Yit Oyj Unsp/Adr

Good morning and welcome to YIT's third quarter earnings webcast. My name is Samu Heikkilä and I'm YIT's Investor Relations Manager. Our third quarter results and highlights will be presented by our CEO Markku Moilanen and CFO Tuomas Mäkiväskö. 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, Sammo. Good morning and welcome on my behalf as well. I'm this morning particularly pleased to tell about our third quarter results. We had improved performance, clearly improved performance, compared to the same period last year. Our profitability improved, and our adjusted operating profit almost doubled, and the profit margin increased significantly as well, despite the challenging business environment that we are in the construction sector. It is a result of a restless strategy execution. The key part of our strategy is the transformation in business premises and infrastructure segments, and that continued successfully, and we gained efficiencies from enhanced project management. However, it should be noted that these gains have been partly offset, especially by the increased material costs. We have also achieved substantial productivity gains during this period and throughout the whole year. The cumulative cost savings year to date from the new operating model has resulted over 20 million euro savings. All in all, a very solid performance during this quarter. If we then look at the numbers a bit more closely. So firstly, we were able to increase our revenue, which is a good achievement in a challenging business environment. the revenue increased in all segments. Looking at the profitability, as I mentioned already earlier, we almost doubled our profitability. And more importantly, during this period, we adjusted a bit margin. which is one of the KPIs of our strategy, improved to 3.7% during Q3. And if we look at the year-to-date numbers compared to the previous year, it increased to 4.1% compared to 2.8% during the same period, the previous year. If we then have a look at the different segments, we had stable underlying performance across all segments. And that's, of course, important for us. In housing, we had stable results, even if the market was clearly challenging. We had softer consumer demand and weaker apartment sales. Despite that, we had good results. The transformation progressed both in business premises and infrastructure. If you look at the business premises, it should be noted that the comparable period in 2021, was supported by a plot sale, so the underlying performance was clearly improving according to the plans. And then the same applies to infrastructure, which had positive results as well. And finally, we had good results in property development, and it should be noted that the comparison period was burdened by one project write-down. But even there, the underlying performance was improving. So, during challenging times, it's important that all of our segments are performing according to the plans. We have been executing our strategy throughout the year. And it is clear that, like we have communicated earlier, that even one could say just during these challenging times, we have the right strategy. The three key components or pillars in our strategy are focus, productivity and ESG. Starting from focus, our key goal is to grow in the long run in housing. And again, in order to grow in housing, we continued plot investments in selected, attractive urban plots. And that is to secure the future earnings for the company. In business premises and infrastructure, focus is about selectiveness and focusing on our core competencies, where we are competitive. And that was clearly yielding good results during the period. So our order book remained strong, even if the business environment is challenging. So the business premises order book was strengthened from reliable clients. For example, the first phase of construction at Seinäjoki Station, for EQ. In Oulu, the new Nokia R&D campus. The renovation of the property at Aleksaterinkatu 13. And then earlier this week announced an agreement on construction and maintenance of the new Gesterby school centre. In infra, in turn, the development phase of the seawater heat recovery project with Helen and Axiona, started during the quarter and was entered to the order. Looking at the productivity, like I mentioned earlier, the cumulative cost savings from the new operating model amounted to over 20 million euros at the end of Q3. So we have not only executed our strategy in terms of productivity, but due to the challenging environment, we have taken extra actions on productivity. When it comes to project management, which is a key part of the transformation in business premises and infra, we clearly had efficiency gains from project management, i.e. the write downs, adjustments in projects were significantly lower than during the previous years. However, that was partly offset by the market, and especially the increasing material costs as well. Lastly, but definitely not least, we took important steps in ESG, in the environmental area. So, we made a decision that we will use low-carbon hollow-gore slabs in apartment buildings in the Helsinki metropolitan area and Uusimaa. and then gradually expanding the usage to all Finland. And if we are looking at individual constructions, individual houses, hollow core slabs are the individual products or product category at the highest emission impact. So this is really important step towards kind of low carbon footprint in our production as well. This action, just to put this in perspective, to switch to these low-carbon, hollow core slabs in Helsinki metropolitan and Uusimaa, will reduce carbon dioxide emissions by approximately 4 million kilograms per year. And that amount corresponds to the average annual emissions of approximately 560 fins or 680 car journeys around the world. So we are really taking important steps during the challenging market environment to build the future for the company, but for the future generations as well. Moving forward, we continued to invest to the future of the company. And for us, that meant that we invested in our land, and the most significant acquisitions were, according to our strategy, to the countries of Poland and Czech Republic. So, 200 enabling us to build 2,100 housing units in Warsaw, Krakow and Gdansk, and then 150 housing units in Prague as well. So, our land bank enables, Our current land bank enables construction of approximately 34,000 new homes, enabling us to grow in housing in the coming years. If we look at our strategic targets, we are well on our way to increase our productivity and profitability. And there we have the strategic goal to reach more than 6% EBIT margin by the end of 2025. The last 12 months, our result was 4.1% compared to the 3.2% in 2021. So clear progress in that area. Our gearing was, according to the plan, short-term increasing, driven by the self-developed projects in housing and property development and the investments in plots, and increased the number of unsold completed apartments in housing as well. However, the long-term target of below 50% remains to be the same. And finally, we are still planning to have a stable growth in our dividends. So, let's have a look at the numbers a bit more closely. So, 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. Q3 for us was another strong quarter. Our profitability strengthened and balance sheet remained strong. Let's see the financial highlights of the quarter. Here you can see the key performance indicators for the quarter. Our order book grew to about €4 billion. Our adjusted EBIT improved again, both in absolute and relative terms, and our net debt increased, but remained on a moderate level, especially when excluding the IFRS 16 and housing company loans. Let's have a look at each of these a bit more in detail. Our order book increased, as mentioned, and actually the increase was significant from last year's figures, but also slightly improved from the last quarter. This is again a good evidence of our competitiveness in the market. The growth came from the business premises and the property development segments, whereas in housing segment, it was slightly decreased. Markku actually mentioned the main projects in business premises and in infra that were recorded in the order book during the quarter. We think the healthy order book really safeguards volumes going forward in the unstable market conditions. Also, If we have a look at the revenue development, so the revenue increased actually in all of the segments, especially in housing due to the higher number of apartment completions and in business premises driven by several project completions. We are, of course, happy to achieve growth like this in a challenging business environment, as Markku mentioned. Then, if we have a look at the profitability and the adjusted EBIT, we were able to improve our profitability significantly. And here you can see that in the big picture, the adjusted EBIT improvement compared to the last year was driven by the property development segment. But in total, the underlying performance was actually stable in all of the segments. All of the segments also gained benefits from the fixed cost savings. And Mark already mentioned that we have now gained in total year to date fixed cost efficiencies above 20 million euros. And this is driven by our more efficient operating model, as communicated earlier as well. It's good to note that there was a project write-down in the comparison period in property development, as mentioned, and also a plot sale in business premises during the Q3 last year. So when excluding those, kind of a one-off from the comparison period, so we can argue that the underlying performance improved in all of the segments. In business premises and infrastructure, the turnaround has progressed well, and the margin deviations were decreased a lot from last year, from the previous years, and that's kind of a evidence of the strategy execution going forward in these segments. Then moving on to the cash flow and capital employed development. The cash flow and capital employed reflect mainly our growth investments according to our strategy as has been planned and communicated ahead. And the main impact in the cash flow and consequently in the capital employed in Q3 was impacted by the investments in plots, self-developed projects in housing and property development, as well as the increase in the number of unsold completed apartments in housing. We, of course, continue the selectiveness in the projects and risk management procedures to manage capital employed level. But on the other hand, our balance sheet continues to allow us to invest in future growth. Then let's have a look at the net debt and especially the structure of the net debt. So the net debt increased during the quarter due to the cash flow development I just described before. And it is very important to note that the debt structure of YIT leads to a low financial risk profile, which is illustrated on the left-hand side. You can see in the stack bar the components of the gross debt. And the IFRS 16 lease liabilities and the housing company loans, when excluding those, the net debt would approximately be 200 million euros. So that is very important to understand that this is really the kind of adjusted net debt. is illustrating the risk profile of the company. Also, the maturity structure of the debt is healthy. Currently, we don't have any refinancing needs, and we are, of course, preparing for the future refinancing rounds well in advance. So, all in all, our balance sheet remains strong. and it allows us to execute our strategy going forward. And as mentioned, the increase in the net debt is related to the growth investments, to plots and construction volumes, and it is also visible in the gearing development here. It's also very good to note that the interest cover ratio continued to improve significantly and our equity ratio remained on a healthy level. So, we see our balance sheet as a platform for growth, and navigating through the unstable market environment. So, to summarise the well-progressing transformations in business premises and infra, and improving performance drove our earnings growth, and we are well equipped to continue executing our strategy. Thank you, and now over to you, Markku. Thank you, Tuomas.