YIT’s Half-year report January 1–June 30, 2019

YIT Corporation                    Stock Exchange Release       July 25, 2019 at 8:00 a.m.

YIT’s Half-year report January 1–June 30, 2019

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 half-year report concerns continuing operations, i.e. the five reported segments listed below.
  • Nordic paving and mineral aggregate 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 22nd, 2019.
  • The result from 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 the 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”
  • The 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, are 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 half-year report, 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 are presented in the tables in the columns “Pro forma, restated 1‒6/18” and “Pro forma, restated 1‒12/18”.

Additional information regarding the presentation of financial information is available at the end of the explanatory statement of the half-year report.
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.

April–June

  •  Revenue was on the level of the comparison period and was EUR 756.5 million (759.4).
  •  Adjusted operating profit1 amounted to EUR 28.5 million (20.3) and adjusted operating profit margin was 3.8% (2.7).
  •  Operating profit amounted to EUR -22.8 million (11.8) and operating profit margin was -3.0% (1.6). The operating profit includes a one-time write-down of EUR 31 million and a provision of EUR 9 million related to the closing down or sale of businesses in connection with the arrangements to reduce capital and enhance profitability in Russia. Additionally, a write-down of EUR 4 million is allocated to paving Russia related to purchase price allocation in connection with the Lemminkäinen and YIT merger.
  •  Reported operating cash flow after investments amounted to EUR -51.0 million (reported 129,9). YIT increased investments in plots in Finland and CEE.
  •  Order backlog increased 8% quarter-on-quarter but decreased by 3% year-on-year and was EUR 4,652.1 million (4,772.8).
  •  Adjusted net debt2 was EUR 672.1 million. Net debt2 including among others lease liabilities was EUR 939.3 million.
  •  Adjusted gearing2 was 70.7%. Gearing2 including among others lease liabilities was 98.8%.
  •  Realised cumulative synergies were EUR 34 million by the end of the second quarter of 2019.
  •  Adjusted earnings per share for continuing operations were EUR -0.01 (0.02) and earnings per share for review period were EUR -0.22 (-0.02). 

January–June

  •  Revenue increased by 7% and was EUR 1,431.6 million (1,338.8).
  •  Adjusted operating profit1 amounted to EUR 18.8 million (1.4) and adjusted operating profit margin was 1.3% (0.1).
  •  Operating profit amounted to EUR -34.9 million (-8.8) and operating profit margin was -2.4% (-0.7). The operating profit includes a one-time write-down of EUR 35 million and a provision of EUR 9 million related to the closing down or sale of businesses in connection with the arrangements to reduce capital and enhance profitability in Russia.
  •  Reported operating cash flow after investments amounted to EUR -54.2 million (reported -22.8).
  •  Adjusted earnings per share for continuing operations were EUR -0.10 (-0.10) and earnings per share for review period were EUR -0.40 (-0.27).

1 The 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.
2 Definitions of financial key performance indicators can be found in table 4.3 in the tables section.

Kari Kauniskangas, President and CEO:

Q2: Solid performance and strategic decisions

The adjusted operating profit for the second quarter improved year-on-year and revenue remained at the level of the comparison period. From the end of March, the order backlog strengthened in almost all segments. Our outlook is positive: we estimate the adjusted operating profit of the company’s continuing operations to improve also during the second half of the year.

During the last months we have made significant decisions to execute the company’s strategy. Right after the reporting period we decided to sell the Nordic paving and mineral aggregates operations to Peab for EUR 280 million. We will record a positive cash flow effect of approximately EUR 240 million and a capital gain of approximately EUR 40 million from the sale upon the estimated completion of the transaction in January 2020. With the transaction, YIT’s business portfolio will be streamlined, the balance sheet will be further strengthened, and the seasonal earnings volatility of the company will decline. With the help of the cash flow received from the transaction, we will be able to lower our gearing ratio ahead of time to a level in line with our strategic goals as well as to invest in large urban development projects and growth of service businesses.

At the end of June we announced considerable steps in Russia to reduce capital and enhance profitability in line with our strategy: we decided to discontinue residential construction in Moscow, the Moscow region and Rostov-on-Don, as well as contracting and paving in Russia. We will focus our operations to the cities in which business has remained profitable throughout the Russian recession. These cities are characterised by good plot availability and size, sensible average sales price levels and sufficient consumer purchasing power with respect to YIT’s housing product. The changes to be implemented release capital and improve the result in Russia markedly going forward, even though we in this quarter record a one-off negative item in the operating profit.

These strategic moves enable YIT to accelerate growth and improve profitability in the priority areas defined in the group strategy: urban development and non-cyclical businesses. These decisions will focus our operations, enhance our performance and financial position as well as affect our reporting from this quarter on.

Regarding the continuing businesses, I am especially proud of the performance of Housing Finland and CEE segment as the profitability improved to a good level, over 10 per cent, supported in particular by Finnish residential construction. During the quarter, we increased residential start-ups in Finland and continued to invest in plots in Finland and CEE. The number of start-ups enables us to keep the volumes on a good level also next year. The increase in the adjusted operating profit came first of all from the result improvement in segments that underperformed last year. Also at the end of the period, the order backlog was approximately EUR 4.7 billion. The order backlog strengthened especially in Infrastructure projects and Business premises. Among others, the Raide-Jokeri light rail project in Helsinki and Espoo, wastewater tunnel in Stockholm and the expansion of Vaasa Central Hospital in Finland were added into the order backlog. In Infrastructure projects the margin quality of the order backlog improved supported by new contracts. We also agreed to build over 1,000 apartments for institutional investors in Finland.

In the first half of the year, construction volume has been at a good level in Finland. Demand for business premises has been brisk, in particular in the Helsinki capital region, Southern Finland and renovation business. The infrastructure construction outlook is supported by traffic investments planned by the new government for the next few years in Finland. In Sweden and Norway the infrastructure construction outlook has continued to be strong. In Finland, institutional residential demand has been good and consumer residential sales has been proceeding as anticipated. In the CEE countries, residential demand has been brisk. In Russia, the changes in the regulation concerning the housing market has increased general insecurity in the market.

Key figures, IFRS

EUR million  Reported46/19  Pro forma, restated
4–6/18
Change Reported1–6/19 Pro forma, restated
1–6/18*

Change
Pro forma, restated
1–12/18*
Revenue, continuing operations   756.5  759.4  0%  1,431.6 1,338.8 7%    3,201.0 
Housing Finland and CEE  286.4  316.7  -10%  542.6 559.6 -3% 1,157.9 
Housing Russia  35.4  53.2  -33%  79.8 91.5 -13% 274.1 
Business premises  247.1  212.2  16%  486.2 395.2 23% 1,045.2 
Infrastructure projects  192.6  175.7  10%  334.0 296.7 13% 716.8 
Partnership properties  0.1  0.1 0.0 
Other items  -5.1  1.6  -11.2 -4.2 -165% 7.1 
Operating profit, continuing operations  -22.8  11.8  -34.9 -8.8 -296% 104.7 
Operating profit margin, %, continuing operations  -3.0%  1.6%  -2.4% -0.7% 3.3% 
Adjusted operating profit, continuing operations  28.5  20.3  40% 18.8 1.4 132.0 
Housing Finland and CEE  29.1  30.4  -4%  38.4 50.9 -25% 103.3 
Housing Russia  -2.7  -7.3  62%  -7.5 -21.1 64% -32.8 
Business premises  5.2  5.3  -2%  10.2 3.0 236% 67.8 
Infrastructure projects  2.8  -0.8  -2.9 -11.7 76% -6.5 
Partnership properties  -0.2  -0.6  72%  -1.7 -0.8 -112% 26.9 
Other items  -5.7  -6.6  14%  -17.7 -18.9 7% -26.7 
Adjusted operating profit margin, % continuing operations  3.8%  2.7%  1.3% 0.1% 4.1% 
Housing Finland and CEE  10.2%  9.6%  7.1% 9.1% 8.9% 
Housing Russia  -7.8%  -13.7%  -9.4% -23.1% -12.0% 
Business premises  2.1%  2.5%  2.1% 0.8% 6.5% 
Infrastructure projects  1.5%  -0.5%  -0.9% -3.9% -0.9% 
Partnership properties 
Adjusting items  51.3  8.5  500%  53.7 10.1 432% 27.2 
Profit before taxes  -32.2  -0.5  -54.5 -27.7 -97% 71.4 
Profit for the review period , continuing operations  -42.7  -2.3  -60.5 -27.5 -120% 48.7 
Profit for the review period , discontinued operations -4.2  -2.0  -111% -24.4 -28.9 16% -15.4
Profit for the review period** -46.9  -4.3  -995% -84.9 -56.5 -50% 33.3
Earnings per share for the review period, EUR  -0.22 -0.02 -0.40 -0.27 -48% 0.16
Adjusted earnings per share for the review period, continuing operations, EUR -0.01 0.02  -0.08 -0.10 0.32
Operating cash flow after investments   -51.0 129.9****  -54.2 -22.8****  -138% 148.6**** 
Net interest-bearing debt at the end of the period  939.3 734.0****  28% 939.3  734.0****  28% 562.9**** 
Adjusted net interest-bearing debt
at the end of the period***
672.1 n/a 672.1 n/a n/a
Gearing ratio at the end of the period, %  98.8 73.4****  35% 98.8  73.4****  35% 53.6**** 
Adjusted gearing ratio at the end of the period***, % 70.7 n/a 70.7 n/a n/a
Equity ratio at the end of the period, %  30.8 33.9****  -9% 30.8 33.9****  -9% 38.1**** 
Adjusted equity ratio at the end of the period***, % 33.9 n/a 33.9 n/a n/a
Adjusted return on capital employed***
(ROCE, rolling 12m), %
10.0 n/a 10.0 n/a n/a
Order backlog, at the end of the period,
continuing operations
 
4,652.1 4,772.8*****  -3% 4,652.1 4,772.8***** -3% 4 285.6*****

* 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.

Guidance for 2019

The Group revenue of continuing operations for 2019 is estimated to be in the range of +5% and -3% compared to the 2018 combined revenue of continuing operations (pro forma, restated 2018: EUR 3,201.0 million). Previously the company estimated the revenue in 2019 to be in the range of +5% and -5% compared to 2018.

In 2019, the adjusted operating profit of continuing operations is now estimated to be EUR 160-200 million (pro forma restated 2018: EUR 132.0 million). Previously the company estimated the adjusted operating profit of continuing operations in 2019 to be EUR 150-210 million.

Guidance rationale

The result guidance for 2019 is based, for instance, on the completion of Mall of Tripla in the last quarter, the estimated time of completion of residential projects under construction, and the company’s solid order backlog. At the end of June, 77% of the order backlog was sold.

Significant fluctuation is expected to take place between the quarters due to normal seasonal variation, sales of business premises projects and the timing of completion of residential projects and Mall of Tripla. As in 2018, the last quarter of the year is expected to be clearly the strongest. The company estimates that the adjusted operating profit for the third quarter of 2019 will decrease from the comparison period (pro forma, restated 6-9/2018: EUR 31.4 million) and be clearly positive.

Factors affecting the guidance

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

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

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

Events after the review period

YIT to sell its Nordic paving and mineral aggregates businesses to Peab 

On July 4, 2019, YIT announced having signed an agreement with Peab for the sale of YIT’s paving and mineral aggregates businesses in Finland, Sweden, Norway and Denmark. The debt-free purchase price is EUR 280 million, in addition to which net debt related to IFRS 16 lease liabilities will be reduced by approximately EUR 25 million. YIT will record a positive cash flow effect of approximately EUR 240 million and a capital gain of approximately EUR 40 million from the sale, which is not part of adjusted operating profit and which will be recognised upon completion of the transaction that is estimated to take place in January 2020.

The transaction comprises the operations of the company’s Paving segment with the exclusion of the road maintenance business in Finland and paving business in Russia. On June 20, 2019, YIT issued a stock exchange release on its intention to exit the paving business in Russia either by closing down or by selling the operations. The personnel working in said businesses will be transferred to Peab as part of the transaction. The businesses to be transferred employ a total of approximately 1,700 persons, the majority of whom work in Finland.

Transaction is expected to be completed on January 1, 2020 and it has an impact on YIT’s reporting

YIT’s paving operations will continue their business normally as part of YIT until the end of year 2019, when the terms and conditions of the transaction are expected to be fulfilled. The transaction is conditional upon the approval of the European competition authority and the fulfilment of certain other customary terms and conditions, and it is expected to be completed on January 1, 2020. The purchase price shall be adjusted at the time of completing the transaction on the grounds agreed by and between the parties and it shall be paid fully in cash in connection with the completion of the transaction.

Goodwill and purchase price allocation, totalling approximately EUR 100 million, associated with the Lemminkäinen and YIT merger, have been included in the estimated capital gain of EUR 40 million. Future depreciations will hence decrease and operating profit will increase respectively. In addition to the estimated positive cash flow effect of EUR 240 million, net debt related to IFRS 16 lease liabilities will be reduced by approximately EUR 25 million.

In connection with the above described transaction, YIT has classified the operations that are part of the transaction as held-for-sale assets and reports them as discontinued operations. In its segment reporting, YIT reports only continuing operations, which means that the Paving segment is no longer reported. The Road maintenance division that was previously part of the Paving segment is reported as part of the Infrastructure projects segment. The paving business in Russia that YIT has announced to exit either by closing down or by selling it by the end of 2019 is presented under Other items in the segment reporting. The company has published its retrospectively adjusted consolidated group and segment level numbers for 2018 and 2019 on July 22, 2019.

YIT repaid its EUR 100 million fixed rate unsecured senior bond

On July 8, 2019, YIT announced having repaid its EUR 100 million fixed rate 7.375% unsecured senior bond on the maturity date of the bond. The repayment was financed with liquid funds and commercial papers. The repayment was part of the integration activities following the merger of YIT and Lemminkäinen, with the aim to reduce financial costs while at the same time preserving versatile funding sources in the loan portfolio.

News conference for investors and media

YIT will arrange a news conference on Thursday, July 25, 2019 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 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. (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 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. (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: 8263077.

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

Ilkka Salonen, Chief Financial Officer, YIT Corporation, tel. +358 45 359 4434, ilkka.salonen@yit.fi


YIT CORPORATION 

Hanna Jaakkola
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. The new YIT was born when over 100-year-old YIT Corporation and Lemminkäinen Corporation merged on February 1, 2018. Our pro forma revenue for 2018 was approximately EUR 3.2 billion. YIT Corporation's share is listed on Nasdaq Helsinki Oy.  www.yitgroup.com

About Us

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, attractive and sustainable cities and environments. We work in 11 countries: Finland, Russia, Scandinavia, the Baltic States, the Czech Republic, Slovakia and Poland. The new YIT was born when over 100-year-old YIT Corporation and Lemminkäinen Corporation merged on February 1, 2018. Our pro forma revenue for 2018 was approximately EUR 3.8 billion. YIT Corporation's share is listed on Nasdaq Helsinki Oy. www.yitgroup.com

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