Interim Report January 1 – March 31, 2017: Result improved, strong cash flow
YIT Corporation Stock Exchange Release April 27, 2017 at 8:00 a.m.
Unless otherwise noted, the figures in brackets refer to the corresponding period in the previous year and are of the same unit.
Segment reporting, POC
Residential projects for consumers recognised as income in line with sales and construction1
January–March
• Revenue increased by 32% to EUR 479.2 million (362.4).
• Adjusted operating profit amounted to EUR 16.7 million (12.1) and adjusted operating profit margin was 3.5% (3.3).
• In the review period, there were no adjustments.
• Order backlog remained stable at the level of the end of December and amounted to EUR 2,618.3 million
(12/2016: 2,613.1).
• Operating cash flow after investments amounted to EUR 40.8 million (-25.1).
Group reporting, IFRS
Residential projects for consumers recognised as income upon completion1
January–March
• Revenue increased by 34% to EUR 452.2 million (337.6).
• Operating profit amounted to EUR 4.7 million (6.7) and operating profit margin was 1.0% (2.0).
Guidance for 2017 unchanged (segment reporting, POC)
The Group revenue is estimated to grow by 0–10%.
The adjusted operating profit2 is estimated to be in the range of EUR 90–105 million.
The adjusted operating profit does not include material reorganisation costs, impairment or other items impacting comparability.
1In segment reporting, the revenue and profit are recognised by multiplying the percentage of completion by the percentage of sale, i.e. according to the percentage of completion method, which does not fully comply with the Group’s IFRS accounting principles. According to the Group’s IFRS accounting principles, revenue from residential projects for consumers is recognised upon completion. Furthermore, in Group reporting, part of the interest expenses are capitalised according to the IAS 23 standard, which causes differences in operating profit and financial expenses between segment reporting and Group reporting.
2 Due to the new guidelines from the European Securities and Market Authority concerning alternative performance measures, the performance measure “operating profit excluding non-recurring items” is replaced with “adjusted operating profit”. The content of adjustments equals items previously disclosed as non-recurring items and consist of material reorganization costs and impairment, among others. Adjusted operating profit is disclosed to improve comparability between reporting periods.
As of the beginning of 2017, in order to clarify its financial figures terminology, YIT starts to use the terms Capital Employed and Return on Capital Employed (ROCE) for segment reporting instead of previously used Operative Invested Capital and Return on Operative Invested Capital (ROI). The formulas for these financial figures remain untouched.
Kari Kauniskangas, President and CEO:
The result for January–March showed a substantial year-on-year improvement but was low, as expected. Revenue grew strongly and cash flow was solid. Order backlog stayed on a high level and the outlook is bright.
Development was particularly positive in the Housing Finland and CEE segment due to strong residential sales to consumers. During the quarter, we also concluded several investor sales transactions and plot sales that contributed to an improvement in our capital efficiency. The segment’s revenue increased and profitability improved slightly. The segment’s outlook is positive: we started many residential projects to consumers in both Finland and the CEE countries.
Residential sales in Russia were subdued due to consumers being cautious. The increase in real wages has been slow in spite of the stabilisation of the economic climate. Expecting interest rates to fall, consumers have postponed their investments and taking out new mortgages. As a result of low residential sales, revenue in rubles decreased by 11%. However, euro-denominated revenue increased year-on-year due to the appreciation of the ruble. Operating profit was negative due to the low volume but improved substantially year-on-year.
The Business Premises and Infrastructure segment’s order backlog remains strong. Revenue increased particularly due to the Mall of Tripla project, but the segment’s result was low due to the weakened margins in certain projects in the CEE countries as well as the seasonal variation in infrastructure projects. Large projects progressed according to plan. We completed the West Harbour terminal in Helsinki five weeks before the due date. The project is a good example of progress towards our goals of achieving a performance leap and an improved customer experience.
Cash flow for the quarter was positive and net debt decreased. We continued to improve our capital efficiency; for example, by selling plots of land to our partners. While the sales transactions did not have a significant effect on the profit for the quarter, they increased revenue and supported the favourable development of key financial figures and enabled for their part the implementation of the company’s growth strategy.
Key figures
Group reporting, IFRS
| EUR million | 1–3/17 | 1–3/16 | Change | 1–12/16 |
| Revenue | 452.2 | 337.6 | 34% | 1,678.3 |
| Operating profit | 4.7 | 6.7 | -29% | 17.7 |
| Operating profit margin, % | 1.0% | 2.0% | 1.1% | |
| Profit before taxes | 4.5 | -1.2 | -2.5 | |
| Profit for the review period1 | 3.4 | -0.9 | -7.1 | |
| Earnings per share, EUR | 0.03 | -0.01 | -0.06 | |
| Operating cash flow after investments | 40.8 | -25.1 | -43.3 | |
| Net interest-bearing debt at end of period | 551.1 | 554.5 | -1% | 598.6 |
| Gearing ratio at end of period, % | 103.6% | 108.6% | 112.3% | |
| Equity ratio at end of period, % | 31.1% | 31.5% | 31.2% |
Segment reporting, POC
| EUR million | 1–3/17 | 1–3/16 | Change | 1–12/16 |
| Revenue | 479.2 | 362.4 | 32% | 1,783.6 |
| Housing Finland and CEE | 244.8 | 166.0 | 47% | 727.9 |
| Housing Russia | 57.8 | 49.1 | 18% | 267.9 |
| Business Premises and Infrastructure | 178.7 | 149.4 | 20% | 797.4 |
| Other items | -2.1 | -2.1 | -9.7 | |
| Operating profit | 16.7 | 12.1 | 38% | 52.9 |
| Operating profit margin, % | 3.5% | 3.3% | 3.0% | |
| Adjusted operating profit | 16.7 | 12.1 | 38% | 79.9 |
| Housing Finland and CEE | 19.4 | 12.9 | 51% | 59.9 |
| Housing Russia | -1.8 | -3.1 | 42% | -2.3 |
| Business Premises and Infrastructure | 4.7 | 6.0 | -22% | 38.1 |
| Other items | -5.6 | -3.7 | -15.7 | |
| Adjusted operating profit margin, % | 3.5% | 3.3% | 4.5% | |
| Housing Finland and CEE | 7.9% | 7.7% | 8.2% | |
| Housing Russia | -3.1% | -6.3% | -0.9% | |
| Business Premises and Infrastructure | 2.6% | 4.0% | 4.8% | |
| Adjustments | -27.0 | |||
| Profit before taxes | 12.6 | -0.8 | 13.8 | |
| Profit for the review period1 | 8.9 | -0.6 | 7.4 | |
| Earnings per share, EUR | 0.07 | -0.00 | 0.06 | |
| Return on investment (last 12 months), % | 5.2% | 4.7% | 4.7% | |
| Net interest-bearing debt at end of period | 409.6 | 481.3 | -15% | 469.3 |
| Equity ratio at end of period, % | 35.4% | 34.1% | 35.1% | |
| Order backlog at end of period | 2,618.3 | 2,246.8 | 17% | 2,613.1 |
1 Attributable to equity holders of the parent company
Events after the review period
In April, residential sales to consumers are estimated to be around 130 units in Finland (4/16: around 130), around 80 units in the CEE countries (4/16: around 80) and below 200 units in Russia (4/16: over 250).
Outlook for 2017
Guidance unchanged (segment reporting, POC)
The Group revenue is estimated to grow by 0–10%.
The adjusted operating profit is estimated to be in the range of EUR 90-105 million.
The adjusted operating profit does not include material reorganisation costs, impairment or other items impacting comparability.
In addition to the market outlook, the 2017 guidance is based on the following factors: at the end of March the company’s order backlog was solid and 61% of it was sold. Projects already sold or signed pre-agreements are estimated to contribute nearly 60% of rest of 2017 revenue.
The increased share of consumer sales in Housing Finland and CEE is likely to have a moderate positive impact on the adjusted operating profit of the segment. The impacts of the shift to consumers will be visible in the result gradually.
In Housing Russia, the adjusted operating profit is estimated to be positive but to remain on a low level. Capital release actions in Russia are likely to have a negative impact on the profitability.
Market outlook
Finland
Consumer demand is estimated to remain on a good level and to continue to focus on affordable apartments in growth centres. The investor activity is estimated to decline slightly and even more focus will be paid on the location.
Residential price polarization is estimated to continue especially between growth centres and the rest of Finland. Access to mortgage financing is estimated to remain good.
The tenants’ interest for business premises is estimated to pick up slightly in growth centres. The real estate investors’ activity is expected to remain on a good level with focus on prime locations in the capital region especially. Business premises contracting is estimated to remain active. New infrastructure projects are estimated to revitalise the market.
The increased competition for skilled labour due to high construction activity is expected to continue. Construction costs are estimated to increase slightly. Construction volume growth is expected to slow down.
Bank regulation and increased capital requirements of financial institutions might have an impact on the construction and real estate development.
Russia
The Russian economy is expected to remain stable on the current level. Stabilisation of the economy will have a moderate, positive impact on the residential market. The expectations regarding weakening of ruble and interest rate cuts are expected to have an impact on consumers’ cautious behaviour.
Residential prices are expected to remain stable.
Residential demand is expected to focus on affordable apartments also in Russia. Construction cost inflation is estimated to moderate.
The CEE countries
Residential demand is expected to remain on a good level. Residential prices are estimated to remain stable or increase slightly. Good access to financing and low interest rates are estimated to support the residential demand. Construction costs are estimated to increase slightly.
Also business premises tender market is estimated to pick-up in most of the CEE countries.
News conference for investors and media
YIT will arrange a news conference on Thursday, April 27, 2017 at 10:00 a.m. Finnish time (EEST, at 08:00 a.m. BST) at YIT's head office, Panuntie 11, 00620 Helsinki, Finland. The event is in English and targeted for analysts, portfolio managers and the media. Welcome!
Webcast
The news conference and presentation by the President and CEO of YIT Corporation Kari Kauniskangas can also be followed through a live webcast at www.yitgroup.com/webcast. The live webcast starts at 10:00 a.m. (EEST) and a recording of the webcast will be available at approximately 12:00 noon (EEST) at the same address.
Conference call
The news conference can be participated also 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. (EEST). Conference call numbers are:
Participants from UK and outside of Nordic countries +44 (0)330 336 9412
Participants from Sweden +46 (0)8 5065 3942
Participants from Norway +47 2350 0296
The participants will be asked to provide the following confirmation code: 2304562.
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:
Hanna Jaakkola, Vice President, Investor Relations, YIT Corporation, tel. +358 40 5666 070, hanna.jaakkola@yit.fi
YIT CORPORATION
Kari Kauniskangas
President and CEO
Distribution: NASDAQ OMX, principal media, www.yitgroup.com
YIT creates better living environment by developing and constructing housing, business premises, infrastructure and entire areas. Our vision is to bring more life in sustainable cities. We want to focus on caring for customer, visionary urban development, passionate execution and inspiring leadership. Our growth engine is urban development involving partners. Our operating area covers Finland, Russia, the Baltic countries, the Czech Republic, Slovakia and Poland. In 2016, our revenue amounted to nearly EUR 1.8 billion, and we employ about 5,300 employees. Our share is listed on Nasdaq Helsinki. www.yitgroup.com