Operational progress positive – headwind in real estate market resulting negative value growth for the Group

The year 2023 saw both positive and negative development for Pontos Group. The value of the total portfolio decreased due to negative changes in the real estate valuations. Despite the market headwind, we continued our progress on several fronts towards our long-term targets by achieving development milestones in our portfolio companies, developing our teamwork, increasing our strategic ESG focus points and further diversifying the investment portfolio.

We place high importance on individual well-being and great teamwork. In 2023, we focused on improving our feedback culture and growing as a team, as well as practicing our self-expression skills. We continued to build our team spirit with regular out-of-office activities, such as a trip to Ruka. Our eNPS was 50 in the end of the year.

Timo Kokkila
Pontos’ CEO Timo Kokkila

Continuing our long-term and active ownership despite the challenging market

The year 2023 was challenging, especially in the real estate market. Increased interest rates reduced real estate valuations with a delay, M&A activity continued to be very slow and several companies were challenged by the difficult financing market. New development activity was also very low. Pontos’ real estate investments performed due to our tenants’ good performance and strong cash flows. The increased yields also impacted the valuations of several of our real estate investments with significant impact on the value of our total portfolio, as we started the year with over 50% allocation in real estate.

Pontos continued to execute its long-term and active ownership. We continued the construction of Ombria Algarve, where the golf course and golf club were opened. The golf course has already received international recognition from both the players and other golf experts. Nature has been seamlessly integrated into the overall playing experience to provide both a challenge and a diverse setting. Ombria is engaging with the local stakeholders and local community to offer an authentic, Portuguese experience. The hotel will open during 2024. 85% of the branded residencies in the first phase have been sold.

In the Helsinki airport area, AVIA Real Estate continued the construction work on the biggest hotel in Finland towards the 2024 opening, and the roofing ceremony was celebrated in the fall. Construction of DHL’s primary sorting center in Finland was started. Special attention has been paid to sustainability, and the terminal will be built according to the criteria of the LEED Gold certificate at the minimum. The main space will have geothermal heating, and a solar power system will be installed on the roof, making the terminal almost entirely energy self-sufficient.

In Estonia, we sold one of our long-term holdings, flagship of Estonian retail Viru Keskus, to a long-term co-owner. The exit marks one of the key milestones in our long-term work on reducing our exposure in certain locations and assets and thus in diversifying the whole Pontos portfolio. In 2023, Viru Keskus completed the largest refurbishment in its history, renewing almost 90 percent of the center. During our ownership, Viru Keskus has evolved into a modern shopping and city center that has more than 13 million annual visitors, is fully leased and has seen two refurbishment processes. It is thus an excellent, over twenty-year, investment case for Pontos. Viru Hotel is still 100% owned by Pontos.

Many successes in our other investments

Despite the challenging market environment, SRV managed to bolster its order backlog, which stood at EUR 1,048.6 million at year-end, up 25 per cent year-on-year. SRV’s activities in the business premises segment compensated for the slow residential market, which had record low new construction activity. The company has placed a lot of attention on work safety, and the efforts resulted in receiving the first place in the prestigious work safety awards by Rakennusteollisuus ry.

In Valmet Automotive, the growth of the electric mobility related battery business continued: it has become the largest business line in the group, and in 2023 the company opened its first battery plant to Germany. Valmet Automotive has gained recognition on its sustainability efforts and can be considered one of the world’s leading industrial companies in climate strategy and sustainable development.

For R8 Technologies, the year was a continuum of the company’s growth and its clients’ success. During the year, R8 saved its customers 10 million euros in energy costs. The company’s property portfolio is already 3.5 million square meters, and operations span 20 countries across Europe. In its funding round, the company attracted new international investors and partners, including technology giant Panasonic Corporation. Panasonic’s Kurashi Visionary Fund has invested in four technology companies, of which R8 is the first European investment.

Pontos also continued its private equity fund program. Since 2016, we have committed capital annually to the private equity funds managed by globally recognized fund managers. This has increased the geographical and industrial diversification in our portfolio. The program has grown to represent a significant allocation of over 15%.

Focusing on our long-term plans in 2024

Market conditions have improved, and interest rates are expected to decrease in the second half of the year, as the inflation seems to be in better control. Step by step, this also should support the real estate sector, though the recovery might take some time. The geopolitical risks are high and can cause volatility during 2024. At Pontos, we will continue to focus on the issues we can influence and are looking forward to taking the next steps in our long-term plans, regardless of what this year will bring.

We value our stakeholders greatly, and in the beginning of 2024, we launched a stakeholder survey, which indicated that Pontos is a highly trusted, responsible, professional and visionary actor and long-term owner in its industry.

Last year was challenging, but a lot of good groundwork was done to enable strong results in the years to come. As always, there are many things where we can and have to improve, but also several positive achievements to celebrate. The work continues.

Thank you to all our partners for open and professional co-operation.
Timo Kokkila

Pontos' annual and sustainability review 2023: highlights from the Group and our portfolio

We focused on long-term ownership and saw several successes in the portfolio

Annual Review 2023

We continued our commitment to sustainable value creation

SustaInability Review 2023