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Review by the President and CEO

Kari Kauniskangas in connection with the Financial Statements Bulletin 2016

The year 2016 was a turning point for us. The start of the year saw the weakest quarter of the previous cycle and, near the end of the year, we achieved the target of the capital release programme set out in our strategy in 2013, albeit to a certain extent at the expense of profitability. In September, we announced our renewed strategy for the next three-year period, which also marked a shift in our focus from cash flow and the capital release actions to growth while continuing to improve profitability. We will further continue enhancing the capital efficiency as a part of normal business by utilizing partnership models, releasing capital from Russia and improving the capital turnover. Our order backlog in Finland and the CEE countries grew to an excellent level during the year, which creates a strong foundation for the new year. We started and won several large projects in 2016, with one of the most significant being the Tampere light rail contract signed in November, for which we recorded approximately EUR 110 million in our order backlog. Our profitability is trending in the right direction in all of our business segments, and the final quarter of the year was already quite promising.

In the Business Premises and Infrastructure segment, revenue grew by almost 30% last year, while the operating profit nearly doubled. We secured the financing and sale of the Mall of Tripla in 2016. The development of the shopping mall's occupancy rate has exceeded our expectations. Towards the end of the year, we also signed a letter of intent on the implementation of the hotel that is part of the project. The large-scale projects are progressing on schedule and on budget. We also won several new significant projects in the last quarter of the year.

In October–December, strong market demand and our demand-matched product offering were reflected in residential sales to consumers. The profitability of the Housing Finland and CEE segment improved, with the operating profit margin rising to 8.7%. Our goal in the segment is to further improve profitability by increasing consumer sales and the offering of affordable apartments in growth centres. Last year in Finland, nearly 70% of our residential start-ups and approximately 60% of our residential sales were directly to consumers. This represents a significant change from the previous year and it is an important factor in enabling future growth and increasing profitability.

The Housing Russia segment's operating profit was positive in the fourth quarter thanks to strong residential sales. The stronger ruble supported our indicators towards the end of the year. During the year, the restructuring programme in Russia was completed. Late in the year, we achieved a lower level of production volume, as planned, and we will continue to release capital from Russia by further improving capital turnover to finance growth in other markets.

I thank our customers for the trust and co-operation, as well as our own personnel and partners for commitment and enthusiastic work to achieve our targets.