Yit Oyj Unsp/Adr

Good morning and welcome to YIT's Q1 2022 results webcast. My name is Tommi Järvenpää. I'm the head of YIT's investor relations. We had a good start for the year. Q1 was solid, driven, especially by strong performance in housing. Today, we will be discussing how our profitability developed and how our businesses are performing. The results will be presented by our CEO Markku Moilanen and CFO Tuomas Mäkipeska. After the presentation, we will be taking questions from the conference call line. And at this point, I would like to hand over to Markku. Please go ahead.

Thank you, Tommi. And good morning and welcome to the webcast on my behalf as well. So let's have a look at our Q1 and Overall, we had a solid quarter. I have to say that I'm very satisfied on our performance and our progress according to our strategy as well. We have our new focus strategy. We were able to utilize our capabilities in all business segments successfully, which led to very good results in terms of profitability as well. Secondly, during Q1, As we have announced earlier, we accelerated the strategic review of our businesses in Russia that we initiated already in November last year. And as a result, we were happy to find a solution to sell our business in Russia. The closing process is ongoing. It will take a bit longer than originally anticipated, but we expect the closing to happen during Q2 this year. And the third thing really related to Q1 is that we have a strong balance sheet, and despite of our sale of the businesses in Russia, our balance sheet remains strong. Our CFO Tuomas Mäkipeska will open the balance sheet a bit more, a bit late. Starting from the numbers, so revenue wise, our revenues was a bit lower than during Q1 last year, and that was a result of a lower number of apartment completions as planned. all in all revenue was as expected. The adjusted EBIT was very good. So that grew from 15 million euros to 22 million. And even more importantly, we are on way to improve our overall profitability. So our adjusted EBIT margin grew from 2.7 to 4.2. We had solid quarters in all segments. And this is, of course, very important for us as well. Housing was really the locomotive. Again, continued their strong performance. And we had very good sales in housing. Even a bit stronger than we initially expected. Still, if we look at the first half of this year, We expect that to be along our original expectations. So, there are very high sales to normalize during Q2. A very good thing in business premises and infrastructure, where we have already started our actions to transform the business, they are clearly showing results. Behind the scenes, it's important to understand that we had no surprises in our project in those two segments. So that is notable and showing in black numbers as well. Our new property development segment resulted positive numbers as well. And again, it's good to remember the business model of the property development where we'll have a kind of relatively low level of revenue and margin in a normal situation. But then when the big items, when the development items, either in a property or in wind power happen, like we had the Lestiärvi sale during Q4 last year, then we'll of course see big numbers in terms of revenue and profit as well. But all in all, all segments in black, which brings strong confidence for us moving forward. We continue to execute our strategy, and we have the three focus areas in our strategy, focus, productivity, and ESG. Starting from focus, we continue to invest in attractive urban plots in the growing areas. Secondly, we continued our new way of selecting projects, the selectiveness of projects in tendering. And it's notable to look at our order book still, even if we are more selective, we are doing rigorous risk management and we are selecting those where we have our core competencies, where we can win and we can deliver in a profitable way. We were able to keep a good order book in all segments as well. And in the big picture, our business portfolio was streamlined by the sale of the Russian operations as well. Going to productivity, we implemented 1 January our new operating model, and we expect to have annual savings between 15 to 20 million euros by 2023 compared to the baseline of 2020. We took steps forward on ESG as well, so on the environmental area, we had our actions and development related to achieving the science-based targets initiative that we have committed and to reach good result in EU taxonomy as well. And again to open that a bit what we have been doing. So if you think the life cycle uh of built environment uh and and where where we can have action and will have actions in term of uh reducing our carbon footprint firstly it's about materials so so we we continued development and taking into use as low carbon materials like such as low carbon concrete and steel Secondly, on our construction sites, we develop and take into use fossil-free fuels whenever possible, reducing our carbon footprint over there as well. And the third part of the life cycle is, of course, the energy usage, and especially in our own housing, we move towards our direction to reduce in a carbon footprint of the energy used in our self-developed housing and real estate as well. So we are well underway on that. I'm particularly happy with our results in work safety. So our combined lost time injury frequency, the 12 months average decreased from last year's 12.2 to 10.5 yeah that is still too high as I see but we are moving to the right direction and the key reason for that is that in our housing segments capital division where we have done already for a longer time decisive actions to improve our safety culture and develop our safety related procedures. This means that we have taken regular and more and more safety walks by the managers. We have increased the level of safety observations from all level of the organization. we are faster to respond on deviations and giving feedback and sharing good practices. Those experiences we are rolling out the same kind of actions to the other divisions as well. The next one that we did we launched our update and training on code of conduct and finally we made an internal audit to inspect the non-EU workers on our sites as well. And the result was that we found only two non-compliant work permits out of the 444 inspected. Of course, we took the actions on those two as well. Moving forward and opening a bit of the situation of our land bank, because we invested on our land bank as well. So, in Kaladno, close to Prague, we invested on a plot, enabling us to build 430 housing units. We invested a few plots, the most notable in Tapiola in Espoo and as well as in Järvenpää. So all in all our land bank enables construction of 32 000 new homes and we are really growing the land bank in the growth areas in this picture shown on green. At the same time we continue to structure our land bank so that divesting plots in the non-strategic region as well. All in all, if we are looking where we are in our trajectory, so we are well now positioned to achieve our financial targets for 2025. If we start from the EBIT, the profitability, our last 12 months bigger is 3.5% compared to 2.8% in 2020 and 3.2% in 2021. So we are well on our way on that. Our gearing is still below our goal, which is below 50. It's increased from 30 to 40 due to the Russian sale as well. And again, we are well on our way to stable growth. on dividends. So, let's have a look at the final numbers a bit more closer. So, I'll hand over to our CFO Tuomas Mäkipeska. So, please, Tuomas.

Yes, thank you, Markku, and good morning on my behalf as well. I would like to echo what Markku mentioned. So, we had very solid financial performance during the Q1. If we look at the most important financial KPIs, describing, of course, our strategy execution and the impacts of the execution. First of all, the order book was strengthened significantly. Also, as already mentioned, just the debit, both in absolute and relative terms, was increased significantly. And at the same time, we were able to decrease our net debt position. But before going more into the details with the numbers, so two important topics to handle before. First of all, We published earlier this week the financial information from 2021. So we restated the financial information because of the two components. First of all, the operating model change that took place starting this year. Basically, now going forward, we have four reportable segments and also some intra-segment changes were made according to the new operating model. Second topic was the sale of the Russian operations. So now going forward, it is classified as assets held for sale, and reported as discontinued operations. And this is actually the second important topic I would like to raise here, is the financial impacts. of the sale of the Russian businesses. First of all, as published earlier, we made an impairment of 150 million euros. And this is now reported as part of the discontinued operations. And of course, this had a negative impact on the group result for the period, which including the discontinued operations amounted to minus 130 million euros. We have the accumulated translation difference in our balance sheet, which amounted to 300 million, a bit above or below 300 million euros at the end of year one. And this will then be booked to the income statement when the sale of the operations is closed. And that is also reported as part of the discontinued operations. But now going forward with the figures and the key figures. So first of all, on the left-hand side here, you can see the order book development. So we are on a positive trend with our order book. We were able to increase our order book compared to the last year. And this is a clear demonstration of our competitiveness in the market. As Mark already mentioned, we are practicing rigorous selectiveness of the projects and tendering what we are participating. And in this part of that, we are able to increase the order book. So it's a clear demonstration of competitiveness in the market. Also, from revenue perspective, you can clearly see here the seasonality of our business, and there is a small decline compared to the last year in our revenues, and one kind of a reason behind that is also a positive one in last year's Q1 sales, sorry, in revenue, and also a bit lower revenues in housing in Q1, as Mark already mentioned. So, those were the main reasons behind the revenue development. Now, maybe the most important KPI to follow. We were able to increase the adjusted EBIT both in relative and absolute terms. From group level, there were two main levers that we pulled. The first one being related to our strategy and the operating model. we were able to increase our cost efficiency due to the new operating model. And the second one is the project management excellence, which resulted in a lot lower net deviations in our projects than before. So those are the two main drivers on a group level for the improved EBIT. If we look at it from the segment perspective, the biggest contributor is, of course, housing. We had very good sales and sales mix with the improved margins also, which resulted in very good operational performance in housing. And it was also supported by a couple of smaller positive one-off items. Then if we have a look at the business premises and infrastructure development, so the transformation is progressing well, even though the absolute development in EBIT is not significant, but still it is a step to the right direction. Transformation is progressing well, and one key indicator there is also the net deviations in the project. As mentioned, they are a lot smaller than before. In property development, basically just a small decrease in EBIT, but basically the performance is flat there. Then, going back to the investments for growth, Markku just presented the land bank developments there. So, you can see on the left-hand side the cash flow development, and the negative cash flow from Q1 is related to the investments for growth, and especially the plot investments that we made during the Q1. Also, the same thing is reflected on the right-hand side on the Q1 capital employed, So, the capital employed increased a bit from the year end, but still decreased from last year's figures. This is related to the growth investments according to our strategy. An important topic is our debt structure here. On the left-hand side, you can see the gross debt structure. At the bottom of the stack, we have the IFRS 16 lease liabilities and the housing company loans related to the unsold apartments, which are then passed further to the consumers when the apartments are sold. So those are basically not conventional net interest bearing debt in a sense. And if with those exclude the gross debt from the gross debt, we would have minus one net debt. So that is very important structure to understand. We are basically debt free. Also, if we look at the portfolio, the debt portfolio on the right hand side, the majority profile of our debt is extremely healthy and we have no needs for financial restructuring in the near future. This all is of course then reflected on the balance sheet side and I also already commented on the net debt side, but if we look at then the gearing as a result of the net debt development gearing, we are on a positive track of decreasing the gearing. The small increase now from the year end is of course related to the sale of our Russian operations and the impairment what I just mentioned earlier made. Interest cover ratio developing nicely to the right direction. To conclude the financial performance from Q1, we just had a good start of the year. The profitability improved both in relative and absolute terms. Our balance sheet remained strong, and we have very good and healthy order book going forward. Thank you. And now back to you, Markku.