YIT’s financial statements bulletin January 1–December 31, 2019

YIT’s financial statements bulletin January 1–December 31, 2019

October–December

• Revenue was on the level of the comparison period, EUR 1,152.4 million (1,127.8).
• Adjusted operating profit* amounted to EUR 121.0 million (99.3) and adjusted operating profit margin was 10.5% (8.8).
• Operating profit amounted to EUR 97.0 million (86.2) and operating profit margin was 8.4% (7.6).
• Reported operating cash flow after investments amounted to EUR 132.1 million (204.5).
• Order backlog was EUR 4,130.5 million (4,285.6).
• Adjusted net debt** was EUR 601.3 million.
• Adjusted gearing** was 57.1%.
• Adjusted earnings per share for continuing operations were EUR 0.35 (0.32) and earnings per share for the review period were EUR 0.35 (0.26).

January–December

• Revenue increased 6% year-on-year and was EUR 3,391.5 million (3,201.0).
• Adjusted operating profit* amounted to EUR 165.5 million (132.0) and adjusted operating profit margin was 4.9% (4.1).
• Operating profit amounted to EUR 80.5 million (104.7) and operating profit margin was 2.4% (3.3). The operating profit includes adjusting items of EUR 85.0 million (27.2).
• Key adjusting items include write-downs of EUR 43 million and provisions of EUR 9 million related to the closing down or selling of certain businesses in Russia. Other adjusting items are mainly related to merger related fair value cost effects and integration costs.
• Realised cumulative synergies by the end of 2019 were EUR 41 million.
• Reported operating cash flow after investments amounted to EUR 50.7 million (148.6).
• Adjusted earnings per share for continuing operations were EUR 0.30 (0.32) and earnings per share for the review period were EUR 0.07 (0.16).
• The Board of Directors proposes a dividend of EUR 0.28 per share for 2019. In addition, the Board of Directors proposes that the Annual General Meeting authorises the Board of Directors to decide, at its discretion, on the payment of an extra dividend of no more than EUR 0.12 per share. When considering the decision, the Board of Directors takes into account the completion of the Nordic paving and mineral aggregates businesses transaction and its conditions.

(*) Adjusted operating profit reflects the result of ordinary course of business and does not include material reorganisation costs, impairment charges or other items affecting comparability. Adjusted operating profit is disclosed to improve comparability between reporting periods. Adjusting items are defined more precisely in note 4 in the tables section.
(**) Definitions of financial key performance indicators can be found in table 4.3 in the tables section.

YIT announced on July 4, 2019 the sale of its Nordic paving and mineral aggregate businesses and on June 20, 2019 measures in Russia to reduce capital and enhance profitability.

Continuing and discontinued operations

• The text section of this financial statements bulletin concerns continuing operations, i.e. the five reported segments listed below.
• Nordic paving and mineral aggregates businesses are classified as held-for-sale assets and reported as discontinued operations.
• Reported and pro forma income statements of comparative periods have been retrospectively restated and published on July 22, 2019.
• The result of discontinued operations is presented in the income statement net of tax on the line “Result for the period, discontinued operations”.
• Assets and liabilities related to discontinued operations are presented in separate line items in the balance sheet in current assets and current liabilities from June 30, 2019 onwards. Assets are reported as “Assets classified as held-for-sale” and liabilities as “Liabilities directly associated with assets classified as held-for-sale”.
• Balance sheet is not restated for comparative periods.
• Cash flow statement is not restated.

Change in the reported segments

• From the second quarter of 2019 on, YIT’s continuing operations include five reported segments: Housing Finland and CEE, Housing Russia, Business premises, Infrastructure projects and Partnership properties.
• The former Paving segment is no longer reported.
• Road maintenance in Finland, previously reported in the former Paving segment, is reported as part of Infrastructure projects.
• Paving business in Russia, previously reported in the former Paving segment, is reported under “Other items” in segment reporting.
• Segment figures for comparative periods have been retrospectively restated and published on July 22, 2019.

Restated pro forma figures

• YIT and Lemminkäinen merged on February 1, 2018.
• In this financial statements bulletin, comparison figures are pro forma figures so that the financial statements of merged Lemminkäinen for the financial period January 1‒January 31, 2018, excluding above mentioned discontinued operations, are included in the pro forma figures and presented in the tables in the columns “Pro forma, restated 10‒12/18” “Pro forma, restated 1‒12/18”.

Additional information regarding the presentation of financial information is available at the end of the explanatory statement of this financial statements bulletin.

Unless otherwise noted, the figures in brackets refer to the corresponding period in the previous year, are restated pro forma and of the same unit.
 

Kari Kauniskangas, President and CEO:

Our positive development continued in 2019 and the Group adjusted operating profit increased to EUR 166 million. Adjusted operating profit for the fourth quarter was at an all time high and we expect the strong order backlog and solid demand to support our profitability also in 2020.

The greatest milestone of the year was the opening of the Mall of Tripla in October. The first months of the mall have been extremely successful and the number of customers exceeded 7 million at the end of the year. Even though the finalisation costs of the Mall of Tripla significantly impacted the Business premises segment’s result negatively during the second half of the year, the project overall has been very profitable for us. In the fourth quarter, we booked a fair valuation for the Mall of Tripla investment in the Partnership properties segment boosting the segment’s adjusted operating profit to EUR 83 million for the full year.

Consumer sales for apartments strengthened clearly in Finland and the CEE countries towards the end of the year. The Housing Finland and CEE segment’s full-year adjusted operating profit decreased slightly due to lower number of completed apartments and changes in the sales mix. In Russia, our business returned to profitable, and residential sales picked up at the end of the year. The decision we made in the summer to focus on four cities and maintenance business in Russia, as well as to close down five units, has progressed well. During the year, capital invested in Russia decreased by over EUR 50 million at comparable exchange rates.

The result for Infrastructure projects grew significantly from the previous year driven by strengthened order backlog margins and improved project management. The segment achieved a positive adjusted operating profit after a loss in the previous year, and the order backlog increased to over EUR 1.1 billion. Furthermore, the discontinued Nordic paving and mineral aggregates operations achieved a good result with a substantial turnaround especially in Norway and Sweden.

According to the strategy update in fall 2019, urban development, the Partnership properties segment and services are the main sources for growth and profitability. We have rigorously been developing business and competitive advantages in these areas. Strategy execution is supported by the decisions to the sell Nordic paving and mineral aggregates businesses to Peab, which will significantly strengthen our balance sheet and clarify our business structure. The transaction requires approval from competition authorities, and we expect the closing to take place during the first or the second quarter of 2020.

In sum, we strengthened our market position in all businesses in 2019. Solid position together with actions to improve productivity and profitability create a firm foundation for us to continue our favourable development also in 2020.

Key figures, IFRS

EUR million	Reported 10–12/19	Pro forma, restated 10–12/18	Change	Reported 1–12/19	Pro forma, restated 1–12/18*	Change
Revenue, continuing operations	1,152.4	1,127.8	2%	3,391.5	3,201.0	6%
Housing Finland and CEE	445.7	354.0 126.7	26%	1,240.1	1,157.9	7%
Housing Russia	107.4	126.7	-15%	240.0	274.1	-12%
Business premises	438.5	438.7	0%	1,176.9	1,045.2	13%
Infrastructure projects	222.7	204.9	9%	806.7	716.8	13%
Partnership properties	0.2			0.3	0.0
Other items	-62.1	3.6		-72.5	7.1
Operating profit, continuing operations	97.0	86.2	12%	80.5	104.7	-23%
Operating profit margin, continuing operations, %	8.4%	7.6%		2.4%	3.3%
Adjusted operating profit, continuing operations	121.0	99.3	22%	165.5	132.0	25%
Housing Finland and CEE	39.0	28.5	37%	91.4	103.3	-12%
Housing Russia	8.5	-3.8		1.2	-32.8
Business premises	-10.4	56.1		-7.1	67.8
Infrastructure projects	6.3	-0.7		14.9	-6.5
Partnership properties	81.3	27.9	192%	82.7	26.9	208%
Other items	-3.7	-8.7	58%	-17.6	-26.7	34%
Adjusted operating profit margin, continuing operations, %	10.5%	8.8%		4.9%	4.1%
Housing Finland and CEE	8.7%	8.0%		7.4%	8.9%
Housing Russia	7.9%	-3.0%		0.5%	-12.0%
Business premises	-2.4%	12.8%		-0.6%	6.5%
Infrastructure projects	2.8%	-0.3%		1.9%	-0.9%
Partnership properties
Adjusting items	24.0	13.1	84%	85.0	27.2	212%
Profit before taxes	87.6	78.4	12%	40.4	71.4	-43%
Profit for the review period , continuing operations	58.7	56.8	3%	4.5	48.7	-91%
Profit for the review period , discontinued operations	14.4	-3.1		10.2	-15.4
Profit for the review period**	73.2	53.7	36%	14.7	33.3	-56%
Earnings per share for the review period, EUR	0.35	0.26	34%	0.07	0.16	-56%
Adjusted earnings per share for the review period, continuing operations, EUR	0.35	0.32	10%	0.30	0.32	-6%
Operating cash flow after investments	132.1	204.5****	-35%	50.7	148.6****	-66%
Net interest-bearing debt at the end of the period	862.3	562.9****	53%	862.3	562.9****	53%
Adjusted net interest-bearing debt at the end of the period***	601.3	n/a		601.3	n/a
Gearing ratio at the end of the period, %	81.3	53.6****		81.3	53.6****
Adjusted gearing ratio at the end of the period3, %	56.7	n/a		56.7	n/a
Equity ratio at the end of the period, %	33.9	38.1****		33.9	38.1****
Adjusted equity ratio at the end of the period3, %	37.3	n/a		37.3	n/a
Adjusted return on capital employed3 (ROCE, rolling 12 months), %	11.1%	n/a		11.1%	n/a
Order backlog at the end of the period, continuing operations	4,130.5	4,285.6*****	-4%	4,130.5	4,285.6*****	-4%

* Comparisons include pro forma figures with Lemminkäinen’s financial statements for the accounting period of January 1‒January 31, 2018, excluding discontinued operations.
** Attributable to the equity holders of the parent company.
*** Definitions of financial key performance indicators can be found in table 4.3 in the tables section.
**** Reported.
***** Restated reported.

	1–12/19	1–12/18	Change
Dividend per share, EUR	0.28*	0.27

* Board of Directors’ proposal to the Annual General Meeting. In addition, the Board of Directors proposes that the Annual General Meeting authorises the Board of Directors to decide on an extra dividend of no more than EUR 0.12 per share.

 

Guidance for 2020

The Group revenue of continuing operations for 2020 is estimated to be in the range of EUR 2,900‒3,300 million (2019: EUR 3,391.5 million).

The full-year Group adjusted operating profit from continuing operations is estimated to be in the range of EUR 150‒190 million (2019: EUR 165.5 million).

 

Guidance rationale

The result guidance is based, for instance, on the estimated completion of residential projects under construction, closing of sales of business premises projects and the company’s solid order backlog. At the end of 2019, 69% of the order backlog was sold.

Significant fluctuation is expected to take place between the quarters due to typical seasonality in infrastructure projects, closing of sales of business premises projects and the completion of residential projects. The last quarter of the year is expected to be clearly the strongest. The company estimates that the adjusted operating profit for the first quarter of 2020 will be on the level of, or above, the comparison period (continuing operations 1‒3/2019: EUR -9.7 million).

Factors affecting the guidance

The most significant factors with which YIT can meet the market demand are sales and pricing, project and project risk management, product development and product offering, measures to reduce production costs, cost management and measures affecting capital efficiency.

Factors outside of YIT’s sphere of influence are mainly related to global economic development, functionality of financing markets and interest rate, political environment, economic development in areas of operation, changes in demand for apartments and business premises, availability of resources such as key persons, functionality of labour markets, changes in public and private sector investments, changes in legislation, permit and authorisation processes and the duration thereof, as well as development of foreign exchange rates.

Due to the long-term nature of construction and urban development projects, changes in demand may be quicker than the company's ability to adapt its offering.

 

Short-term outlook by region

Finland

Consumer demand for apartments is expected to remain on the good level average level of 2019. Institutional investor demand is expected to stay on a good level. Activity among private residential investors is expected to be on the level of 2019. Location and price level continue to play a key role. Demand for new rental apartments in good locations continues to be on a good level supported by low interest levels. Stricter lending practice by financial institutions and potential changes in legislation may impact consumer demand in the future.

Divergent development of apartment prices and demand between growth centres and the rest of Finland is expected to continue. Increased supply of apartments is anticipated to prevent the rise of housing prices.

Rental demand for business premises is expected to remain on a good level in growth centres. Activity among property investors is expected to remain at a good level, particularly for centrally located projects in the Helsinki metropolitan area and in major growth centres. The contracting market is expected to remain active.

Renovation is expected to grow moderately due to increasing urbanisation and aging of building stock.

Construction costs are estimated to stay on a stable level. Construction volume is expected to return to a normal level.

Increased regulation and higher capital requirements imposed on financial institutions affect construction and property development. Financial institutions have tightened housing company lending in the market.

In infrastructure construction, complex infrastructure projects in urban growth centres as well as transport projects and industrial investments maintain demand. In 2020, the infrastructure construction market is expected to grow.

Russia

Demand for apartments is expected to remain at the same level as seen on average in 2019. Demand is expected to focus primarily on affordable apartments; this is also supported by demographic trends. The recent key rate cuts by the Central Bank of Russia have lead to a decrease in mortgage interest rates.

Changes in regulation concerning the housing market are expected to continue to cause uncertainty and turbulence in the market, to maintain volatility in supply and sales practices as well as to increase housing prices in the longer term.

The Baltic countries and CEE countries

Residential demand in the Baltic countries is expected to remain on a good level, where the capital regions continue to grow. Availability of financing and low interest rates are expected to continue to support residential demand. Weaker outlook for the German economy might impact residential demand in the CEE countries. Residential prices are estimated to increase further.

Prices of plots have increased and competition for plots is expected to remain intense. Shortage of resources and long construction permit processes are expected to continue to increase construction cost inflation and to limit volume growth.

Contracting market for business premises is expected to remain at the current level or to decrease slightly in the Baltic countries.

In the Baltic countries, the volume of infrastructure construction is expected to continue to grow moderately due to the states’ investments in improving urban and transport infrastructure, but competition is expected to remain intense.

Scandinavia

In Norway and Sweden, infrastructure construction is boosted by multi-year, state-funded traffic infrastructure development programmes and urbanisation. In both countries, infrastructure construction is expected to grow in 2020. Large-scale road, railway projects and industrial investments are ongoing or planned in Sweden and Norway, which will increase demand for infrastructure projects. In addition, especially Norway is investing in the development and renewal of energy production.

 

Events after the review period

Co-operation negotiations in Group support functions, Business premises and Partnership properties segments

On February 4, 2020, YIT announced commencing co-operation negotiations concerning white collar employees in Group support functions and in the Business premises and Partnership properties segments. The estimated number of personnel to be reduced in case of redundancies is at the maximum 40 employees. The potential reduction needs concern the Business premises segment and Group support functions.

 

News conference for investors and media

YIT will arrange a news conference on Friday, February 7, 2020 at 10:00 a.m. Finnish time (EET, at 8:00 a.m. GMT) at YIT's head office, Panuntie 11, 00620 Helsinki, Finland. The results will be presented by Kari Kauniskangas, President and CEO of YIT Corporation. The event will be in English and targeted for analysts, portfolio managers and the media. Welcome!

Webcast

The news conference and presentation can also be followed through a live webcast at http://www.yitgroup.com/webcast. The live webcast starts at 10:00 a.m. (EET) and a recording of the webcast will be available at the same address later that day.

Conference call

The news conference can be participated through a conference call. Conference call participants are requested to dial in at least five minutes prior to the start of the conference, at 9:55 a.m. (EET). Conference call numbers are:

• Participants from Finland +46 (0)8 5033 6574
• Participants from Sweden +46 (0)8 5033 6574
• Participants from Norway +47 2100 2610
• Participants from UK and outside of Nordic countries +44 (0)330 336 9105

The participants will be asked to provide the following confirmation code: 7088366.

During the webcast and conference call, all questions should be presented in English. At the end of the event, the media has the opportunity to ask questions also in Finnish.

For further information, please contact:

Tommi Järvenpää, Vice President, Investor Relations, YIT Corporation, tel. +358 40 576 0288, tommi.jarvenpaa@yit.fi
Ilkka Salonen, Chief Financial Officer, YIT Corporation, tel. +358 45 359 4434, ilkka.salonen@yit.fi   

 

YIT CORPORATION

Tommi Järvenpää
Vice President, Investor Relations

Distribution: Nasdaq Helsinki, major media, www.yitgroup.com

YIT is the largest Finnish and significant North European construction company. We develop and build apartments and living services, business premises and entire areas. We are also specialised in demanding infrastructure construction and paving. Together with our customers, our nearly 10,000 professionals are creating more functional, more attractive and more sustainable cities and environments. We work in 11 countries: Finland, Russia, Scandinavia, the Baltic States, the Czech Republic, Slovakia and Poland. Our revenue for 2019 was approximately EUR 3.4 billion. YIT Corporation's share is listed on Nasdaq Helsinki Oy. www.yitgroup.com