Yit Oyj Unsp/Adr

Good morning and welcome to YIT's second quarter earnings webcast. My name is Tommi Ervenpää. I'm the head of YIT's investor relations. Our strategy execution continued in the second quarter. Profitability improved despite prevailing market instability, and the sale of the businesses in Russia were completed successfully. Next, our CEO Markku Moilanen and CFO Tuomas Mäkipeska will go through the Q2 results and highlights. After the presentation, we will be taking questions from the conference call line. At this point, I would like to hand over to our CEO, Markku, please go ahead.

Thank you, Tomi, and good morning on my behalf as well. As Tomi commented, we continue to implement our strategy during Q2, the first part of our strategy is to focus on our core competencies and focus on businesses, which we see attractive and profitable growth in the future. And then as a result, we completed the sale of our businesses in Russia. So we have now stopped all operations in Russia. And it's important to highlight that all the liabilities from 60 years of business from YITM Lemmingainen are now behind us. The sale of the Russian business is a clear testimony of the great expertise and commitment of our people, not only from the Finnish side, but from our former employees in Russia, who kept the business well running since the eruption of the war in Ukraine. If we look at the profitability and the rest of the business, our operating profit increased despite of the prevailing market instability. So the operating profit increased from last year's numbers. And more importantly, I would say that the profit margin telling about the efficiency of our operations and our productivity increased more than 1% points to 4.5%. While we have been very selective in our projects, especially in business premises and infrastructure, we're happy that our order book was strengthened during the quarter as well. We signed significant deals during the quarter and even after that, like the new R&D center for Nokia in Oulu, the sea water heat recovery tunnel for Helen, and right after the Q2, the health and well-being center in city center of Helsinki Kampi in Finland. So, just a good example of the order book which secures the workload for the coming quarters and years. If we look at the numbers during the second quarter, our revenue decreased, which was planned, and the reason for that was a lower number of apartment completions in housing compared to last year's very high number during Q2 as well. Despite of that, our adjusted EBIT, as I just mentioned, increased. and the margin increased as well. And it's really as the result of our productivity work, so lower level of project deviations, and again, more efficient operating model. Again, all our businesses are in good shape. Yes, housing, while while the level of apartment completions was lower, the revenues lower, so naturally the EBIT was lower as well. On the other hand, our transformation in business premises and infrastructure continues according to the plans, and that can be seen in the results. The good results in business premises, it should be mentioned, it is driven by two self-developed projects during the quarter, one in Bratislava, Slovakia, and one in Turku, Finland. These were planned during this year, but came already during Q2, so we have several of these, a bit smaller self-developed projects ongoing in different countries, and the now we could harvest the good result from them. But I would like to highlight that even the underlying performance is improving, according to our plans as well. In property development, yes, we had a stable result, and our pipeline on developing self-developed projects looks promising moving forward as well. Just to mention, we have been investing, clearly to the wind power development, which we see very attractive in the future. Two of the projects, Murtomäki 2 and Taraskallio, are now under zoning, and we have hired several experts to strengthen our wind power development team as well. The whole market has changed a lot during the first half. of the year. So, we have seen the eruption of the Ukrainian war. We have seen the consequent inflation of material costs. And challenges in material availability. And now, lately, during the last couple of months, we have seen increasing interest rates and rising inflation. which has taken the overall consumer confidence down. So, of course, we have evaluated the situation, evaluated our strategy as well. And our conclusion is clear. Our strategy is the right one. And one would say that just under these circumstances, it is the right one. Because we are focusing on our core competencies and where we are good and where we can perform and grow profitably. Secondly, we are working hard to improve our internal productivity. And thirdly, we are preparing for the future to strengthen our position in ESG. So if we look at the progress during Q2 in these three strategic priority areas, firstly, Yes, of course, in focus, the sale of the Russian business is an important milestone for that. In property development, we divested the ECOY, while not the largest transaction in size. It's a good example of our strategy execution, where we are cleaning our portfolio and divesting our service business. Thirdly, we invested in attractive urban plots in housing, and again, of course, carefully selecting the plots, but during this period, invested in attractive plots in Poland, in Warsaw, and in Kraków during the period as well. If we look at our progress in productivity, firstly, last year, last autumn, we announced that we were designing a new operating model, which we implemented since the 1st of January this year. And of course, we had related cost savings targeted based on the new operating model. And we're happy to see that the progress has been very good on that. And during the first half of the year, we have already amounted of 14 million cost savings from the new agile operating model. Secondly, in terms of productivity, we have gained substantial gains from our enhanced project management. So during the first half of the year, our project deviations have been clearly lower than during the past years. In addition, we are on track to reduce lead times in our housing projects. So to finish our apartment houses in a shorter timeframe, where our goal is to reduce that by 20% by end of 2025. Looking at ESG, what I'm really proud is that we have already achieved our goal which we set in 2019, which was to reduce our own emissions by 50%. So at the end of Q2, our CO2 emissions from our own operations was 51% lower compared to 2020. We are continuing our work to reduce our emissions in scope three according to the science-based targets, and our process to approve the science-based targets is progressing according to the plans as well. When it comes to health and safety, our combined lost time injury frequency was at the level of 12.0, and our focus has been on leading indicators, management walks and talks, and safety observations on our sites where we are well ahead of our targets. When it comes to the good governance, so we have continued good work and ensuring that everybody working on our sites has a valid working permit as well. I mentioned about our investments in the land bank, and it's important to highlight and understand that when it comes to housing and self-developed projects, a strong land bank in good, attractive plots is important for any company, and of course, for us as well. So we have a land bank in the UK, in Finland and in the C countries. And according to our strategy, we are strengthening that as well. And like we have told, we are seeking even more growth in the C countries, especially in Poland, Czech Republic and Slovakia as well. And our land back value was close to 700 million at the end of Q2. And this is, of course, enables us to, to grow in a very profitable way in those countries, in our housing business. At the same time, when we analysed our strategy, we of course looked at our overall strategic goals. Even if we are looking at the short term and clearly all signs, are indicating that we are heading towards a recession. We clearly see that our financial targets to reach over 6% EBIT by end of 2025 is still achievable and a right one. And we see that because our strategy is supporting us, so that we are focusing on our core competencies, we are increasing our internal productivity, and then we are growing in the attractive areas when the market growth starts again. At the same time, we are well aligned in our gearing targets, so almost in our target, which is below 50%. It's good to note as well that our gearing will increase in short term as we invest in growth, and most importantly, in investments in new attractive plots and housing startups in those areas where there's a good market looking forward. And again, thirdly, yes, we are well on our way to have a stable growth on our dividend as well. So, we are keeping our strategic targets, financial targets, as they have been before. So, let's have a look a bit more closer to our numbers during Q2, and I'll hand over to our CFO, Tuomas Mäkipeska. Tuomas, the floor is yours.

Thank you, Markku, and good morning on my behalf as well. As Markku described, we had a successful quarter. our profitability strengthened and the balance sheet remained strong. And let's have a look at the highlights from the financial perspective. First of all, the order book strengthened to above 4 billion euros, which is a very good starting point for going forward in the market situation where we are right now. The adjusted EBIT improved both in absolute and relative terms, and the net debt remained on a low level, especially when excluding the IFRS 16 and housing company loan effect there. I will cover these items in a while, but let's first have a look at the financial impacts of the sale of the Russian business. We are, first of all, very pleased that the sale of the business in Russia was completed successfully. The total transaction price amounted to 71 million euros and we booked an accumulated negative translation difference of 253 million euros, which did not have an impact on the group equity and cash flows. This led to a result for for discontinued operations of minus 293 million euros. And as earlier announced as well, in Q1, we already booked an impairment of the assets related to the Russian businesses. Now, looking at the... order book and the revenue development and it's good to see that we were able to grow our order book to above four billion euros levels which is again I think a great evidence of our competitiveness in the market despite the selectiveness in the project that Mark already mentioned and the majority of the growth in the order book came from the housing business but it was also supported by business premises and infra-business order book growth. This really safeguards our volumes going forward in the unstable market conditions. Our revenue decreased notably as it was also planned, mainly due to the lower number of completions in housing, as Markku already mentioned, but also At the same time, we were able to grow our revenues in business premises and property development segments. If you look at the profitability perspective, so the adjusted EBIT, we were able to improve both in absolute and relative terms. And productivity improvement due to the new operating model was one of the drivers behind the improvement. But in the big picture, it's clearly visible here that our diversified business model also protects us against the market instability and was the enabler actually to overall profitability improvement in Q2. The housing EBIT was decreased notably due to the volume change, this meaning lower number of completions resulting from the slowdown slowing down of startups because of the COVID-19. On the other hand, we improved the profitability significantly in business premises and in infrabusiness. In both segments, the turnaround has progressed well, and the margin deviations were decreased a lot compared to the previous years. Business premises improvement was positively impacted by the two already mentioned self-developed projects of which sales took place in Q2. These projects are business as usual for us, as Mark mentioned, but it's the timing of these projects that gave us also tailwind for just second quarter. If we look at the capital employed and the cash flow development, so in the big picture, the cash flow and the capital employed development reflects our growth investments, according to our strategy. Impact to both comes mainly from the plot acquisitions and higher number of apartments under construction in the growing cities in Finland and in CEA countries, as has been planned ahead. But of course, we continue the selectiveness in the project and risk management procedures to manage our capital employed level But on the other hand, our strong balance sheet continues to allow us to invest in growth. Our debt structure, it is very important to note that our debt structure and the low financial risk profile is kind of highlighted on the left-hand side here. If we look at the net debt excluding the IFRS 16 impact and the housing company loans, we would have roughly 80 million euros net debt. And this is kind of reflecting the low financial risk profile of our company. And I think this is very important to understand because these two components are not in the same way interest- and risk-bearing financial instruments as the other ones are. Also, if we look on the right-hand side, the maturity structure of the debt, so it's healthy, and there's only a minor payback coming in during this year, and a bigger one at the end of next year, And this also is clearly visible here that we do not have any refinancing needs currently. From balance sheet perspective, so as mentioned, our balance sheet remains strong and it still allows us to execute our strategy going forward. As mentioned, increase in net debt is related to the growth in investments, to plots and construction volumes, and it is also visible in the gearing development. Our interest cover ratio continued to improve and equity ratio remained on a healthy level. We see the strong balance sheet as a platform for growth and navigating through the unstable market environment. So, to summarise, the well-progressing transformations and improving performance draw our earnings growth, and we are well equipped to continue executing our strategy. Thank you, and now over to you, Mark.