Yit Oyj Unsp/Adr

Good morning, everyone, and welcome to YIT's third 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 Vuoremaa, and CFO, Tuomas Mäkipeska. At this point, I hand over to Heikki. Please go ahead.

Good morning, everyone. Welcome to Follow the Wire, this third quarter highlights through this webcast. I will share some of the thoughts on our third quarter result, and then Tuomas will continue more details on our financial numbers and performance. The quarter progressed as planned. The profitability increased in all segments during the quarter, resulting in a positive cash flow. As a result of improved market environment, we also are pleased to upgrade our view on the Baltic's residential market, as the market has turned to the normal from our perspective. And during the quarter, we sold a total of 550 YIT homes to consumers. So overall, a solid quarter, and we are well on track to achieve our financial guidance for the year. During the quarter, our revenue declined, and it was 450 million euros. It's good to remember that the comparison period included certain one-off transactions, such as selling of Maistratin Partti, which is one of our office buildings, and that took place third quarter last year. However, those do not fully account for the delta, what we are seeing here on the year-on-year comparison. Supported by the positive benefits from the transformation program and the completions in the politics and CEE, our profitability increased compared to last year and amounted to 26 million euros during the quarter. Let's split the numbers to our businesses and also discuss those more in details. Our overall operating profit during the quarter reached 5.6 percent, which is a solid performance considering the market conditions in Finland. Housing Finland turnover and the profitability decreased year on year, and it was supported by a positive 6 million euro item. This item is connected to accruals on our balance sheet related to liabilities that we have for apartments that has been on 10-year liability period. It is good to note that this amount has been accrued to our finance sales during earlier quarters and has impacted our profitability earlier. Now it was recognized, thus the positive impact during this third quarter. Here today, we are now on a correct level. HousingPolitik and CEE continued according to plan, delivering solid profitability with nearly 10% operating margin during the quarter. Infra had another good quarter. Revenue increased and the profitability remained at solid 5% level. Performance in business premises also improved as planned, and the segment profitability is trending into right direction. So our operative engine is getting up to speed, yet recovery in housing Finland has not yet started. Let's double click on different business areas and start with the housing in Finland. Amount of unsold Finnish apartments continues to decline as our sales speed exceeds completions. This trend we expect to continue in the coming quarters. During the quarter, we also agreed and communicated new projects with our customers that are building supported rental houses. Those are now recorded to our order book. The overall decline of the order book is due to the market conditions in Finland. And during the first nine months, we did not launch any new self-developed projects in Finland. Then if we look at overall completions to the Finnish housing market and the outlook that it has, there actually hasn't been much changed in overall completions to the market in the coming year. And consequently, we are already starting to observe regional supply shortages. The status of vehicle rental apartments and unsold Finnish apartments is predominantly an issue in the capital area. If you look at other growth cities, such as Tampere, a supply shortage is already a reality. At the same time, apartment prices on the secondary market are at a historically low level, and construction companies are offering discounts to consumers. Consumer confidence in Finland is then again on the highest level since 18 months, and the purchasing power is increasing. We also see that the interest rates have declined substantially during the third quarter. And as the start of the new apartment has reduced by 90% already for the past 48 months, the new supply will be exceptionally low during 2025. To conclude, buyer's market will turn to seller's market, and it will have consequences on availability and prices in the coming years. Our stock of unsold apartments is declining as planned. This stock continues to be an asset for us, as there are no new completions coming up for the period of time. Our apartment stock is concentrated to the capital area, while we are almost sold out on other major cities. For example, we are sold out completely in Joensuu, Jyväskylä, Mikkeli, and many other cities in Finland. Inventory in Tampere reduced 30% during the quarter, and in Turku, we have only few units to go. So the stock is running out, and it will last until end of third quarter in the capital area. Outside, it will end much earlier. But time to leave Finland and move to other European countries inside of our housing segment. The positive trend continued on operating countries, and we see our finished apartment stock melting on accelerated pace. Order book is well under control, despite we did not have much starts during the quarter. Rolling 12 months operating profit margin is at 13%, which is a solid level for the business. Talking about the starts, so we started limited amounts during the third quarter, only 57 apartments. There is no drama behind the Baltic and CEE number. We were starting according to the business plan and continue to launch new start same pace as the sales progress. In Finland, we didn't have any starts during the quarter, which reflects the current market conditions. Could you note, like I mentioned earlier, that we haven't started any projects during the first nine months, and it will limit some capabilities to turn the profit on the following year. We have 12 projects in pre-marketing, and we have started now one project in Vaasa during the fourth quarter. If you look at the completion of that project, it will still complete during 2025. And our construction lead time, if you look at our residential project in Finland, has decreased over 15% compared to the past two years, and it's under 12 months now. So we do have capability to execute projects still to 2025. and especially to 26 in Finland. So that's good to know, even we haven't started that much in Finland during this year. We will actually discuss this topic much more and our improved capabilities during the Capital Markets Day presentation that I invite all of you to join either in person or through the webcast. The production for us is now 2,600 apartments, what we have, and we believe that the bottom of the cycle has been reached. The supply chains are working well, material costs are stable across the operations and projects well under control. We have taken substantial efforts to consolidate our supply base and that work continues as we are seeking a closer cooperation and improved resilience for our supply chain for the coming years. I talked a bit on the starts and then the completions. We had a total of 376 completions during the quarter, and those 61 took place in Finland. We also have shifted some completions in the Baltics and CEE from this year to early next year, so that the total number of completions has declined a bit for 2024. There is no drama again here. The reason behind is not production related. It's more connected to optimization of total economical impact for the company. Then to sales. As I mentioned in the beginning, we had a solid quarter in sales. Our segment sales increased both in CEE and in Finland compared to last year. I'm particularly pleased with our sales team's effort in politics and CEE to create compelling offering to our consumers. We also have introduced new AI-based tools and analytics to support our sales and results are tangible and visible on these numbers as well. As mentioned, we sold 550 YIT homes during the quarter, as we include also the sales from our joint venture production vehicles, which we actually are double-clicking on the following page. Also, our operations in this joint venture production vehicles are progressing very well. Sales strong during the quarter, amount of unsold inventory decreasing, and the new completions are actually taking place on the fourth quarter. We have a capacity to produce over 2,000 new homes with our JV partners in Baltics and CEE countries. So overall, solid performance during the quarter, and we are in a very good place also with those operations in the Baltics and CEE. Then it's time to leave the housing segment behind and move to our infrastructure segment. Our infra segment is showing consistent performance and all the KPIs are pointing to the right direction. We have already resolved the balance sheet. Order book is particularly strong and profitability is on a good level. Performance turnaround is also attracting talent from the industry, and we are seeing many top performers joining to wire the infra team during the previous quarter and throughout the year. So all I can say is that the infra is on a good track. Business premises quarter was also completed and ended up with a high note. Results improved to our comparison period. For the business premises team, the track is still short, but we start to see a solid foundation and renewed project management skills having a positive impact on our operating result. Our order book trend is connected to industry competition situation. We are remaining focused on complex project and sustain healthy margins that is allowing us to deliver quality and perform work safe way to our customers. Still, our order book is strong and we keep our promise to customers, which is a key on our business. It starts to be time to conclude from my behalf before handing over to Tuomas. Like I mentioned, we have now upgraded to our Baltics housing market outlook to normal. The reason for that is that the progress over past quarters has also shown that the recovery has continued. Lithuania, Latvia, and most recently also Estonia, housing and residential market is turning better. Therefore, we are seeing is that we are now operating also under the normal conditions in the Baltic countries. In Finland, the market continues same. Market recovery is expected during 25, and it might be tilted towards second half of the year. There's no changes to other market conditions on our operating countries. All right. Time now to hand over to you, Thomas. Thanks, Heikki.

From financial perspective, the Q3 was a solid quarter in the current operating environment. Our key performance indicators continued on the right track. Profitability improved in all segments, and all businesses contributed to the overall solid quarter. Capital employed decreased clearly, and consequently we lowered the net debt by some 80 million euros from the comparison period. Also, the cash flow for the quarter was positive. Let's have a closer look at the financials. Starting with the capital employed. As you can see, the quarter was steady from the capital employed point of view, and we didn't take major steps forward during the quarter. When looking at the slightly longer time period, we are on a positive downward trend. During the last four quarters, we have released 140 million euros of capital on group level by execution of the capital release program. In Housing Finland, we have been able to keep the development pretty much stable during the last 12 months due to the measures taken in the operations. And sale of the apartments from inventory and low construction volumes will further release capital in upcoming quarters. In housing Baltics and CEE, we have released capital altogether some 30 million euros during the last 12 months, mainly as a result of the formed joint ventures to develop large area projects together with RSJ Investments. In infrastructure, as Heikki already mentioned, so we continue to operate with negative capital employed and generating positive cash flow. In total, over 70 million euros of capital has been released during the last 12 months, demonstrating success in capital release measures. Also in business premises, we have released 25 million euros of capital during the last 12 months. The execution of capital release actions will continue and consequently improve the return on capital employed. Let's move on to the cash flow development. Operating cash flow continued on right track and was slightly positive in Q3. The last 12 months cash flow was 63 million positive and measures to improve the networking capital efficiency have yielded results already. As we have stated in our guidance for this year, the operating cash flow after investments is expected to be positive. and maintaining positive cash flow has been key focus for us, and that we have delivered on a stellar manner. If we then compare our key assets to the net interest bearing debt, Our underlying asset base continues to be very strong and amounts to over two times the net debt. We have a land bank of over 800 million euros to serve as a platform for future operations and profits. Completed apartments and real estate in our inventory decreased to some 400 million euros due to the apartment sales and lower number of apartment completions in Finland. The net debt amounted to 790 million euros at the end of the quarter, and almost 500 million euros of net debt is related to the IFRS 16 lease liabilities and long maturity housing company loans. When deducting these two components, the adjusted net debt amounted to some 310 million euros. So the key takeaway here is that the balance sheet is asset rich and the adjusted net debt is very moderate in comparison. Equity ratio of the company increased a percentage point and stood at 34%. And net interest bearing debt remained stable, as mentioned, compared to the end of Q2, but was 80 million euros lower than at the end of the comparison period. Our financial position allows us time to address the level of indebtedness, and there are actions ongoing to deleverage the balance sheet. Gearing stayed on the same level as in the end of Q2, but decreased significantly from Q3 last year due to the favorable net debt development. 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 financial performance of the company. Then a couple of words about the transformation program still. As we communicated in July, the run rate cost savings target of 40 million euros was achieved ahead of schedule. The results of the program are already visible in our improved profitability. Transformation program related costs has been estimated to be between 50 to 70 million euros in total, of which 57 million euros was realized by the end of Q3. The program itself ends at the end of this year, but we will continue the work and move towards continuous improvement. We continue to see a substantial potential to release capital and improve the performance of the company. But we will elaborate on these topics at the forthcoming Capital Markets Day, as Heikki mentioned. Moving on to the guidance then. Our guidance remains intact. meaning that we expect group adjusted operating profit for continuing operations to be between 20 and 60 million euros this year. Operating cash flow after investments is expected to be positive. Also, the outlook remains unchanged. So to summarize the finance section, profitability improved in all segments in Q3, and we are on track in achieving the expected results for the full year. Stable financial position enables us to focus on improving the financial performance of the company and optimize timing of certain capital release measures to maximize shareholder value. And then we continue to execute the transformation program to improve the overall performance of the company. That concludes my part and handing over back to you, Heikki.