CEO ILIJA BATLJAN
“Cash is king” also applies during a pandemic – Cash flow from operating activities increased by SEK 347m, corresponding to 358 percent
SBB has a very strong financial position with just over SEK 50bn in unencumbered assets, strong banking relationships and access to the European credit market, which the company clearly demonstrated by being able to issue a 20 year bond in the middle of the crisis. SBB had cash of SEK 3.8 billion at the end of the quarter. On top of this it can be added that SBB repaid 10 billion of its bank loans and made large repayments of bonds during the quarter. At the end of the first quarter, total bond maturities for the next 12 months amounted to SEK 282m, of which SEK 65m was repaid on the 6th of April 2020. Access to capital is important, but it is even more important to deliver strong cash flows from operations. Cash flow from operating activities before changes in working capital increased by 358 percent to SEK 444m (97) for the quarter. Adjusted for non-recurring effects for the buyback of expensive loans and restructuring costs, cash flow landed at SEK 591m (122).
Honouring signed agreements, working hard and contributing to your community is sustainability even during a pandemic
SBB is today the largest in the Nordics and one of Europe’s largest owners of social infrastructure. SBB’s scalable platform is staffed with some of the Nordic region’s most experienced employees in the leading positions. Our experienced team works hard to help keep society going. We continue to invest and we have not had to use any support programs from government, but fulfill all our commitments as regards our suppliers, consultants, entrepreneurs, lenders, salaries to our employees and dividends to our shareholders. SBB always honours its agreements and we try to help both by ensuring that the social infrastructure works despite the current circumstances but also by providing deferral of payments s and rental discounts to our tenants with a long-term endurance.
So far, we have granted a deferred or changed payment period corresponding to SEK 12m and discounts corresponding to SEK 1m. Our employees and we as a company also contribute to various initiatives for those working in the health care sector and for our elderly and vulnerable. This is sustainability for real.
We will be 100 percent climate neutral by 2030 and our investments within energy efficiency improvements show that this is possible. Investments in our green bond framework already show significant reductions in energy consumption and carbon dioxide emissions.
Profit after tax amounted to SEK 1.4 billion, an increase of 535 percent
Profit before tax amounted to SEK 1,695m and profit after tax was SEK 1,372m. Adjusted for non-recurring effects for the buyback of expensive loans and deductions for profit attributable to preference shares, D shares and hybrid bonds, earnings for the year were SEK 1.06 per ordinary A and B share.
Net operating income has increased by 273 percent
Profit from property management, adjusted for non-recurring expenses, increased by 295 percent to SEK 596m (151) compared to Q1 2019. The one-off costs include, other than costs for the prepayment of loans, restructuring costs and unrealized currency effects. The strong increase in operating net is the main explanation for the strong increase in profit from profit management.
We see continued strong demand for residentials and community service properties. SBB’s building rights portfolio of just over 1,800,000 sq.m. BTA corresponds to approximately 25,000 apartments, which makes SBB one of the Nordic region’s leading property developers. Due to the fact that SBB has a very strong balance sheet, the company can choose to develop for its own management and is not dependent on the business cycle to any significant extent. We also see that the model of using building rights for our own future cash flows, where we have now strengthened the organization with a strong team accustomed to working with standardization in enterprise construction and in collaboration with contractors who take the construction risk, leads to significant value creation. Examples of cash flows coming in over the next two years:
- Conversion and extension of Nykvarn’s City Hall (new 25-year lease)
- New Culture Centre for the Municipality of Skellefteå (new 50-year lease)
- New offices for the Social Services in Västerås (new 15-year lease)
- Conversion of premises for a school in Haninge and an elderly care home for the Municipality of Haninge (one 23-year lease and 20-year lease)
- Six new group housing units for people with disability in collaboration with Emrahus and four special group housing units built for own management (on average, 15-year leases)
BBB+ rating focus for the next 12 months
We are focusing on achieving a BBB + rating over the next 12 months, which is a prerequisite for strong growth. In the long term, the goal is to achieve an A- rating. This is supported by the high quality of our assets and the fact that we have the same secure publicly funded cash flows as our peers in the public rating category.
We continue to strengthen equity and the interest coverage ratio has been rising rapidly from 2.0 in the first quarter 2019 to 2.8 today. Based on our earning capacity on a 12-month rolling basis, the interest coverage ratio is 4.7 times. We have an average interest rate of 1.52 percent (2.52 percent), which is one percentage point lower than Q1 2019. At the end of the quarter, our net debt pro forma amounted to, adjusted for planned sales and earnings for the year, through total capital according to S&P’s definition, to 54 percent.
SBB’s safe cash flows are only marginally affected by economic cycles and external shocks. This is also evident in one of the biggest challenges our economy has faced in modern times. We continue to see that, in line with Q1 earnings and earning capacity, we deliver a strong earnings capability of SEK 3.28 per share. In addition to this, we also see good conditions for scaling up our organic growth by our building rights delivering cash flow properties with long tenant agreementsfor our own property management. We have previously communicated that we believe we will, for the years 2019-2021, be able to deliver the highest annual increase in net asset value among all Swedish listed property companies. The strong organic growth we see through newly signed leases contributes to this despite the development of the Norwegian krona.
SBB is now the leading real estate company in the Nordic region with a focus on social infrastructure and our overall assessment is that we have the best conditions to continue to develop our position. The crises come and go and one should be humble before this, but our job is to be a reliable and long-term social participant who in a sustainable way delivers shareholder value, good profitability and strong results.
CEO and Founder
”Cash is king also applies during a pandemic.”
About Ilija Batljan
Ilija Batljan is the founder and CEO of SBB. He came to Sweden with his wife and daughter in 1993 as a result of the war in the former Yugoslavia. He was previously a deputy commisioner for Stockholm County Council and Mayor/Chairman of Nynäshamn municipal executive board, representing the Social Democrats. Following his political career, he entered the property industry and was deputy CEO of Rikshem AB for over four years. Ilija Batljan has a BA in Economics and a PhD from Stockholm University in demography and planning care of the elderly. Ilija Batljan has long and extensive experience from different management positions, from Sweden and internationaly.