YIT Oyj (YIT) Earnings Call Transcript & Summary

So let's get started. My name is Tommi Jarvenpaa. I'm head of YIT's IR. Ilkka Salonen, our CFO, is here with me today as well. We'll first hear a short introduction by Ilkka. And then after that, we will be taking questions. [Operator Instructions] Please note that the call will be recorded as well, and the recording will be published on our website after the call. With this, Ilkka, go ahead.

Yes. Good morning, everyone. This is Ilkka Salonen and unfortunately, the Teams is absolutely locked. So I'm not sure can you see my picture over there. But let's go for the Q2 and how the business has progressed during the last month compared to that what we were thinking about 1.5 months ago. In a big picture, what comes to the market as well as what comes to the YIT, the things has progressed 3 months as expected, as forecasted. So no major deviations over there. And of course, internally, the big topic is that Markku Moilanen, our new CEO, started in the beginning of April. And as Markku has stated, there are 3 areas for improving the project management, which we have started already in late last year. But then 2 other topics on the table at the moment, one is the operating model, that's the work which is going on; and the other one is the infrastructure strategy work, which is going on. And we decided to start with the infra strategy. And of course, later in this year, we will review the whole group strategy. If we look at -- for the COVID situation that has -- the disease is still over here, as we all know. However, in Finland, the situation has improved during Q2. And actually, probably the most challenging period in our operations in Finland was in the beginning of this year, and that has also improved a lot. So at the moment, the COVID situation not impacted so much what comes to our business. Of course, in the investor side as well as the tenant side, even the activity has returned over there. The decision-making is slower than it was before the COVID period. So 3 topics on the group level: project management, infrastructure strategy and operating model. If we shortly look at -- about the segments, if we start with the Housing Finland and CEE, yes, the market has continued to be on the good level, as expected. And it is easy to see also from the public media that the demand for apartments has continued in Q2 as well. And the same story is in Russian housing business as well as in -- not only in Finland but also in all different CEE countries. And even the market has been partly closed down in CEE countries, the demand on that side has continued to be very good. So that is good, although the COVID has been over here. Then if you look at the Housing Finland and CEE side, we -- and if we look at the profile for this year, it's -- if you were to look at that, due to the COVID last year, we stopped the start-ups of the projects. And now we can see that this year, especially in Q3, where actually the number of completions is extremely low and, of course, that has an impact for our quarter-based result. On the other hand, the Q4 is, once again, a very strong when it comes to the completions. In Russian market, the market is solid. The demand over there has continued to be on the good level. And a good point over there is that it seems that in the restored mortgage interest ceiling or the subsidy of the Russian state continues after June as well as it was initially planned to be closed in the end of June. But at the moment, it seems that it will continue after June as well. And of course, that will support the market and the demand as well. In Business Premises side, the public demand has continued to be in a very good level. If we look at then internally and what comes to the project management and that has -- the work over there starts to be seen. Now we have actually roughly about a year, stabilized about the Business Premises business area or the segment. And then you can see that in the operations, but of course, it takes time before we are in the level over there, which is the desired level where we want to be in that business area. But it's -- Tom Ekman has made a good job over there to really take that to lead. Then in the Infra projects side, there is also a lot of activities. And internally, if we look at Antti Inkilä, the [ interim ] position over there in the beginning of April and it's pretty much in the same situation than the Business Premises was 1 year ago to stabilize about the business and especially what comes to project management and procedures over there to really take that to date. And there, we have appointed a new head of segment, Mr. Pasi Tolppanen, and he will start in late summer. And at the same time, we are looking at our infrastructure projects, infrastructure strategy right now. And the end result is, as Markku said already in Q1, that we continue to work in infra projects, Infrastructure side because that's an extremely important part of the urban development side. And we see that we have opportunities over there to really make that a profitable business in the desired level. Then Partnership Properties. Over there, we have also had an appointment. Ilkka Tomperi will start as the segment head in the beginning of August. And in that area -- or business area actually, nothing special over there in Q2. As mentioned already after Q1 that [indiscernible] investors and tenants, yes, the activity has returned, but the decision-making takes longer than previously. Then in the group level, the new topic, what comes to balance sheet. And the liquidity was that we were able to refinance the bond portfolio in the end of Q1. So the EUR 300 million creates a good base and really changed our maturity structure. And of course, after that, we have worked with our revolving credit facility, which is expiring actually in the second half next year, but that's more or less like the normal -- standard procedure to manage about the maturity structure. But in a big picture, yes, healthy balance sheet and good liquidity in the group level. That was my short introduction what comes to the YIT review, where we are and where we are going forward.

All right. Thanks, Ilkka. So now we are ready for the questions. [Operator Instructions] And Robin will be the first one.

Yes. So starting with the Housing Finland business. There, consumer demand has been very strong. Could you comment about the price level for new apartments? How has that developed recently? And second question is that how much do you expect start-ups to grow in Finland?

Let's say that in the pricing side, nothing special over there. It's -- and of course, the market as it is, it's supporting some sort of natural price increases. But also, it's good to notice that there are certain raw materials in the market where we have seen inflation as the global market prices has increased, just like, for example, steel and wood. So that has also driven the, let's say, price increases in the Housing side. Then when it comes to the start-ups, what we have stated is that we are targeting to increase clearly our start-ups during this year compared to last year when it was, of course, on a lower level.

All right. Then moving to Housing Russia. There, you have had -- margins have stayed above 10% in the previous 2 quarters. So are there reasons why the margin should be below that 10% in the near term? Or do you expect a very good performance?

Yes. It is doing a good performance over there. But actually, in Russian market, it's also -- the pricing over there is dynamic, meaning that it is almost daily based pricing, which is the standard procedure among Russian developers. The thing which is good to remind is that in Q4 last year, we had one plot sale over there. So to really make straight line from the previous 2 quarter is not probably the right way, but it is doing a solid, good business over there.

And the next question comes from Simen.

My question is in terms of the prices we've seen internationally of lumber, steel, concrete, delivery problems and all of those issues, which has been quite significant also in Q2, have you had any impacts of this in any of your operations in terms of the prices? And is -- we're going to see those price increases hitting your books later on? Or could you please elaborate a bit on especially those raw material prices that has been rallying so much in Q2?

Yes. If you look at the -- probably, the 2 topics in our side is the steel as well as the wood because the proportion of wood is still -- margin of steel is more. Then, of course, concrete as well. We started to see that one already in the end of last year, in the beginning of this year and started to mitigate that one in summer as it is easy one as we were able to price that one for projects where you have your index-based that triggers over there. The fully fixed price plus a number of those ones have been agreed already before the prices increased. But then in the price, yes, we make the mitigations over there. In the big picture, not so major impacts over there. But yes, you can see in several projects that there is tied what it comes to the raw material pricing and what we are [indiscernible].

Has it impacted existing production more? Or is it more in future tenderings in terms of your sub suppliers, et cetera? Just wondering in terms of -- trying to make a forecast because the price is like what -- steel has rallied so much. It could actually have impacted your figures if it's not hedged and you have to buy spot. And that's why I'm just wondering, are you a buyer of steel and will we see an effect in Q2, for instance?

Yes. For your question that the existing ones are for the coming quarters and for the coming projects, it's the latter one.

Okay. And if you have just -- are you buying your steel directly yourself or you're using sub suppliers with fixed contracts and passing it more slowly through your operations that way?

It's actually -- there are -- there is not only one source where we buy. And if price also -- based on the project types, sometimes the -- we are using the wholesalers in the local level. But also in the steel side, we are also operating in the international market.

Next question comes from Anssi.

I will follow up on the raw materials. I mean looking at your business in contracting side, how much is fixed-price based contracting? And how much is business where you have, as a matter of fact, indexed the cost into the contract? So what's the split roughly?

To put that in the fixed contract, which is usually the competition -- or price competition contract type where we have decreased actually our proportion over there, but we still have that one, that is, of course, impacting the -- or the price increases are impacting. There, where we are less -- or let's say, that we are not impacting the same way is the projects which are alliance type of projects or where we have the index in the pricing. And then it's -- of course, the third one is the Housing or the development in the Housing side where we sell for the consumers where the price is actually tied, at least for those ones who have been sold the apartments in the beginning of -- or in the very beginning of the project. So the exit figures is -- we stated those ones, but it's easy to look at how much we have the alliance type of -- where actually the alliance partners are covering that one and how much we have then the, let's say, price competition projects where we have the fixed contracts over there.

Okay. So clear maturity is basically fixed price?

It's a certain way. It's a fixed price if you look at the housing for the consumers. But over there, you also can make the pricing for the -- or increase the pricing for the apartments when the project is going on. So there is a certain type of element to impact for the price increase over there as well.

Good. And a little bit on the dynamics. And if we take example of steel, prices started to rise early last summer. And we saw price increases in steel, heavy building material firms coming through early this year during Q1. So how long will it take, as a matter of fact, for those prices to be transferred into your project prices and your execution? Is it second half of 2021? Or how should we read the situation?

Yes, that is the good assumption, second half of this year. And if you look at -- about the market expectation for the steel price, I've seen those cross a number of times, but you probably know better than we, what comes to the market prices. But yes, second half this year is most likely that you will see the biggest impact.

Okay. Good. Then last question is related to different inputs. I mean there has been a scarcity in logistics, scarcity of different materials out there. And now that, as a matter of fact, market is turning around and construction activity in your key market, in Finland, is probably increasing quite soon, so we will see also scarcity of workforce. So have you seen any impacts of these coming through yet? Or is it business as usual as of now, but kind of this is a risk that you need to handle in the future?

It's pretty much the -- business as usual. If you look at -- once we start for the project, of course, over there, the organization has to be established. So once we start the project, we have already the internal organization ready for that one. And then it's more what comes to the subcontracting side. I would say that the scarcity is 3 months, this is normal. And if the demand is increasing in the construction, as it seems, the scarcity is probably in the subcontracting side and, of course, to get the right skillful employees and keep them in YIT. But in the big picture, the -- probably the scarcity is in the subcontracting side. And especially in the COVID time, that is also having impact on that side.

Okay. And are you seeing any tightness there? Or business as usual?

It's still as business as usual, but that is definitely the area where the market might become more tight later this year.

Any further questions? It looks like there's no further questions. So there's one from Matias.

Still one question touching the Mall of Tripla. What kind of development have you seen there? Any development in rents and in tenants there? How do you describe that? And a further question there for the yields, valuation yields. Have you seen them coming up in shopping centers?

Yes. If you look at the, first of all, the Tripla Mall and if you look at the number of visitors over there during the last month, it has been -- even in March this year, April this year, it was higher than last year in the bottom, which was actually April and May last year. But the number of visitors is not -- or was not in the level than where we were in September, beginning of October last year. And of course, it is lower than what was in the initial business plans. But generally, the -- and then if we look at the tenants and rent levels and so on, there hasn't been any major changes over there. And also, there are new tenants coming to the Tripla. To me, the question over there is that how fast actually the society will return to the, let's say, normal mode. And it's -- we are looking forward and expecting that people want to be together in one place, it's definitely Tripla. So that is quite promising. Then when it comes to the yields, the yields increased last year. In Q1, they were stable, and also at the moment, it is stable. And then it's probably more the question then, once the society starts to live again, what is the demand for shopping centers like Tripla. We believe that there is a good place for people to make shopping but also spend time together with friends and families. But in a big picture, tenant side, no major changes when it comes to the rent level. No major changes with their number of visitors is -- was lower in March, April, May than it was last September, but clearly higher than the year before. And I'm definitely willing to say that what are the visitor statistics from the last week when the market started a little bit to open and weather in Finland was extremely nice.

Any more questions? All right. It looks like there's no further questions anymore. So thank you, everyone, for participating and see you in the Q2 results day.

Good. Thank you.

Thank you. Thanks. Bye-bye.