Yit Oyj Unsp/Adr

Good morning, everyone, and welcome to YIT's second quarter 2024 results webcast. My name is Essi Nikitin, and I'm heading the investor relations at YIT. Together with me here are our CEO, Heikki Vuorenmaa, and our CFO, Tuomas Mäki-Peska. At this point, I will hand over to Heikki. Please go ahead.

Thank you, Essi, and welcome all to the webcast, also from my behalf. We launched our transformation program 10th of February, 23. At that time, we expected to reach our savings target by end of 24. Today, I'm happy to announce that we have already implemented the measures needed to save 40 million annually from our operations. The achievement does not mark the end of our effort. We continue to optimize our operational efficiency to identify further cost savings. Our profit for the second quarter was driven by infrastructure, business premises and politics and CEE performance, as the housing Finland remains affected by the muted market. Positive news from the Housing Finland is that our apartment sales have been growing for the fifth quarter in a row, and the number of unsold apartments went down by 13% in one quarter. Our quarterly revenue declined to 434 million, mainly due to one-time events in the housing segment during the comparison period. Our adjusted operating profit decreased and was 7 million euros for the quarter. Accelerated transformation savings also created anticipated one-time costs that now took place during the second quarter and impacted our operating profit. One-time costs amounted to a total of 49 million, of which 28 million associated with the transformation cost savings. And the 19 million was related to the closure of some historical projects in Sweden. One of the major cost items within the transformation costs is related to the use of our own premises. During the second quarter, we decided to partially release our leased headquarter premises for sublease to increase the efficiency of premises used. This impacted the program costs by 20 million euros. Such one-off costs are naturally a burden within a quarter, yet will improve company performance going forward. Let's take a closer look at our operating engine and four cylinders before diving deeper into our individual businesses. As mentioned, revenue from the housing sales in Finland declined by over 50%, and the profitability decreased 8 million compared to the previous year. On the other hand, our CE and Baltic operations continued stable performance, although a low number of completions impacted revenue and profitability. Our infrastructure segment significantly increased its profitability, achieving an adjusted operating profit of over 6% for the quarter. Business premises continued to improve its underlying operational performance and maintained good project control of the business. Let's move now to individual businesses and start from Housing Finland. As a result of increased apartment sales, number of unsold apartments decreased to 867 units at the end of June. We see this now as a trend going forward, and the highest number of unsold apartments in Finland is behind us. Order book is at 600 million, impacted by the low amount of startups and investor demand. Result for the period was negative 6 million euros, and we continue to accelerate actions and mitigate our operative costs to minimize losses during coming quarters. On this picture, we have included all the apartment completions to the Finnish market. So this is not only YIT completions or YIT production. The picture remains same as in the previous quarter. We do not observe new startups in Finland by housing market players. Supply to the market this year is substantially lower than last year, and 2025 the supply will be exceptionally low. Total number of completions are approximately 1,500 apartments for the full year of 2025. However, if we exclude already sold and special purpose apartments, true supply will be something between 800 to 900 units in 2025 to the Finnish market. So we can say with the reasonable confidence, that we are going to see supply shortages during 2025, which may lead to increase in pricing. Our plan for a while has been to use our inventory as a buffer to balance the demand and supply on this market cycle. As we sell now from our inventory, our unsold inventory declined by 13% or 133 units during one quarter. If we use the second quarter sales base as a proxy for analysis, our stock of unsold apartments in Finland will last until end of third quarter 25. Our stock remains well balanced and locates in the major university cities across the country. Some regional shortages are already present. As for example, in Jyväskylä, we have only one unsold apartment, and in Turku, some 20 units. We see our inventory at the moment valuable asset, as the pace and timing of the market recovery is still unclear. Let's then move to housing in politics and CE countries. The second quarter was relatively uneventful. Key KPIs are on the right track and businesses progressing according to plan. Our capital employed remains under control, even though we added some more capital to our plot reserves during the quarter. However, we do see the potential for further release the capital through increased production and the sales over the period of time. Number of unsold apartments inventory declined, order book is healthy, and our rolling 12 months profitability is at 14%. During this year, completions of 900 apartments will take place during the second half of the year. It will positively then contribute to the revenue and profit on those quarters. Then to the startups. During the second quarter, we started a total of 186 apartments, all in the CEE countries. It is a bit less than our quarterly sales. However, on the rolling 12 months basis, we are well balanced between the new starts and sales. In Finland, we have not started any consumer projects during this year. However, we have today 11 projects on the pre-marketing and another 29 ready to start as the timing is right. We have a strong land bank and secured financial position. So the decision is on our own hands to analyze right timing against our internal startup criteria. What is the optimum to do the startups in Finland? On our production side, we have 3,000 apartments under construction. It is 30% from the peak volumes, what we have seen in years 20 to 21. It's also 50% less compared to the same situation a year ago. So we can say that we have really adjusted our production to meet the market conditions in Finland. The sales rate has remained on a good level for the consumer apartments, and actually on the same level for the past three quarters, while the lower portion of investor sales continues to impact the overall number. Operatively, production runs well, and we are able to enjoy already lower construction costs and show the lead times on our construction sites. and to the completions more in details. We originally planned to complete approximately 250 apartments in CEE during the second quarter. However, we had a total of 100 apartment project completion shifted to early July in CEE, which postponed both revenue and profit from the second quarter. Total completions during the quarter was 196 units. Now we expect that the 900 apartments will be completed in the Baltics and CEE during the second half of the year and approximately 250 in Finland. Then we move to the sales. As mentioned, we are really pleased that our segment consumer sales in Finland increased for the fifth consecutive quarter and were 154 units during the quarter. While the absolute number is still modest, the trend and the market sentiment is more positive than a year ago. Our campaigns, 2% five-year interest rate cap or mortgage and rent your own home, have been successful. We have sold approximately 100 units through these campaigns by now. Sales reservations are on a good level, and we are pleased with a certain project pre-marketing reservations in Finland, which is a signal of trust from consumers towards YIT. In addition, we see that the private investors are back on the market, and we have done small bundle deals with the private investors during the year. Overall segment sales reached 350 units, and CEE clear improvement came from the sales in Czech Republic during the quarter. Then we look on our joint venture portfolio. We are also operating in the Baltics and CEE through these joint venture structures. It is a part of our operating model to scale up the business and tie up less capital during the construction period. Apartment sales to market from joint ventures increased clearly compared to the previous year and amounted to a total of 84 units during the second quarter. During the quarter, we completed 135 units and estimate that on the second half of the year, completions will be additional 200 units within those joint venture structures. Number of unsold completed apartments declined to 204 units and is on a healthy level. Capacity of these joint venture enables YIT to construct over 2,000 new homes in the Baltics and CE countries. And we are very pleased with the ongoing cooperation with our partners. Then it's the time to move to other segments and start from the infra segment. In past 12 months, we have structured the infra balance sheet through operative changes, business divestments, ramp down of our operations in Sweden and more. Now we have reduced over 70 million euros capital employed from the operations year on year basis. At the same time, we have improved the operative performance of the segment and reached our minimum target for the rolling 12 months adjusted operating profit. Our order book is strong and it provides work for following 24 months. All in all, infra segment is now in a good place to see growth and further improve operational efficiencies. Business premises is on the same journey as our infra segment has been. Our plan is relatively simple. To reach negative capital employed with excellent order book and through operational efficiencies, reach profitability that will clearly exceed the minimum threshold. While operational efficiencies and order book is more on our own hands, lighter balance sheet will be connected to the successful timing of the divestments, which requires increasing activity in the retail transaction markets. Result for the second quarter was still modest, €5 million or 2.9%. However, we see that the segment is progressing according to the plan and underlying project execution is continuously improving. Then before handing over to our CFO Tuomas Mäkipeska, I will go through our market outlook. We are not making changes to our housing market outlook in Finland yet. Yes, we see that the activity on the secondary market is picking up and the pricing levels increasing. Additionally, we also observe consumer sentiment and intentions to buy apartment improving, interest towards the housing loans increasing, and shortening of the average marketing times. On the primary market, home buyers are on the market and making great deals for their new homes at the moment. We have also seen private investors returning to the market and buying small bundle deals during the first half of the year. However, uncertainty continues high and the market recovery may still take more time than anticipated. Therefore, we remain conservative with our view and state that the market still remains weak and may not materially improve during 2024. On the Baltic countries, housing market is gradually improving. Estonia remains weak. In the CEE countries, we operate in the normal housing market. Our sales on all three countries are on a good level, and some projects, our price lists are already increased during the project execution. Real estate market for us remains normal. In politics, we have had successes in tendering, especially in Lithuania. In Finland, market activity remains normal from our viewpoint. Infrastructure market in Finland is normal, both in public and private sector. Large amount of tenders will be decided during this year. So that's all from our market environment, and now it's time to hand over to our CFO Tuomas to go through numbers in more detail. Thank you, Heikki.

From financial perspective, the Q2 was a stable continuum after a positive start for the year in Q1. Especially, we continued on the right track to improve our financial position. The highlight of the quarter was the finalization of the planned multi-step financing process and significantly improved maturity profile of the debt portfolio. Overall, the underlying profitability of the group was driven by the CE operations and the contracting segments, infrastructure and business premises. The housing market in Finland continued to challenge us and burned our revenues and profits in housing segment as already described. We made progress in releasing capital from the operations, and our capital employed decreased clearly. Consequently, we decreased the net debt by some 80 million euros from the comparison period. The cash flow was slightly negative, mainly due to the payments of plots that have been acquired earlier. Let's have a closer look at the financials, focusing first on the capital employed development. On group level, we have released almost 140 million euros of capital during the last four quarters by robust execution of the capital release program. In Housing Finland, we have been able to keep capital employed stable during the last 12 months due to the measures taken in the operations. Sale of the apartments from inventory and low construction volumes will further release capital in our upcoming quarters. In housing Baltics and CE, the capital employed increased slightly due to the land bank and inventory development. However, we have released capital altogether some 30 million euros during the last 12 months by conducting more capital efficient ways of doing business. Majority of the improvement from the comparison period is a result of the formed joint ventures to develop large area projects together with RSJ investments. This allows us to reach higher volumes profitably and tying less capital. In infrastructure, we now operate with negative capital employed and positive cash flow, which contributes to group financials very positively. In total, over 70 million euros of capital have been released during the last 12 months, demonstrating solid performance in capital release measures. Majority of the impact is attributable to the sale of equipment business and the ramp down of the operations in Sweden. Also, the negative capital employed have further increased in the operations in Finland. Finally, in business premises, we are on positive trend and some 60 million euros of capital has been released during the last 12 months. Largest single item remaining in the balance sheet is obviously the tripla mall. The execution of the capital release actions continues to improve the return on capital employed of YIT. Overall, we will be able to run our business profitably with clearly less capital than before. Let's move on to the cash flow development. Operationally, cash flow was positive in the period and continues on right track. However, the operating cash flow after investments includes 39 million euros payments of plots in CE countries that have been acquired before 2024. These plots strengthen our land bank in CE countries and provides basis for profitable growth in these markets in future. The last 12 months cash flow was 59 million positive and measures to improve networking capital efficiency have yielded results. As we have stated in our guidance for 2024, the operating cash flow after investments is expected to be positive. If we then compare our key assets to the net interest bearing debt, Our underlying asset base continues to be very strong and amounts nearly two times the gross debt. We have a land bank of over 830 million euros to serve as a platform for future operations and profits. Inventory assets under production decreased to 314 million euros, reflecting the declining number of apartments under construction. Completed apartments and real estate in our inventory decreased to 470 million euros due to the increased sales and lower number of apartments completions in Finland. Investments were worth of 279 million euros. The gross debt decreased by over 130 million euros from the end of March 2024. This is due to the term loan and RCF amortizations, as well as lower amount of commercial papers. Approximately 500 million euros of our gross debt is related to the IFRS 16 lease liabilities, including leased plots and long maturity housing company loans. The adjusted net debt amounted to 290 million euros. So our asset base is nearly two times the gross debt and balance of the debt structure has improved. Going forward, YIT's target is to operate with clearly less debt and utilize mainly project-based loans. Next, a few words about the financing situation of the company. We have now completed a comprehensive multi-step financing process, which included several actions and transactions during the last couple of quarters. By that, we are currently in a stable position in our financing with long maturities in the instruments in use. By issuing the new 100 million euros green bond in June, we effectively refinanced the matured bond, which was redeemed in April this year. Already in Q1, when we executed the substantial financing arrangement, we committed to amortize 40 million euros of term loans and cancel 50 million euros of the revolving credit facility in use. Consequently, we have now reduced the gross debt by 130 million euros compared to the end of March this year, as already mentioned. As a result, our debt portfolio is now more in balance between different instruments, and more importantly, the maturities of financing instruments are significantly extended. This enables us to focus in improving our financial performance and optimize timing of certain capital release measures to maximize shareholder value. We are very satisfied to have reached such a position at this phase of the cycle. We would like to thank our owners and equity investors, as well as debt investors and financing institutions who contributed to the successfully finalized financing process. Next, a glance on the balance sheet. The equity ratio of the company has remained stable at 33%. And regarding the interest bearing debt, we are on downward trend and on 80 million euros lower level compared to the last year's Q2, even though there was a slight increase from the end of March 2024 due to the lower cash and cash equivalents. Gearing increased from Q1 due to the increased net debt and lowered equity due to the negative net result in Q2. However, gearing decreased clearly from Q2 last year due to the favorable net debt development. Overall, YIT's target is to deleverage balance sheet and to return to below 50% gearing level going forward. In maturity structure of the interest bearing debt, having only minor amortizations to be performed this and next year, provides a stability and possibility to focus on improving the profitability of the company, as already mentioned. One of the highlights in the quarter was definitely the transformation program going on in the company. The program was launched in February 23 and the rigorous execution of it has been a priority in the company. We have created tangible benefits both operationally and financially. The run rate cost savings target of 40 million euros for the program was achieved ahead of schedule by the end of June. Transformation related costs has been estimated to be between 50 to 70 million in total, of which 51 million euros was realized by the end of Q2. A large item in the costs were related to the decision to partially release the least headquartered premises for sublease to improve efficiency of the premises used. Also, the capital release stream of the program has progressed favorably. With the actions taken by the end of June, we have released approximately 140 million euros of capital. We are determined to continue the transformation program to gain further efficiencies and other benefits during the second half of the year. Heikki, would you like to elaborate from your perspective on the program as well? Thank you, Tuomas.