Yit Oyj Unsp/Adr

Good morning and welcome to YIT's second 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 Kauniskangas and CFO Ilkka Salonen. We will first go through the presentation followed by the 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. Let's start with the strategy. Despite of the corona pandemic, we are taking steps according to our strategy. As you remember, we have two key targets. Improve our profitability and secondly, maintain and defend our social stability. During Q2, we saw significant improvement in gearing thanks to stronger operative cash flow than a year ago and also sale of paving business at the beginning of the quarter. We continue... to strengthen balance sheet to reach our target below 50% gearing as soon as possible. We have continued plot acquisitions and plot project development activities normally. Our plot reserve is strong. Despite a such weak result in Q2, we have seen clear improvement in underlying profitability in order backlog of all segments. Actually, the backlog has strengthened since Q1 and is now good in all segments. We have also continued in creating attractive housing portfolio, and yesterday, new housing fund worth 130 million euro was established together with Osuus Pankki. In services area, we have made decisions concerning our steps to utilize geothermal energy in all projects where it's technically possible. We have also strengthened cooperation with several smaller companies in PropTech area to bring new features to our buildings. But then to the performance of Q2. The performance overall of the group in Q2 was mixed. The group adjusted operating profit decreased to 5 million euro, being as such weak. But it was negatively impacted by costs of financial settlements. of 17 million euro in the business premises segment, connected to two projects completed in winter, Hertsi shopping mall and Tripla. The rest of our businesses performed according to our expectations. Overall, the impacts of the coronavirus pandemic for YIT in Q2 figures have been moderate, thanks to rapid actions to adapt operations to new environment and also IFRS reporting in housing. Gas flow was very strong, supported by stronger operating gas flow than a year ago, and also sale of these Nordic paving operations. In housing, consumer sales dropped markedly in April, but the demand recovery since then has been encouraging. We continued apartment startups at a good level, and some significant investor sales were agreed. The order book increased from the previous quarter giving us visibility to second quarter and already to 2021. I'm proud on the speed and flexibility of our organization to adapt to the new market environment. Also, on our sides, we have successfully been able to ensure healthy working environment, continuity and schedules, despite of several potential threats. Only 10 projects were temporarily stopped, and those only two due to our own decision. So far, those breaks didn't have impact to the completion schedules of the projects. At the moment, all sites are progressing normally and number of persons in quarantine is very low. In fact, the impact for Q2 figures were very limited. Bigger impact was seen in housing consumer sales in Finland and CEE, where the sales was around one third less than CEE. a year ago. Due to IFRS reporting method, weaker sales didn't impact our result in Q2 because the sales rate of completed projects was high already before the crisis started. Also, we see that several private and industrial investors postponed their investment decisions to the second half of the year. Also, investors for commercial projects took one quarter break in decision making, but now they are back on the table. In Q3, we expect sites to proceed as planned, housing demand revitalizing in Finland and CEE especially. In infra, we expect to see the stimulus packages of governments on the tables and when preparing offers. The impact in revenue will be seen later in winter and next year. Key uncertainties are connected to the end of the year. We have a big number of projects in housing that are estimated to be completed in December. In case the second wave of coronavirus starts to have impact, there is a risk that completion of those projects will postpone to the next year. Also, the development of sales rate of those projects that are going to be completed by end of the year is subject to consumer behavior and corona impact to that. Revenue declined 8%, but decline is mainly explained by Tripla, which was heavily recognizing revenue a year ago. Order book increased 6% compared to previous quarter, and when we compare to the previous year, and take away a triple impact of 320 million euro. The difference is around 250 million euro, explained mainly by lower order book in Norway and Baltic countries, as well as change in reporting method in Russia to BOK. The order book as well as one project and startups not yet added to order book is strong in all segments. As mentioned, the adjusted operating profit of the company has been weak during the Q1 and Q2. It's good to notice that this year the number of completed apartments in Housing Finland in that period has been exceptionally low, around half from last year. So far, 1,000 apartments have been completed for consumers when a year ago the level was 2,000. But the main reason for weak result, hiding also positive development in several areas, has been completion and financial settlements of those three big projects, Myllypuro, Hertzian and Tripla project in business premises. In H1, the announced negative impact of those projects has been significant 24 million euro, and in Q2 alone 17 million euro. Now both Myllyporo and Hertsi are fully closed, and in Tripla there are anymore a few open settlements with disputes, especially in building systems area. The rest of the business and the order book in the business premises segment are at a healthy level, and we expect the segment to be profitable in third quarter. Then an overview of the performance of all segments. In Housing Finland, lower number of completions for consumers and weaker business mix driven by clearly more sales and recognized revenue to investors explains the difference in operating profit. Actually, the performance in the quarter was better than we estimated ourselves. In Russia, better efficiency and performance of operations has improved since last year. Also, POC reporting is showing the impact of sales immediately in the same quarter. Sales in Russia during Q2 was actually higher than a year ago, and that was supported by low mortgage interest rates. In business premises, of course, the result was weak and negative, but on underlying order book and profitability, as you can calculate, was around on the same level than a year ago, taking into account lower revenue recognized. In infrastructure projects, the improving performance continued. And in business, in partnership properties, triple fair valuation has been updated with minimal impact to the result. Then to segment reviews and comments. As mentioned, the result of Housing Finland and CEE segment was good, taking into account low number of completed apartments during the period around 60% of last year. And also that a lot of sales came from the investor side. Sales dropped at the end of March, stayed on a low level in April, and started to recover at the beginning of May. And as I said, recovery in Finland especially has been encouraging. In CEE, it is as well improving. We kept our startups at a good level and negotiated several significant deals on investor side. The most significant being this Osuuspankki fund that was established yesterday. Preservation rates in pre-marketing and started projects has been surprisingly high level through the quarter, indicating people's willingness and need for new apartments in good location for the use of their families. Planned investor deals for this year have been mainly agreed and now we are already working with the year of 2021, which looks promising. Price level of apartments has stayed stable and amount of discounts has stayed on a low level. Also, number of unsold completed apartments is on a normal level. Key uncertainties in the end of the year are connected to timing of completions and sales rate of completed projects at completion. Second wave of this coronavirus may have impact to both of those. And as you may remember, this year, half of the completed apartments for consumers will be completed in Q4. Even the sales in Q3 would continue to strengthen. The number of completions is comparable to the first quarter of this year, and the result of the year in this segment is expected to be recognized mainly in Q4. In housing Russia, positive development continued. During age one, operating profit has improved almost 20 million euro year on year. Positive development is driven by better margins and improved operational efficiency. Housing sales continued on a good level, only 10% lower than in Q1, and it was higher than in Q2 a year ago. The outlook for Q3 is strong as well. The sales in July has been surprisingly strong. Then the business premises. As mentioned, Weak profit is explained by those financial settlement costs in those three projects. In Myllipuro campus, everything was settled already in the first quarter. In Herzi shopping mall, that has been made in the second quarter. At the Tripla project, Around 1,800 subcontractor contracts had been settled already at the end of the second quarter, and only few contracts in building systems area are anymore in progress. Due to disputes, their settlements can take some quarters and may have an impact on our results when agreed. The potential impact of those disputes is estimated to be at maximum single digit in millions within coming quarters. Consequently, we have made significant changes to the way we operate. Responsibilities and organizations in the business premises and partnership properties segments have been renewed, management resources strengthened and risk management processes developed further. Going forward, the business premises segment will focus on project management and productivity improvement in construction. The partnership properties will be responsible for project development and lifecycle services as well as investment portfolio management. The rest of the business and the order book in the business premises segment are at a healthy level. Underlying business mix has been improving during last five quarters, as you can see from the graphics. When the amount of lifecycle and PPP projects has increased and traditional contracting declined. Backlog of orders has been growing quarter on quarter and also year on year without the reply impact. We expected this segment to be profitable in the third quarter. In infrastructure projects, positive development and performance continued in Finland and Sweden. Backlog of orders has stayed strong in both countries. The decline in order book year on year has happened in Norway and Baltic countries. In politics, the competition has been fierce in the spring. In June, Finnish government agreed on significant stimulus packages for improving infrastructure in Finland. Based on our discussions with public client, we expect to see higher number of new projects on our tables for tendering in autumn. And the projects included to those stimulus packages to be started in next winter and 2021. Also, our own development of new windmill farms and parking premises has continued, and we have positive expectations for those for next year. In partnership properties, or in partnership properties and services are key growth areas at YIT. When we made organization changes in spring, changes were made also in partnership properties to strengthen its organization. Real estate management unit, and commercial project development unit were transferred to partnership properties. Also other hires have been made in key areas. Now we have the full value chain from project flow creation to lifecycle services for investors and partners according to our strategy. In Tripla, we saw significant drop in number of customers at the end of March and April, but also rapid recovery started at the beginning of May. Since the opening of the mall, the management of Tripla has prepared a plan to improve rental incomes through events, pop-ups and temporary sales premises like terraces and cultural squares. The plan was accepted in June and started immediately to put into action. At the same time, the yield requirements for shopping malls have been growing. So 3 plus fair valuation has been updated based on both angles. The total impact to the fair valuation was minimal. During Q2, We also prepared a new joint company with Osuuspankki to own rental apartments. Final agreement was signed yesterday. The size of the investment is 130 million euro, some 600 apartments, and our share of the fund or joint company is 40%. Those projects will be started during the end of the year or at the beginning of next year, and everything should be completed by end of 2022. From now on, partnership properties has also relevant order book, including all the long-term contracts in lifecycle and PPP building projects. At the end of June, order book was almost 300 million euro. Then I give the word to Ilkka to explain the key financial

Thank you, Kari, and good morning, everyone. Just a few words about the cash flow as well as for the investments, what we have done during the Q2. In Q2, the operating cash flow was heavily impacted by the paving sales, which was bringing cash in slightly more than 280 million. And if we look at the underlying or continuing operations, even we take that away, the operations delivered more cash flow than last year during the Q2, so less negative than it is normally in Q2. We have continued investments for the plots, as Kari mentioned, and during the first half we have invested cash out more than 80 million for plots. Our liquidity position was strong in the end of Q1 and of course it's even more stronger after Q2. And once again, the impact of the paving sales is one of the key topics over there. If we look at the maturity structure, we renewed our two loans in Q2 together about 80 million so we extended those ones by one year and we also extended our revolving credit facility by one year up to 2022. At the moment, we have cash in our accounts close to 400 million. There is no refunding needs for bonds or loans during the rest of the year. And the cash in our bank accounts actually covers the amount of refinancing next year, as well as the commercial papers. But going towards the end of this year, of course, we look at the funding needs for next year. Over there, yes, we have more liquidity than in the normal situation. We took more commercial papers before the market was closed in March. But in this situation, we see that it has been a good decision. So we can continue with the operations as we have planned. In the kind of financial key ratios, we are going to the right direction. Our gearing was 73 in the end of Q2, but we are not there where we want to be in the long term. And as we have mentioned already during of the merger in 2018, that the target level is 30 to 50 percent. So we still have work to do over there. In equity ratio, it is going up as it has to be. And then the net debt adjusted EBITDA was down to 3.5. That was shortly about the finance part, and now I pass to Kari. Okay.