Yit Oyj Unsp/Adr

Good morning, everyone, and welcome to YIT's full year 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 CFO Tuomas Mäkipesko. Without further ado, I will hand over to Heikki. Please go ahead.

Thank you, Essi. and good morning and welcome to the webcast also from my behalf. We ended the year with positive news on our apartment sales. The quarterly apartment sales increased in Finland, with December being the best month in 2024. We started new projects to respond to demand in certain Finnish cities. Also, the sales in our residential operations in the Baltic and CE remained strong. Quarterly sales hitting a three-year high. Total YIT homes that we sold to the market during the Q4, as we include also the joint venture apartment sales, exceeded 700 units during the fourth quarter. Our contracting segments improved performance and secured significant new orders from the industrial customers. So despite the challenging market, Q4 operatively was a solid quarter. But before we are diving into the Q4 in details, let me first review the full year of 2024. At the start of 24, we renewed our financing with a multi-step approach and extended debt maturities. Our net debt decreased by 115 million euros due to the strong cash flow during the fourth quarter. We completed our transformation program ahead of schedule, cutting 43 million euros of our fixed costs while enhancing organizational capabilities. I will discuss this further in the presentation and more in details. In Q4, we also announced our new strategy and financial targets for 2025 up to 2029. Then when we look over segments full year, despite the weak market conditions in the Finnish residential market, our sales increased by 40% to almost 600 units for the full year. Market recovery in the politics and CE led to over 50% increase in the project starts, supporting our future profits. Finnish infrastructure operation increased revenue, profit and order book during 2024. The building construction operational performance continued to improve, but the balance sheet remained an issue for us. So overall year has included several important milestones for the company. When we look at our full year numbers, our revenue declined 16% compared to the year 23, and our adjusted operating profit decreased from 41 million to 32 million in 24. Major impact on the financial numbers is due to the Finnish residential market conditions. But as we close the year, it is also important to discuss our full year adjusting items more in details. So our full year operating profit has been influenced by the actions taken both in our transformation program and on our business portfolio. Firstly, a total of 54 million euros in adjusting items are related to the transformation program. Of this, 20 million euros are associated with the write-off of the company headquarter premises lease contract in Finland. The remaining 34 million euros in transformation costs consist of program costs, investments into the new capabilities, tools and systems during 2024. All costs associated with the transformation program have now been fully accounted for, with benefits expected to become visible in the coming years. As part of the decision to gradually exit from the business operations in Norway and Sweden, we have actively resolved old projects with clients. Operations in Norway are now fully closed, and operations in Sweden have reduced by 80% compared to the previous year, with only few final projects ongoing with our customers. This has cost the company a total of 45 million euros during 2024, highlighting the significant challenges we have had in these operating countries historically. Additionally, there was a positive adjustment item resulted from the sale of our equipment business during the first quarter of 24. In conclusion, although the company operating profit in 24 did not meet management expectations and we carried a lot of adjusting items, we remain confident that these necessary actions will yield long-term benefits. We initiated our transformation program at the beginning of 23 to address the short-term market challenges and enhance the company's long-term capabilities. The company structure and operating model cost excess amount of fixed costs. But project management in the contracting businesses faced operative performance challenges, and the procurement function operated mostly on a project basis, not fully leveraging the benefits of scale. As a management, we identified several levers and operated under the transformation governance for the past two years to address these shortcomings. With the completion of the transformation program, our focus now shifts to continuous improvement of the business. We have achieved a fixed cost saving run rate that will result in 43 million euro savings from the company in the coming years. And additionally, various aspects such as the procurement and the project management capabilities were developed within the program. Let's double click on some of the results on the following page. And we start with the project management and the project management deviations, to be precise. On the left side of this page, you can find project margin net deviation for our contracting segments since 2020. The building construction segment has had historically poor performance, significantly impacting group results. However, since mid-23, there has been an improvement, and in 24, projects have already achieved a positive level of net deviations. This indicates improvement in operative performance and capabilities to generate profit on this segment. Infra operations in Finland have been well under control over the past two years, which is visible on the segment performance already. Our residential operations in Finland and Central Eastern European countries faced fewer project management challenges due to the nature of the business as such. And regarding the fixed costs, we have reduced the company fixed costs by 25% from our 2022 baseline through simplifying operational models and streamlining our work processes. While simultaneously, our revenue also has declined by 24% and the margins on the Finnish residential business has decreased. This development has overshadowed some of the benefits on our group financials. The third component which we have focused on our transformation is to release the capital from our operations. And since the first quarter of 23, our capital employed has decreased almost 300 million euros. But now let's return to the fourth quarter results. During the last quarter, the residential business in the Baltic Sea was the primary profit contributor. Supported by strong sales and completions, profitability for the area was 25 million euros with an almost 20% operating margin. The comparison period included 6 million higher gains from joint ventures that affected the comparability. The challenging market continued to impact the residential business in Finland, and with the low revenue, business profitability remained negative. Infrastructure operations in Finland maintained a solid performance, resulting in over 5% operating margin for the fourth quarter. Building construction revenue declined substantially from last year, and the operating profit was slightly positive for the quarter. Next, we will go and deep dive on different areas, and we will begin with the residential Finland operations. Our unsold apartment inventory in the Finnish residential business continues to decline, reducing our capital employed by nearly 50 million from the previous quarter. This trend is expected to continue as we sell our apartments from the inventory during the year. The order book remains stable due to the new starts both to the government supported rentals as well as self-developed customer projects. Overall profitability is negative and below our strategy target, mainly due to the market conditions. Then when we look at the outlook for the Finnish residential market completion, the outlook remains actually unchanged. There are limited starts from competitors, and those are mainly outside of the capital area. As a result, the market supply for 2025 is projected to decrease further from 24 levels. Regional tightness is already being observed, along with the rising market prices on the secondary market. Moreover, the market downturn has also impacted the amount of industry players. Some of the developers have shifted their focus towards tendering business or commercial premises, or completely actually made exit from the market already. In conclusion, the Finnish residential market is heading towards a tighter supply scenario with implications for both pricing and availability. Our inventory of unsold completed apartments is decreasing. We are currently retaining approximately 700 units with nearly 70% located in the capital area. On some cities outside of the capital area, we are already running out of supply. With increasing urbanization and demand for homes in prime locations, We anticipate these units will continue to attract interest from diverse buyer segments, including investors seeking stable rental income. And as we have discussed earlier, we expect that our inventory levels will normalize within this year. Moving on to our operations in the residential Baltican Sea. And our operations during Q4 on those countries remained strong. Our sold order book share is up and the order book is increasing. This increase in the sales volume highlights the positive market reception and consumer confidence in our products. Adjusted operating profit margin for rolling 12 months is at 12%, nearing the strategic target of 15. Our capital employed is controlled and aligns with our strategic target. So to conclude, this area is on a good track. Then let's move to the starts. So we have now initiated new projects in Finland to address the demand in the selected cities. Although the overall volume is still modest, we observe increasing pre-reservation rates in certain projects and cities outside of the capital area especially. The full year of 2024 apartments starts focused on Central and Eastern European countries where the market conditions are more favorable. These regions have shown consistent growth and demand for homes over the past quarters. And this is aligned well with our strategic objectives as well. When we discuss about the starts, it's good to note that our plot reserves, financial position and availability of funding supports the project starts. However, we remain cautious in assessing the market conditions and the pace of recovery when deciding to start new projects. Then our production, residential production and operations are running smoothly. We have achieved lead time efficiencies as well as cost benefits, which is enhancing our competitiveness on the projects. Cost inflation has stabilized and the material availability is sufficient. Currently, the amount of unsold apartments under construction corresponds to some nine months of sales, which is clearly within the production lead time. Then as we look at the completions during 2025, we need to note that due to the low number of starts during 2023 and 2024, the apartment completions will be notably low. This is evident both in residential Finland and Central and Eastern European countries. As a result, we estimate approximately 1,300 apartment completions in 2025, with a substantial 75% of these completions occurring outside of Finland. This anticipated decline in completions directly affects our ability to generate profits from the Finnish residential business segment in 2025. Then let's move to the sales. As we told the positive news in the start, in the fourth quarter, we sold the highest number of apartments in Finland within the past two years. December was our strongest sales month in Finland during the last year. The total volume in Finland increased by over 40% compared to the previous year, and our sales for the year reached nearly 600 units. The strong sales in the Baltic and SEA countries reflect also the supportive market environment. Now, as we look forward, we continue to boost our sales and secure the plant growth and the new starts. One more update on the residential before moving to other areas of our businesses. Our joint venture operations are progressing well. We sold 255 units during Q4 from our joint venture projects. Our unsold inventory is now under 90 units. Also here, this year completions will be lower than in 23 or 24 due to the fewer starts in the past two years. All right, now it's time to shift focus and we start with the infrastructure business. Our Finland operations have truly transformed. Now we operate with the negative capital employed. Profitability over the past 12 months is at 4.3%, and we are improving efficiency to meet our strategic targets. The order book has grown, including new orders from Tranvay Investments and industrial customers, for example. Our capability to attract talent is increasing. It's driven by attractive new strategy, our market positioning and actually the team spirit that Infrateam has. Overall, Infrateam is performing well and we expect continued success. And with a solid operational performance, growing order book and talented workforce, the Infrateam is well positioned to achieve the strategic target set earlier last year. Then to the building construction segment. The building construction segment is undergoing a similar transformation as the infrastructure segment has done. While we are not yet satisfied with the profitability or the balance sheet, we do recognize the steps towards the right direction. Our project management has significantly improved as we discussed earlier. However, operational costs linked to the balance sheet still remains burden for us. The order book here has declined due to the fierce tendering conditions as we avoid projects with negative margins. Additionally, moving away from self-development projects has lowered the order book value compared to historical levels. The building construction team has made significant progress, though it's not fully reflected in the performance yet. And I am confident they will deliver better results moving forward. And concluding with the market outlook before handing over to our CFO. We have upgraded the Central Eastern Europe residential market from stable to improving. We see normal conditions in all areas except the Finnish residential market. However, we do expect a primary apartment market sales volumes slightly increase in the Finnish residential market in 2025. But now it's time to hand over to our CFO Tuomas Mäkipeskä for a detailed financial performance review. So, Tuomas, over to you. Thank you, Heikki.

As you pointed out, the year 2024 was an important and successful year from a financial perspective, and we managed to improve our financial position during the year. The profitability was driven by good performances in the Baltic and sea countries, residential businesses and in the infrastructure segment, while the residential market in Finland challenged us and burned our revenues and profits. Cash flow was strong and improved significantly from the previous year. And as you pointed out, the capital employed decreased clearly, over 200 million euros, and consequently we lowered the net debt by some 115 million euros from the comparison period. But let's have a closer look at the financials. The capital release from the balance sheet and the capital efficiency in business operations are top priorities in our strategy. On a group level, capital employed decreased throughout the year, And all in all, we released over 200 million euros of capital in 2024, driven by the successful capital release measures. We took a major step forward, especially during the last quarter, as all segments contributed to the good development in capital employed. In Housing Finland, strong sales of the apartments from inventory and low construction volumes supported the decrease in capital employed. And in housing Baltics and CEE, we released capital altogether, some 20 million euros during the year, mainly as a result of the four joint ventures to develop large area projects together with our partners. In infrastructure, we reached the target to operate with negative capital employed already in Q2, and the trend has continued since. In total, some 100 million euros of capital was released during the year. In business premises, capital employed decreased during the Q4, driven by the net working capital efficiency. According to our strategy, the execution of capital release actions will continue, and this will consequently improve the return on capital employed of the company. Let's then look at the cash flow development. The operating cash flow was clearly positive and amounted to 110 million euros for the year, which is a significant improvement from the previous year. The cash flow was mainly driven by positive operational cash flow in the residential businesses, both in Finland and CE countries. The measures to improve the networking capital efficiency have continued to yield results. Maintaining positive cash flow has been a key focus for us. The 12 months rolling operating cash flow has now been positive for the past four quarters. As we look at the key balance sheet metrics, they developed positively during the Q4. One of the definite highlights in the quarter was the fact that the net interest bearing debt decreased significantly. Overall, we decreased our net debt by €115 million during the year. This was directly reflected also in gearing, which decreased to 88% driven by the favorable net debt development. Then in maturity structure of the interest bearing debt, having only minor amortizations to be performed this year provides us stability and allows us to focus on improving the financial performance of the company. We are currently preparing for the 2026 refinancing as a part of the ordinary financing planning of the company, and we will naturally inform the market when any decisions are made. If we then move on and compare our key assets to the net interest bearing debt, we can see that our underlying asset base continues to be very strong and amounts actually to over two times the net debt. We have a land bank of almost 800 million euros to serve as a platform for future operations and profits. Our completed apartments and real estate in our inventory amounts to some 400 million euros. As already mentioned, the net debt decreased significantly and amounted to 680 million euros at the year end. The biggest component behind the year-over-year development is the housing company loans related to the unsold apartments, which have decreased along with our stock of unsold apartments. Some 450 million euros of the 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 230 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. Then moving on to the guidance for the year. YIT expects its group adjusted operating profit for continuing operations to be between 20 and 60 million euros. The residential market in Baltic countries and Central Eastern Europe is expected to continue favorable, contributing positively to residential CEE segments' capability to generate profit. In Finland, the primary apartment market sales volumes are expected to slightly increase during 2025. And in residential Finland segment, low amount of completions during 2025 will limit the segment's capability to generate profit. In building construction, the operational performance is expected to improve and in infrastructure, the operational performance is expected to remain stable. So before handing back to you, Heikki, it's time to summarize the finance section here. According to our strategy, we are focused on reinforcing our financial stability. And during the financial year of 2024, we took a major step forward. Capital employed decreased throughout the year, driven by the successful capital release measures, and the actions to release capital and increase capital efficiency continue in the coming years. Our net debt decreased significantly and cash flow was strong. And thirdly, our financial position provides us the capacity to start new residential projects to support our future profitable growth.

Thank you. And now back to you, Heikki. Thank you, Tuomas. And that is concluding our 24 financial review part, but maybe one topic before we actually opening for the questions. I would like to take us back on November and where we released our updated strategy for the years 25 to 29. It was a major milestone for us and something that we have discussed rather extensively also within the company, where we are heading to. And as we decided our strategic priorities, we say that we want to deliver the industry leading productivity and financial performance. We are focused on generating targeted growth and resilience for the company in the coming years and also elevate customer and employee experience. A couple of highlights already from the execution, what we are in concrete terms meaning. We said that there are megatrends that are supporting our growth plan. The megatrends are, for example, increasing investments to both energy and data sectors. We've been very pleased that the customers have chosen us as their main partner to develop these two great examples with them that we announced during the fourth quarter. These projects are really important for us and we are continuing to invest in our capabilities to deliver these industry leading solutions for these and other similar projects that are on the market. So it's time to conclude here. And operator, it is time for questions.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Ancy Rousey from SEB. Please go ahead. Thank you.

Thank you for the presentation, and hi all. I have a few questions, and if you may, I start with the cash flow. So, as you mentioned, Tuomas, this is related to working capital items, and I think especially working progress items and plots. So, should we assume that now you have started a lot of investor apartments, So, we maybe shouldn't expect that much of cash flows during 2025 from these projects, or how should we think about this, and also maybe in a broader picture, cash flow expectations for 2025, if you could talk about those. Thanks.

Yes. So, first of all, what we mentioned already in the Q4, The residential businesses both in Finland and the countries really supported the cash flow since we increased the sales in both of the segments, nowadays segments. And those are the main sources for the cash flow for the future as well. As Heikki, you mentioned in your part of the presentations, we are really focused on selling the apartments from the inventory and both in CE and Finland. So that will support the cash flow. Then also looking at the other segments, the capital employed in infrastructure, it's on the negative side and the segment is able to provide positive cash flows. And the same goes for the business construction segment. So all in all, all of the segments are able to generate positive cash flows. But on a yearly basis, we are not guiding exactly the cash flow. So that's all we can comment here.

Can I actually, Anssi, maybe double-click on the residential business side? And if you look at the amount of unsold inventory on our balance sheet, I think we still amounted some 390 million in total. in terms of value. And of course, that business model or the fact that when you have those on your balance sheet, so that ties capital and consequently the cash. And as you can see now, the capital is released significantly from our residential business in Finland as we are releasing or selling off our inventory. And we see that We continue to sell from our inventory, as we also have been communicating, is that we expect that our inventory levels will normalize during this year. By the pace we have had, we actually are kind of sold out from the inventory already, like end of Q3 or so. So that is a big part of source of the cash flow. Not much of the investor project that may be... That is more significant source of cash flow than investor projects that was discussed.

Maybe if I can still continue. So from the other perspective also, what we have communicated earlier as well, so our plot reserve is large and there are no major needs to make new investments to the plot reserve, so that also supports your cash flow going forward.

Great, thank you. Then maybe about, again, 2025 and your expected adjustment items. So, for example, Swedish infra business and these kind of items, maybe additional cost savings. So, what kind of adjustment items we should expect in 2025? Yeah, so... If you can give any ballpark here.

Yeah, if I start a bit on the... Here. So, the transformation program is now completed, closed, fully accounted. When we look at operations in Sweden and Norway, so Norway, that is completely kind of completed there. And we have been scaling our operations in Sweden down already by 80%. So the volume and the magnitude of that business is substantially smaller than it has historically been.

And also if I may continue, so the transformation program which accounted the majority of the adjusting items for the last year, so as you mentioned, so that's now completed and we are shifting to continuous improvement mode in the company. So also from that source, the adjusting items was seen in 2024.

Great. Thank you.

That's all from me.

Thank you, Anssi.

The next question comes from Svante Krokfus from Nordia. Please go ahead.

Good morning. Thank you. I can talk for the presentation. A couple of questions. Given your relatively high sales, consumer apartment sales in Finland, could you elaborate a bit on what kind of pricing you have used there, rebates or campaigns? And a follow-up on that also, of the 174 sold apartments in Finland, are all to consumers or are there any sales to JVs or other bundle deals?

Okay, let me start from the first on the latter part of your question. So no sales to JVs. We haven't sold to any of our JVs since second quarter 2023. and we didn't sell any apartments also to the Chavis during Q4. There are certain smaller bundle deals for private investors, so we see that private investors are looking to return to the market, and we were capable to execute certain transactions there. And then when it comes to the customer or the consumer demand, the private home buyers, so it varies quite a lot between the project, between the region, city and apartment and the pricing discussions what we have had during the Q4. We haven't had any, if you think about like interest rate caps or kind of major campaigns, so we didn't actually run those so much during the fourth quarter.

Thank you, so it's basically discussions apartment by apartment.

It is indeed, and then if you look that we also... The new project that we are starting, so in those, the pricing what we are setting is already extremely competitive on the market, meaning is that for the new starts, and then for the project, it really depends on city and the location and also that the amount of unsold apartments on that single project, so it varies quite a bit.

Thank you and then thinking about the capacity to start new consumer apartments in self-developed in Finland, are there any external bottlenecks like what kind of housing company loan availability do you have and so on?

Yes, so we have started the new project, so we have availability on funding. We have plots, we have teams, we have pre-reservations. What we are looking at is thorough risk management, so the micro location. And we want to be sure that when we start the project, we actually are then ensuring that there is a demand for that. But also then looking on the time wise, what is the most optimum time to start the construction also. In certain parts of Finland, there is a heavy winter ongoing, so doing the ground works or it might not be optimal exactly on this point in time. So those are the elements that what we are then considering as we make the startups.

Thank you, that's helpful. And then the last question, could you elaborate a bit on the demand for investor apartments, how that has developed recently?

For the full investor projects in Finland, we see that there is not a high demand at the moment. It hasn't been there, and we do not expect that market to open before significantly in a short period of time. But then what comes to the private investors buying individual apartments, so that demand has been there already and increased since mid last year.

Thank you. That is all from me.

Thank you, Svante.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Emil Imonen from Carnegie. Please go ahead.

Hi, Heikki and Tuomas. Thanks for taking my questions. Could you help us understand a little bit in detail what's the difference difference between the adjusted EBIT on a group level and the segment-wise adjusted EBIT?

Thank you, Emil, for the question. The explanation behind there is really some of the costs related to the transformation program. So if you look at the segment adjusted EBITs and the group level, so you can see adjusting items there, so you can see that a lot of the or the adjusting items are actually booked to the other segment, and that's related to the measures in the transformation program.

Okay, so it's not sales to the other segments.

there are, as part of normal course of action, there are always eliminations between, group eliminations between the segment operations, but that's just a minor part of that.

Okay. Then on the consumer sales, I was wondering, have you seen any impact or something slowing down in the market, the sales overall, for example, banks being slow with with granting loans to consumers?

Well, I think in most of the cases when we have a consumer discussion is that how do they ensure that their own home is sold before buying the new one or funding the bridge So that maybe is the majority of the conversations and discussion what we are having with the customers on our sales teams.

Yeah, if I can continue. So it's basically in a big picture related to the consumer confidence, which has been on quite a low level, even though it has increased from the lowest points, but that's mainly the thing behind the decision making and not that much any other external factors such as lending from the banks.

Okay, thank you. Then maybe one question on business premises. What exactly, why did the profitability decrease there? I saw that the value of tripla increased a little bit, so what are the balance sheet related items?

Yeah, so we have disclosed there also on our full report some millions that were connected to those, but there are As you carry amount of a balance sheet that doesn't really create you value, so there are running costs, there are operational costs, there are several other elements that have impacted our profitability there, and also during the Q4, which kind of in a normal course of business one should not carry, and therefore we want to kind of explicitly state that if you look at our performance and the project management that the team has done and executed there, so it's really on the right track, as we have discussed on the operative performance improvements. But unfortunately, it's not visible on the numbers yet, but we will work on to solve that equation, we will work on to get the balance sheet to the level where we are targeting to, and we will continue to work such a way that we are reaching those strategy targets, and we are confident that that we can do during the strategy period.

And also, if I may, Heikki, continue. So there's, of course, the big item in the balance sheet is the mole of tripla. and the costs are not related to that item. Actually, the Mall of Tripla is performing very well. So that's to be precise here. So no kind of worries regarding Tripla. Actually, it's performing really well and looks good.

But if I understand correctly, is it so that excluding the Mall of Tripla when you get the capital employed down in the segment, then the operational performance also improves or it's more visible.

It's then more visible.

Exactly. And we are targeting also, as we communicated as a part of the strategy, we are also in that segment targeting to operate with negative capital employed, as in infra.

Okay, excellent. That's all from me. Thank you.

Thank you, Emil.

The next question comes from Ansi Rousey from SEB. Please go ahead.

One more from me. So, how big share of your portfolio of unsold completed apartments has been in the market for over one year? And maybe do you have to take some, let's say, additional actions to offload these apartments, and do you think that this will have a significant impact on your EBIT this year, 2025? Thanks.

I don't have that number, Anssi, on top of my head. There has been... We have been taking already actions with some of the older apartments during the past two years. And I do not see that that would be the kind of a driver in 2025. Mostly what we have in the capital area, like 70% locates here, they are produced and started in a few years window. But I don't have that split on top of my head apologies for that.

Probably to continue on that. So the age distribution of the inventory. So what we have been now, for example, in Q4, the increased sales from the inventory. So it has been across the whole age distribution of the inventory. So I think that's good to note. Also a bit of the older apartments we have been selling now as the sales have increased. So that's good to note.

Yeah, basically, yeah, I was asking that, is it becoming a problem, but it's good to hear that.

No, no. Thanks.

There are no more questions at this time, so I hand the conference back to the speakers.

Okay, there are no more questions, so we thank you all for participating and wish you all a great rest of the day. Thank you.

Thank you. Thank you.