SATO Oyj
SATO Corporation’s interim report 1 January – 30 September 2014
DGAP-News: SATO Oyj 23.10.2014 / 12:15 --------------------------------------------------------------------- The number of SATO's rental homes is increasing Helsinki, Finland, 2014-10-23 12:15 CEST (GLOBE NEWSWIRE) -- SATO Corporation, Interim report, 23 October 2014 at 1:15 pm. Summary for the period 1 January - 30 September 2014 (1 January - 30 September 2013) -- Profit before taxes was EUR123.7 (83.2) million. -- The change in the value of investment properties included in the profit was EUR47.7 (19.8) million. -- Shareholders' equity was EUR875.3 (742.8) million, EUR17.19 (14.59) per share. -- Return on equity was 15.5 (11.6)%. -- Investments in rental housing totalled EUR143.4 (88.2) million. -- The rental occupancy rate was 96.9 (97.6)%. Operating environment Outlook for the Finnish economy has worsened and consumer confidence decreased. Despite the weak economic development, immigration and urbanisation are increasing the demand for rental apartments. Especially in the Helsinki Metropolitan Area and largest urban centres of growth, increased amount of small rental apartments are needed. A low level of new construction of owner-occupied homes, low interest rates and a fairly good employment situation in the Helsinki Metropolitan Area all support a moderate increase in prices. Economic growth in Russia has slowed. President and CEO Erkka Valkila: - Despite the weak financial environment, SATO's business, housing investment, is developing steadily, supported by the growing demand for rental apartments. In the last few years, we have increased our investments in rental apartments to respond to the challenge presented by an insufficient supply in the Helsinki Metropolitan Area. - The number of our rental homes has increased by nearly 600 units in comparison to the reference period. At the end of the review period, SATO had also approximately 680 new rental apartments under construction. Our own building land inventory enables the continuous production of new homes and development of our portfolio structure. Segments In its financial reporting, the Group's rental housing is categorised into two segments, SATO and VATRO. Such segmentation increases the transparency of operations and reporting targeted at state-subsidised housing assets. SATO business includes rental housing free of restrictions and entailing a shorter period of restriction, the construction of owner-occupied housing, as well as the business in St. Petersburg. VATRO business deals with rental housing with longer periods of restriction. In accordance with the Group strategy, new investments are being targeted at SATO business, and the relative importance of VATRO business within the Group is declining. Net sales and profit The Group's net sales increased by 7.6 per cent in comparison to the reference period to stand at EUR236.0 million (EUR219.3 million 1 January - 30 September 2013). Of the net sales, rental income amounted to EUR181.8 (171.4) million. Of the net sales EUR205.8 (190.0) million was earned from SATO business and EUR30.2 (29.3) million from VATRO business. Operating profit for the review period was EUR152.9 (111.1) million. The Group's profit before taxes was EUR123.7 (83.2) million for the period under review. The change in the fair value of rental housing included in the profit was EUR47.7 (19.8) million. This includes the change in fair value of EUR-4.6 million for property in St. Petersburg, of which the effect of changes in exchange rates was EUR-9.2 million. The share of profit before taxes of the SATO business was EUR118.0 (79.7) million, and in the VATRO business it was EUR5.7 (3.6) million. Financial position and finance The Group's total balance sheet at the end of the period under review was EUR2,748.0 (2,463.0) million. Shareholders' equity was EUR875.3 (742.8) million. Shareholders' equity per share was EUR17.19 (14.59). The Group's equity ratio was 31.9 (30.2) per cent. The Group's return on equity proportioned on an annual level was 15.5 (11.6) per cent. Return on investment was 8.3 (6.8) per cent. Interest-bearing liabilities at the end of the review period were EUR1,569.3 (1,426.8) million, of which market rate loans totalled EUR1,073.7 (970.5) million. At the end of the review period, the average interest rate for loans was 2.8 (2.8) per cent. Net financing expenses during the review period totalled EUR29.2 (27.9) million. During the review period, new long-term financing was procured totalling EUR62.6 million, and in addition to this, contingent liabilities applied to shares in housing companies increased by EUR53.7 million. The loan to value (LTV) ratio without the VATRO segment was 56 (55) per cent at the end of the review period. The computational effect of changes during the review period in the market value of interest rate hedges on shareholders' equity was EUR-15.0 (11.1) million and the effect on profit before taxes was EUR0.5 (0.6) million. Rental housing The development of the value of rental housing is of key importance to SATO. The housing portfolio is concentrated in areas where the demand for rental homes will grow in the long term. The allocation of repairs to properties is based on life-cycle planning and evaluations concerning the need for repair. On 30 September 2014, SATO owned a total of 24,127 (23,564) homes, 20,043 (19,477) of which belonged to the SATO business and 4,084 (4,097) to the VATRO business. During the review period, the number of homes increased by 299. The fair value of rental housing was EUR2,489.0 (2,183.8) million. During the review period, the fair value of the housing portfolio grew by EUR173.0 (95.8) million. The increase in value resulted from investments, development in market prices and the ending of restrictions on some properties. Investments and divestments Investment activities create a framework for growth. Since the turn of the millennium, SATO has invested a total of about EUR1.8 billion in rental housing. SATO acquires and commissions the construction of both complete rented buildings and individual rented apartments. In the review period, the Group's investments in rental housing totalled EUR143.4 (88.2) million, the share of new construction investments of which was 72 per cent, totalling EUR103.3 (71.9) million. At the end of the review period, there were also binding contracts in Finland for acquisitions worth EUR63.5 (83.9) million. The most significant investment was made in 126 privately financed rental homes in the Helsinki Metropolitan Area bought from ICECAPITAL Housing Fund I Ky. The value of the transaction was EUR23.1 million. At the end of the review period, 677 (816) new rental housing units were under construction in Finland for ownership by the Group. The sum used for renovating the housing stock and improving the quality of apartments was EUR28.6 (27.9) million. During the financial period, 310 (231) rental homes were divested in Finland for a total of EUR19.7 (11.9) million. The divested homes were for the most part located outside SATO's targeted business area. Renting Efficient rental business secures rapid availability for people who need a home and a steady trend in cash flow for the Group. The rental service is mainly taken care of at SATO's rental offices. Profit from rental income grew by 6.1 per cent and was EUR181.8 (171.4) million. The financial rental occupancy rate of homes in Finland averaged 96.9 (97.6) per cent, and occupant turnover averaged 37.3 (36.6) per cent. The average monthly rent per square metre for SATO's rented homes in Finland during the review period was EUR15.55 (14.74), and for shared ownership apartments it was EUR8.75 (9.54). Net rental income from the housing stock was EUR111.6 (102.8) million. The net rental income percentage of the rental housing calculated on an annual level was 6.1 (6.2). Property development Property development creates a basis for SATO's investments in new rented homes and for the construction of owner-occupied homes in Finland. The rental attractiveness and value of owned rental housing is being developed through renovation activity. The book value of the Group's building land inventory at the end of the review period was EUR71.3 (93.3) million. During the review period, new land stock was acquired for a value of EUR2.8 (2.1) million. By the end of September, 414 (178) rental and 127 (119) owner-occupied homes were completed in Finland. Under construction on 30 September 2014 were 677 (816) rental and 221 (416) owner-occupied homes. During the review period, SATO made a preliminary agreement concerning the completion of approximately 200 rental properties in the vicinity of the metro centre in Niittykumpu, Espoo. During the review period, a total of 178 (144) owner-occupied homes were sold. On 30 September 2014, completed owner-occupied homes unsold numbered 76 (44) and those under construction numbered 149 (292), with a total acquisition value of EUR104.3 (131.1) million. SATO's owner-occupied homes are mostly sold only after completion in accordance with the SATO OwnerHome concept. Business in St. Petersburg The housing market in St. Petersburg is similar in volume to the entire Finnish housing market. SATO achieves growth by investing in rented homes in St. Petersburg. Properties are acquired at key locations in the city. By the end of the review period, the value of the housing portfolio in St. Petersburg totalled EUR130.5 (101.9) million. At the end of the review period, binding contracts for acquisitions totalled EUR15.1 (35.8) million in value. On 30 September 2014, SATO had in St. Petersburg a total of 313 (222) completed apartments and 217 (171) under construction. The financial rental occupancy rate for rented homes averaged 93.4 (89.0) per cent. Personnel At the end of the review period, the Group employed 164 (148) people, of whom 154 were in a permanent employment relationship. During the review period, an average of 165 (150) members of staff were employed by the Group. Near-term risks and factors of uncertainty Slow economic growth is continuing, which is reflected in the housing and financial markets. The change in the market prices of housing has an impact on the value of SATO's housing portfolio. A positive trend in the value of the housing and the rentability of the housing portfolio are secured by concentrating on the urban centres of growth. New owner-occupied properties will be started based on market studies at each site. The risks of housing investment in St. Petersburg are related to the development of market prices, fluctuations in the exchange rate and other changes taking place in the operating environment. The share of the Group's housing property in St. Petersburg is limited to 10 per cent of the total housing portfolio value. The current exposure is approximately 5 percent of the Group's total housing portfolio. Changes in interest rates affect SATO's profit and balance sheet as a change in interest costs and through differences in the market value of interest rate hedges. In accordance with the Group's financial policy, efforts will be made to keep the share of fixed-rate loans at over 60 per cent of all loans. The sufficiency of finance will be constantly monitored through liquidity forecasts. Lawsuits and countersuits between the contracting parties are pending in connection with the implementation of and invoicing for a construction project called Asunto Oy Helsingin Tila. Also, a ruling has been applied for from the Supreme Administrative Court concerning the Group contribution to one SATO Group company. A more extensive description of risks and risk management can be found in the 2013 Annual Report and on the company's website, www.sato.fi. Outlook Outlook for the Finnish national economy has weakened. The growth of the Russian economy has stopped, and uncertainty about the direction of economic development has increased. According to forecasts, the interest rate level will remain low for a long time. The demand for rental housing is expected to continue to be good in SATO's areas of operation and mainly be targeted at small homes. Rental activity is expected to develop positively and SATO's net rental income will improve from the previous year. Steady demand for rented homes is creating good prospects for continuing investments in SATO's areas of operation in Finland. Making new investment decisions regarding St. Petersburg depends on the development of the Russian operating environment. SATO Corporation's shareholders 13 October 2014 The largest shareholders and their holdings: Varma Mutual Pension Insurance Company 22.8% APG Asset Management NV* 22.8% Ilmarinen Mutual Pension Insurance Company 16.1% Suomi Mutual Life Assurance Company 14.8% Elo Mutual Pension Insurance Company 12.9% LocalTapiola Group 4.8% Pohjola Insurance Ltd 2.7% Others 3.1% On 13 October 2014, the number of SATO shares was 51,001,842, and the number of shareholders subscribed in the book-entry system was 30. The turnover of shares during the review period amounted to 22.9 per cent. *In June, SATO Corporation shareholder Mutual Pension Insurance Company Varma announced that it has sold 50 per cent of its SATO shares to the Dutch pension provider APG. Key financial indicators, the Group 30 Sep 30 Sep 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 2014 2013 2013 2012 2011 2010 2009 ** ** ** ** ** Key financial indicators Net sales, MEUR 236 219 312 287 232 193 230 Operating profit, MEUR 153 111 178 160 209 167 133 Net financing expenses, -29 -28 -38 -39 -35 -33 -41 MEUR Profit before taxes, 124 83 141 121 174 133 92 MEUR Balance sheet total, 2,748 2,463 2,596 2,360 2,167 1,805 1,665 MEUR Shareholders' equity and 875 743 823 693 635 534 413 non-controlling interest, MEUR Liabilities, MEUR 1,873 1,720 1,773 1,696 1,554 1,289 1,264 Return on invested 8,3% 6,8% 7,7% 7,7% 10,9% 10,3% 8,9% capital, % (ROI) Return on equity, % 15,5% 11,6% 15,5% 13,5% 22,8% 20,8% 17,9% (ROE) Equity ratio, % 31,9% 30,2% 31,7% 29,4% 29,5% 29,5% 24,8% Investment property, 2,489 2,184 2,316 2,088 1,899 1,657 1,503 MEUR Gross investments, MEUR 143 88 191 160 150 104 112 as percentage of net 60,8% 40,2% 61,2% 55,7% 64,7% 54,1% 48,6% sales Personnel, average*** 165 150 156 152 137 129 141 Key indicators per share Earnings per share, EUR 1.94 1.23 2.34 1.78 2.63 2.01 1.51 Equity per share, EUR 17.19 14.59 16.16 13.72 12.59 10.48 9.07 **** Number of shares, 50.8 50.8 50.8 50.8 50.8 50.8 45.3 million* Key figures according to EPRA recommendations and operational cash earnings EPRA Earnings, MEUR 53.2 41.5 62.7 44.4 43.2 35.5 26.5 EPRA Earnings per share, 1.05 0.82 1.23 0.87 0.85 0.72 0.59 EUR EPRA Net Asset Value, 1,088 953 1,007 900 825 685 537 MEUR EPRA Net Asset Value per 21.4 18.7 19.8 17.7 16.2 13.5 11.9 share, EUR Cash earnings, MEUR 62 51 66 62 52 50 34 Cash earnings per share, 1.22 0.99 1.30 1.21 1.02 0.98 0.76 EUR * 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. *** Including summer trainees **** Equity excluding minority interest Segment information SATO's investment in the housing business includes both privately financed and state-subsidised housing property, of which the latter is affected by restrictions set by housing legislation both at the company level and for individual properties. In its financial reporting, investment housing is categorised into two segments - SATO business and VATRO business. SATO business comprises privately financed housing as well as those housing units subject to state-subsidised and interest-subsidised credits for which property-specific restrictions will end during the period 2014-2025. The business and owner-occupied housing production in St. Petersburg also belong to SATO business. The VATRO business segment includes those housing units which are subject to longer-term restrictions under legislation on state-subsidised loans. These restrictions will end by approximately 2047. SATO VATRO Total SATO VATRO Total busines busines busines busines s s s s -------------------------------------------------------------------------------- MEUR 1-9/201 1-9/201 1-9/201 1-9/201 1-9/201 1-9/201 4 4 4 3 3 3 -------------------------------------------------------------------------------- Net sales 205.8 30.2 236.0 190.0 29.3 219.3 -------------------------------------------------------------------------------- Net rental income 94.2 17.4 111.6 86.2 16.6 102.8 -------------------------------------------------------------------------------- Profit before taxes 118.0 5.7 123.7 79.7 3.6 83.2 -------------------------------------------------------------------------------- Gross investments in 143.4 143.4 88.2 88.2 rental housing -------------------------------------------------------------------------------- Value of the rental 2,296.2 192.8 2,489.0 1,987.1 196.7 2,183.8 housing -------------------------------------------------------------------------------- Rented homes (number) 18,864 4,084 22,948 18,278 4,087 22,365 -------------------------------------------------------------------------------- Shared ownership 1,179 1,179 1,199 1,199 apartments (number) -------------------------------------------------------------------------------- Completed rental housing 490 490 252 252 (number) -------------------------------------------------------------------------------- Completed owner-occupied 127 127 119 119 homes (number) -------------------------------------------------------------------------------- APPENDICES Interim report 1 January - 30 September 2014 Interim report information 1 January - 30 September 2014 SATO is one of Finland's leading corporate investors in housing. SATO's aim is to offer comprehensive alternatives in rental housing and an excellent customer experience. SATO owns a total of approximately 24,000 rental apartments in the largest Finnish urban growth centres and in St. Petersburg. In our operations, we promote sustainable development and initiative-taking, and work in open interaction with our stakeholders to create added value. We operate profitably and with a long-term view. We increase the value of our housing property through investments, divestments and repair work. SATO Group's net sales in 2013 were EUR311.5 million, operating profit EUR178.3 million and profit before taxes EUR140.8 million. SATO's investment properties are valued at EUR2.5 billion. www.sato.fi Erkka Valkila, President & CEO, tel. +358 201 34 4001, mobile +358 50 62 050 Esa Neuvonen, CFO, tel. +358 201 34 4005, mobile +358 40 5001 003 News Source: NASDAQ OMX --------------------------------------------------------------------- 23.10.2014 Dissemination of a Corporate News, transmitted by DGAP - a service of EQS Group AG. The issuer is solely responsible for the content of this announcement. The DGAP Distribution Services include Regulatory Announcements, Financial/Corporate News and Press Releases. Media archive at www.dgap-medientreff.de and www.dgap.de --------------------------------------------------------------------- Language: English Company: SATO Oyj Finland ISIN: FI0009011688 End of News DGAP News-Service --------------------------------------------------------------------- 293043 23.10.2014
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