Consti Group Plc Interim Report for January – September 2019

CONSTI GROUP PLC INTERIM REPORT 25 OCTOBER 2019, at 8.30 a.m.

Consti Group Plc Interim Report for January – September 2019                                     

NET SALES GREW, PROFITABILITY IMPROVED

7–9/2019 highlights (comparison figures in parenthesis 7–9/2018):

·Net sales EUR 81.8 (78.9) million; growth 3.7%

·EBITDA EUR 3.0 (-1.0) million and EBITDA margin 3.6% (-1.3%)

·Operating profit/loss (EBIT) EUR 2.1 (-1.4) million and EBIT margin 2.6% (-1.8%)

·Order backlog EUR 206.4 (270.1) million; change -23.6 %

·Free cash flow EUR -0.4 (-3.5) million

·Earnings per share EUR 0.17 (-0.17)

1–9/2019 highlights (comparison figures in parenthesis 1–9/2018):

·Net sales EUR 236.5 (219.0) million; growth 8.0%

·EBITDA EUR 4.5 (1.3) million and EBITDA margin 1.9% (0.6%)

·Operating profit (EBIT) EUR 1.8 (0.0) million and EBIT margin 0.8% (0.0%)

·Free cash flow EUR -1.1 (-9.1) million

·Earnings per share EUR 0.06 (-0.05)

                               

Guidance on the Group outlook for 2019:

The Company estimates that its operating result for 2019 will improve compared to 2018.

CEO Esa Korkeela’s comment

”Our net sales for the third quarter of 2019 grew 3.7 percent from the comparison year and amounted to 81.8 million euro. The growth rate of our net sales has levelled off compared to the beginning of the year. In July-September, net sales development was still supported by sustained high volumes of large comprehensive renovation projects.

Our operating result continued to improve compared to previous quarters and was clearly better than in the comparison period. In July-September our operating result was 2.1 (-1.4) million euro, which is 2.6 (-1.8) percent of our net sales. Our profitability development was mainly positive during the third quarter. Although the old projects of already discontinued housing repair unit continued to have a negative impact on operating result, as anticipated, the impact was clearly smaller than at the beginning of the year. All of our business areas were profitable in the third quarter.

Our order backlog at the end of September was 206.4 million euro. Our order backlog decreased 8.3 percent in comparison to our order backlog at the end of the previous year, and it was 23.6 percent smaller than that of the comparison period. During July-September we received new orders amounting to 37.0 million euro, which is a 5.7 percent decrease to the comparison period. Our order intake and order backlog development reflects the new, more disciplined bidding procedures that we took into use in our entire Group last year, and ongoing large comprehensive renovation projects, which tie up resources.

During the reporting period, we continued implementing our turnaround programme to improve Consti’s profitability and competitiveness. The main goals we aspire to achieve with the programme – improved customer orientation, moving business leadership closer to production at our worksites, and improved risk management and agility – are already visible. With these actions we have systematically built a stronger foundation for developing and growing our business. We will continue our work to realize our turnaround programme also in the last quarter of the year. We are also advancing as planned in achieving the programme’s cost savings goals. Due to the actions we have taken to improve profitability and performance, our fixed costs for the reporting period are lower than that of the comparison period.

The market environment remained moderate for renovations and technical building services during the third quarter. The predicted deceleration of new construction has not, in our opinion, reflected on renovation markets thus far. We believe that demand for renovations and technical building services will remain at a moderate level for the rest of the year in Consti’s market areas.”

Operating environment and outlook for the 2019

Professional renovation construction has grown in Finland steadily for nearly 20 years, and at its best its value has surpassed that of new construction. Due to the age of our building stock, growth in renovation construction has been rapid in comparison to the rest of Europe. The value of renovation construction was approximately 13.0 billion euro in building construction during 2018.

In its October report, the Confederation of Finnish Construction Industries RT estimates that in 2019, building construction will decrease approximately 0.6 percent from the previous year. The change is due to the estimated deceleration of new construction of apartment buildings. In its forecast, the Confederation of Finnish Construction Industries RT estimates that new construction will decrease approximately 2.5 percent in 2019, while renovations will increase about 1.5 percent from the previous year. In 2020 the drop in new construction is estimated to accelerate to 10.2 percent, while renovations will continue growing at a rate of 1.5 percent. Larger cities and growth areas will be even more significant focal points for new construction. RT affirms that renovations will have an increasingly significant role as new construction decreases. Residential buildings in growth areas are expected to be a focal point for renovations as well.

The latest statistics on new construction permissions and commenced projects indicate that construction will slow down after a long period of growth, as economic growth calms down. If new construction volumes do decline, it is expected to have a two-fold impact on renovation construction markets. As pressure eases in the construction value chain, the availability of resources will improve and quality is projected to increase, but on the other hand, competition for large-scale renovation projects in particular is estimated to increase.

The Finnish Association of HPAC Technical Contractors’ October review indicates that the most rapid phase of construction growth is now over, and HPAC contractors expect a moderate drop back to normal levels. As new construction is declining, the focus is shifting from new construction to renovations. In particular, the number of pipeline renovations is expected to increase. In the 2020s as many as 30 000 apartments are expected to need pipeline renovations annually.

Residential building renovations make up over half of all renovations, mainly due to the age of the building stock. At present, renovations are being conducted predominantly on buildings from the 1960s and 1970s. Next, renovations will start on the considerably larger building stock of buildings from the late 1970s and the 1980s. Nearly half of the residential buildings constructed in the 1970s and 1980s were apartment buildings. According to statistics published by Statistics Finland in June 2019, about 2.2 billion euro was spent on apartment building renovations in 2018. The bulk of this amount – a total of 1.7 billion euro – was spent on renovations ordered by housing companies. According to a survey that Statistics Finland conducted alongside these statistics, housing companies estimate that their largest renovations will mainly be pipeline, facade, roof and yard renovations during the next 10 years. The survey indicated an annual growth in planned renovations of approximately 1.5-2 percent during the next 10 years.

The general economic climate does not impact renovations nearly as much as it does new construction. The majority of respondents in Finnish Real Estate Federation’s renovation barometer published in May 2019 said that the current general economic climate does not have an impact on the realisation of renovation projects.

Demand for renovations, technical building services and building technology maintenance services is sustained by the ageing building stock, stricter energy efficiency requirements, urbanisation, the need to adapt buildings to new uses, the development of building automation, and the ageing population’s need for accessible buildings. Climate change is also increasing the demand for facade renovations and facade maintenance in particular.

The company estimates that its operating result for 2019 will improve compared to 2018.

Press conference

A press conference for analysts, portfolio managers, and media will be arranged 25 October 2019 at 10:00 at Hotel Lilla Roberts at Pieni Roobertinkatu 1-3, Helsinki. The conference is hosted by CEO Esa Korkeela and CFO Joni Sorsanen.

Financial communication in 2020

Consti Group Plc’s Financial Statements for 2019 will be published 7 February 2020.

The electronic version of the annual report, which includes the full financial statements for 2019, will be published in week 11/2020.

Consti Group Plc’s Annual General Meeting for 2020 is scheduled to take place on Monday, 6 April 2020 in Helsinki.

Consti Group Plc shall publish three interim reports during 2020:

• Interim report 1-3/2020 published 29 April 2020
• Half-year financial report 1-6/2020 published 24 July 2020
• Interim report 1-9/2020 published 28 October 2020

CONSTI GROUP PLC

Further information:

Esa Korkeela, CEO, Consti Group Plc, Tel. 8

Joni Sorsanen, CFO, Consti Group Plc, Tel. +358 50 443 3045

Distribution:

Nasdaq Helsinki Ltd.

Major media

Consti is a leading Finnish company concentrating on renovation and technical services. Consti offers comprehensive renovation and building technology services to housing companies, corporations, investors and the public sector in Finland’s growth centres. Company has four business areas: Housing Companies, Corporations, Public Sector and Building Technology. In 2018, Consti Group’s net sales amounted to 316 million euro. It employs over 1000 professionals in renovation construction and building technology.

Consti Group Plc is listed on Nasdaq Helsinki. The trading code is CONSTI.

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