YIT Oyj (YIT) Earnings Call Transcript & Summary

Okay. Hello, everyone. I think we can start. So hi, everyone, and welcome to YIT's analyst call preceding the silent period of our first quarter 2025 results. My name is Essi Nikitin, and I'm heading the Investor Relations at YIT. Together with me here, I have our CFO, Tuomas Makipeska, on the line. We will start with a recap to recent developments in the company. And after that, we will have time for your questions. As a reminder, this call will be recorded, and the recording will be published on our website after the call. But at this point, I hand over to Tuomas. Please go ahead.

Thank you very much, Essi, and hello, everybody. As usual, we will be covering the market updates per segment in this call and then also have a recap on the financial position of the company. And let's start with an update on our businesses and markets, starting from the Residential CEE business. The residential sales have continued vivid in Central Eastern Europe and Baltics. And altogether, the business is progressing according to plan, highlighting the positive market reception and customers' confidence in our products. Our capital employed remains under control, and we see significant potential to further improve capital efficiency through increased production and increasing sales over time. The number of starts in Baltics and CEE countries is well in line with sales to maintain a healthy balance between demand and supply. We announced earlier in March our first residential project in a new city in Czech Republic in Kladno, which is located less than half an hour's drive from the city center of Prague. The Portti Kladno project comprises close to 200 apartments, which will be built in 2 construction phases. The overall scope of the project is approximately 10,700 square meters, and it will comprise 4 separate apartment buildings. This project demonstrates our expansion towards wider coverage in the Czech residential market, supporting the growth objectives of the strategy period. All in all, our Residential CEE markets have shown consistent growth and demand for homes over the past quarters, supporting our strategic objectives in the business area. As a consequence, we upgraded the short-term market outlook for the CEE countries from stable to improving in our Q4 report. Let's then have a look at the Residential Finland market. And the market in Finland has continued to see some positive developments in terms of reservations, ongoing negotiations and completed transactions although the overall market has remained on a low level. Sales reservations are gradually increasing, and we are pleased with the level of premarketing reservations in our projects, which is a signal of trust from the consumers towards YIT. Consequently, we have continued the starts of new self-developed residential projects during the first quarter of this year. Latest announced start was Espoon Seaside project in Keilaniemi, Espoo. The 15-storey residential building will constitute a total 83 homes, and the value of the project is approximately EUR 50 million, and the construction has begun in March. The project is due to be finished by the end of 2026. And it's great to be able to launch a self-developed project in Helsinki Metropolitan Area with an excellent transport connections. These high-quality homes by the sea in the developing Keilaniemi area have been a long-awaited novelty and have aroused a lot of interest already in the premarketing phase. The outlook for the Finnish residential market completions remains unchanged. There have been a limited number of starts during the recent quarters, most of them outside of the capital area. As a result, the completions for 2025 are projected to decrease from the 2024 levels. Regional shortage of supply is already being observed, along with decreasing market activity in the secondary market. Moreover, the market downturn has also impacted the number of players in the market. In conclusion, the Finnish residential market is heading towards a tighter supply scenario with implications to both pricing and availability. As we have stated in our outlook for the year, low amount of completions during 2025 will limit the Residential Finland segment's capability to generate profit. We expect the primary apartment market sales volumes in general to slightly increase during 2025 as the decreased interest rates and increased consumer purchasing power are expected to have a positive effect on demand. Our stock of unsold completed apartments continues to decline and is expected to reach normal levels during this year. Let's then move on to our contracting segments, Infrastructure and Building Construction. In the Infrastructure business, key indicators are showing positive trends. In 2024, the Finnish operations increased their revenue, adjusted operating profit and order book, along with the reduction in capital employed to negative, in line with the strategic goals for the segment. In the beginning of the first quarter, we published that the Turku Tramway Alliance has chosen YIT as a partner for the project management contract of the Port of Turku-Varissuo tramway line's tram depot and the building structures of power supply stations. We are delighted to start cooperation with the alliance on this development phase. The experience we have gained from recent depot projects is a clear strength for us in this project. In addition, we will bring our strong experience in successful cooperative project management contracts and their development work in densely built urban areas to the development phase. The public sector demand in the infrastructure market in Finland is expected to remain at a relatively stable level with many investments currently in the design phase, including defense sector investments. Private sector demand is driven by industrial construction and the transition to renewable energy. All in all, the order book for the Infrastructure segment is strong, including new orders from tramway investments and industrial customers, and the segment is in a good position to seek for growth and further improve operational efficiencies. The Building Construction segment is renewing its business model and refocusing on selected customer segments and moving away from self-developed projects, has lowered the order book value compared to the historical levels. While we are not yet satisfied with the profitability of the -- or the balance sheet of the segment, we have defined the steps forward to the right direction. The underlying operational performance of the segment is expected to improve during this year, and the work continues to strengthen the segment's profitability. Last week, we announced starting the construction of the Salvia building in the Meilahti hospital area. The new building will include premises for Meilahti's pharmacy and central kitchen, and the scope of the project is approximately 24,000 gross square meters. The construction of the building, which will replace the HUS' old administrative building will start in April, and the work is scheduled to be completed in the spring 2029. During the development phase, the contract's target budget was set at approximately EUR 119 million, which will be recorded in YIT's order book for the first quarter. The competition for new projects is intense in Finland as a result of the overall decline in construction volumes. Activity in data centers and industrial projects is, however, expected to increase in the coming years, driven by the green transition. These projects are in our focus in line with our strategy. Our capability to execute these complex projects successfully brings us competitive advantage in the market. All in all, the market is active in both of the contracting segments, and there are multiple large projects in tendering phase. During the final month of the year 2024, we secured contracts worth of over EUR 300 million, including data center and industrial construction operations in line with the new strategy. Then a few words about the financial position of the company. Earlier this month, we announced a successful issue of new EUR 120 million green floating rate senior secured notes maturing in 3 years and carrying a margin of 4.75% per annum over 3 months Euribor. We also announced tendering of the notes maturing in 2026 with an excellent outcome and extended the bank facilities maturity from 2026 to 2027 according to plan. I am pleased with the successful transactions as a part of our ordinary refinancing and extending the average debt maturity. The transaction highlights the capital markets' continued confidence in YIT and the outlook for our business. Our operating cash flow was clearly positive in 2024 and amounted to EUR 110 million for the year, supported by the strong cash flow in the last quarter. The cash flow was mainly driven by positive operational cash flow in the Residential businesses, both in Finland and CEE countries. Maintaining positive cash flow is a key focus for us, and the 12 months rolling operating cash flow has now been positive for the past 4 quarters. Releasing capital from the balance sheet and improving the capital efficiency in business operations are one of the top priorities in our strategy. On a group level, capital employed decreased throughout last year. And all in all, we released over EUR 200 million of capital in 2024, driven by the successful capital release measures. We are determined to continue the execution of capital release actions according to our strategy and consequently improve the return on capital employed of the company. So to conclude, our stable financial position enables us to focus on improving the financial performance of our businesses. We remain confident with our capabilities, and we'll continue to drive robust growth in segments where the market conditions are favorable, focusing on achieving our strategic objectives for the years 2025 and 2026. That concludes the introduction part of the call, and we are -- yes.

Yes. Thanks, Tuomas. Yes, we are now ready for the questions. [Operator Instructions] Emil, please go ahead.

Just on the -- you mentioned that you're seeking to normalize the level of apartments in your inventory this year. What's kind of a desirable level would you say in Finland?

Yes. Thank you, Emil, for the question. Yes, as stated, so we are targeting to normalize the inventory level. And in our situation, it's, let's say, good to have 1 to 2 months sales in our inventory. And we are targeting to have, let's say, from 100 to 200 apartments in our inventory in these kind of demand levels, what we are seeing currently.

Okay. And a follow-up on that. With you now starting new apartment buildings in Espoo, how does that impact the amount of housing loans that is on your balance sheet? Or are those already transferred into the consumers and customers who buy those apartments?

Sorry, I missed the part of your question. So you were referring to the Espoo project, but what -- can you repeat, sorry?

So does that have an impact on the housing loans that are on your balance sheet, starting these new projects?

Yes. That's very good. I missed the middle part of your question. Yes. So the project in Espoo, that's kind of an ordinary self-developed project for us, which is financed by the RS loans. So from that sense, as in the normal -- usually in our self-developed projects financed by RS loans. So we are taking the RS loans as a percentage of completion of the construction projects. So in that sense, yes, it will increase in that project. But of course, at the same time, as we are decreasing the amount of apartments in our inventory, so that will, in turn, decrease the housing company loans in our balance sheet.

Thanks, Emil. Are there further questions? Yes, Svante, please go ahead.

Perhaps could you have an update on the campaigns that you have had in Finland lately and their success, if you have had any?

Yes. Thank you, Svante. We are currently running a campaign, which is more kind of informative for the consumers and which is related to the primary apartment homes and their benefits. And that's more kind of informative for the consumers. And at the same time, we are negotiating one by one, as we have stated earlier. So kind of deal-by-deal or sale-by-sale negotiating with the consumers. And then currently, we find that a very efficient way to close some deals. As mentioned earlier, so we have seen some or several kinds of campaigns in the market, and we have ourselves as well. What we haven't seen yet is the price sensitivity of demand in the market. So it's more for us for our sales force to have individual negotiations with the consumers and close the deals by that, and that has been found efficient way of improving sales.

Okay. So no change in the price elasticity over the last months?

At least we haven't seen a drastic change in that.

Okay. And then next one regarding Mall of Tripla and the possible divestment there. Could you give some update on that and also on the operational performance perhaps on Mall of Tripla?

Yes. Thank you. I can do that. There is, unfortunately, not too much information regarding that to give you. But first of all, starting with the operational performance of the mall, it is -- continues to perform really well. So the operative indicators in the whole mall is improving all the time from already good levels. So the footfall and average purchase size have been continuously increasing in the mall. And as you know, so the whole area is developing and there will be new offices, new homes in the area continuously. So we expect this very good performance to continue and even improve going forward. So from that sense, the mall itself is doing very good at the moment. About the possible sale of our share, so there's nothing new to actually communicate here, but I would like to repeat what we have been saying earlier as well. So we have our options on the table. We have an option to sell our share or our share combined with another owner or then the whole mall as well. So these are all possibilities or options still on the table. What we can say about the market, so as probably you all know also that there is no significant pickup in the transaction market, residential -- sorry, real estate transaction market in Finland and in Nordics. So in this kind of a deal, so we need to have a right kind of a buyer for the deal to happen. And we are kind of planning and preparing for that, but no further information on that yet.

Do we have more questions? Okay. It seems that there are no further questions. So thank you all for discussions, and we will publish our first quarter results on 29th of April. Wish you a great rest of the day today, and talk to you soon again.

Thank you very much.

Thanks.