Yit Oyj Unsp/Adr

Good morning and welcome to YIT's first quarter earnings webcast. My name is Tommi Järvenpää. I'm the head of YIT's investor relations. With me here today are also our CEO Kari Kaunis-Kangas and CFO Ilkka Salonen. We will first go through the presentation followed by Q&A. At this point, I would like to hand over to our CEO. Kari, please go ahead. Thank you and good morning also on my behalf.

I start the presentation from the strategy. As you remember, we have two key targets in our strategy. First, to improve profitability, and secondly, maintain and defend financial stability, which we now have reached after this closing of paving and mineral aggregates business sale, which happened 1st of April. We have three key strategic priorities, sources of growth and structural profitability. Urban development, partnership properties or investments, and services. And I think also in this market environment, these priorities are in the right order and the priorities are right ones. The plot portfolio that we have is strong, and it allows us to operate also in a tighter market environment, and we develop it constantly. Last year, we also succeeded well in getting those lifecycle projects, alliances and design and build projects worth almost 700 million euro. And those have now started to come to our order backlog one by one. Secondly, the order backlog is strong. and gives us visibility for part of the projects without sales risk also to coming months and quarters. In partnership properties, we have now invested our capital employees 240 million euro. And that starts to bring us also rental incomes during this year, in addition to capital gains. And services is a growing business priority area for us. During the last 12 months, the revenue from those businesses that we already have, like road maintenance, renovation and living services, the revenue was 450 million euro. Then to the first quarter. Our first quarter was largely in line with our expectations, and the group operating adjusted operating profit improved to 8 million euro, being a year ago minus 10 million. Of course the level is low, but it's good to remember that first quarter was highlighted with typical seasonal slowness in infrastructure projects and small number of housing completions in Finland and CEE. However, the apartment sales were at a strong level in all regions, particularly in Russia. The sales to consumers increased 14% year on year, but as said, number of completions was low. The disappointment of the quarter was the business premises segment results, which was burdened by progress in financial settlements of previously communicated and already completed three projects, one of them being 7 million euro booking related to a final agreement on the Myllypuro campus project financial closing. As part of the agreement, the client will also pay us 8 million euro, the payment which they have withhold earlier, now in April. So in these times, cash flow is more valuable than long dispute in a court. Due to coronavirus pandemic, we have taken anticipatory and mitigating measures already since February. The impact of this pandemic was minimal to the figures of Q1. Our balance sheet strengthened further after the sale of this Nordic paving and mineral aggregates business that happened 1st of April. The impact of the transaction was almost 300 million euro positive cash flow. Capital gain that will be reported as part of discontinued operations, not in adjusted operating profit, is around 40 million euro. This improved our gearing strongly. 34% from the level that we had at the end of the first quarter. And that also strengthened the equity ratio. The conclusion of the deal from our perspective is that we are now on a strong position ahead of this COVID-19 pandemic with widely unknown impacts and duration. At the end of the quarter, the operating environment changed rapidly due to coronavirus pandemic. Also, we moved to quarterly guidance and withdraw the guidance at the beginning of April. I think it's fair to go through the main risks and impacts, which easily explains the challenge to make relevant estimations for the end of the year. The most significant uncertainties for Viati's business are related to availability of personnel, potential infections, regulatory decisions and availability of materials. These can lead to temporary shutdowns or slower progress on construction sites. and delayed completions and consequently postponement of revenue and profit recognition from quarter or from year to another. In addition, the changes in residential demand may have an impact to our profitability in short term. At YIT, we initiated anticipatory measures back in February to ensure the safety and health of our staff, the progress of our construction sites and the continuation of the business. To mitigate the impacts of the economic slowdown and to react to the sudden changes in the market, we have also initiated numerous savings measures, like temporary layoffs of fixed personnel, salary reduction of top management and also board of directors. We also froze for a few weeks apartment startup from mid-March to evaluate the demand level in the new situation. As of today, our sites are operating well, and there have not been material issues in our operations. In April, a few of our construction sites were shut down temporarily following the decisions of the authorities or customers. Only one site has been put on hold for two days due to our own decision. However, it has been great to notice how quickly our organization has adapted new ways of working required by the pandemic. The number of digital remote visits and transactions has also grown rapidly following the successful continuation of digital tool implementations in recent years. Customer confidence for YIT has stayed at a high level. Even though residential demand dropped in late March, it has remained moderate thereafter, and hence we will continue apartment startups in the second quarter. In these times, we carry on our social responsibility. At the beginning of the year, we started to follow accident frequency rate, including also subcontractors' employees instead of our own employees only. That leads to a bit higher level of accident rate, but I think this is the right way to improve the safety on our sites widely. This summer, we will also continue to have a big number of summer trainees. There will be more than 500 summer trainees in our operations also during these days. Our revenue increased by 5% in the first quarter. The order book declined slightly from the year end, but it is still on a good level. Several new projects were added to the order book during the quarter, and the decline is mainly explained by housing startups' small number. As said, the improvement from the last year, of course, was clear, but the profitability of the company was still on an unsatisfactory level. But it's good to notice that it's partly due to normal seasonality in infrastructure and in housing completions as well. Some comments shortly on the segments in housing. The number of completions were on a low level, and that lead to low level of operating profit. In Russia, the profit was improved due to better sales, but also due to change of accounting method. Since 1st of January, We use again revenue and profit recognition over time method, meaning percentage of completion. That is due to change in the legislation. And that change had an extraordinary impact of around 5 million euro to the result of the first quarter. In business premises, I already explained that the progress of financial settlements in those big projects impacted negatively to the result of that segment. And as we have already earlier, said that those three projects all have now completed and we expect that the financial settlements will be ready at the end of Q2. Now one of those is fully booked. In infrastructure, the improvement in performance continued, even the result was negative due to normal seasonality. And in partnership properties, the sale of a counter tower in Espoo Keilaniemi supported the result. Then some comments concerning segments. In Housing Finland and CEE, consumer sales improved. Investor sales improved even more. The COVID-19 impact on sales was visible only in last two weeks of the quarter. The demand and sales has then stayed around the same level that it was at the end of March. The positive Observation from our point of view has been that consumer activity has stayed around on the same level that it was at the beginning of March. The number of visitors in our web pages has stayed stable throughout the weeks. And of course, then the decline in sales probably is partly connected also to restrictions in all of our operating countries. I'm also proud of our capability to immediately utilize those remote methods, how to connect clients and how to use digital tools as a new service platform. So that has been a positive development during the last few weeks. In Housing Russia, The reassessment of current legislation, legal practice and terms of via these sales contracts fulfill the criteria for revenue recognition over the time. So that will be the method also from the first quarter on. In Russia, the change in ruble exchange rate had a slight impact in results in last month, and of course it has bigger impact to our balance sheet. Sales improved heavily year on year and especially strong month was March as also earlier the decline in oil price and also the change in exchange rate boosts the apartment sales. The result in business premises, of course, was weak, and I think the topic connected to those three projects has been handled. The positive point is that the business behind those three projects seems to be in order, in line to our requirements. And the order book of this segment strengthened from the year end, thanks to those alliance and life cycle projects that we won already last year, but where the contracts have been now signed. The order book has an impact to the outlook that in Q2, we expect the revenue of this segment to be bottom. And already based on this backlog of orders and one project, we see that the revenue is going to increase during the third and fourth quarter compared to the second quarter. In infrastructure projects, the backlog of orders is on the same level. The growth in revenue during the first quarter is mainly driven by easier winter, especially here in Helsinki region. Unfortunately, we were not able to expect that type of winter, so it means that many of projects were closed due to expected winter and we were not able to fully utilize the opportunity that the weather would have provide us. In partnership properties, a counter tower was the main explanation for the good profit. During the quarter, we have proceed in strategy execution. We split the partnership properties and business premises. to two separate segments also operationally. And we have strengthened our organization in this segment to keep the funnel of new projects, the flow of potential investment opportunities on a good level. also to create new funds, joint ventures, portfolios, and also proceed in the services area. Last time in our presentation, this paving segment, the operational performance was as expected and the sale was completed 1st of April. So the impact of sales will be seen in Q2 results. Now I give the turn to Ilkka to explain more accurately the financial key ratios and figures.

Thank you, Kari, and good morning, everybody. Yes, if you look at the operating cash flow after reinvestment, Q1 was minus 48. If you look at the past and if you look at the seasonality of the business, that was in a good level and actually it was somehow better than we internally expected before the quarter. Cash flow of investments were slightly higher than last year. and plot investments were 24 to 25 compared to 16 last year. So we continue to invest for the plots as well. Then to the equity ratio and gearing. Gearing was 105. Of course, the result has an impact for that one, but also the paid dividend and the translation difference from the Russian operations had impact for that one. But what is important is that after the paving transaction, which happened on April 1st, our gearing would have been or actually was on April 1st, 71. And the equity ratio, about 30%. And taking account about the paving transaction, it was on April 1st, 32. And over here, I want to highlight that these These matrices include the IFRS 16 impact, which is quite heavy in our business. In net debt to adjusted EBITDA, four, and after the transaction, 2.8. And those are good figures to go for this existing corona situation. Inter-sparing debt, net debt, increased to up to 940 million. And in the maturity structure, that's quite stable. We actually paid back one. 30 million bilateral and refinance that by 50 million bilateral, where the maturity is to 2022, and that's the reason why it's more balanced than it was in the previous quarter. Next one. And now I pass to Kari for the market outlook.