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Chief Executive Officer´s review

VVO´s year of many successes

For VVO, 2012 was an excellent year in a number of areas. Even though the general economic conditions remained challenging, our indicators showed positive development from the previous year. The VVO Group posted a turnover of EUR 335.4 million and an operating profit of EUR 120.4 million, with profit before taxes totalling EUR 70.3 million.

VVO has been successful in anticipating the changes in its operating environment, and developing its operations. Our strong financial position and good profit performance have enabled a focus on investment, even though the property sector has not remained unaffected by the turbulent financial markets and increased bank regulations.

VVO´s strong profit performance is attributable to an increase in rental income, improvements in cost efficiency, and a low turnover rate of tenants. VVO boasts a competent workforce, which has been successful in preventing a rise in maintenance costs, improving energy efficiency, enhancing customer satisfaction, and streamlining procurement and rental functions. In VVO Non-subsidised business, improved performance was also attributable to low interest costs.

Insisting on a wide range of housing solutions

VVO is Finland´s largest private landlord with 40,000 privately financed and state-subsidised rental homes. VVO´s housing stock is divided into two product groups: market-based and cost-price rental housing, in line with the regulations governing our operations.

VVO is further increasing its extensive and national housing offering in locations where demand will remain high also in the future. We can offer housing solutions to our customers in the different life situations they face throughout their lives. Consequently, one in five moves making up VVO´s overall tenant turnover takes place within the company.

A broad housing offering is important both for the general rental market situation and the development of rental housing. The Helsinki Metropolitan Area in particular is driving the need to increase rental housing production, and to offer a range of options to meet different requirements, both through privately financed and state-subsidised production. However, revitalisation of state-subsidised production would require a housing legislation reform with regard to lending. Sufficient supply can support the conditions for industry and commerce while maintaining a level of housing costs that is reasonable in relation to the residents´ financial standing.

Continuing on the right track by all indicators

The results of the 2012 reputation survey by Innolink Research Oy provide one example of our successes. The survey showed that VVO´s image is the best among Finnish landlords.

According the the customer satisfaction survey, held in late 2012, satisfaction among VVO´s own customers had again improved. Up to 92 per cent of our residents had recommended or would be willing to recommend VVO as a landlord. Our investments in the quality assurance of building maintenance have been particularly successful in improving resident satisfaction. These results provide us with a solid foundation for the continued development of our operations.

One of VVO´s strengths is the long-term and close cooperation with our residents. In 2012, we engaged social media in our resident cooperation by launching a closed Facebook group for our resident representatives.

Satisfaction of VVO´s employees has also continued to improve, and the results of our 2012 survey noticeably outperformed those of our control group.

Steering our operations with a clear vision

VVO revised its strategic priorities during the spring of 2012. Our mission is to provide our customers with safer and better rental housing. Our vision is that by 2020 we will be the most significant and valued housing services company in Finland. Following employee consultation, our vision has been crystallised in four targets: VVO offers a wide variety of supply; living in rented accommodation is safe; VVO is easy and effortless to approach, and VVO follows good practices in all its operations.

Our goal is also to provide our stakeholders with an even clearer picture of VVO´s operations. For approximately 60 per cent of VVO´s rental homes the rent can be freely determined, while the rent is cost-priced for 40 per cent of the housing. In our operations, we divide the housing stock into two product groups: VVO Market and VVO Cost-price. In our external reporting, we use the official segmentation based on revenue recognition limitations.

In line with our strategy, we invest in the value growth of our properties and in ensuring their rentability. At year end, for the first time we determined the book value of the rental apartments and business premises in the rental apartment buildings owned by VVO. On the closing date, the value stood at EUR 3.1 billion.

Focusing strongly on renovation

Demand for rental housing remained strong in all communities where VVO has a presence. Demand was greatest for small apartments. By year end, a decision to begin construction had been made for 415 rental apartments, and construction had been completed for 421 apartments.

In 2012, VVO spent over EUR 70 million to renovate its housing stock, representing an increase of nearly 30 per cent year on year. Even though on average over 300 apartments were vacant due to renovation, the occupancy rate remained excellent.

Achieving better results by working together

As a leader on Finland´s residential lettings market, VVO´s corporate responsibility is based on our sustained and professional operations and solid financial capacity. Our corporate responsibility incorporates close cooperation with residents, and partnerships with suppliers in implementing systematic repairs and maintenance, developing the control of energy use, and preventing the grey economy.

As part of this corporate responsibility agenda, in 2012 VVO launched a partnership programme, Virkeä, which encourages young athletes in their career through sponsorships, and distributes grants for leisure activities to young people from families on low incomes.

I would like to thank VVO´s customers, employees, shareholders and partners for the past year. In 2012, we demonstrated that our focus has been right. I believe that our development projects, and their efficient implementation in line with our strategy, will continue to bear fruit. Our operating environment will continue to present us with new challenges and uncertainties, but my confidence in VVO´s vision for developing better rental housing remains strong.

Chief Executive Officer

Jani Nieminen