YIT Oyj: YIT's Half-Year Report January-June 2024

YIT's Half-Year Report January-June 2024  

Transformation program savings target achieved ahead of schedule, contracting segments the main profit drivers in the second quarter

Second quarter 2024 in brief

• Order book at the end of the period was EUR 2,980 million (31 Mar 2024: 3,091). At the end of the period, 76% of the order book was sold (31 Mar 2024: 74%).
• Revenue decreased to EUR 434 million (558), mainly due to revenue decrease in Housing. The comparison period included sale of 190 apartments in Finland to YIT's joint venture and sale and leaseback transactions of plots. In Business Premises, revenue remained stable. In Infrastructure, revenue decreased, mainly due to the revenue decrease in businesses to be closed down in Sweden, while in Finland revenue increased.
•  Adjusted operating profit decreased to EUR 7 million (14). Adjusted operating profit increased in Infrastructure and remained stable in Business Premises. In Housing, adjusted operating profit decreased. Adjusted operating profit margin was 1.6% (2.6).
• Operating cash flow after investments was EUR -6 million (14), which included cash flow of EUR -39 million from investments related to housing plots, impacted mainly by payments for plots committed before 2024 in CEE countries. Cash and cash equivalents at the end of the period amounted to EUR 119 million (97).
• Net interest-bearing debt at the end of the period was EUR 788 million (865) and gearing 97% (104).
• In Housing, adjusted operating profit decreased to EUR -4 million (3). The decrease was mainly attributable to the decrease in adjusted operating profit in Finland. Consumer apartment start-ups amounted to 186 (522), all the start-ups in the second quarter were in the Baltic and CEE countries. The number of unsold completed apartments decreased to 1,212 (31 Mar 2024: 1,359), out of which 867 (31 Mar 2024: 1,000) were located in Finland and 345 (31 Mar 2024: 359) in the Baltic and CEE countries.
• In Business Premises, adjusted operating profit was EUR 5 million (6).
• In Infrastructure, adjusted operating profit increased to EUR 6 million (3), supported by the steady performance of the projects in Finland.
• Result for the period was EUR -51 million (-1). Second quarter 2024 result was impacted by the transformation program costs and operations to be closed down in Sweden.
• YIT announced on 11 June 2024 the successful issuance of new EUR 100 million green floating rate senior secured notes. The maturity of the notes is three years, and they mature on 18 June 2027. The notes carry a margin of 7.50 per cent per annum over 3 months Euribor. The issue price of the notes was 100 percent.

January-June 2024 in brief

• Revenue decreased to EUR 846 million (1,013). In Business Premises, revenue increased slightly. In Infrastructure, revenue decreased mainly due to the revenue decrease in businesses to be closed down. In Housing, revenue decreased.
• Adjusted operating profit decreased to EUR -7 million (11), increasing in Infrastructure and decreasing in Housing and Business Premises. The adjusted operating profit margin was -0.9% (1.1).
• Operating cash flow after investments improved to EUR -6 million (-202).
• In Housing, adjusted operating profit decreased to EUR -9 million (6), mainly attributable to the decrease in adjusted operating profit in Housing Finland.
• In Business Premises, adjusted operating profit decreased to EUR -6 million (0), The decrease was mainly due to a decrease in the fair value of Tripla Mall caused by a yield increase in the first quarter, impacting the adjusted operating profit by EUR -12 million.
• In Infrastructure, adjusted operating profit improved to EUR 6 million (4), supported by the steady performance of the projects in Finland.
• Result for the period was EUR -67 million (-15).
• YIT's transformation program has progressed faster than originally expected, and the annualised inflation-adjusted run-rate cost savings target of EUR 40 million for the program was achieved ahead of schedule by the end of June 2024. YIT continues to seek further savings and efficiencies.
• Transformation program costs are estimated to be EUR 50-70 million in total, of which EUR 51 million was realised by the end of June 2024. Program costs are recorded in operating profit adjusting items. In the second quarter of 2024, YIT decided, as part of the transformation program, to partially release its leased headquarter premises for sublease to increase the efficiency of its premises used, which impacted the program costs by EUR 20 million.
• In June 2023, YIT estimated that as part of the transformation program, the company had the potential to release approximately EUR 400 million in capital, excluding current assets such as self-developed projects, unsold apartments and land plots. With the actions taken by the end of June 2024, YIT had released approximately EUR 140 million of the stated potential. The actions to improve net working capital are also proceeding according to plan.

Key figures

EUR million 4-6/24 4-6/23 1-6/24 1-6/23 1-12/23
Revenue 434 558 846 1,013 2,163
Operating profit -42 11 -51 4 51
Operating profit, % -9.8 2.0 -6.0 0.4 2.4
Adjusted operating profit 7 14 -7 11 41
Adjusted operating profit 1.6 2.6 -0.9 1.1 1.9
margin, %
Result before taxes -57 -1 -79 -19 -5
Result for the period -51 -1 -67 -15 3
Earnings per share, EUR -0.23 -0.01 -0.31 -0.08 -0.01
Operating cash flow after -6 14 -6 -202 -137
investments
Net interest-bearing debt 788 865 788 865 795
Gearing ratio, % 97 104 97 104 94
Equity ratio, % 33 32 33 32 33
Return on capital employed, % 1.4 4.9 1.4 4.9 2.5
(ROCE, rolling 12 months)
Order book 2,980 3,540 2,980 3,540 3,157
Combined lost time injury 10.0 14.1 10.0 14.1 12.1
frequency (cLTIF, rolling 12
months)
Customer satisfaction rate 55 54 55 54 55
(NPS)

Unless otherwise noted, the figures in brackets in this report refer to the corresponding period in the previous year.

Comments from the President and CEO, Heikki Vuorenmaa

"During the first half of 2024, we have determinately continued the execution of our transformation program and completed a multi-stage financing renewal in a planned manner. We have prioritised optimising our balance sheet and liquidity while improving the underlying performance in our business segments. At the same time, we have continued to increase our operational efficiency and customer focus and built capabilities to accelerate, when it is visible that the Finnish housing market starts to stabilise. We will continue to take the required measures to further reduce the indebtedness of the company and release capital from our investment portfolio and other non-core businesses.

We achieved the targeted savings for the transformation program well ahead of schedule, and we continue to seek further savings and efficiencies. With the actions taken by the end of June 2024, YIT will gain annualised inflation-adjusted run-rate cost savings of EUR 40 million. As a result, YIT will operate with a significantly improved cost structure going forward. I want to express my sincere thanks to all of our employees for their tireless work for achieving the target. As expected, our result for the period has been impacted by the transformation actions taken. The lighter balance sheet and achieved operative and cost efficiencies will pay off going forward as the company will come out of the housing market cycle stronger and with better capabilities.

Releasing capital and lowering our indebtedness are high on our agenda. Within the transformation program, we have already released approximately EUR 140 million of capital. There is still work to be done to bring the capital efficiency to the desired level. Supported by the successful financing arrangements, we are able to carry out the required capital release measures with optimised timing from a value creation perspective. This might result in postponing for example the divestment of the ownership share in the Tripla Mall to a point of time when the market is more optimal.

The impact of the actions taken is already supporting profitability in our contracting segments. In the second quarter, Infrastructure achieved an over 4% rolling 12 months adjusted operating profit with negative capital employed supported by the economies of scale of the business. Business Premises continued to improve the underlying profitability supported by procurement efficiencies and is on a safe path towards operating with negative capital employed.

In Housing, the operations in the Baltic and CEE countries continued the solid performance. Our sales of consumer apartments improved year-on-year, and the market recovery continued. However, completions during the second quarter were approximately 100 apartments lower than expected, as the finalising of an approval process was shifted to early July. In Finland, the worst slowdown in the market starts to be behind and we are starting to approach the end of the cycle. The supply of new apartments in the market is significantly decreasing and consequently, the peak in the number of unsold completed new apartments in Finland is behind us. The housing market in Finland is not, however, expected to materially improve in 2024. Supported by our high-quality plot reserve and secured financing position, we have the capability to start new projects in Finland when the timing is right.

The renewal of our financing during the past six months has included measures to strengthen equity, extension of bank loans and credit limits, certain easing of loan covenants, the issuance of a convertible bond and the new issue of a senior bond. The main objective of our plan has been to ensure that liquidity remains available to the company through the Finnish housing market cycle. The maturity of the loans has been pushed significantly forward, and the company has strong liquidity to operate with even if the market situation was to continue. The successful execution of the financing arrangement in the current construction market environment has been a great achievement from the YIT team, not forgetting the strong support of the owners of the company.

While a lot of focus is on financial performance, it is paramount that we pursue our systematic work on work safety and customer satisfaction and strengthen the day-to-day safety management within the company and with its partners. As a result, the combined lost time injury frequency, relative to hours worked, has been in a downward trend improving again in the second quarter of 2024. The customer satisfaction rate has remained on a good level quarter after quarter. This demonstrates the commitment of our employees to our way of working and our culture. I want to express my appreciation for the everyday work done to ensure safety at work and the high-level customer satisfaction and encourage all our employees to continue on this path going forward."

Results

April-June

YIT's order book decreased slightly from the previous quarter to EUR 2,980 million (31 Mar 2024: 3,091). Order book decreased in Housing and Business Premises and increased in Infrastructure. At the end of the quarter, 76% of the order book was sold (31 Mar 2024: 74%).

YIT's revenue decreased from the comparison period to EUR 434 million (558). In Housing, revenue decreased. Revenue in the comparison period was supported by the sale of 190 apartments in Finland to YIT's joint venture's rental housing portfolio and by sale and leaseback transactions for 11 plots. In Business Premises, revenue remained stable. In Infrastructure, revenue decreased, mainly due to the revenue decrease in businesses to be closed down, while revenue in Finland increased.

Adjusted operating profit decreased to EUR 7 million (14). Adjusted operating profit margin was 1.6% (2.6). The decrease in adjusted operating profit was mainly attributable to the decrease in adjusted operating profit in Housing Finland. In Business Premises, adjusted operating profit remained stable and in Infrastructure, increased significantly compared to the comparison period.

YIT's operating profit was EUR -42 million (11). Adjusting items were EUR 49 million in the second quarter (3), mainly related to the costs of transformation program and operating profit from operations to be closed down in Sweden. In the second quarter of 2024, YIT decided, as part of the transformation program, to partially release its leased headquarter premises for sublease to increase the efficiency of its premises used. As a result, YIT made an impairment of right-of-use asset and a provision for an onerous contract totalling EUR 20 million recorded in operating profit adjusting items in transformation program costs. Net finance costs increased to EUR 15 million (12) year-on-year due to increased cost of funding driven by the higher interest rate environment and higher margins in refinancing. The result for the period was EUR -51 million (-1).

January-June

YIT's revenue decreased to EUR 846 million (1,013). In Housing, revenue decreased from the comparison period. Revenue in the comparison period was supported by the sale of 190 apartments in Finland to YIT's joint venture's rental housing portfolio and by sale and leaseback transactions for 11 plots in the second quarter. In Business Premises revenue increased. In Infrastructure, revenue decreased mainly due to the revenue decrease in businesses to be closed down.

YIT's adjusted operating profit decreased to EUR -7 million (11), and the adjusted operating profit margin was (0.9)% (1.1). In Housing, adjusted operating profit decreased mainly attributable to the decrease in adjusted operating profit in Housing Finland. In Business Premises, adjusted operating profit decreased. The decrease was mainly due to a decrease in the fair value of Tripla Mall caused by a yield increase in the first quarter, impacting the adjusted operating profit by EUR -12 million. In Infrastructure, adjusted operating profit increased supported by the steady performance of the projects in Finland.

YIT's operating profit was EUR -51 million (4). Adjusting items amounted to EUR 43 million (7), mainly related to the gain on sale of the equipment services business YIT Kalusto Oy, offset by the costs of transformation program and operating

profit from operations to be closed down. Net finance costs amounted to EUR 29 million (23). The result for the period amounted to EUR -67 million (-15), and earnings per share amounted to EUR -0.31 (-0.08).

Guidance and outlook for 2024

YIT expects its Group adjusted operating profit for continuing operations to be EUR 20-60 million in 2024. The operating cash flow after investments is expected to be positive.

The housing market recovery in the Baltic countries and Central Eastern Europe is expected to continue. In Finland, the housing market is not expected to materially improve during 2024. In Business Premises and Infrastructure, the underlying operational performance is expected to improve.

YIT's performance will be supported by the increased efficiencies from the transformation program launched on 10 February 2023.

Changes in the macroeconomic environment, especially in interest rates, may impact the housing market demand and the fair value of investments. Delayed apartment completions could lead to the postponement of revenue and profit from one quarter or year to another. Actions to release capital may have an impact on the company's profit.

Webcast for investors and the media 

A webcast and an international telephone conference will be arranged on 26 July 2024 at 10:00 a.m. EEST. The results will be presented by Heikki Vuorenmaa, President and CEO of YIT Corporation, and CFO Tuomas Mäkipeska.   

The webcast can be followed at https://yit.videosync.fi/q2-2024. A recording of the webcast will be available at the company's website after the event.

The teleconference can be accessed by registering at: https://palvelu.flik.fi/teleconference/?id=50048711.  After the registration, participants will be provided with phone numbers and a conference ID to access the conference. To ask a question, please dial *5 on your telephone keypad to enter the queue.

For further information:
Essi Nikitin, Vice President, Investor Relations, YIT Corporation, tel. +358 50 581 1455, essi.nikitin@yit.fi

YIT Corporation

Tuomas Mäkipeska
CFO

Distribution: Nasdaq Helsinki, principal media, www.yitgroup.com (https://www.yitgroup.com/en)

YIT is a leading construction and development company. Building on over 110 years of experience, we develop and build sustainable living environments: functional homes, future-proof public and commercial buildings, and infrastructure to support the green transition. We employ approximately 4,300 professionals in eight countries. Our revenue in 2023 was EUR 2.2 billion. YIT Corporation's shares are listed on Nasdaq Helsinki. 

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