Yit Oyj Unsp/Adr

Good morning, everyone, and welcome to YIT's third quarter 2023 results webcast. My name is Essi Nikitin, and I am the head of investor relations at YIT. Together with me here are our CEO, Heikki Vuorenmaa, and CFO, Tuomas Mäkipesko. At this point, I will hand over to Heikki.

Thank you, Essi, and I'm very pleased to have you also on board with YIT. But welcome also to this webcast from my behalf. Third quarter for us was a clear step forward. Positive development continued in housing Central Eastern European countries in which we had overall strong sales during the quarter. Housing market continued in Finland similar as on the first half. However, we were capable to increase sales with our own actions compared to previous quarter. We continue to improve profitability of our contracting segments, which represents more than 50% of our revenue at the moment. Both segments also maintained strong order books while keeping our selective approach with the project tendering. Significant progress were made also in the robust cost management, and we succeeded again on the third quarter with our capital efficiency measures. This is an excellent result by the team. Let's then double click on a few successful initiatives that our team has delivered. And let's talk first about the cash flow. Compared to the previous year, our cash flow improved close to 150 million euros. Under the current circumstances, cash is king, and it gives us opportunity to balance our inventory on housing units over the period of time and select the best options from the shareholders' point of view. Our transformation continued to progress ahead of schedule and with the lower than planned costs. Actions taken supports our profitability already by now. Going forward, we will be more competitive across the three segments on tendering, as well as capable to provide high quality projects on time to our customers. I'd like to also emphasize the ongoing 400 million euro capital release program and plans to reallocate capital and deliver it to the company. We announced already first transactions and several positive discussions are ongoing, despite the overall market sentiment. I also want to bring up that we are building competencies for the future. For example, more than 1,200 YIT employees have been on the training during this year to improve our overall project management capabilities. Let's then move to the key metrics from the Quartal. Our revenue remained on a similar level, being 500 million euros. Adjusted EBIT was at 16 million and EBIT margin 2.9% during the third quarter. When we look at the picture from the segment's perspective, change on the absolute EBIT and the relative margin is connected to the housing segment and sales in Finland. Both of the contracting segments improved performance year-on-year basis, both in absolute EBIT and relative profitability as well. Let's walk through each segment a bit more in details. And we start from housing. As I mentioned, the housing segment demand increased in the Central Eastern European countries, and that supported the overall segment profitability. We also mentioned that 350 apartment completions were shifted from September to October in CEE, and that also impacted the absolute profitability of the segment during the third quarter, but not on the full year basis. We continued our careful approach on new construction startups, and a total of 108 apartments were started during the third quarter, of which 32 in Finland. Our stock of unsold apartments increased during the quarter. However, the majority of the consumer units under construction in Finland is close to completion, which is up the pressure of additional capital tied to complete such apartments. When we then double click on the apartment sales, we see that the CEE increased close to 50% over the comparison period and more than 10% compared to the previous quarter. This development is extremely positive and just highlights the importance of the CEE operations as part of our business mix on housing segment. In Finland, our sales increased 12% to previous quarter, and overall segment had second consecutive quarter of improved sales to consumers. The increase in Finland is driven by our own actions to boost the sales and consumer activity, for example, through successful campaigns we have had. Our net promoter score remained high during the quarter, which is another clear signal of consumers' trust towards YIT and our high-quality products. The carefulness of the startup decisions and current investor market sentiment is clearly visible on our production as well. Apartments under construction is now below 5,000 units with the sales rate of 52%. That reflects the lower portion of the investor sales on our portfolio. While our overall production is declining in the housing segment, we have taken measures to balance the workforce through engaging actions as well as shifting resources between the business segments. So we can maintain our capability to accelerate startups as market cycle turns. It's also good to note that this approximated 50-60% market volume decline will affect industry supply chain during the coming year. And for us, it's important to partner with the industry top players and secure best pricing and availability for our construction sites. I've already now a couple of times mentioned the importance of the CEE for our housing segment performance. And we can also see from this picture that the majority of the completions are in CEE during the fourth quarter. What we can also see here are the results of our actions to balance the supply in Finland, as the next year completions are clearly lower than this year. This balancing is connected to overall market sentiment and also our actions to balance the inventory of unsold apartments in Finland. What comes to the portfolio of unsold apartments? We continue actively to manage that as well as from our viewpoint, it remains well balanced in terms of location and size. For example, current market has relatively high supply for small apartments in certain parts of the capital area. During the first half of the year, we already took actions and shifted hundreds of small apartments to our partially owned rental company and have now less than 30% of such apartments on our portfolio. Majority of the portfolio are high quality family size apartments on attractive locations in which we believe are attractive as market gradually recovers. If we then zoom out a bit, even the unsold portfolio has developed quickly compared to the situation a year ago. We are not on an exceptional level on historical terms, despite the exceptional market conditions that we are experiencing in Finland. It's good to also note that in Finland, the urbanization continues, and we have seen strong growth on major cities during the year. From our viewpoint, we are managing the situation, and our portfolio is an asset for us. If we then move our eyes to next year, and what would be the estimated market supply during 2024? On this picture, we have now summarized completions from all the players, not only YIT, but all the players of self-developed housing units in a Finnish market. We have been using multiple data sources to put this data together. The picture is not 100%, but it provides representative enough projection of the next year's supply to the market. The range is between 3,000 and 4,000 units, of which 45% already sold. If we then expect industrial typical lead times being 12 to 16 months, no major increases to the supply is expected. Actual numbers may also be lower, as we have seen some of the projects being canceled or halted due to the insufficient financial position of the construction companies. So what are the key takeaways here? Key takeaways are there is clear drop in supply during 2024 for new self-developed apartments. Q4 2023 supply is almost the same as the full next year. If we look at the rolling 12-month demand, it has declined from approximately 8,000 units to 2,000 units, and we are seeing the unmet demand on the market. Low level of the startups by the industry players will create consequences to the overall market already during 2024. We also estimate that our market share on the third quarter was approximately on a 30% level, which is up from the historical levels. So let me repeat, we believe that our portfolio is an asset and we have a product on the market as the cycle turns. But let's move then to the performance of the other segments. Our business premises segment revenue was supported by the sales of self-developed office property here in Helsinki. Segment profitability increased both in absolute Euro terms and profitability compared to comparison period. Our order book remains strong and we continue to see good activity level on the market on the projects that we have strong competencies to deliver. We have been really successful, especially with the lifecycle projects, for example in Siilinjärvi, and won several contracts in Baltic countries from the industry customer segment as well during the quarter. Our team is showing capabilities to create competitive solutions for our customers, and they are selecting us as their trusted partner to deliver, which is great news for us. Construction material prices on earlier taken fixed projects are still burdening our profitability. However, we start to observe opportunities in the market to negotiate lower prices driven by the overall softness of the industry. On the infrastructure segment, Finland continues to be a solid performer, while operation in Sweden burdens segment profitability. As announced, we continue our strategic evaluation of our operations in Sweden. Operatively, Segment is performing on a very good level in Finland, with a clear focus and engaged team. Result of our work is visible. For example, the new tram line started to operate here in the capital area of Helsinki, Raidejokeri, and tram line that we have been building in the city of Tampere. We are also building together with our partner the largest bridge in Finland, which will change the landscape of Helsinki and demanding projects that only few companies have capabilities to execute. On the industrial customer segment, we are constructing new production facilities for customers in the city of Kirkkonumi, an investment that is strongly connected to green transition. We believe that the segment is on a strong position to be selected as a trusted partner for similar projects going forward. For example, during the third quarter, we were selected as a partner for the third phase of Tampere Tramline. Such projects are really important for YIT. We have a proven track record of delivering the solution faster than anticipated schedule and on or below agreed budget level. If I then summarize the main messages of the market outlook for our three segments. Much has not changed since last quarter. Demand on the real estate and infra market remains on the normal level, and major cities are communicating need for investment also in coming year. Housing market in the Central Eastern Europe remains on the normal level, as Finland market situation highlights the importance of our own actions to navigate through the cycle. But now it's my time to hand over to you and our CFO, Tuomas Mäkipeska. He will run through the company financials and balance sheet in more detail. Over to you, Tuomas. Thank you, Heikki.

Good morning, everyone, on my behalf as well. The third quarter of the year was a step forward for YIT. It was about adapting to market conditions and taking determinate actions to improve our financial performance, both in short and long term. We made progress in releasing capital from our operations, and our net debt remained at the same level as in Q2. Here we have an overview of the key performance indicators for the third quarter. Order book developed steadily despite the market situation in housing and our selective approach in tenderings. Adjusted EBIT decreased from the strong comparison period. Operating cash flow was stabilized due to the measures taken according to the transformation program. More importantly, the net debt remained stable compared to the Q2, even though increased year on year. I'll walk you through these KPIs a bit more in detail, starting with the order book. We are pleased with the fact that the order book development was stable in Q3, despite the housing market conditions. Order book level of altogether 3.4 billion euros secures our operations and profits going forward. In the contracting segments, business premises and infrastructure, the market conditions have remained on a fairly normal level. We demonstrated solid order intake in both segments driven by the focus in the tendering processes where we have competitive advantages. A good example of our competitiveness in the market is the mentioned tramway in Trampere Alliance. And in the infrastructure segment, we have made several other wins during the Q3 also. In the business premises, good evidence of the competitiveness is the research building to be constructed to Technopolis in Otaniemi and which is to be occupied by the VTT technical research center. This was announced in October and is recorded to Q4 order book. Also, it's good to note that we have the recurring revenue component in a form of lifecycle of service periods, and it amounted to €332 million in business premises order book. Housing segment order book declined due to lower apartment startups. Let's next have a look at the profitability more closely. Heikki presented the segment's profitability individually, and here you can see the overall change in adjusted EBIT split by segments. The adjusted EBIT decreased especially in housing, and the main driver behind this development was the lower consumer sales of our apartments in Finland. As Heikki mentioned, the demand in CEE countries has been clearly higher, which is also strategically important for us. Also, some apartment completions were shifted from September to October in CEE, which had an impact on the absolute profitability of the segment in the third quarter. The underlying performance improved in business premises, and the work continues to further strengthen the segment's profitability. In infrastructure, the overall performance continued to improve as well. However, the certain legacy projects in Sweden are still burdening the segment's profitability. So even though the adjusted debit decreased in housing, the other segments were partly able to offset this impact. Moving on to the development regarding cash flow and capital employed. In cash flow generation and capital employed, we were able to continue the positive track demonstrated already in Q2. Operating cash flow after investments improved significantly year on year, and the main drivers behind the cash flow improvement were increased working capital efficiency and sale of self-developed office property, Maistratin Portti, in Finland. But during the year, we have put focus on achieving permanent improvements in cash conversion cycle, and some results are visible already. Despite the fact that the apartments in housing tied up more capital in Q3, we were able to increase our capital efficiency. At the end of Q3, we had approximately 500 less apartments under construction compared to previous quarter. This will gradually slow down the amount of additional capital tied to apartments in upcoming quarters. I'm pleased to see that our transformation program results are clearly visible in both cash flow and capital employed. Let's next have a look at the key assets and net debt position. Our underlying asset base continues to be very strong. Total key assets totaled to 1.9 billion euros. We have a land bank of nearly 800 million euros to serve as a platform for future operations and profits. Inventory assets under production amounted to 500 million euros, decreasing 130 million euros from Q2 and reflecting declining number of apartments under construction. Completed apartments and real estate in our inventory increased by 56 million euros from previous quarter to some 320 million euros. Investments were worth of 300 million, biggest item being the Mall of Tripla, but also including our investments to joint ventures and associated companies. And on top of this, we have a valuable wind power portfolio of which we do not have significant assets in our balance sheet. And we are currently reviewing its strategic options as announced earlier. In Q2, we initiated a strategic review regarding certain assets and operations. With these measures, we have the potential to release approximately 400 million euros of capital by the end of 2024. In Q3, we had several actions ongoing related to these assets, and they progressed well. I'm happy to see that first transactions have become visible as we closed the sale of our co-investment vehicle at the beginning of October. Currently, we have several active processes ongoing to release more capital, and we will naturally inform you about their progress when appropriate. Additionally, we continued our strategic review related to our infrastructure operations in Sweden. Net interest-bearing debt remained on a level of 820 million euros. Approximately 500 million euros of our gross debt is related to IFRS 16 lease liabilities, including leased plots and long maturity housing company loans that are transferred to buyer at the point of sale. So the adjusted net interest bearing debt is consequently only 320 million euros. So to conclude the key assets and net debt position, our underlying asset base continues to be very strong and our net debt structure remains well balanced. Our gearing remained stable at the level of 100%. We have been able to keep the gearing development relatively flat after the hike in Q2. Measures taken to increase cash flow have supported gearing consequently. And why at this target is to deleverage balance sheet in the short term and to return below 50% gearing level in the long term. Measures are ongoing to manage the maturity structure of interest bearing debt. The company has progressed in its negotiations with lenders regarding the refinancing of its term loans. When the terms have been agreed on, we will inform the market accordingly. Moving on to the guidance and outlook. Our guidance remains intact. So the 2023 group adjusted operating profit is expected to be lower than in the year 2022, but at least 50 million euros. However, We have made some elaborations in the outlook regarding the housing market. The housing market recovery in Central Eastern Europe is expected to further continue. And in Finland, the market is expected to continue to be weak in the fourth quarter. In the outlook, we have now included also the fact that the delayed apartment completions could lead to postponement of revenue and profit from one quarter or a year to another. To conclude our financial position and performance in Q3. The actions to improve the financial positions are starting to have an effect. We have key assets of 1.9 billion euros. The capital efficiency measures are already demonstrating results. And most importantly, the cash flow has improved significantly and net debt remained stable. Thank you and over to you, Heikki.