YIT Oyj (YIT) Earnings Call Transcript & Summary

Hello, everyone, and welcome to YIT's Q3 2023 Silent Call ahead of our Silent Period starting next week. My name is Essi Nikitin, and I have been in charge of YIT's Investor Relations now from the beginning of August. Together with me here is 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 the call. At this point, I will hand over to Tuomas.

Very good. Thank you, Essi, and once again, welcome to the team. Before going into the other topic. So there just been released, a stock exchange release regarding changes in the management, and there is no dramatic there. Aleksi Laine, who has been running the infrastructure segment as an interim role. He is now appointed as a Head of Infra segment, and he has been, as part of our group management team now half a year and actually contributed very well to the Infra segment already earlier. So I'm happy to have him now as a permanent member of the GMT now going forward. Also, in the same SER, we stated that Jennie Stenbom, who's the new Head of HR will be starting in her position next week. So those are the main changes that we just released. But now moving forward to this normal agenda of our silent call. We'll be covering a couple of topics in this call. Market update regarding the Housing segment in Finland and CEE countries. Then we'll cover the market situation in the other constructive segments. And then just briefly our cash flow and financial position at this phase. And then probably the most important topic will be the transformation program and the capital release program that we are executing at the moment. So these are the topics that we will be covering in this call. If we start with the market update in the housing, in our guidance and outlook for the year, we state that we expect the demand outlook in housing to gradually recover in the second half of the year. More specifically, the gradual housing market recovery in Central Eastern Europe is expected to continue while the recovery in Finland is expected to become more pronounced only towards the end of the year. Starting with the current market situation in Finland, the market conditions have remained fairly stable during the quarter with no radical changes. The general consumer confidence has remained weak, impacting the home buying sentiment in the market. One of the main factors impacting the consumer confidence levels and market sentiment has, in our view, been the rapidly rising interest rates. Now the interest rates seem to have stabilized over the past months, which could be a key for unlocking the underlying demand in the market. Moving on to the market situation in CEE countries. In CEE, the overall market has continued to be more active compared to Finland. As we commented in our Q2 earnings call, the market has been on a better level, especially in Poland, Czech Republic and Latvia. Regarding our apartment completions for consumers, some projects in CEE that were estimated to be completed and handed over to customers during this quarter have been postponed to the next quarter following typical regulatory practices. This means that we will likely have less completions during the third quarter than originally anticipated. If we then shift our focus to our contracting segments, Business Premises and Infrastructure. We have seen quite a good level of market activity in both of them. There is a good amount of the planning and bidding activity in the markets of both segments. As a highlight of the activity earlier in this month, we announced that YIT has been selected as an alliance service provider for the Pirkkala-Linnainmaa tramway alliance in Tampere. And the beginning of this project is an excellent demonstration of our continued focus on projects where we have a clear competitive advantage. We have a good track record of successfully completing similar demanding projects that require our expertise. Price inflation in construction materials has continued to level off during the quarter. But as we communicated in connection with our Q2 results, the higher construction material prices continue to weigh on margins in the Business Premises segment in projects that were started before the surge in price inflation. In the Infrastructure segment, the low-margin legacy projects in Sweden continue the burden -- continue to burden the profitability in an otherwise well outperforming segment. The Infrastructure business in Sweden is under strategic evaluation, but we have no news to comment on that yet. Then a few words on our cash flow and financial position. For us, one of the main drivers of cash flow is, of course, the sales of apartments to consumers and investors. Our main focus is on improving sales, but as communicated earlier, we have also continued to focus on our cost discipline to support our cash flow in this current market. Our liquidity situation remains good. At the end of Q2, we had reserve of available funds in the form of EUR 255 million committed unused revolving credit facility, EUR 97 million in cash and committed undrawn project loans of EUR 101 million for housing. We are currently having discussions and negotiations to manage the maturity structure of our debt. And these discussions have progressed promisingly during the quarter despite the current market situation impacting our whole sector. But we will inform the market when we reach the final solution in refinancing. Then moving on to the final and probably the most important topic, which is our transformation journey towards improving our profitability and capital efficiency. In June, we communicated that we had launched initiatives to improve our capital efficiency, shift our capital allocation towards our more profitable growth areas and more importantly, operate with less capital employed going forward. Some of the capital release initiatives were in good progress already in June, and have then continued to progress favorably. These initiatives also have the potential of supporting our cash flow once they are completed. We have many good discussions ongoing at the moment, and some are very far along, but no transactions were yet finalized during this quarter. In addition to capital release, we had good progress in our other transformation program initiatives. Besides the actions focusing strictly on our cost discipline, we have made clear progress during the quarter towards improving our productivity, project management and procurement to give some of examples. With the changes implemented during the program, we will be able to clearly improve our competitiveness in the long term. We will tell you more about the progress of the transformation program in our Q2 interim report. But as a whole, the transformation program has progressed faster than initially anticipated, while the costs related to the program have been slower than expected to materialize. So as a conclusion, all together, in a challenging business environment, we have, again, in this quarter, made good progress on our key initiatives. We have a clear plan and are executing it to build stronger and more competitive YIT.

Thank you, Tuomas. We are now ready for the questions. [Operator Instructions] First question from Svante. Go ahead, please.

Thanks for the introduction. First, regarding the housing segment, what kind of discount strategy have you had in recent months in order to speed up the sale of consumer apartments?

Yes. Thank you, Svante, for the question. We have had several campaigns running during the quarter. The 1 that was actually attracting consumers by paying our 2 years costs for the apartments was ended actually at the end of August. We saw, let's say, we saw positive signs by that campaign. It increased the activities in the market. So that was the main campaign that we launched during the quarter.

And there hasn't been any kind of replacing campaigns after August?

Well, basically, we have launched a new 1 in September, stating that we are willing to discuss with the consumers to find a solution to sell apartments. So that's basically kind of inviting consumers to the price negotiation. So that's what we are now running.

And regarding -- you said that the completion's postponed in CEE. But in Finland, are they going as planned for Q3? Or have they gone as planned for Q3?

Yes. In a big picture, going as planned. And in CEE countries, couple of projects seem to be postponed to the Q4. No major problems there just the typical process that will maybe have sometimes a lag in completion or handover.

And you had used some of your RCF in Q2. Have you used more during Q3?

This is something that we need to get back to as -- in connection with the Q3 earnings release. But as mentioned, so we have -- in order to manage the liquidity, so we have the RCF in use as it was already in Q2.

And last 1 for now. You decided to pay the second installment of the dividend. Should we make some read from here that you are progressing well in your possible divestments or?

Paying out the dividend, that's solely related to the AGM decision made in March. So the decision regarding the dividend and the second installment was made in March in the YIT's Annual General Meeting, and the AGM actually decided that the dividend will be paid in 2 installments. And the Board of Directors will decide record date and the payment date of the second installment in the meeting in September, and that's how it was also done and no further comments on that.

Thank you, Svante. Our next question from Olli Koponen.

Hello, and thank you for the market update. A few of my questions were already answered, but a few questions about the housing market and especially on the Finland side. Are you having any kind of discussions on apartment group sales at the moment? Or are you trying to make the sales to the consumers at the moment?

Thank you, Olli, for the question. Of course, we are pursuing sales both to consumers and investors. We have had several good discussions going on during the quarter with also with investors regarding a new so-called bundle deals. There is clearly demand for these kind of deals also. But of course, we always carefully analyze our different options to maximize value creation. Bundle deals to investors are 1 of the tools available to us. And as mentioned, there is interest, but we have not yet found a viable deal from our perspective.

Okay. And then the next 1 is also on the housing market. I was just curious if do you have some kind of a backup plan if the housing the market kind of will not pick up in the Q4 in Finland? Or do you think you can have the capacity to wait for the market to pick up?

Well, as mentioned already earlier. So of course, the main priority is to sell the apartments to consumers or investors. And on top of that, we, of course, are executing the capital release program. And in any case, we think that the capital release program will support our cash flows and liquidity now going forward. But I think that the important view on the market is that we are balancing with the investor and consumer sales in-housing and then supporting our situation with the capital release program.

Thank you, Olli. The next question from Mika Karppinen. Please go ahead.

Could you give an update? You have a couple of these business premises divestment projects ongoing. So what's the situation there?

Well, as mentioned -- yes, thank you, Mika, for the question. As mentioned, so we have several processes ongoing regarding those ones as well. Unfortunately, we cannot comment any further because we are in the middle of negotiations with those ones as well. But anyway, so let's put it this way that we have had promising discussions during the quarter regarding those assets as well.

Thanks, Mika. And next question from Anssi Raussi. Go ahead.

Thank you for the presentation. Actually, just 1 question from me about cost inflation. So what did you say about the cost inflation like is it the flat Q-on-Q? Or how do you see? And do you expect that it could actually ease out a bit during the end of this year?

Thanks, Anssi, for the question, and it's a very good one. First of all, we don't see any significant changes in the inflation if we look at the big picture and construction materials and services. So pretty flat for the Q3. Now going forward, it is very, let's say, interesting to see how it will play out since the volumes in the industry are dropping heavily, as we all know. So I think that will have a large impact both on subcontracting and the materials. But we don't know how big effect and in which time frame it will appear. But anyway, so that's our view that there's at least a possibility that it will be leveling off now going forward as well.

Okay. So actually, you answered my follow-up. So as activities fading away maybe during the September or -- sorry, December or January. So maybe we could see some cost decline as well?

I think it's possible. Yes.

Thank you, Anssi. Next question -- did you have a question, [ Marco ]?

Yes. This is [ Marco ] from Nordea. One question regarding those upcoming debt maturities. So if I read you correctly, is it so that your plan is to refinance the bank loans, which are maturing during the next 6 months or so? And what about the senior bond that is maturing on next March? Are you -- got paid back? Or is there plan to -- or are you trying to enter the bond market again and try to refinance it? Or what's the plan over there?

Yes, you are right. So we are basically looking at the whole package right now. So we have the EUR 150 million term loans maturing and then the EUR 100 million bond. So altogether, EUR 250 million is kind of the package that we are renegotiating right now to secure the maturities going forward. That's the whole package that we are looking into and negotiating. So that's all we can comment at this point.

Thank you, [ Marco ]. Are there any more questions? Okay. It seems that there are no further questions. So thank you all for good discussions. We will publish our Q3 results on first of November. Talk to you again then. Thank you, and have a great Friday, everyone.