YIT announces new focused strategy to deliver predictable, market-leading results
YIT Corporation Stock exchange release 22 November 2021 at 12:00 p.m.
YIT announces new focused strategy to deliver predictable, market-leading results
YIT’s Board of Directors has confirmed the company’s strategy for 2022–2025. The objective of the new strategy is to be the most reliable partner to all stakeholders delivering predictable, market-leading results.
Markku Moilanen, President and CEO of YIT: “YIT is a development and construction company with a clear mission to create better living environments. We are a high-quality urban developer, and we have established a solid foundation with strong brand, best-in-class customer satisfaction, talented people, and strong local presence in our key markets. However, at the same time, we have struggled with inconsistent focus, nonoptimal capital allocation and project delivery issues. We have sought growth in areas where YIT is not truly advantaged, and our operating model has turned out to be inefficient. It’s clear that we need to improve our performance and competitiveness.”
The key target of YIT’s new strategy is to deliver predictable, market-leading results. YIT plans to achieve this objective by seeking growth in the Housing business and completing transformation in other businesses. To support this, YIT has redefined and clarified its business model and introduced three strategic priority areas: Focus, Productivity, and ESG. To measure its success, YIT has also updated its financial targets.
YIT boosts growth in Housing and focuses on core capabilities to deliver predictable, market-leading results
YIT has redefined and clarified its business model. Going forward, all business segments have clear, individual strategies and targets within YIT.
In Housing, YIT continues to build functional and sustainable homes and environments making sustainable living easy. YIT aims to grow its Housing revenue by over 20% by 2025 with an operating profit margin of over 10%. The company announced earlier today that it is considering strategic options regarding its operations in Russia. The potential sale of the Russian businesses would release a significant amount of capital which YIT could use to pursue profitable Housing growth in the growing cities of Finland, Poland, Czech Republic, and Slovakia. YIT aims to invest an additional EUR 200 million in attractive urban plots by 2025 in these growing regions, in which the company is already a leading housing developer with a strong track record in operational and financial performance.
Business Premises and Infrastructure businesses continue to have an important role within YIT. Business Premises continues to build and renovate commercial and public spaces to ensure optimal usability of buildings over their life cycle. Infrastructure builds networks and facilities to enable a smoother flow of sustainable living. Both segments are well on their way to execute transformations by focusing on the profitable core around their differentiated competences and by being subsequently more selective in projects. Business Premises and Infrastructure are targeting stable cash flow to further enhance the growth of the Housing business. Profitability is set to be among the best in the industry with both segments targeting an operating profit margin of over 4% by 2025.
The Partnership Properties segment will be dissolved and replaced by a new Property Development segment. The segment will be responsible for YIT’s end-to-end commercial and mixed-use project development. Property Development’s target is to create attractive development and construction margins and steer YIT-wide construction pipeline through project development and selective co-investments. Property Development will be a customer-centric developer and a best-in-class partner. At the same time, long-term ownerships and service businesses will no longer be in focus. Property Development aims to achieve a ROCE of over 10% by 2025.
Measures to improve productivity unlock significant potential
YIT’s financial performance over the past years has been marked by issues in project tendering and delivery leading to project margin reductions. YIT is tackling these productivity issues by rigorous focus on project selection, as well as risk and project management. The ongoing project execution capability improvements are expected to yield EUR 50 million profitability improvement by 2024.
In addition, YIT is streamlining the company’s operating model to build a customer-centric organization and to improve cost competitiveness. From these measures, YIT expects to achieve annual cost savings of EUR 15-20 million by 2023 in continuing operations.
In medium term, the priority is in driving transformation on supply chain management to gain benefits from economies of scale and to boost industrial construction in order to shorten lead times. These actions are expected to further unlock significant efficiency improvement potential reflected in improved sales margins by 2025 and beyond.
Updated ESG strategy will set new standards for the industry
President and CEO Moilanen: “Climate change requires us to rethink how resources are used, and life cycle thinking is becoming more critical. Buildings generate almost 40% of annual global CO2 emissions, and it is evident that substantial changes in the construction industry are needed. Sustainability is becoming ever more important for our customers and investors, and we want to be the forerunner in the industry by seeking and offering solutions together with our customers.”
On the Environmental criteria, YIT commits to the Science Based Targets initiative (SBTi) to limit global warming to 1.5 degrees in line with the Paris Climate Agreement. YIT is the first Finnish construction company to commit to reducing emissions from both its own operations and its value chain in accordance with the Science Based Targets Initiative. With this commitment, YIT strengthens its previous climate work and updates its current climate targets to be more comprehensive, which will also reduce the emissions of YIT's customers.
On the Social criteria, YIT continues to develop and build better living environments for society. YIT creates commercial and public spaces, as well as infrastructure networks that are foundations for a sustainable society. What comes to YIT’s workforce, the company continues its determined work to decrease accident frequency and pursues zero-harm workplace. YIT offers personal and professional growth for its people, and the ambition is to keep the ideal employer position in the construction industry.
On the Governance criteria, YIT continues to have zero tolerance in grey economy, corruption, labor exploitation and discrimination. YIT will also take decisive steps to advance ESG matters throughout of its supply chains. Going forward, YIT will pursue ESG commitment by requiring its suppliers to meet the same environment, social and governance norms as it has set for itself. The company believes that this will set new standards for the entire industry.
Financial targets updated
YIT will measure the success of its strategy by new Group financial targets to be reached by the end of 2025:
- Operating profit margin: 6%
- Gearing: less than 50%
- Dividend: stable growth
The Group operating profit margin target is based on individual segments’ operating profit margin targets. While market outlook for the construction industry looks promising in YIT’s operating regions, the company takes a conservative approach on the market growth assumptions and expects the targeted profitability improvement to come primarily through sharpened focus and productivity improvements. Furthermore, the company expects to gain competitive advantage from its ESG commitments.
President and CEO Moilanen: “I believe in our company and our new focused strategy. I am proud of the competence, professionalism and commitment of our people, the market-leading quality of work at our construction sites, and the highly appreciated YIT brand. By vigorously focusing on reliability, predictability, and sustainability, I am confident that we have all elements in place to improve performance and create value for our customers, employees, society and shareholders.”
The new strategy to be discussed in the Capital Markets Day tomorrow
The new strategy will be discussed in more detail in the YIT Capital Markets Day tomorrow, 23 November 2021 from 1:00 p.m. EET onwards. The event can be followed through live webcast at https://yit.videosync.fi/2021-cmd.
For further information:
Tommi Järvenpää, Vice President, Investor Relations, YIT Corporation, tel. +358 40 576 0288, tommi.jarvenpaa@yit.fi
YIT Corporation
Tommi Järvenpää
Vice President, Investor Relations
Distribution: Nasdaq Helsinki, major media, www.yitgroup.com
YIT is the largest Finnish and a significant North European development and construction company with a strong customer focus and clear mission to create better living environments. We develop and build functional homes for sustainable living, future-proof public and commercial buildings and infrastructure for smoother flow of people, businesses and society. We employ 7,400 professionals in ten countries: Finland, Russia, Sweden, Norway, Estonia, Latvia, Lithuania, the Czech Republic, Slovakia and Poland. Our revenue in 2020 was EUR 3.1 billion. YIT Corporation's share is listed on Nasdaq Helsinki Oy. www.yitgroup.com