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 third quarter 2026 results release. My name is Essi Nikitin, and I'm heading the Investor Relations at YIT. Together with me today, I have our CFO, Heikki -- CFO, Erkka Repo; and CEO Heikki Vuorenmaa on the line. We will start with the recap to recent developments in the company presented by Erkka. And after that, the participants will have an opportunity to ask questions from Erkka 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 will hand over to Erkka. Erkka, please go ahead.

Good morning to everyone. Let's start with a short update on our businesses, starting with our contracting businesses and the very topical data center market. As you all know, we held a Capital Markets Update event regarding the data center market last Thursday. Many of you attended the event, but in case you missed it, the recording of the event and presentation materials are available on our website. The data center market in Finland is experiencing strong growth as Finland is emerging as one of the most attractive locations for data center investments in Europe. YIT has systematically invested in its capabilities in this growing sector, built extensive expertise and references in delivering demanding data center projects and established a position as Finland's leading data center builder. As we discussed in the event, this super cycle is just about to start in Finland and will accelerate during our strategy period. In 2025, we had a little less than 400 megawatts operating capacity deployed in Finland. According to data from the Confederation of Finnish Industries, announced capacity extensions of data centers would reach over 5 gigawatts by end of 2029. This number is well aligned with another data point, Fingrid connection agreements of 5 gigawatts announced in August 2026. The announced and potential data center pipeline represents a significant growth opportunity for the Finnish construction industry in the coming years. Our estimate is as communicated in the capital markets update, that it will bring up to EUR 15 billion additional opportunity for construction companies in Finland by the year 2029. As discussed in the event, we have translated the potential market development paths into 3 illustrative revenue scenarios for YIT in 2029. In all of the 3 different scenarios, the business grows strongly. The difference is primarily in how quickly investments move from plans into construction. In the base case, power availability develops as expected, customer investment activity continues and projects move forward under normal delivery conditions. Today, as our base case, we see a credible path to revenue of about EUR 1 billion in 2029. As a result, we announced that we increased the group financial target for revenue growth to be reached by the end of 2029 to at least 10% with the compound annual growth rate based on year 2024. Previously, the company's target was to achieve net sales growth of at least 5%. The other group financial targets of adjusted operating profit margin of at least 7% and return on capital employed of at least 15% by the end of 2029 remain unchanged. The data center growth is expected to support us on reaching the profitability targets as well. In conjunction, we also increased, for the second time this year, the segment-specific revenue growth targets for the Building Construction and Infrastructure segments for the strategic period. The new target for the Building Construction segment is to achieve annual growth of at least 6% and for the Infrastructure segment to achieve annual growth of at least 15% by 2029 with the compound annual growth rate based on year 2024. We have also had success in many other fronts in the contracting business during the third quarter. In addition to 3 new data center projects announced during the quarter, 2 for atNorth and 1 for XTX, we also announced several other new projects for the contracting segments. For Building Construction, we announced 2 new agreements for constructing production facilities in Vilnius and Kaunas in Lithuania. We also announced the start of implementation phase of Jätkäsaari Swimming and Sports Center in Helsinki. For Infrastructure, we announced that YIT had been chosen to carry out passenger rail yard project in Oulu, Finland. All in all, the order books for both of the contracting segments are strong and the segments are well positioned to pursue growth and further enhance operational efficiencies. Then moving over to our residential segments. As a recap, our Residential CEE segment continued to perform well in the second quarter of the year with apartment sales increasing by over 30% from the comparison period. The segment has been a clear profit driver for the group this year. The market conditions continue to be favorable, giving us more opportunities to continue to reach our strategic targets. As we announced yesterday, during the third quarter, we have started 148 new apartments, altogether worth EUR 23 million in the Residential CEE segment. The number of starts is lower than in previous quarters, but has no impact on the underlying trend of profitable growth. 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. Then moving over to Finland. We introduced 2 new project concepts in Residential Finland, during the third quarter, Olo and Fiksu. Our third concept, Formia, was already introduced earlier in the summer. Olo Home is high functioning and clearly structured space that stands the test of time and meets the needs of an active life. Homes based on the concept are designed for construction in the regional centers of large cities and the downtown areas of medium-sized cities. Fiksu concept responds to the changing market conditions and provides more people with the opportunity to own a new home. Buyers get a new high-quality apartment with predictable living costs for the price comparable to the apartments in the secondary market. Estimated target price per square meter for YIT Fiksu homes built on leased land is approximately EUR 3,500. The homes are designed for customer groups such as single-person households, couples, growing families and real estate investors. Formia concept, introduced already in May, offers homes where high construction quality meets Finnish design. At the heart of the product concept are airiness and sense of space, harmonious design and high-quality materials. The uniform and durable design language extends from the front door of the building and common areas to the smallest details of the home. Formia homes offer functional floor plans and large windows that bring in plenty of natural light and high quality characterizes every detail of the home equipment. We continue to adapt our operations to prevailing market conditions in Residential Finland and launch self-developed consumer projects based on demand. During the third quarter, we launched 2 new self-developed residential projects in Finland: Joensuun Sahan Piha in Joensuu, Finland, representing the Olo concept, and Heikas in Lauttasaari, Helsinki, representing the Formia concept. In addition to the self-developed starts, we also started one student apartment housing project in Vaasa, Finland during the quarter. As a conclusion, the growth of the data center market in Finland is significantly accelerating our growth opportunities from 2027 onwards. YIT has the capabilities, market position and customer relationships needed to capture long-term growth in the market. Beyond data centers, we also see additional growth opportunities across our contracting businesses driven by long-term megatrends such as energy transition and increasing infrastructure and defense investments. We also see continued growth from our residential business, especially in Residential CEE. It is worth noting that the new growth target for the group presented last week does not require a meaningful recovery in the Finnish residential market, which could provide us additional upside. So this was the recap to third quarter main events. We are now ready for questions.

Thank you, Erkka. So yes, we're ready for questions. [Operator Instructions] First question we have from Atte Jortikka.

This is Atte Jortikka from Inderes. Firstly, on the Residential CEE, so what was the cause on the starts dropping to 148 on Q3? And what is the pipeline for starts for Q4?

Thank you, Atte. I think kind of like Erkka pointed out there. So the market remains favorable and the conditions there. It's a timing question more than anything else, the timing of the readiness of the projects in terms of having everything ready for starts. That's been the case for now. If you look at the comparison period and kind of strong acceleration there. So it's fair to say that there was a quieter -- some 3 years ago, so there was a quieter time in the ramp-up of starts. And then as we were entering to more favorable market, so we had an opportunity to launch multiple projects that were ready for launching at the same time there. And now we are -- like there's no changes in terms of the market and growth ambition or underlying trend what we are seeing, but it's just the case that we had a less of starts in the Q3 than last year. But we remain confident that we are on the right path. We have the right projects. We have right plots. We have capabilities there to launch those projects and continue the strategic direction what we have been setting ourselves.

Yes. And continuing on that, given some 1000-unit completions for Q4, should we still expect that the growth in units under construction continues also going forward?

Let's come back to that then what is the actual numbers on Q4. What we see there is that obviously now like Erkka pointed out, so we've seen some 30% growth year-on-year. Our ambition is the 15% on annual pace throughout the strategic period. So that's what we are really committed to deliver. And we are working hard there also to ensure that we have the right projects in the right cities that we are starting.

Yes. Then on Residential Finland, so you presented and also commented here today that you are not expecting meaningful contribution from Residential Finland top line-wise during the strategy period. So is that your own base case? Or is that -- do you think that's a conservative estimate?

Well, it's been -- how should I frame this? If we look from '22 until today, so there has been quite many type of scenarios about the residential market in Finland, how that will be in kind of coming. What we're trying to say is that at the moment, it's for us kind of something that we were not counting in or like option there in terms of what you said the revenue contribution. But generally speaking, what I would like to point out that we operate in several other European countries. And what we have typically seen on the residential market is that the residential market is a little bit like a post-cyclical thing. So first, you see that the economy is doing good. You're -- there is a growth the jobs and there is, let's say, view in the economy, which is positive. And then after that, also the residential market has been kind of turning into the more positive trend. And if you look at the Finland case, so maybe in a historical terms, residential market has been recovering earlier than the whole economy. But I think the kind of more typical way is that the residential market recovers as the economy first has been recovering, and that is turning to the consumer confidence and also well-functioning residential market then.

And maybe what we wanted to communicate is that we do not want to speculate when the market turn would happen. But when that would happen, it would provide us a significant upside compared to the numbers that we have shown.

Thank you, Erkka.

Yes. And then final for me before stepping back in line. So for contracting, the outlook for data center construction is obviously strong, but what about the tender pipeline outside data centers, for example, in public infrastructure?

So last quarter, we upgraded actually our view on a little bit improving in Finland. And as pointed out, so there has been quite a few project announcements also during the quarter. We feel that kind of the market conditions hasn't changed since the Q2 and that the kind of positive economical activity and the environment what we are seeing in Finland is actually -- it's not just on one sector, what is the data centers, but it's a more broader in the whole economy, you can say. But also in the Baltics where we are operating. So that is the same there.

Thanks, Atte. Next question from Svante.

Coming back to the data center theme, thank you for the very good event that you had. First one on the EUR 13 billion to EUR 15 billion market opportunity that you see for '26 to '29. How should we think about the timing of that whole into the 4 years or 3 years that we have left? Is it kind of steadily increasing like 10%, 20%, 30%, 40% for the 4 years? Or do you have an own view of that timing effect?

Well, also -- I think the timing is also quite much influenced that how quickly and how many of the projects will be launched towards the end of the year or beginning of the next year because then when you add the construction lead time on top of that, so that impacts. What we've seen is that there has been quite many already project announcements during 2026 that would imply that kind of the market is not completely back end kind of loaded towards the '29. But what we can, of course, see is that I would say that there is more and more new announcements for the new potential opportunities. So you could actually see somehow kind of a growing trend there to be -- but I think, Erkka, you pointed out already there in the event last week that it is not something that we need to wait until '28 or '29, but we see that it's already taking a massive step forward in the next year.

Okay. That's helpful. And then still on the same theme, could you give some details on how you have calculated the 28% market share that you have on the ongoing data center projects? Is there a monetary element in there? Or is it only based on megawatts?

It's based on the capacity and the megawatts.

And of the players, what's your own view of how many foreign operators are involved in the market and what is their share of the market currently? I guess it's defined as the company that is managing the project.