were completed in Finland. On 31 March 2015, a total of 773 (722) rental and 132 (258) owner-occupied homes were under construction.
A total of 34 (95) owner-occupied homes were sold during the review period. At the end of the period, 44 (92) completed and 132 (127) owner-occupied homes under construction remained unsold at a total purchase value of EUR 84.7 (103.8) million. SATO mainly sells its owner-occupied homes after completion according to the SATO OwnerHome concept.
Business operations in St. Petersburg
The housing market in St. Petersburg corresponds to that of the whole of Finland in terms of volume. SATO is following its growth strategy by investing in rental homes in St. Petersburg. Homes are acquired in central locations in the city.
At the end of the review period, housing assets in St. Petersburg totalled EUR 121.9 (115.1) million. The total amount of binding purchase agreements was EUR 8.2 (15.6) million at the end of the period.
On 31 March 2015, SATO owned 313 (237) completed and 217 (219) homes under construction in St. Petersburg.
The economic occupancy rate of rental homes was 93.0 (96.4) percent on average.
Personnel
At the end of the review period, the Group employed 173 (161) people, of whom 160 were full-time employees. During the review period, the Group employed an average of 171 (159) people.
Annual General Meeting on 3 March 2015
The Board of Directors of SATO Corporation was confirmed to consist of seven members. The Annual General Meeting selected Esa Lager as the chairman. Andrea Attisani, Niina Rajakoski, Tarja Pääkkönen and Ilkka Tomperi are to continue as members of the Board of Directors. Jukka Hienonen and Timo Stenius were elected as new members.
KPMG Oy Ab, authorised public accountants, continue as the Group's auditor, with Lasse Holopainen, APA, acting as the primary accountant.
The AGM decided to establish a nomination committee for shareholders. Its task is to prepare proposals for the AGM concerning the election of members of the Board of Directors and the fees paid to Board members. In addition, the AGM approved the agenda of the nomination committee for shareholders.
The Board of Directors was authorised to decide on one or more rights issues concerning the issuance of a maximum of 160,000 treasury shares held by the company. The authorisation remains valid until 28 February 2020.
According to the proposal of the Board of Directors, the AGM approved the distribution of EUR 0.62 per share in dividends and capital returns over 2014, totalling EUR 31.5 million.
Organisation of the Board of Directors
At its organisation meeting on 3 March 2015, the company's Board of Directors selected from among its members Jukka Hienonen as the Deputy Chairman of the Board of Directors of SATO Corporation.
The Board of Directors selected Esa Lager as the Chairman of the Nomination and Remuneration Committee, and Andrea Attisani and Jukka Hienonen as members.
The Board of Directors selected Ilkka Tomperi as the Chairman of the Audit Committee, and Tarja Pääkkönen, Niina Rajakoski and Timo Stenius as members.
Legal proceedings
On the basis of the decision of the Court of Appeal, the company has made a cost provision regarding the completion of the Asunto Oy Helsingin Tila building project, reducing the profit for the review period. The company has applied for leave to appeal to the Supreme Court.
Future risks and uncertainties
The economy continues to grow slowly, which is reflected in the housing and financing markets.
The change in the market value of homes affects the value of SATO's housing assets. The positive development of the value of housing assets and the rental capacity of homes are secured by focusing on growth centres.
New owner-occupied home projects will be launched on the basis of project-specific market surveys.
Risks in housing investment activities in St. Petersburg are associated with the development of the market value of homes, fluctuations in exchange rates and other changes in the operating environment. St. Petersburg is limited to a maximum of 10 percent of the Group's housing assets. The current value of housing assets in St. Petersburg accounts for 5 percent of the Group's entire housing assets.
Changes in interest rates affect SATO's profit and balance sheet through changes in interest expenses and the market value of interest hedging. According to the Group's financing policy, at least 60percent of all loans are fixed-rate loans. The adequacy of financing is monitored using a rolling liquidity estimate.
A more detailed description of risks and risk management is available in the Group's 2014 annual report and on the company's website at www.sato.fi .
Outlook
Finnish economic growth and the general climate of confidence are expected to remain poor. In the operating environment, SATO's business operations are mainly affected by consumer confidence, the rental and price development of homes, and the interest rate.
Demand for rental homes is expected to remain high in SATO's operating areas, focusing mainly on small homes. Some 80 percent of SATO's housing assets are located in the Helsinki region, where the rental and price development is more stable than in other regions. SATO's product range responds to the demand for small homes, with the average area of homes being 57 square metres.
Increasing urbanisation and immigration offer good potential for continued investments in Finland. Thanks to high demand and new investments, SATO's net rental income is expected to improve from the year before. However, increases in rents are expected to be lower than in the previous year.
Interest rates are estimated to remain low, which will have a positive impact on SATO's business operations.
The Russian economy is expected to contract. Some 5 percent of SATO's housing assets are located in St. Petersburg. Due to the unstable economic and political situation in Russia, SATO is refraining from making new investment decisions for the time being.
SATO Corporation's shareholders on 13 April 2015
Largest shareholders and their holdings
| Varma Mutual Pension Insurance Company | 22.8 % |
| APG Asset Management NV | 22.8 % |
| Balder Finska Otas AB | 16.1% |
| Elo Mutual Pension Insurance Company | 12.9 % |
| Danske Bank Plc (nominee-registered) | 6.7 % |
| State Pension Fund | 5.0 % |
| LocalTapiola Group | 4.8 % |
| Pohjola Insurance Ltd | 2.5 % |
| Finnish Construction Trade Union | 0.9 % |
| Others | 5.5 % |
On 13 April 2015, SATO had 51,001,842 shares and 75 shareholders registered in the book-entry system. The share turnover rate was 24.3 percent on 13 April 2015.
In April, Ilmarinen announced that it had sold all of its shares in SATO (16.1%) to Balder.
Key figures, Group
| KEY FINANCIAL INDICATORS | 1-3/2015 | 1-3/2014 | 1-12/2014 | 1-12/2013** | 1-12/2012*** | 1-12/2011** | ||||||||||
| Net sales, MEUR | 96 | 74 | 312 | 312 | 287 | 232 | ||||||||||
| Profit before taxes, MEUR | 58 | 51 | 152 | 141 | 121 | 174 | ||||||||||
| Earnings per share, EUR | 0.90 | 0.80 | 2.37 | 2.34 | 1.78 | 2.63 | ||||||||||
| Balance sheet total, MEUR | 2,843 | 2,658 | 2,802 | 2,596 | 2,360 | 2,167 | ||||||||||
| Shareholders' equity, MEUR | 908 | 829 | 892 | 823 | 693 | 635 | ||||||||||
| Intrest bearing liabilities, MEUR | 1,611 | 1,542 | 1,585 | 1,501 | 1,375 | 1,255 | ||||||||||
| Equity per share, EUR **** | 17.86 | 16.28 | 17.55 | 16.16 | 13.72 | 12.59 | ||||||||||
| Number of shares, million * | 50.8 | 50.8 | 50.8 | 50.8 | 50.8 | 50.8 | ||||||||||
| Return on invested capital, % (ROI) | 10.8 % | 10.1 % | 7.7 % | 7.7 % | 7.7 % | 10.9 % | ||||||||||
| Return on equity, % (ROE) | 20.4 % | 19.6 % | 14.0 % | 15.5 % | 13.5 % | 22.8 % | ||||||||||
| Equity ratio, % | 31.9 % | 31.2 % | 31.8 % | 31.7 % | 29.4 % | 29.5 % | ||||||||||
| Personnel, average*** | 171 | 159 | 165 | 156 | 152 | 137 | ||||||||||
| Personnel at the end of period | 173 | 161 | 169 | 156 | 150 | 141 | ||||||||||
| KEY FIGURES ACCORDING TO EPRA RECOMMENDATIONS AND OPERATIONAL CASH EARNINGS | ||||||||||||||||
| EPRA Earnings, MEUR | 14.5 | 17.9 | 65.1 | 62.7 | 44.4 | 43.2 | ||||||||||
| EPRA Earnings per share, EUR | 0.29 | 0.35 | 1.28 | 1.23 | 0.87 | 0.85 | ||||||||||
| EPRA Net Asset Value, MEUR | 1,138 | 1,029 | 1,120 | 1,007 | 900 | 825 | ||||||||||
| EPRA Net Asset Value per share, EUR | 22.4 | 20.2 | 22.0 | 19.8 | 17.7 | 16.2 | ||||||||||
| Cash earnings, MEUR | 21.6 | 23.3 | 72.9 | 66.1 | 61.6 | 51.9 | ||||||||||
| Cash earnings per share, EUR | 0.42 | 0.46 | 1.43 | 1.30 | 1.21 | 1.02 | ||||||||||
| QUARTER KEY FINANCIAL INDICATORS | Q1/2015 | Q4/2014 | Q3/2014 | Q2/2014 | Q1/2014 | |||||||||||
| Net sales, MEUR | 96 | 76 | 77 | 85 | 74 | |||||||||||
| Operating profit, MEUR | 67 | 38 | 37 | 56 | 60 | |||||||||||
| Profit and losses from changes of fair value | 37 | 16 | 5 | 19 | 24 | |||||||||||
| Net financing expenses, MEUR | -9 | -10 | -10 | -10 | -9 | |||||||||||
| Profit before taxes, MEUR | 58 | 28 | 27 | 46 | 51 | |||||||||||
| Earnings per share, EUR | 0.90 | 0.42 | 0.42 | 0.72 | 0.80 | |||||||||||
| Gross investments, MEUR | 29 | 31 | 43 | 42 | 59 | |||||||||||
| as percentage of net sales | 30.4 % | 40.1 % | 55.1 % | 48.9 % | 80.4 % | |||||||||||
| Economic occupancy rate, % | 96.4 % | 97.2 % | 96.9 % | 96.5 % | 96.2 % | |||||||||||
| KEY FIGURES ACCORDING TO EPRA RECOMMENDATIONS AND OPERATIONAL CASH EARNINGS | ||||||||||||||||
| EPRA Earnings, MEUR | 14.5 | 12.0 | 16.7 | 18.5 | 17.9 | |||||||||||
| EPRA Earnings per share, EUR | 0.29 | 0.24 | 0.33 | 0.36 | 0.35 | |||||||||||
| Cash earnings, MEUR | 21.6 | 10.8 | 20.3 | 18.5 | 23.3 | |||||||||||
| Cash earnings per share, EUR | 0.42 | 0.21 | 0.40 | 0.36 | 0.46 | |||||||||||
| *) | The 160,000 shares held by the Group have been deducted from the number of shares. | |||||||||||||||
| **) | Adoption of IAS 40 Investment properties -standard fair value model has been taken into account retrospectively in key figures. Retrospectively adjusted figures are unaudited. | |||||||||||||||
| ***) | Including summer trainees | |||||||||||||||
| ****) | Equity excluding minority interest | |||||||||||||||
Additional information:
Erkka Valkila, President and CEO, tel. +358 201 34 4001, +358 50 62 050 Esa Neuvonen, CFO, tel. +358 201 34 4005, +358 40 5001 003
www.sato.fi
SATO is one of Finland's leading housing investment companies. SATO aims to offer full options for rental housing and an excellent customer experience. SATO owns a total of 24,200 rental homes in Finland's largest growth centres and in St. Petersburg.
We contribute to sustainable development and initiative through our operations, and engage in open interaction with our stakeholders in order to produce added value. We operate over the long term and profitably. We increase the value of housing assets through investments and divestments and through our repair activities.
SATO Group's turnover in 2014 totalled EUR 312.3 million, operating profit stood at EUR 191.3 million, and profit before taxes was EUR 152.2 million. The value of SATO's investment assets is EUR 2.6 billion.
