Interim Report January 1–September 30, 2016: Revenue increased, favourable development in Russia in Q3
YIT CORPORATION Stock Exchange Release October 27, 2016 at 8:00 a.m.
Unless otherwise noted, the figures in brackets refer to the corresponding period in the previous year.
Segment reporting, POC
Residential projects for consumers recognised as income in line with sales and construction*
July–September
Revenue increased by 13% to EUR 443.8 (391.7) million. At comparable exchange rates, revenue increased by 14%. Adjusted operating profit amounted to EUR 19.0 (20.3) million and adjusted operating profit margin was 4.3% (5.2%). EUR -27.0 (-10.4) million adjustments were booked in the period.
Order backlog decreased by 3% from the end of June, amounting to EUR 2,640.7 million.
Operating cash flow after investments amounted to EUR -22.8 (11.9) million.
January–September
Revenue increased by 7% to EUR 1,269.9 (1,182.7) million. At comparable exchange rates, revenue increased by 10%. Adjusted operating profit amounted to EUR 51.2 (59.4) million and adjusted operating profit margin was 4.0% (5.0%). EUR -27.0 (-10.4) million adjustments were booked in the period.
Operating cash flow after investments amounted to EUR -21.7 (140.3) million.
Group reporting, IFRS
Residential projects for consumers recognised as income upon completion*
July–September
Revenue increased by 15% to EUR 419.3 (363.8) million. Operating result amounted to EUR -20.9 (1.5) million and operating profit margin was -5.0% (0.4%). Adjusted operating profit amounted to EUR 6.1 (11.8) million and adjusted operating profit margin was 1.5% (3.3%).
January–September
Revenue decreased by 6 % to EUR 1,153.2 (1,220.6) million. Operating result amounted to EUR -7.6 (53.2) and operating profit margin was -0.7% (4.4%). Adjusted operating profit amounted to EUR 19.4 (63.5) million and adjusted operating profit margin was 1.7% (5.2%).
Guidance for 2016 unchanged (segment reporting, POC)
The Group revenue growth is estimated to be in the range of 5–10% at comparable exchange rates.
The adjusted operating profit** is estimated to grow from the level of 2015 (2015: EUR 76.0 million).
The adjusted operating profit does not include material reorganisation costs, impairment or other items impacting comparability.
* In 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.
** 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.
Kari Kauniskangas, President and CEO:
In September, we published the company’s renewed strategy for the next three-year period. The engine for YIT’s growth and profitability is urban development involving partners. Our order backlog in Finland and the CEE countries is strong, which provides a solid foundation for growth over the next three-year period. Shifting the focus towards growth is made possible thanks to a decrease in net debt during the strategy period and more capital-efficient business models.
In connection with our Capital Markets Day, we stated that the capital release programme established for the previous strategy period is coming to a close according to our objectives. In this review period, completion of the capital release program can be seen in key ratios and profitability development. However, we will continue to improve capital turnover as part of our normal business operations. According to our strategy, we aim to strengthen growth by releasing capital from Russia and investing it in urban development in Finland and the CEE countries.
In July–September, we saw the positive trend continue, with our revenue growing 13 percent year-on-year. I am especially happy that the third quarter showed favorable in the Housing Russia segment; the adjusted operating profit in the segment was positive for the first time in 2016. Our aim is to achieve positive adjusted operating profit in the second half of the year in Russia. The goal is to continue operations in all our current operating areas in Russia, but to reduce the amount of capital invested in Russia by a total of 6 billion roubles (around 80 million euros) by the end of 2018.
Revenue in the Housing Finland and CEE segment remained stable during the third quarter, with profitability improving year-on-year. Our goal in the segment is to further improve profitability by increasing consumer sales and the offering of reasonably priced apartments in growth centres. We were able to start several Smartti projects in Finland, and also started YIT Slovakia’s largest area project in Bratislava.
Revenue in the Business Premises and Infrastructure segment grew in July–September by 24% year-on-year. Our goal is to improve profitability by increasing the number of projects with a long value chain in both in self-developed and tender-based business. A good example of this is Tripla, for which leasing has progressed more quickly than we had expected. During the review period, we won new significant projects that were signed after the reporting period. For example, YIT was chosen to construct Metropolia's Myllypuro campus project in Helsinki.
Key figures
Group reporting, IFRS
| EUR million | 7–9/16 | 7–9/15 | Change | 1–9/16 | 1–9/15 | Change | 1–12/15 |
| Revenue | 419.3 | 363.8 | 15% | 1,153.2 | 1,220.6 | -6% | 1,732.2 |
| Operating profit | -20.9 | 1.5 | -7.6 | 53.2 | 81.6 | ||
| Operating profit margin, % | -5.0% | 0.4% | -0.7% | 4.4% | 4.7% | ||
| Profit before taxes | -24.8 | -5.1 | -389% | -24.2 | 39.8 | 61.3 | |
| Profit for the review period*** | -22.6 | -4.0 | -467% | -22.1 | 31.2 | 47.2 | |
| Earnings per share, EUR | -0.18 | -0.03 | -467% | -0.18 | 0.25 | 0.38 | |
| Operating cash flow after investments | -22.8 | 11.9 | -21.7 | 140.3 | 183.7 | ||
| Net interest-bearing debt at end of period |
611.4 | 574.6 | 6% | 611.4 | 574.6 | 6% | 529.0 |
Gearing ratio at end of period, % |
118.9% | 106.1% | 118.9% | 106.1% | 101.1% | ||
| Equity ratio at end of period, % | 30.1% | 33.1% | 30.1% | 33.1% | 32.9% |
Segment reporting, POC
| EUR million | 7–9/16 | 7–9/15 | Change | 1–9/16 | 1–9/15 | Change | 1–12/15 |
| Revenue | 443.8 | 391.7 | 13% | 1,269.9 | 1,182.7 | 7% | 1,651.2 |
| Housing Finland and CEE | 167.0 | 165.8 | 1% | 517.9 | 557.0 | -7% | 777.8 |
| Housing Russia | 76.0 | 63.9 | 19% | 183.9 | 204.8 | -10% | 266.4 |
| Business Premises and Infrastructure | 203.1 | 164.1 | 24% | 575.0 | 427.1 | 35% | 615.6 |
| Other items | -2.3 | -2.0 | -6.9 | -6.2 | -8.6 | ||
| Operating profit | -8.0 | 10.0 | 24.2 | 49.0 | -51% | 65.7 | |
| Operating profit margin, % | -1.8% | 2.6% | 1.9% | 4.1% | 4.0% | ||
| Adjusted operating profit | 19.0 | 20.3 | -7% | 51.2 | 59.4 | -14% | 76.0 |
| Housing Finland and CEE | 12.9 | 12.3 | 5% | 41.5 | 42.6 | -3% | 56.0 |
| Housing Russia | 0.7 | 1.7 | -59% | -5.1 | 10.2 | 10.9 | |
| Business Premises and Infrastructure | 8.2 | 8.3 | -2% | 26.9 | 15.1 | 78% | 22.7 |
| Other items | -2.7 | -2.0 | -12.0 | -8.5 | -13.5 | ||
| Adjusted operating profitmargin, % | 4.3% | 5.2% | 4.0% | 5.0% | 4.6% | ||
| Housing Finland and CEE | 7.7% | 7.4% | 8.0% | 7.7% | 7.2% | ||
| Housing Russia | 0.9% | 2.7% | -2.8% | 5.0% | 4.1% | ||
| Business Premises and Infrastructure | 4.0% | 5.1% | 4.7% | 3.5% | 3.7% | ||
| Adjustments | -27.0 | -10.4 | -27.0 | -10.4 | -10.4 | ||
| Profit before taxes | -17.0 | -0.7 | over thousand % | -7.5 | 20.9 | 27.0 | |
| Profit for the review period*** | -15.9 | -0.8 | over thousand % | -8.7 | 15.5 | 20.0 | |
| Earnings per share, EUR | -0.13 | -0.01 | over thousand % | -0.07 | 0.12 | 0.16 | |
| Return on investment (last 12 months), % |
3.6% | 5.1% | 3.6% | 5.1% | 5.3% | ||
| Net interest-bearing debt at end of period | 509.1 | 529.2 | -4% | 509.1 | 529.2 | -4% | 460.8 |
| Equity ratio at end of period, % | 33.8% | 35.5% | 33.8% | 35.5% | 35.5% | ||
| Order backlog at end of period | 2,640.7 | 2,314.6 | 14% | 2,640.7 | 2,314.6 | 14% | 2,172.9 |
***Attributable to equity holders of the parent company
Events after the review period
In October, residential sales for consumers are estimated to be around 200 units (10/15: over 100) in Finland, around 100 units (10/15: around 80) in the CEE countries and over 300 units (10/15: around 200) in Russia.
October 10, 2016, the holding of JPMorgan Chase & Co and its funds in YIT had exceeded the threshold of 5 per cent.
October 18, 2016, the holding of JPMorgan Chase & Co and its funds in YIT had gone below the threshold of 5 per cent.
October 25, 2016 YIT signed a new EUR 200 million syndicated unsecured revolving credit facility with its core banks to refinance the syndicated EUR 300 million unsecured revolving credit facility maturing 2018. The committed credit facility matures on January 2, 2020 and has two financial covenants: equity ratio (IFRS) must be above 25.0% and gearing (IFRS) must be below 150.0%. The facility will be used as a reserve for general corporate purposes and the size of the new facility is regarded as sufficient for this purpose.
Outlook for 2016
Guidance unchanged (Segment reporting, POC)
The Group revenue growth is estimated to be in the range of 5–10% at comparable exchange rates.
The adjusted operating profit is estimated to grow from the level of 2015 (2015: EUR 76.0 million).
The adjusted operating profit does not include material reorganisation costs, impairment or other items impacting comparability.
In addition to the market outlook, the 2016 guidance is based on the following factors: At the end of September, 56% of YIT’s order backlog was sold. Projects already sold and signed pre-agreements are estimated to contribute over 60% of revenue in the last quarter of the year. The rest of the revenue estimate is based on estimated new sales during 2016 and capital release actions.
In Business Premises and Infrastructure, the profit performance is expected to be on the level of the first half of 2016. The demanding market situation in Russia is expected to keep the profitability of Housing Russia on a low level. Similarly to the year 2015, the investor projects’ share of revenue is estimated to remain high in Housing Finland and CEE, which will impact the segment’s adjusted operating profit margin negatively. The execution of the capital release program started in autumn 2013 will continue actively in 2016, and the capital release actions are expected to have a negative effect on the adjusted operating profit margin.
Market outlook
Finland
In Finland, the macroeconomic uncertainty is estimated to affect the residential and business premises markets also in 2016.
Consumer demand is estimated to pick up slightly and the demand to focus especially on small, affordable apartments in growth centres. The investor activity is estimated remain on a good level but 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.
In Finland, the tenants’ demand for business premises is estimated to remain modest. The real estate investors’ activity is expected to remain on a good level with focus on prime locations in the capital region. Business premises contracting is estimated to remain active. Political support for new infrastructure projects is estimated to revitalise the infrastructure market. High activity in the construction market has resulted in lack of resources.
Russia
The Russian economy is not expected to weaken further, but the visibility is weak and economic uncertainty is estimated to continue to have a negative impact also on the residential market. The construction cost inflation is expected to moderate. The nominal residential prices are estimated to remain stable. Demand is estimated to focus especially on small apartments.
The CEE countries
In the CEE countries, the demand in the residential and business premises markets is expected to be supported by the improved economic situation. Residential prices are estimated to increase in the Czech Republic, Slovakia and Lithuania, and to remain stable in Poland, Estonia and Latvia. The construction costs are estimated to increase slightly.
Access to mortgage financing is expected to remain good and interest rates to remain on a low level.
News conference for investors and media
YIT will arrange a news conference on October 27, 2016 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.
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), to number +44 20 31940552.
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 Helsinki, major 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 2015, our revenue amounted to nearly EUR 1.7 billion, and we employ about 5,300 employees. Our share is listed on Nasdaq Helsinki. www.yitgroup.com