YIT Oyj (YIT) Earnings Call Transcript & Summary

Good afternoon, and welcome to YIT's first silent call of 2023, ahead of our silent period starting tomorrow. My name is Samu Heikkila, and I'm YIT's Investor Relations Manager. With me here today is, as usual, our CFO, Tuomas Makipeska. We will first hear a short intro from Tuomas, and then we will have time for questions. As a reminder, this call will be recorded, and the recording will be published on our website after this call. At this point, I will hand over to Tuomas.

Thank you, Samu, and hello, everybody. Welcome to this call once again. First of all, if I have some challenges with my voice, so that's due to the recent flu that I caught. So apologies already beforehand if I have some challenges, but let's try to make this work. First of all, we'll cover 4 key topics today in this intro, starting with the Housing market update. And I'll give you a short update how the market looks like. Then we'll look at the market from the other segments' point of view. Then the third one would be our actions, how we manage in the challenging market situation. And last but not least, so I will elaborate on the transformation program that we launched in February and of which we gave just a stock exchange release this morning. So those would be the 4 topics I'll cover today. And after those, we'll have some time for your questions. If we start with the market update of the Housing business. So we already in Q4 report communicated that we expect the strong headwinds from the market to persist into '23 and the Housing market to remain muted in the short term. Now that we have been progressing in the Q1, the headwinds have indeed been strong so far, especially in the Housing market, driven by the very low general consumer confidence in the market, and it has been very slow to improve as you might already know. Just to give you some public data points, according to the public data by the Finnish federation of real estate agency, the sales of new homes in the overall Finnish market have been down by approximately 80%, 8-0 percent year-on-year in January and February. And also, if we look at from the mortgage point of view, so according to the Bank of Finland, the euro amount of the new housing loan drawdowns in Finland were down by 1/3 in -- both in January and February. And these are the figures which are, let's say, the lows of last 20 years. So we would describe the housing market pretty exceptional now during January and February and also in March. Then -- these were kind of data points from the Finnish market. But of course, if we look at the same things in the other operating areas, we have the CEE markets, the similar kind of headwinds have also continued in those regions. So in other words, the conditions have remained unfavorable in all of the markets where we operate. As we have communicated earlier, we expect to have a low number of consumer apartment completions both in Q1 this year as well as in Q2. In Q1, we have approximately 500 completions, completions with 100 in Finland and 400 approximately in Central Eastern European countries. Although the completions are on a similar level to last year, it's good to note that in Q1 '22, we had a very favorable and strong sales mix as we then -- back then communicated. And back then, the market was still really strong and the demand was on a high level. Back then, we also report strong sales, not only of the apartments completed during the Q1, but also the apartments that were in our inventory -- unsold completed apartments inventory at that time. So all in all, in the Housing market, as I tried to describe is exceptional and the demand levels have remained very low level in general during the Q1. Then if you have a look at the market from the other segments' point of view as well. So we can argue that the markets for the other segments, the Business Premises and Infrastructure have remained on a better level compared to the Housing, but also somewhat increased cautiousness and slower decision-making amongst our customers have had an impact also on those markets. We also see effects of the current market downturn in the tendering side, probably in the form of new competition and tougher price competition as well. Then if we think about a bit of the cost inflation as well, so the cost inflation in construction materials have been leveling off. But still, if you look at the public data there as well, so according to the [ present ] Statistics Finland report, the overall construction material costs are still up by 9.2% year-on-year. And of course, like we've communicated earlier as well, increased construction material costs burden the long-lasting projects started earlier that have no cost indexing. But it's also good to understand that the share of these kind of projects is not large in our portfolio. Then from the investor point of view, the atmosphere amongst the investors is kind of anticipative and cautious as well. Market yields seem to now have been stabilized just over the couple of last months after last year's hike, but the market activity itself remains quite low due to the uncertain outlook. Then moving on to the third topic, which covers our actions to manage the challenging market. And -- to respond to the situation, so we have, of course, continued our promotional campaigns to support our demand in apartment sales. We have also continued decisive actions in project management, procurement and tendering to mitigate the impacts from the headwinds. As already communicated back in Q4, we have tightened our focus on cash generation by taking more cautious and prudent approach to new Housing start-ups and plot investments. We have slowed down the pace in both of them. We have also identified a broad selection of tools to support our cash flow. And the so-called bundle deals in Housing are, of course, one of the available tools, but we are closely looking at the other options as well. Housing business is, as you all know, it's capital-intensive business. And the ongoing projects tie up capital as they are built. And to support the construction of our ongoing Housing project, we have committed housing company and project loan limits. Additionally, we have a reserve of available funds in the form of RCF and also commercial paper program to support our liquidity management in the short term. But the main focus is still in operating cash flow improvements, and there are lots of measures to be taken to support it, as mentioned earlier. The biggest impact would come, of course, from the upturn in consumer demand. Then the last topic to be covered is the transformation program that we launched in February. We launched the program to improve our performance and competitiveness also in the long term. And we have started the program successfully and according to the plans. And earlier today, we provided an update on the progress, but I'll cover the topics here as well. So the new organizational structure going forward now from the 1st of April will consist of 3 segments: Housing, Business Premises, and Infrastructure. And this also means that we will change our segment reporting to correspond to the new organizational structure starting from the half-year report '23. We have had the change negotiations going on in Finland, and those have now been completed. Also, we have entered into a strategic partnership in IT to streamline our IT services and also strengthen the technology capabilities needed going forward. All of these actions taken so far will result to EUR 15 million to EUR 17 million annualized cost savings by the end of next year. And just to remind you that the program goal was to achieve EUR 40 million cost savings -- cost savings by the end of '24 in our run rate. And more than half of the planned cost savings should be achieved already this year. So more than EUR 20 million cost savings in the run rate should be achieved already this year. And of that, EUR 15 million to EUR 17 million have been now achieved by these actions that we have taken. The program, of course, continues, and we continue to take the decisive actions to reach the EUR 40 million cost savings in the run rate next year end. But let's put it this way that the program will deliver a structural efficiency gains in the long term. And it will, of course, support also our profitability in the short term. But in addition to the long-term gains, we will look and, let's say, target to support our short-term profitability through other kind of measures such as temporary layoffs and so on. But with this, I will wrap up the update from our side. So the -- first of all, the Housing market that has remained challenging. The other markets or the markets for the other segments are not that challenging, but of course, weaker than normally in our business. We are managing the situation and taking decisive steps both in terms of profitability and cash flow and the transformation program that we have just launched has progressed well so far. So this is the wrap up from our side. And now we would be happy to take your questions.

Thank you, Tuomas. [Operator Instructions] And we have the first question from Anssi.

A few questions from me. First one is that how much onetime costs or adjusted costs have accumulated so far due to this savings program?

Yes. This is an information that will be disclosed in Q1 reporting. We have just completed the change negotiations and the IT outsourcing as well. So the modeling and calculation of these impacts are in progress and will be disclosed in Q1.

And the second one about your big Infra projects like Crown Bridges, everything going as planned? Or what's the situation there?

Well, as mentioned earlier, so we are not disclosing or commenting single project situation. But in general, we can argue that no major surprises in Infra so far. And we are working on the Crown Bridges as well.

And maybe the last one from me, and I'm not sure if you're commenting this one, but about your balance sheet again. So if the market remains as it is now, how long can you go without strengthening your balance sheet and how soon you have to take some actions?

Well, as I actually already mentioned, so we are taking actions already. And that is, of course, safeguarding our cash flow. So that's -- we are, of course, taking some actions in -- mainly in the Housing business. We are boosting our cash flow by several measures. We have been slowing down the plot investments and also the start-ups that will tie up capital. And then we have identified several other kind of actions to be probably taken as -- if the market situation continues like this for a long period of time. So as mentioned, so we are managing the situation and, of course, monitoring it also as well, making some [ scenario ] works as well regarding the future. So that's all I can comment.

Thanks, Anssi. Next is then comes from [ Mika ].

You are in the process of changing the head of the Infra unit. So what's behind that decision?

Yes, that's correct. So yesterday, we announced a change in the management team of the company, and that is something that I'm not specifically commenting. But Pasi Tolppanen, the EVP of the Infra segment decided to leave YIT to pursue career outside the company.

Is it some kind of sign of what's happening in Infra unit's earnings recovery and sustainability of that recovery?

You cannot make any conclusions about that of the move.

Thanks, [ Mika ]. The next questions come from Simen.

Two of my questions have already been asked. But in terms of -- I have 2 more in terms of start-ups. You say you're holding back. Is it that you're holding back [ almost 0 ] or what kind of range? How do you work in this kind of market to save costs and retain the cash flow? And my second question is, one year from now, you have a bond maturing. What is your plan for this? And how do you see this bond maturity in correlation with the dividend and et cetera?

Thanks for the questions. And starting with the first one. So we have not stopped the start-ups. We have slowed down and taken a more prudent approach when making start-up decisions. But also, it's good to remind that the start-ups or the start-up decisions that we make today will deliver completed apartments, let's say, in 18 months from now, and the market could look quite a lot different in 18 months from here. So we have continued to make start-up decisions but taken a more prudent approach for them. The second question regarding the bond maturing. So as a part of the normal liquidity and funding, planning and management, so we are considering our options on that and making then decisions when appropriate. And that would be then also communicated.

Just a final question also in terms of financing with banks and mortgages for -- or like building loans and et cetera. What kind of trends have you seen there? And what are your effects of this potentially impacting the Housing segment?

Well, in general, if you look at the funding in the market from -- also from the consumer point of view, I commented that the consumers have drawn a lot lower amounts of loan regarding the housing decisions or private housing decisions. Also, if you look at from the corporate perspective, so I mentioned that we have -- in our situation, we have all the tools that we need, and we have sufficient liquidity available for our operations. So that's all that I can comment.

Just a last question. Wondering if you have seen the EU's energy performance of building directive, which as [indiscernible] passed also in the EU Commission, and done any assessment on how that might be a potential for your company?

Thank you. It's a very interesting thing to happen, and I think it takes our industry and, let's say, the built environment or puts pressure on the built environment, and it is very extreme, let's say, interesting program. It's quite new decision that has been taken. So this is something that we are now analyzing how it would then probably change the market or affect the markets.

Thanks, Simen. Next, a follow-up from Anssi.

One more, and it's about wind power pipeline. So any progress there or any projects moving forward? Or actually, do you plan to sell any of these projects like before they hit ready-to-build stage or what kind of plans you have?

No major stage progress in wind [ power ] recently. This is something that we will give you an update also in Q1, but we have been communicating the pipeline in a couple of quarters now. And also, you can see it in Q4 reporting. You will get an update of the pipeline in the Q1 reporting.

But it's a possibility that you will sell something like some early-stage projects or?

Well, we don't have such plans right now. But of course, we are considering our options on that field as well.

Thanks, Anssi. Do we have any further questions? It seems that we do not. So thank you all for the good discussions. We will publish our Q1 results on the 3rd of May. Thank you, and talk to you then. Have a great day.

Thank you. Bye-bye.