Summary of January-June 2015 (comparison period 1 Jan.-30 June 2014)
- Turnover totalled EUR 183.1 (177.2) million. This growth was generated by increased profit from rental operations.
- Profit before taxes amounted to EUR 124.4 (65.4) million and is is based on changes in the fair value of investment properties, a good financial occupancy rate, the successful management of maintenance costs and and low financial costs.
- Net rental income was EUR 113.2 (107.2) million, representing 61.8 (60.5) per cent of turnover.
- The financial occupancy rate remained high, standing at 97.4 (98.2) per cent.
- Tenant turnover stayed at the same level as in the comparison period, that is, 13.7 (13.5) per cent.
- There were 1,385 (919) rental apartments under construction at the end of the review period.
- The Group owned 40,674 (40,462) rental apartments on 30 June 2015.
- The fair value of investment properties was EUR 3.9 (3.6) billion. Their fair value amounted to EUR 3.7 billion at the end of 2014. The change in fair value totalled EUR 156.6 (81.3) million, which includes EUR 47.2 (-2.9) million in net valuation gain on the fair value assessment.
- The Group´s gross investments during the period totalled EUR 115.0 (101.7) million.
Summary of April-June 2015 (comparison period 1 Apr.-30 June 2014)
- Turnover totalled EUR 92.3 (89.1) million. This growth was generated by increased profit from rental operations.
- Profit before taxes amounted to EUR 64.1 (29.7) million and is based on changes in the fair value of investment properties, a good financial occupancy rate, the successful management of maintenance costs and and low financial costs. The profit includes EUR 21.2 (-6.8) million in net valuation gains on the fair value assessment.
- Net rental income was EUR 57.8 (55.3) million, representing 62.7 (62.0) per cent of turnover.
- The financial occupancy rate remained high, standing at 97.4 (98.1) per cent.
- The Group´s gross investments during the period totalled EUR 61.8 (69.4) million.
Since 1 January 2015 VVO Group prepares its consolidated financial statements, including the Interim Reports, in accordance with International Financial Reporting Standards (IFRSs).
CEO´s review
VVO Group´s turnover and profit performance as well as the development of net rental income remained good during the review period. We are continuing to make investments and are increasing the number of apartments we can offer in Finland´s growth centres. Our goal is to start the construction of a minimum of 1,000 new apartments each year and to increase the number of apartments by acquiring old housing stock, too. During the review period, the Group invested EUR 115.0 million in new development, in acquiring old housing stock and in renovation.
Outlook for 2015
Market outlook
Uncertainty in the Finnish economy persists. The outlook for employment remains weak. The general economic outlook has improved slightly from the first months of the year but any significant turn for better is still not expected.
The European Central Bank´s decision in early 2015 to purchase EUR 60 billion in securities per month is supporting the euro zone´s economy. As a result of the ECB´s policy, general interest rates are forecast to remain low; however, there are increasing expectations that short-term interest rates will rise in the next few years.
Demand for rental housing is expected to remain at the current good level. No considerable changes are expected in the overall supply of rental apartments. New development will continue to focus on privately financed rental apartments. Due to the general market situation, construction firms are actively offering sites for rental housing.
Continuing urbanisation can be seen in the growing number of apartment blocks being built in major growth centres. Price trends in owner-occupied apartments are expected to continue along the same lines as in 2014. A slight rise is expected in the prices of small, centrally located apartments, while the prices of large apartments on the outskirts may fall slightly.
New start-ups by construction firms are at a low level. The volume of renovation construction will continue to rise.
Outlook for VVO Group
VVO Group´s financial occupancy rate is expected to remain at a good level through-out the financial year due to continuing stable demand for rental apartments. Investments will continue. A total of 736 Lumo apartments will be completed during the rest of the year. Net rental income is expected to increase.
Operating environment
General operating environment
Slow improvements were being seen in the European economy during the review period. Growth in the US economy, a fall in the price of oil, and reflationary fiscal policies supported favourable developments in the world economy. The European Central Bank continued purchasing securities in the second quarter. The ECB expects that economic growth in Europe will pick up this year.
In Finland, economic development continued to be subdued. Positive phenomena included the strengthening of consumer confidence, the picking up of retail trade and the growth of exports. Nevertheless, recovery in industry was still weak. This was seen in, for example, demand for
owner-occupied apartments and construction investments.
During the second quarter, the prices of old apartments in apartment blocks and row houses rose somewhat throughout the country. In the Helsinki Metropolitan Area, prices fell slightly where as in other parts of Finland they rose slightly. Compared to the corresponding period last year, prices fell throughout the country.
In the financial market, fluctuations could be witnessed towards the end of April. The euro strengthened against the US dollar and long-term interest rates rose after a long downward trend.
Industry operating environment
Demand for rental apartments remained at a good level. Business was good for small rental apartments and newly constructed locations, particularly in growth centres. There was still clear demand for new homes in the Helsinki Metropolitan Area.
New construction clearly focused on privately financed rental apartments. There were no noticeable changes in the price level of either new construction or renovations. The market situation for the construction of owner-occupied apartments enabled better-than-average implementation of negotiated contracts for rental housing development.
The slowness of the zoning process and a lack of suitable plots, particularly in the Helsinki Metropolitan Area, made it harder to launch the construction of new rental apartments.
Business operations
VVO Group Plc is Finland´s largest real estate investor and largest market-based, private-sector landlord, offering versatile and effortless rental solutions coupled with an extensive range of housing services.
At the end of the review period, the fair value of VVO´s investment properties was EUR 3.9 (3.6) billion. The VVO Group owns 40,674 (40,462) apartments, of which 26,745 (26,349) are Lumo apartments (market-based rent) and 13,929 (14,113) VVO apartments (cost principle rent).
The rental housing business is characterised by stability and predictability, which provide a good foundation for development. The nature of our business, our solid financial position, and our good financial performance enable us to make investments in different kinds of economic situations.
VVO has been engaged in administrative litigation to overturn the designation of VVO Vuokra-asunnot Oy as a non-profit company, and the Supreme Administrative Court has now resolved the case in VVO Group´s favour. The case was returned to the Housing Finance and Development Centre of Finland (ARA) for reconsideration early this year. On VVO´s application, ARA cancelled VVO Vuokra- asunnot Oy´s non-profit status.
Segment reporting
VVO Group´s business operations are divided into two segments: VVO Non-subsidised and VVO State-subsidised. The basis for the segment division is the profit distribution restriction defined by the Act on State-Subsidised Housing Loans (ARAVA Act).
The VVO Non-subsidised segment contains the Group´s parent company VVO Group plc and the group companies VVO Kodit Oy, VVO Vuokra-asunnot Oy, VVO Vuokratalot Oy and VVO Palvelut Oy as well as those other group companies in whose apartments the restrictions on the determination of rent, related to the ARAVA and interest subsidy legislation, will end by the end of 2017. Some of VVO Vuokratalot Oy´s housing is subject to property-specific restrictions in accordance with the ARAVA Act.
The group companies in whose apartments the restrictions on the determination of rent, related to the ARAVA and interest subsidy legislation, will end after 2017 belong to the VVO State-subsidised segment. The companies of the VVO State-subsidised segment are subject to the profit distribution restriction, and they can pay their owner an eight per cent return on own funds invested in them that have been confirmed by the Housing Finance and Development Centre of Finland (ARA). The return payable from the annual profits of companies within the VVO State-subsidised segment totals approximately EUR 3 million. Some of the housing in the VVO State-subsidised segment is not subject to property-specific restrictions in accordance with the ARAVA Act.
Result and profitability
The Group´s net rental income totalled EUR 113.2 (107.2) million, representing 61.8 (60.5) per cent of turnover. The VVO Non-subsidised segment recorded a net rental income of EUR 59.5 (55.9) million, and the VVO State-subsidised segment EUR 55.0 (52.6) million.
The Group´s profit before taxes amounted to EUR 124.4 (65.4) million. The result includes a EUR 47.2 (-2.9) million change in the fair value of investment properties, and capital gains and losses of EUR 1.4 (0.9) million. Our favourable profit performance is based on a good financial occupancy rate, the successful management of maintenance costs, low financial costs, and changes in the fair value of investment properties. Financial income and expenses totalled EUR -17.2 (-22.7) million.
Turnover
VVO Group had a turnover of EUR 183.1 (177.2) million for the period 1 January-30 June 2015.
The VVO Non-subsidised segment recorded a turnover of EUR 91.2 (87.4) million, and the VVO State-subsidised segment EUR 94.1 (92.2) million. Turnover is entirely generated by rental income.
Balance sheet, cash flow and financing
At the end of the review period, the Group´s balance sheet total was EUR 4,072.9 (3,866.5) million. Equity totalled EUR 1,662.0 (1,523.7) million. The equity ratio stood at 40.9 (39.5) per cent. Equity per share was EUR 224.44 (205.77). The VVO Non-subsidised segment´s equity ratio stood at 45.6 (46.0) per cent. The Group´s return on equity was 12.1 (6.4) per cent and its return on investment 8.5 (5.4) per cent.
At the end of the review period, the Group´s liquid assets totalled EUR 87.8 (134.0) million. The Group maintained good liquidity throughout the period. EUR 99.8 (59.4) million of the EUR 200 million commercial paper programme had been issued by the end of the review period.
At period end, interest-bearing liabilities stood at EUR 1,887.0 (1,840.8) million, of which EUR 927.3 (838.1) million was accounted for by market-based loans. At the end of the review period, Group´s loan to value was 48.4 (50.8) per cent.
The average interest rate of VVO´s loan portfolio was 2.3 (2.6) per cent, and the average maturity of its loans was 14.1 (15.5) years at period end.
Real estate property and fair value
VVO Group owned a total of 40,674 (40,462) rental apartments at period end. The VVO Non-subsidised segment accounted for 19,933 (19,736) of these homes and the VVO State-subsidised segment for 20,741 (20,726). At the end of the review period, VVO owned apartments in 42 (42) municipalities.
At the end of the review period, the fair value of VVO´s investment properties stood at EUR 3.9 (3.6) billion, with an increase in fair value of EUR 156.6 (81.3) million during the period. The change includes EUR 47.2 million in net valuation gains on the fair value assessment of investment properties. The fair value of the Group´s investment properties is determined quarterly on the basis of the company´s own evaluation. An external expert gives a statement on the valuation of VVO´s investment properties. The last valuation statement was issued on the situation as at 30 June 2015. The criteria for determining fair value are presented in the Notes to the Interim Report.
At period end, the plot reserve held by the Group totalled about 110,000
floor sq m (110,000 floor sq m) and its fair value was approximately EUR 44.2 (34.4) million.
Rental housing
Demand for rental housing remained high in all municipalities where VVO Group has a presence. As in previous years, the strongest demand centred on smaller apartments, that is, studios and one-bedroom apartments.
The financial occupancy rate remained at a good level, standing at 97.4 (98.2) per cent for the review period. At the end of the review period, 568 (394) apartments were vacant due to renovations. The tenant turnover rate, which includes internal transfers, remained at the same level as in the corresponding period of the financial year 2014, that is, 13.7 (13.5) per cent.
The average rent for the Group´s 26,745 (26,349) market-based rental apartments (Lumo) was 13.69 (13.05) per sq m per month during the review period, and EUR 13.87 (13.21) at period end. The corresponding figures for the 13,929 (14,113) apartments rented at cost price (VVO) was EUR 12.68 (12.34) during the review period and EUR 12.78 (12.41) at period end.
Demand for rental housing remained high. At the end of the review period, there were 16,199 (20,881) active applications. (Applications are active for three months.) The average number of active applications per rental agreement termination was 18.6 (22.3). A total of 30,868 (35,695) new rental housing applications were received during the review period.
The average period of tenancy remained at an excellent level, 5.9 (5.9) years. Thanks to successful rental control and our housing advisory service, the proportion of annual turnover from rental operations accounted for by rent receivables remained low and stood at 1.2 (1.2) per cent at the end of the review period.
VVO Group is continuously developing its electronic service offering in order to make services as convenient as possible. People living in Lumo and VVO apartments have an extensive range of electronic services available to them. The latest development gave residents around Finland the opportunity to book and rent parking spaces easily in a new online service.
During the review period, VVO Group´s housing advisory service was expanded to the entire country.
Investments, divestments and real estate development
VVO Group launched construction of 258 (242) apartments during the review period. There were a total of 1,385 (919) apartments under construction at the end of the period – 1,385 (858) privately financed apartments and 0 (61) state-subsidised apartments. Of the apartments under construction, 912 (759) are located in the Helsinki region and 473 (160) in other Finnish growth centres.
During the review period, VVO Group acquired 40 (74) apartments in Espoo and sold 159 (156) apartments. 0 (343) new apartments were completed during the period. An estimated 736 (749) apartments are scheduled for completion by the end of the year.
The Group´s gross investments totalled EUR 115.0 (101.7) million. EUR 19.9 (12.2) million of these investments were capitalised renovation costs. The VVO Non-subsidised segment accounted for EUR 110.6 (93.0) million of gross investments, and the VVO State-subsidised segment for EUR 4.4 (8.9) million.
Repair costs totalled EUR 40.4 (32.9) million, of which EUR 20.5 (20.7) million was recognised as expenses in the income statement.
At period end, there were binding acquisition agreements worth a total of 238.5 (118.2) million.
During the review period, properties´ temperature-corrected consumption of heating energy was 383,753 (383,646) MWh.
Personnel
At the end of the review period, the VVO Group had a total of 393 (366) employees. The average number of personnel during the period was 360 (335).
The Group was recognised as one of the most inspiring places to work (Suomen innostavimmat työpaikat 2015) in the personnel survey conducted in the autumn 2014. This recognition was only awarded to approximately six per cent of the hundreds and hundreds of Finnish companies that conducted the People Power® personnel survey.
Management and administration
VVO Group plc´s CFO Erik Hjelt, Master of Laws, eMBA (53) started in his new position on 18 May 2015. Erik Hjelt also acts as the deputy CEO.
There were no other changes in the composition of the Board of Directors or the Management Group.
Responsibility
VVO Group Plc´s operations are based on the provision of a diverse range of safe, high-quality rental housing. VVO Group seeks to participate in debate on Finnish housing policy to improve the standing of rental housing.
The anti-grey economy models used by the company exceed legislative requirements in many respects. We continuously monitor the fulfilment of contractor obligations for all of the companies in our supplier network through the Reliable Partner service at the tilaajavastuu.fi website.
During the second quarter, VVO Group and Lassila & Tikanoja signed an agreement that defines and specifies the responsible sourcing operating model adhered to in the cooperation between the companies. Taking the Contractor´s Obligations Act into account in the cooperation agreement means that the party ordering a service must review and ensure that, when using external labour, the contractual partner fulfils its statutory obligations. The Group signed a similar agreement with ISS in December 2014.
VVO Group will continue its climate partnership agreement with the City of Helsinki. The Group has also committed to following the Rental Property Action Plan (VAETS), which has set a 2016 heating energy savings target of seven per cent compared to 2009. The Rental Property Action Plan (VAETS) savings targets for 2016 have already been achieved and, with regard to property electricity consumption, have even been exceeded.
Under the Virkeä programme, sponsorships were awarded to 30 promising athletes in the application round of the spring 2015. The sponsorship grant may be awarded to a young athlete of 12-20 years of age who has shown commitment and desire to succeed in his/her sport. A total of 205 grants have been awarded since 2012. In 2015, the Virkeä athletes are Lassi Etelätalo (athletics), Henry Manni (wheelchair racing), Nooralotta Neziri (athletics), Venla Paunonen (athletics), Tommi Pulli (speed skating), Mimosa Jallow (swimming) and Jenni Saarinen (figure skating).
VVO Group´s Annual Report was awarded the prize for the best annual report in 2014 in the unlisted companies´ category of Procom´s annual report competition.
Near-term risks and uncertainties
Thus far, the Finnish economy has not recovered, which is reflected in both the housing and financial markets.
The prolonged rise in owner-occupied apartment prices has now halted at the country level. A potential fall in house prices could have an impact on the fair value of real estate property.
The situation with regard to financial risks has not substantially changed from that described in the 2014 Financial Statements. The financial risks resulting from uncertainty in the money market are mainly associated with increasing market interest rates and interest margins, and the availability of financing. Strong fluctuations in these areas may slow investments in new development and renovation. Interest rate risks are managed by keeping the percentage of fixed-rate market-based loans at around the 80 per cent mark in accordance with the Group´s financing policy.
A more detailed description of risks and uncertainties can be found in the financial statements and on our website, vvo.fi/en.
Interim report 1-6/2015
Interim report 1-6/2015 info (PDF)
Contact:
CEO Jani Nieminen, VVO Group Plc, tel. +358 50 373 4847, jani.nieminen(at)vvo.fi
CFO Erik Hjelt, VVO Group Plc, tel. +358 400 472 313, erik.hjelt(at)vvo.fi
VVO-yhtymä Oyj tarjoaa Lumo- ja VVO-brändeillä turvallista, monipuolista ja vaivatonta vuokra-asumista sekä asumisen palveluiden valikoiman erilaisiin elämäntilanteisiin. Seuraavan kolmen vuoden aikana VVO-konsernin tavoite on investoida voimakkaasti asuntotarjonnan kasvuun rakennuttamalla uutta ja ostamalla jo olemassa olevaa kiinteistökantaa.