ANNUAL REVIEW 2018 - GlobeNewswire Offices

ANNUAL REVIEW 2018 - GlobeNewswire Offices
ANNUAL REVIEW 2018 - GlobeNewswire Offices

SRV IN BRIEF .............................................................................................................. 2
CEO’S REVIEW 2018 ............................................................................................ 4
KEY FIGURES 2018 .............................................................................................. 7
MAJOR ENCOUNTERS IN 2018 ..................................................................... 8
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
ANNUAL REVIEW 2018 - GlobeNewswire Offices

                                               Revenue (2018)                                                                              We are constructing a new neighbourhood in Tampere:

                                                                                                                                           TAMPERE DECK
                                              EUR            959.7                                  MILLION                                THE NEW CHILDREN’S
                                                                                                                                           was completed two months ahead of schedule.
       Order backlog (31 Dec. 2018)
                                                                                                                                           The hospital received the 2018
                                               What are we working on?
                                                                                                                                           Finlandia Prize for Architecture.
                                                                                                                                           We are also building the Siltasairaala

                                                                                                        Schools and                        Hospital, Central Finland Central
                                                               Homes                                    educational institutions           Hospital (Hospital Nova),
                                                               30%                                      11%                                and TAYS Etupiha.

                                                               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
                                                                                                                                                                                                 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
ANNUAL REVIEW 2018 - GlobeNewswire Offices
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
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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
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                                                              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
ANNUAL REVIEW 2018 - GlobeNewswire Offices

                                                                                                     SRV CREATES
                                                                                                     THE BEST
                                                                                                     EXPERIENCE AS
                                                                                                     A CONSTRUCTOR
                                                                                                     OF URBAN CITY

SRV ANNUAL REVIEW 2018 / YEAR 2018                                                                                              6
ANNUAL REVIEW 2018 - GlobeNewswire Offices

KEY FIGURES 2018                                                                                                                                                      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)
    01                                                                                                                                                                                                                   27.7 26.3              27.0
                                                                          05                                                                                                30
                                                                                                                                                                                          24.9             24.4                                27.0
                                                                                                                                                                             25                                         27.7 26.3
                                                                                                                                                                                         24.9             24.4
Revenue (EUR million)                                                     Revenue by operations 2018 (%)                                                                    20                                                            15.3
                                                                                                                                                                             15                                                          15.3
 1,200                                                                                                                                                                      10
                                                       959.7                                                                                                                  5                                                                           -19.8 -10.0
 1,000                                                                                                                                                                         0                                                                         -19.8 -10.0
                                     884.1                                                                                                                                    0
   800                                                                                                                                                                       -5
            684.4                                                                                                                                                           -10
                                                                                                                                   Operations in Finland (99%)             -10
                                                                                                                                   Business premises 1 (70%)                -15
                                                                                                                                   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)
                                                                                                                                                                            In order to improve comparability in the case of actual earnings, SRV has adopted the new
             2014          2015       2016    2017     2018                                                                                                           1
                                                                                                                                                                              order toofimprove   comparability
                                                                                                                                                                                          operative              in the
                                                                                                                                                                                                     operating profit  ascase
                                                                                                                                                                                                                          of 20ofJuly
                                                                                                                                                                                                                                  actual  earnings,
                                                                                                                                                                                                                                      2017.  It differsSRV  has
                                                                                                                                                                                                                                                         from theadopted  the newof
                                                                                                                                                                                                                                                                  IFRS definition
                                                                                                                                                                                         operative  operatingthe
                                                                                                                                                                                              by eliminating   profit as of 20 differences
                                                                                                                                                                                                                  calculated    July 2017. It in
                                                                                                                                                                                                                                               differs  fromexchange
                                                                                                                                                                                                                                                 currency    the IFRS definition
                                                                                                                                                                                                                                                                        rates andof
 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
                                                                                                                                                                            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
                                                                                                                                                                          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
             43.0                                                                                                        1,758.5
                           42.5                                                                                                                                                            937             1,008
                                      38.3                                                               1,583.4                   1,547.9                                1,000
                                              35.5                        1,500
                                                                          1,000                                                                                            600
   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%
                                                                              At the period-end.

SRV ANNUAL REVIEW 2018 / KEY FIGURES 2018                                                                                                                                                                                                                                        7
ANNUAL REVIEW 2018 - GlobeNewswire Offices

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
ANNUAL REVIEW 2018 - GlobeNewswire Offices
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                                                                                                                                                                                                         9

                                      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                                                                                                                                                                                                    10

               ‘‘ATTRACTIVE AND
                 EVOLVING CITY CENTRES
                 LIE AT THE HEART OF
                 SRV’S STRATEGY.”

SRV ANNUAL REVIEW 2018 / MEGATRENDS AND STRATEGY                                                                                    11


      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                                                                                                                                             12

                                                                                                                        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

             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                                                                                                                                                                                                                   13

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                                                                                                                                                          14

In 2018, the primary focus of our development efforts re-
mained on improving profitability and lightening the balance

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                                                                                                                      15

    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                                                                                                                                                                            16

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
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                                                                                                                                                                             17

    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
                                                                             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                                                                                                                                                                             18

FINANCIAL OBJECTIVES                                                               Financial objectives for the strategy period 2018–2022
2018–2022                                                                                                      TARGETS SET
                                                                                                                FOR 2022
                                                                                                                                       STATUS IN

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
 • 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.

SRV ANNUAL REVIEW 2018 / MEGATRENDS AND STRATEGY                                                                                                                                                                 19
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