YIT Oyj (YIT) Earnings Call Transcript & Summary

Okay. I think we can start. So hi, everyone, and welcome to YIT's analyst call preceding the silent period of our half year 2026 results release. My name is Essi Nikitin, and I'm heading the Investor Relations at YIT. Together with me today, I have our Interim CFO, Markus Pietikainen; and our CEO, Heikki Vuorenmaa on the line. As usual, we will start with a recap to recent developments in the company presented by Markus. And after that, the participants will have an opportunity to ask questions from Markus and Heikki. As a reminder, this call will be recorded, and the recording will be published on our website after the call. At this point, I hand over to Markus. Please go ahead.

Thank you, Essi, and good afternoon, everyone. Let's proceed with the silent call for the second quarter '26. First, a short update on our businesses, starting with residential CEE business. As a recap, our residential CEE segment continued to perform well in the first quarter of the year with a steady growth in both revenue and profit, and this segment has become a clear profit driver for the group. The year began with healthy margins, showing the quality of the new projects we launched in 2025. Project margins have remained at targeted levels and the market conditions continue to be favorable, giving us more opportunities to continue to reach our strategic targets. As you all know, we started reporting on our residential self-developed business using the percentage of completion method from the beginning of the year. This evens out the revenue and profit variation between the segments. It is, however, good to note that as we have very similar completions profile this year in comparison to last year, revenue and profit generation is still, to some extent, tilted towards the end of the year as both completion rate and sales rate are typically not linear, but rather accelerated towards the completion of the project. We continue to allocate further capital and focus on the CEE residential markets to secure future projects to our pipeline. We will continue to start projects during the year, given the market remains favorable to support our growth and strategic ambitions. On a rolling 12-month basis, our apartment sales were at a strong level of approximately 2,000 units in Q1. The Finnish residential market is likely to remain highly consumer-driven in 2026 as investor demand for residential projects remains muted. According to the Ministry -- the Finnish Ministry of Finance new Economic outlook published 2 days ago, the residential market has slowed again. Residential prices are still declining and purchase intentions remain low. It is estimated that residential construction will continue to contract slightly this year with a turn to growth postponed to 2027. We continue to adapt our operations to prevailing market conditions and launch self-developed consumer projects on demand. No self-developed consumer projects were launched during the Q2. Our inventory of unsold completed apartments has decreased and is approaching normal levels, also in the Helsinki metropolitan area. YIT's operating model in Finland has undergone a significant transformation, which has reshaped our organization during the quarter and resulted in a reduction of 95 positions. The renewed operating model strengthens our ability to serve customers and is expected to support our 2026 adjusted operating profit by EUR 7 million, providing us total annual inflation adjusted cost savings of EUR 18 million by the end of 2027. During Q2, we announced one agreement in the construction of student apartments with long-term interest rate subsidies in Lappeenranta. The total value of the contract for YIT is approximately EUR 20 million, and the construction of the project is estimated to start during the second half of the year. In the beginning of the first quarter, we are happy to announce the appointment of Mari Puoskari as EVP of Residential Finland segment and a member of YIT's leadership team. Mari started in her position in the beginning of May. We wish her warmly welcome to YIT. Let's then move on to our contracting segments, Infrastructure and Building Construction. The Infrastructure segment has demonstrated strong momentum since 2025 with all key performance indicators developing positively. This reflects the successful execution of our strategic initiatives. YIT is participating in the implementation of the infrastructure program of Helsinki West Light Rail project and the construction started in late May. We have strong expertise in demanding urban infrastructure projects, and we bring our capabilities in light rail construction, municipal engineering and urban environment development to the project in close collaboration with our alliance partners. The project will be delivered through separate stages. The entirety of the order now is valued at approximately EUR 12 million for YIT and the remaining stages are to be commissioned later during 2026 and 2027. The contract will be included in YIT's second quarter order book. The total value of the project for YIT is approximately EUR 62 million. Yesterday, we announced that we have signed an agreement to construct the shell and core or third data center for XTX markets in Kajaani. We will serve as the main contractor for the project. We are pleased to continue our collaboration with XTX markets. This long-term partnership reflects strong trust in our capabilities as well as excellent collaboration with the customers and our partners. The fast development of industrial construction and particularly data center construction is benefiting both the infrastructure and building construction segments. The data center market remains attractive in Finland and our capabilities, track record and references are compelling to our customers, bringing us opportunities to increase our revenue and profits in the future. All in all, the order book for the Infrastructure segment is strong, and the segment is well positioned to pursue growth and further enhance operational efficiencies. Building construction volumes were up by 12% in the first quarter of the year, setting a solid foundation for the rest of the year. We announced that YIT and VTK Kiinteistöt Oy has signed a contract for the implementation phase of the educational building of Tikkurila Competence Campus and begun the project's construction work. During the development phase, the amount for the collaborative project management contract was revised to EUR 77 million. The contract will be entered in YIT's order book for the second quarter of 2026. In early May, we announced the issue of a new EUR 150 million senior secured green floating rate note maturing in May 2030. The notes carry a margin of 4.35% per annum. This was a successful transaction as part of our regular refinancing and extending the average debt maturity in a turbulent capital market. Subsequently to the new issue, we tendered the senior secured green floating rate notes maturing in 2027 with a nominal amount of EUR 100 million in full. As a conclusion, our strategy of building a geographically and operationally resilient business model is providing us with a solid foundation on which to build the future business. We are redeploying capital released from strategic items to businesses and regions with stronger return potential and driving growth where market conditions are most supportive. This is the recap of the second quarter main events. We're now happy to take your questions.

[Operator Instructions] And we have a first question from Atte Jortikka.

This is Atte Jortikka from Inderes. Firstly, on the residential CEE. So in Q1, you started roughly 300 apartments there. Have you been able to ramp up the production in Q2?

Thank you Atte. This is Heikki here. Thank you for the question. And indeed, so we had a start in Q1. There's still some time left also before we actually completely finalizing the Q2 and then sharing the kind of full quarter starts. What I can say is what Markus was already pointing out on the market and the market overall view remains favorable. And obviously, we have a strong plot portfolio, strong project pipeline. And according to our strategy, we have a growth ambition on exceeding 15% annual growth. So that's what the environment we are executing, but let us come back to the actual numbers then after Q2 is fully closed.

Understood. Then on residential Finland, did you already see the effect of the cost-cutting measures made during Q2?

Obviously, now the organization started 1st of May. And as we communicated that the majority of the cost saving activities or the cost saving impact will be actually fully materializing in '27 with some of that impact on '26 as well. But you could -- I would say, I think, broadly speaking, is that typically, we would expect those to be more tilted towards the second half of the year in kind of -- if you project this compared to our earlier similar type of situations.

Yes. Then you didn't launch any self-developed projects in Q2. What was your level of ambition there for Q2 at the start of the year?

We approach it in a bit -- in a way, we are kind of observing all the time what is the market situation so that we are keeping the starts and the volume in balance, but also what type of products and what kind of locations we have. And there were no projects now in Q2, but there's still a few days to go right in the Q2. But so far in Q2, there hasn't been projects that would have been meeting our requirements in terms of the pre-reservation rates. So therefore, we haven't kind of ended up on starting the projects. Kind of generally speaking, of course, we have been redesigning projects. We have a good set of products and portfolio available for the starts, but we need to have a market also favorable for -- before making a start decisions.

Yes. Continuing on that, you commented that the market remains consumer-driven, but are there any signs of recovery in investor demand? I mean, at least some of your competitors have managed to start investor projects during the first half?

Yes, we've seen some -- like you mentioned, so we've seen some starts there. I think still the kind of mathematical calculation that would require interest rates as well as then the rental rates as well as construction cost to find the right balance and availability of rented apartments in the market. We haven't seen kind of material development on those elements in the first part of this year. So meaning is that, I would say, broadly speaking, the situation on the investor market has remained the same. Even we've seen some of the starts there indeed. And of course, closing some of the portfolios between the investors, so some activity. But broadly speaking, kind of situation has really remained the same as it has been.

Understood. And then lastly from me, I mean, before we spoke in Q1, you didn't see any effects of the geopolitical tensions or affecting demand or the cost side. Has that materialized in any way during Q2?

Yes, we have -- our view hasn't really changed since we discussed this on Q1. And of course, now we are in -- again, in a quite an interesting point in time exactly right now, seeing that to which direction these tensions are now developing. Obviously, I think we discussed also last time that you will see rather quick impact on the kind of petrol prices and that impact. However, we have been monitoring the situation and ensuring that we have a proper contract and negotiation position in place there. What comes to the market dynamics and all that, so our view hasn't changed since Q1.

Okay. Just making sure that, for example, in residential CEE, you haven't seen any impact from this in the markets?

Yes. I think Markus was saying is that the market remaining favorable there. So that covers also the element of the geopolitical turbulence question.

Yes, we have the next question from Svante Krokfors.

A couple of questions. First one on your most recent data center announcement with XTX on shell and the core. I know you don't want to disclose anything regarding the euro terms values or basically anything else. But I mean, we have one reference point, which is the first contract with XTX where you mentioned it was worth EUR 100 million. But I guess, is it fair to assume that was substantially bigger because that also included other elements than the actual data center?

Yes, Svante. Exactly correct on that we are not unfortunately capable to share the kind of details in terms of actual euros there. One could work it that way. If you look at the -- also the kind of how the site has been progressing. If you look what we are really pleased is that our cooperation has been extremely good. We have been working now with our customer client, therefore, successfully already quite some time. And this is showing the kind of their trust on our capabilities to deliver this starting of the third project, which you typically start from the core and shell part before advancing.

And could you give some color also on the data center construction cycle from your perspective? Are we talking about 6 to 12 months? Or is there a big difference between the different projects?

There are differences between the projects. Obviously, the kind of the pure size of the project, but also the layout designs and complexities there but still, I would say, kind of if I'm referring to the -- not specifically on this customer, but if I look to some other projects, process that what we have been communicating. For example, we communicated in Kouvola, we were communicating the start of the project in November '25. And then the rooftoping party took place somewhere in late Q1, early Q2 time frame. So that gives you a bit of the kind of a color on the -- how quickly those projects advance. But like I said, so those are the -- unfortunately, this is an area where we are very limited to share project-specific information. So I need to rely on the kind of publicly available information there. Just even kind of continuing a bit on the data center and Markus already kind of a bit color on how the market is there. What we've seen is that we believe that this is -- it is a big opportunity for whole construction industry in Finland. And we've been clearly communicating also that from our perspective, we believe that this is now taking the first steps and has -- it might be a longer-term opportunity for the whole construction industry.

Okay. And the last question, residential Finland. Could you elaborate a bit on the sales rate development and what could be expected? I mean, we were quite low in Q1 compared to the 27% versus the 41% in Q4. So has there been any changes to how you operate here?

We will get the full picture as the Q2 numbers are published. But kind of referring to what Markus already pointed out earlier, for example, what the Finnish Ministry of Finance published just 2 days ago that there has been kind of the residential market even slowing down again. Of course, the residential market as a concept in Finland is relatively broad. But maybe that is one external data point pointing out that in what is the operating environment that our residential Finland segment is currently operating in. Good news, of course, is that if you look at our residential construction, so already in Q2, more than 80% of the construction for us is about CEE, and that's the area where we are. We are growing and has been selecting that as our strategic growth area already at the late '24.

And we have the next question from [indiscernible].

I was also going to kind of question or ask a little bit about the data center, but is it fair to assume a couple of tens of millions or for the announced order in terms of the shelf and core?

Yes, I need to -- thank you, [indiscernible], for the question. I need to be extremely boring here and repeat my earlier messages that unfortunately can't disclose or give any pointers on the value of the contract. What we can only say is that we are very, very pleased with how things are progressing.

Fair. Can you share any light kind of what kind of discussions are you having at the moment? Are there several possible projects which you are negotiating? What could be the time line of decision-making? What is kind of the active discussion out there in the market?

I'm keeping my same line with the previous answer. So we can come back with when there's actually something to be -- that we can communicate from that situation. So unfortunately, we need to still hold our horses here for a while.

All right. And then I read somewhere in the media that Oma Säästöpankki is filing for a bankruptcy of FinCap. I think it was earlier called FinCap Oy, but they have changed the name. And if I'm understanding correct, you owned at least, if not own any -- still 49% of the company. They have some receivables from the company. Is there any risk from this potential bankruptcy?

There's an unfortunate case of namesakes, not as such being the same company there. So it's a different type of -- different company that is in question.

Okay. And next question comes from A.

Maybe one question from me, and it's on your guidance. So you're guiding, of course, adjusted EBIT, but could you maybe disclose your estimate like how much adjustment we could expect for the full year '26? And how much of these adjustments would be cash flow impact items?

We haven't -- thank you Anssi. We haven't had a practice on that to give their guidance. And if you historically look our adjustments, let's say, past 4 years, kind of taking that kind of view, typically, those has been elements where there has been -- I would say, broadly speaking, those has been something that has been providing cash flow for the company. But still overall, we do not provide such a guidance on our outlook.

Yes. Okay. I understand. And actually, one more for me on cash flows in general, like, of course, residential CEE is increasing its share of your business, but is there anything we should take into account when thinking about your quarterly cash flow going forward like in 2026? And are there any special elements to say in these residential CEE projects going forward as the structure is a bit of different compared to Finland?

Thank you, Anssi. I would actually come to a couple of points there, which we have been really working on in the past 2, 3 years. And if you look at our capital employed in that segment, at the same time, volume, what we have been accelerating in terms of production volume as well as the top line growth we haven't that much allocated new capital investment. I think actually, the capital employed in the segment is broadly the same or even on the declining trend. I don't have the exact number in my head, but it's been really an element what we have been focusing on how do we operate and execute the growth the way that we have capital employed under control. And yes, Markus is actually pointing out here, just Q1 '26, we had a capital -- operating capital employed 316 a year ago at the same time, 323 and then if you look at how much more we had actually on production at the same time. So I think it gives a good flavor on the work that the team has been putting in, in order to find the capital-efficient ways to execute the business. That's one. When we look at our quarterly -- Q1 was a good quarter if you look at our cash flow, typically, you kind of get to used to the seasonality of the cash flow, especially at beginning of the year. So I think we had a very solid start for the year. And then even looking a few years back, so we have been now '24 and '25 generating approximately EUR 100 million cash on both of those. And Markus can provide a bit more color on that. Even we do not kind of guide the cash flow, we do not provide a quarterly forecast to the cash flows and all that, but looking maybe the historical performance of the group. So that's a few thoughts from my head. And Markus, if you want to comment.

Yes. Just -- thank you, the one thing to note is that obviously, the percentage completion is earnings, a different way of putting the earnings and sales in terms of the reporting. But the cash flows obviously are based on different metrics. I think that the dynamic in terms of starts and then completions have very much been tilted to the end of the year. And under IFRS, obviously has been a question of which year a particular revenue and earnings can be recognized. But now with the percentage completion, that also as a new tool of leaving the business that potentially then gives then more evenly distributed projects through the year, which then going forward, potentially would then offer also cash flows more evenly than it has been in the past. So that perhaps just good to note that the percentage of completion is obviously earnings and sales and liquidity and the cash flow would then move with completions and sales.

Okay. That's clear. And yes, do you have any pre-agreed commitments on plots, for example, that you have to or you want to fulfill during this year, which you always report this purchase commitment?

I think we are disclosing that on our reporting. But like in earlier times, we have been quite -- we have been saying quite consistently is that we have always those exit most of -- broadly speaking, most of the cases, you have the exit clauses and opportunities in place as well.

If I may, just to note that there is no extraordinary or so in terms of commitments, which we have upcoming. So according to notes, it's quite business as normal.

Do we have any more questions from anyone? No. It seems that there are no more questions. So thank you all for participating. We will publish our half year 2026 results on Friday, 24th of July. But before that, I wish you all a sunny and relaxing mid-summer.

Thank you all.

Thank you.

Thanks.