YIT'S INTERIM REPORT JANUARY 1 – JUNE 30, 2013: Favourable residential sales in Russia – partial demerger successfully finalised

YIT CORPORATION                                                        INTERIM REPORT                                                           July 26, 2013 at 8:00 a.m.

YIT'S INTERIM REPORT JANUARY 1 – JUNE 30, 2013: Favourable residential sales in Russia – partial demerger successfully finalised

April 1 – June 30, 2013: Profitability of International Construction Services improved
 

• YIT’s Extraordinary General Meeting decided on June 17, 2013, to approve the partial demerger of YIT Corporation in accordance with the demerger plan signed by the company’s Board of Directors on February 21, 2013. In accordance with the demerger plan, YIT demerged so that the assets and liabilities relating to YIT's Building Services business were transferred to Caverion Corporation, a new company established in the demerger.
• Caverion shares were admitted for public trading on NASDAQ OMX Helsinki Ltd on July 1, 2013. The Building Services business is presented as discontinued operations in this interim report. In addition to Caverion’s net result, the costs relating to the demerger and the difference between the book value and fair value of net assets transferred to Caverion are reported under discontinued operations.
• Caverion will publish more detailed information on its financial development in a separate stock exchange release, approximately on July 26, 2013.
• This interim report reports the financial development of YIT’s Construction Services, i.e. the continuing operations.
• The operating profit of YIT’s continuing operations decreased by 12 percent compared to the previous year, amounting to EUR 38.3 million in April–June (4–6/2012: EUR 43.4 million). Operating profit increased clearly in International Construction Services compared to the previous year, and the segment’s profitability improved. Operating profit of business premises operations decreased significantly in Construction Services Finland.
• The revenue of the continuing operations for the second quarter decreased by 12 percent compared to the previous year, amounting to EUR 430.9 million (4–6/2012: EUR 488.9 million). Revenue grew in International Construction Services where revenue growth was supported by the high volume of residential production and favourable residential sales in Russia.
• The order backlog of the continuing operations based on segment reporting increased by 5 percent compared to the previous year, amounting to EUR 2,810.8 million (6/2012: EUR 2,686.6 million). The order backlog was at the same level as at the end of March 2013.
• The continuing operations’ profit before taxes based on segment reporting was 17 percent lower than the year before in April–June, amounting to EUR 29.8 million (4–6/2012: EUR 35.7 million).
• The continuing operations’ earnings per share based on segment reporting decreased by 22 percent in April–June  from the year before, amounting to EUR 0.18 (4–6/2012: EUR 0.23).

January 1 – June 30, 2013: Operating profit increased clearly in International Construction Services

• The operating profit for of the continuing operations was EUR 74.2 million (1–6/2012: EUR 80.5 million). Operating profit increased clearly in International Construction Services.

• The revenue of the continuing operations was 5 percent lower in January–June than in the previous year, decreasing to EUR 882.9 million (1–6/2012: EUR 933.3 million). Revenue increased in International Construction Services.
• The continuing operations’ profit before taxes based on segment reporting decreased by 8 percent compared to the previous year, amounting to EUR 60.4 million (1–6/2012: EUR 65.9 million).
• The continuing operations’ earnings per share based on segment reporting decreased by 10 percent from the year before, amounting to EUR 0.37 (1–6/2012: EUR 0.41).

GUIDANCE: YIT estimates the revenue and operating profit of the Group’s continuing operations based on segment reporting for 2013 to remain at the level of 2012, excluding non-recurring items.

YIT Corporation reiterates its estimate issued on June 4, 2013, according to which the Group revenue and operating profit based on segment reporting for 2013 will remain at the level of 2012 excluding non-recurring items.

Increased uncertainty about general macroeconomic development is impacting YIT’s business operations and customers.

Kari Kauniskangas, President and CEO: Focus on implementing the new strategy after the demerger

The business operations of International Construction Services developed favourably during the second quarter: operating profit grew clearly and profitability improved. In Russia, YIT’s residential sales were at a favourable level, but the demand for our housing varied significantly by city. Our residential sales in the Baltic countries and Central Eastern Europe have improved clearly.  In Finland, we were active in housing investor deals and our order backlog strengthened. During the second quarter of the year, we started construction of more than 2,000 residential units in the Group.

The demerger process was completed at a record pace, and I wish to thank our professional personnel for a job well done. Now we can focus on implementing our strategy which was ratified at the beginning of June. In the future, consumer sales will account for approximately two-thirds of the Group’s sales, and YIT aims at strengthening its brand. We aim to improve our quality and customer service further and continuously offer consumers new and innovative housing solutions.

KEY FIGURES

Development of the Group based on segment reporting for continuing operations (percentage of completion, POC)

Key ratios for the continuing operations based on segment reporting (percentage of completion, POC)

¹⁾ attributable to equity holders of the parent company

Discontinued operations (percentage of completion, POC)

The Building Services business is presented as discontinued operations in this interim report. In addition to Caverion’s net result, the costs relating to the demerger and the difference between the book value and fair value of net assets transferred to Caverion are reported under discontinued operations.

¹⁾ attributable to equity holders of the parent company

INFORMATION SESSION, WEBCAST AND CONFERENCE CALL

YIT will hold a news conference on the interim report on Friday, July 26, 2013, at 10:00 a.m. (Finnish Time, EEST). The news conference will be held in English. The news conference is both for YIT Corporation and Caverion Corporation. The conference will be held at YIT's head office at Panuntie 11, 00620 Helsinki, Finland. The event is intended for analysts, portfolio managers and the media.

The news conference and the presentation, given by the company’s President and CEO, Kari Kauniskangas, can be viewed live on YIT’s website at www.yitgroup.com/webcast. The live webcast will start at 10:00 a.m. (Finnish time, EEST). A recording of the webcast will be available at the same address starting at approximately 2:00 p.m. (Finnish time, EEST).

It is also possible to participate in the event through a conference call. Participants are requested to call the assigned number (+44 (0)207 1620 177) at least five minutes before the conference call begins, at 9:55 a.m. (Finnish time, EEST) at the latest. The participants will be asked to provide the following conference ID: 934550. During the webcast and conference call, all questions should be presented in English. At the end of the event, there will also be an opportunity for the media to ask questions in Finnish.

Schedule in different time zones:

Financial reports and other investor information are available at YIT's website, www.yitgroup.com/investors. The materials may be ordered via the website, by sending e-mail to InvestorRelations@yit.fi or by telephone on +358 20 433 2429.

YIT CORPORATION

Kari Kauniskangas:

President and CEO

For further information, please contact:

Timo Lehtinen, Chief Financial Officer, YIT Corporation, tel. +358 45 670 0626, timo.lehtinen@yit.fi

Hanna-Maria Heikkinen, Vice President, Investor Relations, YIT Corporation, tel. +358 40 826 2172, hanna-maria.heikkinen@yit.fi

Distribution: NASDAQ OMX Helsinki, principal media, www.yitgroup.com

INTERIM REPORT JANUARY 1 – JUNE 30, 2013

CONTENTS

• Group financial development based on segment reporting
• Development by business segment
• Personnel
• Business development
• Strategic objectives
• Group financial development based on Group reporting (IFRS, IFRIC 15)
• Resolutions passed at the Annual General Meeting
• Resolutions passed at the Extraordinary General meeting
• Shares and shareholders
• Most significant short-term business risks and risk management
• Outlook for 2013
• Tables to the interim report

GROUP FINANCIAL DEVELOPMENT BASED ON SEGMENT REPORTING

Accounting principles applied in the interim report

YIT Corporation’s management follows the development of the company’s business according to the percentage of completion-based reporting method for each segment. Therefore, the descriptive part of the interim report focuses on describing the company’s performance according to this reporting. YIT also reports on its operations in accordance with IFRS guidelines, where the company applies, for example, the IFRIC 15 guidelines. The effects of the differences of the recognition principles are presented in detail in the tables to the interim report.

The share belonging to the Building Services business is shown under discontinued operations in the income statement and cash flow statement. The income and expenses related to assets and liabilities transferred to Caverion Corporation in the partial demerger have been allocated to discontinued operations in the income statement. In accordance with IFRS 5, the balance sheets for the comparison periods preceding the demerger include the assets and liabilities related to the Building Services business transferred to Caverion Corporation in connection with the implementation of the demerger. As such, the balance sheets do not illustrate the financial position of the continuing operations. In addition, the interim report contains non-IFRS figures as historical reference figures, which best illustrate the financial position of the continuing operations.

In addition to Caverion’s net result, the costs relating to the demerger and the difference between the book value and fair value of net assets transferred to Caverion are reported under discontinued operations.

Revenue of business segments decreased slightly

The revenue of YIT's segments decreased by 5 percent in January–June compared to the previous year, amounting to EUR 882.9 million (1–6/2012: EUR 933.3 million). Revenue for the second quarter decreased from the previous year, amounting to EUR 430.9 million (4–6/2012: EUR 488.9 million). Revenue for the second quarter grew in International Construction Services compared to the previous year. The growth in International Construction Services revenue was supported by the high volume of housing production and continued good residential sales in Russia. Changes in foreign exchange rates reduced the segments' revenue for January–June by EUR 5.9 million compared to the previous year.

In January–June, Finland accounted for 70 percent (1–6/2012: 74%) of the Group’s revenue according to segment reporting, Russia for 24 percent (1–6/2012: 20%) and the Baltic countries, the Czech Republic and Slovakia for 6 percent (1–6/2012: 6%).

Operating profit increased clearly in International Construction Services

YIT's operating profit based on segment reporting decreased by 8 percent compared to the previous year, amounting to EUR 74.2 million in January–June (1–6/2012: EUR 80.5 million). The operating profit margin based on segment reporting was 8.4 percent (1–6/2012: 8.6%). The operating profit for the review period does not include borrowing costs according to IAS 23 which, due to the amendment to the recording method since the beginning of 2013, are included in borrowing costs (the comparison figures have been adjusted correspondingly). IAS 23 defines the recording method of borrowing costs in long-term construction projects.

Operating profit for the second quarter decreased from the previous year, amounting to EUR 38.3 million (4–6/2012: EUR 43.4 million).

The operating profit in International Construction Services increased clearly compared to the previous year. In Construction Services Finland, operating profit decreased clearly from the previous year.

The depreciations booked by YIT amounted to EUR 10.5 million euros during the review period (1–6/2012: EUR 10.2 million).

Order backlog remained strong

The order backlog of YIT’s segments increased by 5 percent compared to the previous year, amounting to EUR 2,810.8 million (6/2012: EUR 2,686.6 million). The order backlog was at the same level as at the end of March 2013. The order backlog grew primarely as a result of residential start-ups; the Group started construction of more than 2,000 residential units during the second quarter.

Capital expenditure and acquisitions

Gross capital expenditure on non-current assets included on the balance sheet totalled EUR 13.9 million during January–June (1–6/2012: EUR 12.5 million), representing 1.6 percent of revenue (1–6/2012: 1.3%). Investments in construction equipment amounted to EUR 4.2 million (1–6/2012: EUR 5.2 million) and investments in information technology to EUR 2.5 million (1–6/2012: EUR 4.8 million).

YIT made no acquisitions during the review period. YIT has increased its holding in YIT Moskovia by 5.92 percentage points during the review period and now holds all of the shares in the company. The purchase price was EUR 5.1 million. Other investments, including acquisitions, amounted to EUR 7.2 million (1–6/2012: EUR 2.8 million).

During the second quarter YIT sold information technology assets in connection with the demerger to Caverion Corporation. The sales price was EUR 20.8 million.

Project start-ups impaired cash flow

The continuing operations’ operating cash flow after investments amounted to EUR -82.2 million in January–June (1–6/2012: EUR -46.9 million). The continuing operations’ operating cash flow after investments amounted to EUR -76.9 million in April–June (4–6/2012: EUR 61.0 million). Plot investments and increasing volume of residential production impaired the cash flow.

The discontinued operations’ operating cash flow after investments amounted to EUR -44.0 million in January–June (1–6/2012: EUR -13.3 million). The discontinued operations’ operating cash flow after investments amounted to EUR -41.8 million in April–June (4–6/2012: EUR -18.4 million).

Operating cash flow after investments for January–June, including both the continuing and discontinued operations, amounted to EUR -126.2 million (EUR 1–6/2012: EUR 33.6 million). Operating cash flow after investments for April–June, including both the continuing and discontinued operations, amounted to EUR -118.7 million (EUR 4–6/2012: EUR 42.6 million).

The continuing operations’ return on investment based on segment reporting amounted to 13.9 percent for the last 12 months (4/2012–3/2013: 15.0%). At the end of June, the Group's invested capital based on segment reporting amounted to EUR 1,492,5  million (3/2013: EUR 1,443.4 million). Invested capital is calculated by deducting non-interest bearing liabilities from the balance sheet total.

Profit before taxes decreased

The continuing operations’ profit before taxes based on segment reporting decreased by 8 percent compared to the previous year, amounting to EUR 60.4 million for January–June (1–6/2012: EUR 65.9 million). Profit before taxes for the second quarter decreased by 17 percent from the previous year to EUR 29.8 million (4–6/2012: EUR 35.7 million).

The continuing operations’ profit based on segment reporting decreased by 10 percent compared to the previous year, amounting to EUR 46.4 million for January–June (1–6/2012: EUR 51.8 million). The profit for the second quarter decreased by 20 percent from the previous year to EUR 23.0 million (4–6/2012: EUR 28.9 million).

Caverion’s result reported as part of discontinued operations

The profit of the discontinued operations was EUR 288.4 million in January–June (1–6/2012: EUR 22.6 million). The profit of the discontinued operations for the second quarter was EUR 286.2 million (4–6/2012: EUR 11.7 million). In addition to Caverion’s net result, the costs relating to the demerger and the difference between the book value and fair value of net assets transferred to Caverion are reported under discontinued operations.

The profit for the review period, including continuing and discontinued operations, totalled EUR 334.8 million in January–June (1–6/2012: EUR 74.4 million). The profit for the second quarter including the continuing and discontinued operations amounted to EUR 309.2 million (4–6/2012: EUR 40.6 million).

Earnings per share of continuing operations decreased

Earnings per share of continuing operations based on segment reporting decreased by 10 percent from the year before, amounting to EUR 0.37 in January–June (1–6/2012: EUR 0.41). Earnings per share for the second quarter decreased by 22 percent from the year before, amounting to EUR 0.18 (4–6/2012: EUR 0.23).

Earnings per share of discontinued operations amounted to EUR 2.30  in January–June (1–6/2012: EUR 0.18). Earnings per share of discontinued operations for the second quarter amounted to EUR 2.29 (4–6/2012: EUR 0.09).

Earnings per share for the review period, including continuing and discontinued operations, totalled EUR 2.67 in January–June (1–6/2012: EUR 0.59). Earnings per share for the second quarter including the continuing and discontinued operations amounted to EUR 2.47 (4–6/2012: EUR 0.32).

The effective tax rate of the continuing operations based on segment reporting was 23.1 percent during the review period (1–6/2012: 21.0%).

DEVELOPMENT BY BUSINESS SEGMENT

Development by business segment is presented using figures compliant with segment reporting.

CONSTRUCTION SERVICES FINLAND

The revenue of Construction Services Finland decreased compared to the previous year, amounting to EUR 605.2 million in January–June (1–6/2012: EUR 677.4 million). The revenue for the second quarter decreased by 20 percent from the previous year to EUR 279.2 million (4–6/2012: EUR 347.9 million).  Revenue decreased in residential construction as well as business premises during the second quarter.

The segment’s operating profit for January–June decreased clearly from the previous year to EUR 49.4 million (1–6/2012: EUR 64.9 million). Operating profit for the second quarter decreased clearly from the previous year to EUR 22.9 million (4–6/2012: EUR 33.5 million). The operating profit of business premises operations decreased significantly. Operating profit for the reference period was supported by sale of several significant business premises projects. Operating profit decreased also in residential construction due to lower residential sales volume compared to the previous year.

The order backlog grew slightly on the previous year, amounting to EUR 1,584.0 million at the end of June (6/2012: EUR 1,499.9 million). The order backlog grew from the end of March 2013, at which time it stood at EUR 1,424.9 million.

The segment's capital tied into plot reserves totalled EUR 282.6 million at the end of June (3/2013: EUR 289.1 million). The reserves included 1,818,000 square metres of residential plots (3/2013: 1,832,000) and 905,000 square metres of business premises (3/2013: 870,000).

Investor deals complemented residential sales

The change in asset transfer tax legislation that took force at the beginning of March had a positive effect on residential sales particularly in February, while sales have been slightly slower than normal since the beginning of March, as was expected. YIT’s sales volume in euros has, however, increased every month since March. During the second quarter, demand focused particularly on residential units in the final stages of construction and completed residential units. Housing prices remained stable during the first half of the year. Interest rates remained low during the second quarter, but customer’s access to financing has become more difficult with banks tightening their credit terms. YIT has also developed cross-border sales between the different countries in which YIT operates. Particularly Russian customers have been interested in residential and holiday projects in Eastern Finland.

Residential sales in Finland have been at the normal level in July.

Residential construction in Finland, number of residential units

*) Includes 221 residential units sold to Ålandsbanken’s housing fund.

Changes in the number of residential units may take place after the start of construction due to the division or combination of residences.

The focus of YIT's housing construction is on residential development projects aimed directly at consumers in accordance with market demand. YIT is also active in housing production aimed at investors. During the second quarter, YIT started up the construction of 592 residential units as own development projects. In addition, YIT started construction of 383 residential units as tender-based projects in the second quarter. YIT has actively replenished its plot reserves by acquiring plots and making preliminary agreements on plots in order to also ensure good opportunities for residential start-ups in the future.

Of the residential units under construction, 56 percent have been sold (6/2012: 56%), which reduces YIT's sales risk. The sales inventory is focused on medium-priced residential production: approximately 66 percent of the residential units for sale are priced at less than EUR 300,000.

YIT is well prepared to adjust its residential production according to the market situation. The costs of completing the current residential and business premises development projects for sale amounted to EUR 397.2 million at the end of June 2013 (6/2012: EUR 301.4 million).

Challenges in the business and office premises market

A slightl downward trend continued in the business and office premises market during the second quarter of the year.  The order backlog of YIT's business and office premises operations remained at the level of the end of the first quarter. The leasing of business and office premises under construction picked up in April–June: lease agreements were signed on approximately 19,700 m² of premises. Rents for business premises and investors’ yield requirements remained stable in the second quarter.

YIT signed an agreement with Finnreit Fund Management Company Ltd on the sale of a second project related to the assisted living facilities located in Hyrylä, Tuusula, Finland, to the eQ Care (non-UCITS) fund. YIT expects to sell several significant business premises projects during the second half of the year: Tikkurila Travel Centre Dixi, Avia Line 3 and Bisnespaja Avia in Vantaa and Motorcenter Espoonlahti in Espoo. The total value of the projects is more than EUR 80 million.

Development of infrastructure services remained stable

The demand for infrastructure construction remained stable in the second quarter, but the order backlog of infrastructure services at the end of June 2013 was lower than the previous year. YIT has secured several regional contracts, such as in Hyvinkää, Hämeenlinna, Kauhajoki and Kotka. The contract agreements will be signed and the projects included in the order backlog during the third quarter. The value of these road maintenance projects is approximately EUR 64 million. 

Significant on-going road projects proceeded according to plans during the second quarter.

INTERNATIONAL CONSTRUCTION SERVICES

The revenue of International Construction Services for January–June increased by 10 percent compared to the previous year, amounting to EUR 264.7 million (1–6/2012: EUR 241.3 million). The revenue for the second quarter increased by 9 percent from the previous year to EUR 145.7 million (4–6/2012: EUR 133.4 million). 

The operating profit for January–June increased clearly compared to the previous year, amounting to EUR 29.2 million (1–6/2012: EUR 23.8 million). The operating profit for the second quarter increased clearly compared to the previous year, amounting to EUR 17.6 million (4–6/2012: EUR 14.1 million). The growth in revenue and operating profit was supported by the high volume of housing production and continued good residential sales in Russia.

The order backlog at the end of June was on a par with the previous year, amounting to EUR 1,226.8 million (6/2012: EUR 1,186.7 million). The order backlog decreased slightly from the end of March 2013, at which time it stood at EUR 1,285.3 million. The segment's order backlog was partially decreased by weakening of the ruble, which had an impact of EUR 64.6 million in January–June.

The costs of completing the current residential and business premises development projects for sale in International Construction Services amounted to EUR 547.5 million at the end of June 2013 (6/2012: EUR 462.0 million).

The segment’s return on operative invested capital for the last 12 months was 12.6 percent, which was still below the Group’s strategic target (20%). YIT aims to increase the segment’s return on invested capital primarily by increasing the volume of operations, improving project-level profitability and further increasing capital efficiency.

The segment's capital tied into plot reserves totalled EUR 377.5 million at the end of June (3/2013: EUR 401.5 million). The reserves included 2,688,000 square metres of residential plots (3/2013: 2,751,000) and 534,000 square metres of business premises in Russia, the Baltic countries, the Czech Republic and Slovakia (3/2013: 574,000).

Russian residential sales continued well

Russia generated 81 percent of the revenue of International Construction Services for January–June (1–6/2012: 77%). Revenue in Russia increased clearly from the previous year to EUR 214.0 million (1–6/2012: EUR 185.7 million).

Capital tied into plot reserves in Russia amounted to EUR 297.1 million at the end of June (3/2013: EUR 314.2 million). The reserves included 2,315,000 square metres of residential plots (3/2013: 2,353,000) and 436,000 square metres of business premises (3/2013: 446,000).

Residential construction in Russia, number of residential units

1) Completion of the projects requires commissioning by the authorities.

In Russia, the focus of operations is on residential development projects in St. Petersburg, Moscow and cities in the Moscow region, Yekaterinburg, Tyumen, Rostov-on-Don and Kazan. YIT actively continued plot investments in Moscow and St. Petersburg during the second quarter.

Residential sales were supported by continued favourable consumer confidence in Russia. Residential sales have also been supported by YIT's established position as a reliable construction company in Russia, YIT's diverse housing offering, YIT's own marketing and sales promotion measures and extensive housing loan cooperation with banks. The significance of loan financing has remained high in Russia, and, in the second quarter, customers have taken out housing loans in 51 percent of YIT's residential sales. YIT has also developed sales between the different countries in which YIT operates.

Interest rates for mortgages increased further in Russia during the second quarter. YIT has succeeded in negotiating new, favourable loan programmes with banks, and as a result, the increase in the interest rates of YIT’s customers’ mortgages has been lower than expected.

Residential sales continued being favourable in the second quarter, and sales have been good in July as well. Clearly increased offering in the ”economy” category in St. Petersburg has slowed down residential sales in YIT’s target customer group. Housing prices remained stable during the second quarter of 2013.

Based on the favourable demand, YIT has started up new residential projects in Russia, and in the second quarter start-ups began in the Moscow region and Yekaterinburg as planned. In St. Petersburg, the authorities permitting process has become faster, and YIT estimates that it will increase the number of start-ups in St. Petersburg during the latter half of the year following a slow start of the year. Construction costs have continued growing moderately.

The number of residential units for sale has been increased in a controlled manner, and the sales inventory at the end of June was geographically balanced. The number of completed but unsold residential units increased during the second quarter. Of the residential units under construction, 36 percent had been sold (6/2012: 36%).

After the handover of residential projects, YIT offers its customers service and maintenance in St. Petersburg, the Moscow region, Yekaterinburg and Rostov-on-Don. At the end of June 2013, YIT was responsible for the service and maintenance of approximately 14,500 residential units.

Recovery of the residential market has continued in the Baltic countries and Central Eastern Europe

Estonia, Latvia, Lithuania, the Czech Republic and Slovakia accounted for 19 percent of the revenue of International Construction Services for January–June (1–6/2012: 23%). Revenue generated in these countries decreased compared to the year before due to lower contracting volume, amounting to EUR 50.7 million (1–6/2012 EUR 55.6 million). Capital tied into plot reserves in the Baltic countries, the Czech Republic and Slovakia totalled EUR 80.4 million at the end of June (3/2013: EUR 87.3 million). The reserves included 373,000 square metres of residential plots (3/2013: 398,000) and 98,000 square metres of business premises (3/2013: 128,000).

Residential sales improved in the Baltic countries, the Czech Republic and Slovakia during the second quarter on the previous year. Russian customers have also been interested in YIT’s residential projects in Riga, Latvia, and Prague, the Czech Republic. YIT will shift the focus of operations from tender-based production to own residential development projects in order to improve profitability as residential demand recovers.

Residential construction in the Baltic countries and Central Eastern Europe, number of residential units

Construction of 286 residential units was started during the second quarter of 2013 (4–6/2012: 284). At the end of June, there were 970 residential units under construction (6/2012: 615). During the review period, housing prices increased slightly in the Baltic countries and remained stable in the Czech Republic and Slovakia. The demand for YIT’s residential units has continued to be good.

YIT's residential sales inventory has grown in the Baltic countries, the Czech Republic and Slovakia, and YIT aims to increase the number of residential units for sale in accordance with demand. In January–June, a total of 243 residential units were sold in these countries (1-6/2012: 167). At the end of June, there were 900 residential units for sale (6/2012: 718), of these 96 were completed (6/2012: 213). No residential units were completed during the second quarter of 2013 (4–6/2012: 47).

Construction of business premises in the Baltic countries and Central Eastern Europe

During the second quarter, YIT started a new property development project by starting construction of a Prisma shopping centre for SOK in Vilnius. The project is realised by YIT’s Lithuanian subsidiary YIT Kausta, on whose plot the Prisma will be constructed. The total value of the project is approximately EUR 12 million. The trade agreement was signed in June 2013.

PERSONNEL

In January–June 2013, the Group employed 6,692 people on average (1–6/2012: 6,661). At the end of June, the Group employed 6,904 people (6/2012: 7,001). The personnel expenses for January–June amounted to a total of EUR 148.2 million (1–6/2012: EUR 149.4 million). During the review period YIT hired approximately 640 trainees. In January-June, work safety improved compared to the previous year. The Groups accident frequency (number of accidents per one million hours worked) was 10.2 (1-6/2012: 14.6)

The cost effect of YIT’s share-based incentive scheme was about EUR 1.7 million in January–June 2013 (1–6/2012: EUR 1.5 million).

BUSINESS DEVELOPMENT

After the partial demerger, YIT will increasingly focus its business on selected business segments and aims at accelerating reform. YIT’s aim is to improve quality and customer service and continuously provide consumers with new, innovative housing solutions. With decreasing family sizes, residential demand is increasingly focused on smaller residential units. During the review period, YIT introduced the Mini-apartment, a new housing concept for efficient use of space that can be adjusted to diverse housing functions. Mini-apartments are small apartments for permanent housing, also available as fully furnished and equipped. Their target group comprises students, city-singles and investors. New Mini-apartments were launched in residential projects in Finland and Moscow, Russia, during spring 2013. The apartments have enjoyed excellent demand.

STRATEGIC OBJECTIVES

YIT Corporation's Board of Directors confirmed the strategy and financial objectives of YIT’s continuing operations for 2014–2016 on June 3, 2013. YIT’s strategic objective is well-managed, profitable growth. This is pursued through own development projects in all business segments (housing, business premises, infrastructure) and in all current geographical regions (Finland, Russia, the Baltic countries and Central Eastern Europe). In particular, growth is pursued in emerging markets and residential construction. Other focal points include improving resistance to economic cycles and widening financial operating space as well as accelerating reform. The Group’s long-term strategic target levels are: average annual revenue growth of more than 10 percent, return on investment of 20 percent, operating cash flow after investments sufficient for dividend payout and debt reduction, equity ratio of 40 percent and dividend payout of 40–60 percent of net profit for the period. The target levels are based on figures reported by the company on the basis of the percentage of completion in accordance with the current emphasis. When determining the target levels, the assumption was made that economic growth in YIT’s market areas will continue.

YIT published a stock exchange release on the confirmation of the strategy on June 4, 2013. YIT’s strategy and long-term financial targets are described in more detail at YIT’s Capital Market Day, which will be arranged on September 19, 2013, in Moscow. For additional information and instructions for registering for the Capital Market Day, please visit YIT’s Investors site, http:www.yitgroup.com/investors.

GROUP FINANCIAL DEVELOPMENT BASED ON GROUP REPORTING (IFRS, IFRIC 15)

Continuing operations

¹⁾ attributable to equity holders of the parent company

Discontinued operations

Revenue from continuing operations based on Group reporting decreased by 9 percent compared to the previous year, amounting to EUR 882.7 million in January–June (1–6/2012: EUR 967.8 million). Revenue for the second quarter decreased 16 percent from the previous year, amounting to EUR 437.1 million (4–6/2012: EUR 523.3 million). In Group-level reporting, own residential development projects are only recognised as income upon project delivery. The completion schedules for own development projects affect the Group's revenue recognition, and therefore Group-level figures may fluctuate greatly between different quarters. The number of residential units completed in Russia, the Baltic countries and Central Eastern Europe during the second quarter was clearly lower than the year before, while in Finland, the number of residential units completed was clearly higher than the year before.

Following IFRIC adjustments, the operating profit of the Group’s continuing operations for January–June decreased by 25 percent compared to the previous year, amounting to EUR 63.3 million (1–6/2012: EUR 84.6 million). Following IFRIC adjustments, the Group's operating profit margin for January–June was 7.2 percent (1–6/2012: 8.7%). Operating profit for the second quarter decreased by 32 percent from the previous year to EUR 32.3 million (4–6/2012: EUR 47.4 million). The operating profit margin for the second quarter was 7.4 percent (4–6/2012: 9.1%).

Profit before taxes of continuing operations based on Group reporting decreased by 25 percent compared to the previous year, amounting to EUR 58.5 million in January–June (1–6/2012: EUR 77.9 million). Profit before taxes for the second quarter decreased by 36 percent from the previous year to EUR 28.2 million (4–6/2012: EUR 44.0 million).

The profit of continuing operations based on Group reporting for January–June decreased by 26 percent compared to the previous year, amounting to EUR 44.9 million (1–6/2012: EUR 60.6 million). Profit for the second quarter decreased by 37 percent from the previous year to EUR 22.0 million (4–6/2012: EUR 35.1 million).

The profit of discontinued operations based on Group reporting was EUR 288.4 million in January–June (1–6/2012: EUR 22.6 million). The profit of discontinued operations for the second quarter was EUR 286.2 million (4–6/2012: EUR 11.7 million).

The profit for the review period based on Group reporting, including continuing and discontinued operations, totalled EUR 333.3 million in January–June (1–6/2012: EUR 83.2 million). The profit for the second quarter including the continuing and discontinued operations amounted to EUR 308.2 million (4–6/2012: EUR 46.7 million).

Earnings per share of continuing operations based on Group reporting decreased by 25 percent from the year before, amounting to EUR 0.36 in January–June (1–6/2012: EUR 0.48). Earnings per share for the second quarter decreased by 36 percent from the year before, amounting to EUR 0.18 (4–6/2012: EUR 0.28).

Earnings per share of discontinued operations based on Group reporting amounted to EUR 2.30 million in January–June (1–6/2012: EUR 0.18). Earnings per share of discontinued operations for the second quarter amounted to EUR 2.28 (4–6/2012: EUR 0.09).

Earnings per share for the review period based on Group reporting, including continuing and discontinued operations, totalled EUR 2.66 in January–June (1–6/2012: EUR 0.66). Earnings per share for the second quarter including the continuing and discontinued operations amounted to EUR 2.46 (4–6/2012: EUR 0.37).

In January–June, the effective tax rate based on Group reporting was 23.3 percent (1–6/2012: 22.1%).

The order backlog of the continuing operations based on Group reporting amounted to EUR 3,176.0 million at the end of June (6/2012: EUR 3,050.5 million).

Return on investment amounted to 12.6 percent for the last 12 months (4/2012–3/2013: 14.3%, non-IFRS). At the end of June, the Group's invested capital amounted to EUR 1,492.5 million (6/2012: EUR 1,333.8 million, non-IFRS). Invested capital is calculated by deducting non-interest bearing liabilities from the balance sheet total. The Group’s balance sheet total at the end of June was EUR 2,426.8 million (6/2012: EUR 2,261.4 million, non-IFRS).

Of the Group's invested capital, 37.9 percent (3/2013: 41.5%), or EUR 565.9 million (3/2013: EUR 600,4 million, non-IFRS) was invested in Russia. The amount of capital invested in Russia decreased slightly compared to the end of March; the exchange rate changes of the ruble decreased the capital invested by EUR 43.9 million in April–June. Smaller project sizes, gradual building in projects, sales of residential units at an earlier construction phase, improved terms of payment and an increased share of mortgage deals all increased capital efficiency.

The equity ratio decreased compared to the end of March 2013, amounting to 34.9 percent (3/2013: 37.3%, non-IFRS).

Diverse capital structure and strong liquidity position following the partial demerger

YIT’s financing consists of diverse sources of financing following the execution of the partial demerger. Cash and cash equivalents amounted to EUR 49.7 million at the end of June (3/2013: EUR 63.9 million, non-IFRS). In addition, YIT has undrawn committed credit facilities amounting to EUR 280 million and undrawn overdraft facilities amounting to EUR 67.8 million. Of the credit facilities, EUR 30 million will fall due in December 2014 and EUR 250 million in December 2015. YIT Corporation’s bank loan and credit facility agreements include a financial covenant linked to YIT’s equity ratio, which took effect upon the registration of the demerger.

During 2013, YIT signed loan agreements on behalf of Caverion Corporation, the company established in the partial demerger. These included a loan agreement with a total value of EUR 267 million with Nordic bank groups and two loan agreements with the Nordic Investment Bank, with a total value of EUR 45 million. At the time of the registration of the partial demerger, June 30, 2013, these loan agreements and related liabilities and obligations were transferred to Caverion Corporation.

During the review period, YIT commenced a voluntary offer to buy back the company’s domestic floating rate bonds falling due in August 2014 and March 2014. In addition, YIT offered to buy back the floating rate bonds due September 2016 issued in Sweden. YIT’s offer to prematurely buy back the bonds was related to the partial demerger approved by the Board of Directors of YIT on February 21, 2013, and executed on June 30, 2013. The purpose of the buyback offer was to offer the bond holders an option to dispose of their holdings of the bonds prior to the implementation of YIT’s partial demerger.

According to the final result of the buyback offer, 0.2 percent of the holders of bonds due August 2014 accepted the buyback offer. The outstanding principal amount of the remaining bonds due August 2014 is EUR 49,900,000. Of the holders of the bonds due March 2014, 43.1 percent accepted the buyback offer. The outstanding principal amount of the remaining bonds due March 2014 is EUR 28,450,000. YIT decided on June 24, 2013, to annul the bonds due August 2014 and bonds due March 2014 transferred to the company. Of the holders of the floating rate bonds due September 2016 issued in Sweden, 24.0 percent accepted the buyback offer. The outstanding principal amount of the remaining bonds due September 2016 is EUR 19,007,600.

During the review period, YIT convened the holders of the fixed-rate bonds due 2015 issued on March 26, 2010, and holders of the fixed-rate bonds due 2016 issued on June 20, 2011, to noteholders’ meetings. YIT’s Board of Directors proposed that the noteholders’ meeting decide that the noteholders be compensated for the effects of the partial demerger by increasing the payable coupon interest by 0.868 percentage points to 5.691 percent (bond due 2015) and the payable coupon interest by 0.817 percentage points to 5.567 percent (bond due 2016). The noteholders’ meetings unanimously accepted the proposals of YIT’s Board of Directors. The amendments to the coupon rates will enter into force from the next interest payment date.

Early in the year, YIT signed a EUR 150 million bank financing agreement, of which a total of EUR 12.7 million has been withdrawn. The arrangement was made to finance the buyback offer of floating-rate bonds described above. YIT will not be able to raise additional financing under this loan agreement in the future. 

The gearing ratio increased during the second quarter of 2013 due to financing investments and new project start-ups. The gearing ratio was 109.8 per cent at the end of June (3/2013: 94.0%, non-IFRS). Net interest-bearing debt increased and amounted to EUR 764.4 million at the end of June (3/2013: EUR 677.7 million, non-IFRS).

Net financial expenses decreased in January–June compared to the previous year and amounted to EUR 4.8 million (1–6/2012: EUR 6.7 million), or 0.5 percent (1–6/2012: 0.7%) of the Group's revenue. The decrease in net financial expenses was due to an increase in the fair value of interest rate hedges outside hedge accounting, decreased market interest rates and increased capitalisation of interest expenses. The net financial expenses include EUR 9.0 million of capitalisations of interest expenses in compliance with IAS 23 (1–6/2012: EUR 7.9 million). The exchange rate differences included in the net financial expenses, totalling EUR -2.3 million (1–6/2012: EUR -2.4 million), were comprised almost entirely of the costs of hedging debt investments in Russia.

The hedged ruble exposure increased slightly from the end of March 2013. At the end of June 2013, EUR 131.9 million of the capital invested in Russia was comprised of debt investments (3/2013: EUR 125.4 million, non-IFRS) and EUR 434.0 million was equity investments or similar fixed net investments (3/2013: EUR 475.0 million, non-IFRS). In accordance with YIT's hedging policy, the debt investments are hedged against exchange rate risk, while equity investments are not hedged due to their permanent nature.

Borrowings increased and amounted to EUR 814.1 million at the end of June (3/2013: EUR 741.6 million, non-IFRS), and the average interest rate was 2.9 percent. Fixed-rate loans accounted for approximately 66 percent of the Group’s borrowings. Of the loans, approximately 48 percent had been raised directly from the capital and money markets, approximately 39 percent from banks and other financial institutions and approximately 13 percent from insurance companies. The maturity distribution of long-term loans was balanced and a total of EUR 20.0 million of long-term loans will mature in 2013.

The total amount of construction-stage contract receivables sold to financial institutions decreased from the end of March 2013, amounting to EUR 222.8 million at the end of June (3/2013: EUR 253.0 million). Of this amount, EUR 182.6 million is included in current borrowings on the balance sheet (3/2013: EUR 163.6 million) and the remainder comprises off-balance sheet items in accordance with IAS 39. Interest expenses on receivables sold to financial companies amounted to EUR 1.5 million during the review period (1–6/2012: EUR 2.6 million) and these are fully included in the financial expenses.

Participations in the housing corporation loans of unsold completed residential units amounted to EUR 93.3 million at the end of June (3/2013: EUR 79.5 million), and they are included in current borrowings. The interest on the participation is included in housing corporation charges and is thus booked in project expenses. Interest on the participation amounted to EUR 1.3 million in the review period (1–6/2012: EUR 1.0 million).

During the first quarter, YIT Corporation paid dividends of EUR 94.0 million for 2012 in compliance with the resolution of the Annual General Meeting.

The Group's financial position enables the implementation of YIT's strategy and the investments it requires. The Group has prepared for macroeconomic uncertainty by diversifying the sources of financing and maintaining a strong liquidity position.

RESOLUTIONS PASSED AT THE ANNUAL GENERAL MEETING

YIT Corporation’s Annual General Meeting was held on March 15, 2013. The Annual General Meeting adopted the 2012 financial statements, discharged the members of the Board of Directors and the President and CEO from liability, confirmed the dividend as proposed by the Board of Directors (EUR 0.75 per share), decided on the Board of Directors' fees and elected the auditor. The Annual General Meeting confirmed the composition of the Board of Directors: Henrik Ehrnrooth (Chairman), Reino Hanhinen (Vice Chairman), Kim Gran, Satu Huber, Erkki Järvinen, Ari Lehtoranta and Michael Rosenlew were re-elected as Board members.

At its organisational meeting on March 15, 2013, the Board elected the chairmen and members of the Audit Committee, Personnel Committee as well as the Working Committee from among its number.

YIT Corporation published stock exchange releases on the resolutions passed at the Annual General Meeting and the organisation of the Board of Directors on 15.03.13. The stock exchange releases and a presentation of the members of the Board of Directors are available at YIT's website: www.yitgroup.com.

RESOLUTIONS PASSED AT THE EXTRAORDINARY GENERAL MEETING

YIT Corporation's Extraordinary General Meeting held on June 17, 2013, approved the demerger plan and decided on the partial demerger of YIT in accordance with the demerger plan.   According to the demerger plan, YIT demerged so that all of the assets, liabilities and responsibilities related to YIT's Building Services business were transferred to Caverion, a new company established in the demerger. YIT’s Construction Services business remained with YIT. Following the implementation of the demerger, Caverion Corporation is an independent public limited company, separate from YIT Corporation. The registration date of the implementation of the demerger was June 30, 2013.

The Extraordinary General Meeting resolved to elect a Chairman, Vice Chairman and three (3) ordinary members to the Board of Directors of Caverion, namely:  Henrik Ehrnrooth as the Chairman of the Board of Directors, Michael Rosenlew as the Vice Chairman and Anna Hyvönen, Ari Lehtoranta and Eva Lindqvist as members of the Board of Directors. The Board of Directors’ term expires at the end of the Annual General Meeting of Caverion that next follows the meeting at which they were elected.

PricewaterhouseCoopers, Authorized Public Accountants, was elected as Caverion’s auditor. PricewaterhouseCoopers has nominated Heikki Lassila, Authorized Public Accountant, as responsible auditor. The auditor's fees will be paid against the invoices approved by Caverion. The auditor's term expires at the end of the Annual General Meeting of Caverion that next follows the meeting at which it was elected.

The General Meeting authorised the Board of Directors of Caverion to decide on the repurchase of own shares of Caverion in accordance with the proposal by the Board of Directors.  The authorisation covers the purchasing of a maximum of 12,500,000 company shares using the funds from the company's unrestricted equity. The shares are not to be purchased in proportion to the shareholders' holdings. The shares will be purchased in public trading on NASDAQ OMX Helsinki Ltd, and the shares will be purchased at their market value in public trading on NASDAQ OMX Helsinki Ltd at the time of purchase.

The General Meeting authorised the Board of Directors of Caverion to decide on share issues in accordance with the proposal by the Board of Directors. The authorisation may be used in full or in part by issuing shares in Caverion in one or more issues so that the maximum number of shares issued is a total of 25,000,000 shares.

Ari Lehtoranta and Michael Rosenlew announced that they will resign from YIT's Board of Directors provided that they are elected to the board of Caverion and that the implementation of the partial demerger of YIT will be registered. The number of members of YIT’s Board was confirmed as three (3) members in addition to a Chairman and a Vice Chairman. Furthermore, the General Meeting decided that no new members are elected to replace the resigning members, i.e. YIT’s Board of Directors consists of Henrik Ehrnrooth as Chairman, Reino Hanhinen as Vice Chairman and Kim Gran, Satu Huber and Erkki Järvinen as members.

Members of YIT’s Board of Directors as of July 1, 2013, are Henrik Ehrnrooth as Chairman, Reino Hanhinen as Vice Chairman and Kim Gran, Satu Huber and Erkki Järvinen as members. YIT’s Board of Directors decided on its committees in its meeting on June 17, 2013. From among its members, the Board elected Satu Huber as chairman of the Audit Committee and Reino Hanhinen and Erkki Järvinen as members. The Personnel Committee will continue at its current composition: Henrik Ehrnrooth as chairman and Kim Gran and Reino Hanhinen as members. The Board decided to discontinue the Working Committee.

In accordance with the proposal of its Personnel Committee, YIT Corporation’s Board of Directors decided to appoint Kari Kauniskangas as the President and CEO of YIT Corporation as of July 1, 2013, and Tero Kiviniemi as the Deputy CEO. Furthermore, the following persons were appointed as members of YIT Corporation’s Management Board: Timo Lehtinen, CFO; Pii Raulo, HR; Juhani Nummi, business development; and Division Directors: Harri Isoviita, Matti Koskela, Timo Lehmus, Jouni Forsman, Tom Sandvik, Teemu Helppolainen, Mikhail Voziyanov and Yuri Belomestnov.

YIT Corporation’s demerger registered with the Finnish Trade Register

The implementation of the partial demerger was registered with the Finnish Trade Register on June 30, 2013. YIT’s shareholders have received as demerger consideration one (1) share in Caverion for each share owned in YIT. No demerger consideration was distributed to any treasury shares held by YIT. The number of shares given as demerger consideration was 125,596,092. The implementation of the demerger does not have effects on the listing of YIT shares on NASDAQ OMX Helsinki Ltd.

Demerger-related information is available in the Investors section of YIT's website at www.yitgroup.com/Investors/demerger.

SHARES AND SHAREHOLDERS

The company has one series of shares. Each share carries one vote and confers an equal right to a dividend.

Share capital and number of shares

YIT Corporation's share capital and the number of shares outstanding did not change during the review period. YIT Corporation’s share capital was EUR 149,216,748.22 at the beginning of 2013 (2012: EUR 149,216,748.22), and the number of shares outstanding was 127,223,422 (2013: 127,223,422).

Treasury shares and authorisations of the Board of Directors

In accordance with the Limited Liability Companies Act, the Annual General Meeting decides on the buyback and conveyance of shares, as well as any decisions leading to changes in the share capital. The Annual General Meeting of YIT Corporation resolved on March 15, 2013, to authorise the Board of Directors to purchase the company's shares as proposed by the Board of Directors. In addition to this, the Board of Directors maintains a valid share issue authorisation issued by YIT’s Annual General Meeting on March 10, 2010. The authorisation is valid for five years after its granting. The share issue authorisation also includes an authorisation to decide on the conveyance of treasury shares.

YIT Corporation held 1,843,303 treasury shares at the beginning of the review period purchased on the basis of the authorisation given by the General Meeting of October 6, 2008. During the review period, the company conveyed 224,743 shares without consideration to the key persons participating in the Share Ownership Plan under the authorisation granted by the Annual General Meeting to the Board of Directors on March 10, 2010. During the review period, 8,770 shares were returned to the company in accordance with the terms and conditions of the share-based incentive scheme, after which the company held 1,627,330 treasury shares at the end of June 2013.

Trading in shares

The price of YIT's share was EUR 15.08 at the beginning of the year (January 1, 2012: EUR 12.38). The closing price of the share on the last trading day of the review period on June 28, 2013, was EUR 13.19 (June 29, 2012: EUR 13.38). The share price decreased by approximately 13 percent during January–June. The highest price of the share during the review period was EUR 17.88 (1–6/2012: EUR 17.25), the lowest was EUR 12.81 (1–6/2012: EUR 11.87) and the average price was EUR 15.75 (1–6/2012: EUR 14.95). Share turnover on Nasdaq OMX in January–June amounted to 49,375 thousand shares (1–6/2012: 61,906 thousand). The value of turnover was EUR 777.8 million (1–6:2012: EUR 925.8 million), source: Nasdaq OMX.

In addition to the Helsinki Stock Exchange, YIT's shares are also traded in other market places, such as Chi-X, BATS and Turquoise. The share of trade volume on alternative market places increased slightly compared to the previous year during the review period. During January–June, 20,457 thousand YIT Corporation shares changed hands in alternative market places (1–6/2012: 36,340 thousand), corresponding to approximately 40 percent of the total share trade (1–6/2012: 37%). Of the alternative market places, YIT shares changed hands particularly in Chi-X, source: Fidessa Fragmentation Index.

YIT Corporation’s market capitalisation on the last trading day of the review period on June 28, 2013, before the execution of the demerger, was EUR 1,656.6 million (6/2012: EUR 1,677.7 million). Market capitalisation has been calculated excluding the shares held by the company.

Number of shareholders and flagging notifications

At the end of June 2013, the number of registered shareholders was 39,251 (6/2012: 35,888). At the end of June 2013, a total of 34.7 percent of the shares were owned by nominee-registered and non-Finnish investors (6/2012: 35.1%).

During the review period, the company received no "flagging notifications" of change in ownership in YIT Corporation in accordance with Chapter 2, section 9 of the Securities Market Act.

MOST SIGNIFICANT SHORT-TERM BUSINESS RISKS AND RISK MANAGEMENT

YIT classifies as risks those factors that might endanger the achievement of the Group's strategic and financial targets if they should materialise. Risks are divided into strategic, operational, financial and event risks. The identification and management of risk factors takes into account the special features of the business and operating environment. Risk management is an integral part of the Group’s management, monitoring and reporting systems. The nature and probability of strategic risks is continuously monitored and reported on. A strategic risk assessment is carried out at Group level once a year in connection with the strategy review.

In accordance with the strategy of the continuing operations approved by the Group on June 3, 2013, improving resistance to economic cycles and widening financial operating space are key targets of YIT’s business operations. In connection with the ratification of the strategy, risk management was highlighted as one of the key focus areas over the next years.

YIT is developing the Group's business structure to be balanced and resistant of economic fluctuations. The Group operates in seven countries, and therefore economic fluctuations impact operations at different times in different countries and markets. However, following the partial demerger, the geographical diversification has decreased. The business model has also been developed so that the Construction Services business can operate independently after the demerger. The Group’s three business segments; residential, business premises and infrastructure construction, balance each other and improve the Group’s resistance to economic fluctuations. Fluctuation in consumer demand for housing in Finland can be balanced through investor deals of residential projects, which contributes to decreasing the Group’s exposure to fluctuations in the housing market. The company aims at reacting to changes in the operating environment in time and to utilise the new business opportunities provided by them through continuous monitoring and analysis.

YIT's typical operational risks include risks related to plot investments, sales risk of residential and commercial development projects and risks related to contract tenders, project management and personnel. YIT manages sales risk by matching the number of housing start-ups with the estimated residential demand and the number of unsold residential units (the figures for residential production are presented under Development by business segment) and by normally securing key tenants and/or the investor prior to starting a business premises project. Changes in the availability of housing loans and real estate financing are key risks related to the demand for residential units.

No write-offs were made to plots in the review period. YIT tests the value of its plots as required by IFRS accounting principles. Plot reserves are measured at acquisition cost and the plot value is impaired when it is estimated that the building being constructed on the plot will be sold at a price lower than the sum of the price of the plot and the construction costs.

Financial risks include risks related to the sufficiency of financing, currency and interest rates, credit and counterparty risks and risks related to the reporting process. Financial risks are managed through accounting and financing policies as well as internal and external auditing.

Approximately 75 percent of the revenue of YIT during the review period was derived from euro countries. The Russian ruble is one of the Group’s key currencies, and its significance will increase following the demerger. The Group’s most significant currency risk is related to investments denominated in rubles. Capital invested in Russia totalled EUR 565.9 million at the end of the period (3/2013: EUR 600.4 million, non-IFRS). The amount of equity or equivalent net investments at the end of the period came to EUR 434.0 million (3/2013: EUR 475.0 million, non-IFRS). The equity investments in the Russian subsidiaries are unhedged in accordance with the treasury policy, and a potential weakening of the ruble would have an equal negative impact on the Group's shareholders' equity. Debt investments amounted to EUR 131.9 million at the end of the period (3/2013: EUR 125.4 million, non-IFRS), and this exposure was hedged in full. The differences in the interest rates between the euro and ruble have an effect on hedging costs and therefore net financial expenses.

Possible event risks include accidents related to personal or information security as well as sudden and unforeseen material damage to premises, project sites and other property resulting, for example, from fire, collapse or theft. YIT complies with a group-wide security policy covering the different areas of security. A more detailed account of YIT's risk management policy and the most significant risks has been published in the Annual Report 2012. Financing risks are described in more detail in the notes to the Financial Statements for 2012.

OUTLOOK FOR 2013

GUIDANCE: YIT estimates the revenue and operating profit of the Group’s continuing operations based on segment reporting for 2013 to remain at the level of 2012, excluding non-recurring items.

YIT Corporation reiterates its estimate issued on June 4, 2013, according to which the Group revenue and operating profit based on segment reporting for 2013 will remain at the level of 2012 excluding non-recurring items.

Increased uncertainty about general macroeconomic development is impacting YIT’s business operations and customers.

Construction Services Finland

With regard to Construction Services Finland, long-term residential demand continues to be supported by migration to growth centres. Furthermore, the population and the number of households will increase with continued migration and the increasing number of one-person households. However, the short-term risks of the housing market have increased due to macroeconomic uncertainty.

According to Euroconstruct’s June 2013 estimate, the construction of 27,000 residential units will start in Finland during 2013. According to a report published by VTT in January 2012, the annual need for the production of new residential units amounts to 24,000–29,000 residential units over the long term. YIT's goal is to strengthen its position as the leading housing developer in Finland.

YIT estimates that housing prices will remain stable in 2013. Construction costs are estimated to increase, mainly due to new energy regulations, but the increase is expected to be moderate in 2013.

With regard to the construction of business premises, real estate investors are still cautious due to the general economic situation, and in order to control risks the Helsinki metropolitan area and good tenants are appreciated. The low level of long-term interest rates increases investors’ interest in high-yield properties. According to Euroconstruct’s June 2013 estimate, construction of office buildings will decrease by approximately 17 percent in Finland during 2013. Vacancy rates for offices are still high, with vacant building stock also including relatively old office premises in poor condition. YIT estimates that the demand will focus on modern and energy-efficient offices. YIT estimates that the renovation of business premises will grow in 2013.

According to Euroconstruct’s June 2013 estimate, commercial construction will decrease by approximately 12 percent in Finland during 2013. The shift of the retail trade towards ever larger business properties and the expansion of foreign retail chains in Finland will support construction activity. Vacancy rates for commercial premises are quite low.

The infrastructure construction market is expected to remain stable and at the same level as in 2012 (Euroconstruct, June 2013). Rail and metro construction will continue to increase in 2013, and several major road projects will be underway in 2013–2014. The market situation for rock construction is expected to remain favourable, with the focus shifting from excavation to interiors and engineering. The road maintenance market is estimated to remain stable.

International Construction Services

The volume of residential construction is estimated to increase in Russia in 2013. However, growth is expected to slow down slightly compared to the previous year.

Moscow, the Moscow region and St. Petersburg make up the largest residential markets in Russia: these areas account for approximately one-fifth of all residential construction. Residential demand has been supported by the reasonably good economic development in Russia, good consumer confidence, low unemployment rates and favourable development in the housing loan market, even though mortgage interest rates have increased.  The increase in interest rates is estimated to continue in 2013, and forecasts of economic growth in Russia have been lowered recently. In addition, the price of oil, which is a key factor for the development of the Russian economy, and the exchange rate between the euro and ruble have recently fluctuated more strongly than before.

The future outlook for Russian residential construction is good. Living space per person is still clearly lower than in Western Europe and housing is in poor condition, which creates the need for new, high-quality housing. Furthermore, the middle class is expected to grow in proportion to the population and the number of household-dwelling units is expected to increase. The development of the housing loan market in Russia has also contributed to the expansion of the potential buyer base. YIT has promoted the availability of loans to consumers through extensive cooperation with banks. YIT expects housing prices to increase in Russia in 2013, but at clearly less rate than in 2012.

The volume of business premises construction is expected to grow moderately in 2013 according to VTT’s statistics. YIT’s largest individual market is St. Petersburg, where YIT will continue the marketing and sales of the Gorelovo industrial park.

In the Baltic countries, residential demand has still been supported by improved consumer confidence and the employment situation as well as accelerated economic growth. Latvia joining the euro is expected to strengthen the country’s economic development. Housing prices have also increased slightly. Residential construction is expected to remain at the level of the previous year in the Czech Republic and Slovakia in 2013. Economic growth has come to a standstill and the country has increased the value added tax on housing sales as of the beginning of 2013. In Slovakia, the housing market is supported by the stable price level of housing, moderate economic growth and interest rates remaining low. Growing unemployment is a risk.

Full interim report including tables is as an appendix to this release.