YIT Oyj
OMXH:YIT
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1.581
2.82
|
| Price Target |
|
We'll email you a reminder when the closing price reaches EUR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
You don't have any saved screeners yet
Good morning, and welcome to YIT's 2021 Results Webcast. My name is Tommi Jarvenpaa. I'm the Head of YIT's Investor Relations. 2021 was a year of change for YIT. Today, we will be discussing how our profitability improved and how our businesses have developed. The results will be presented by our CEO, Markku Moilanen; and CFO, Tuomas Makipeska. After the presentation, we will be taking questions from the conference call lines. At this point, I would like to hand over to Markku. Please go ahead.
Thank you, Tommi. I started as the President and CEO of YIT the 1st of April on year 2021. And certainly, last year was a year of change for the company. And I and the whole company, we had a clear mission, and I'm very satisfied with the outcome. We took decisive actions to become more resilient in our operational performance. And as a result, we improved our profitability and strengthened our balance sheet. In addition, we launched our new strategy to leverage our strengths. Our mission was clear. We needed to stabilize our performance. And what we did was we established new strict and clear processes and practices in our business and in our project business, in particular. We renewed our entire operating model to be more customer-oriented, more agile and more cost-efficient. And we executed a thorough analysis of our whole project portfolio. We have now finalized our project portfolio cleanup, and I want to call it a cleanup. We went through all projects, looked at stages, looked at the profitability and did the necessary actions. As a result, during the whole year, we had a negative impact of more than EUR 100 million. Despite of it, our profitability increased. Our adjusted profits grew to EUR 114 million from the EUR 85 million of 2020, and what's important is the profitability below. So our profitability grew to 4% when the level was at 2.8% at 2020. A notable part of our results in 2021 was, of course, the positive impact of our development work from the sale of the Lestijärvi wind park worth of EUR 43 million. Development business has provided significant earnings for YIT during the last few years. Lestijärvi is the last one in that work. And as we have our strategy -- in our strategy moving forward, the development business will feed high-margin projects for our construction segments and then generate additional development margins and investment returns on top of the construction margins. And these few examples are good examples of that, that has come during the last few years. Going in detail to the different segments. I'm particularly satisfied and happy with our performance in Housing, actually in all markets starting now from Finland and CEE countries. So our adjusted EBIT ended up to EUR 102 million. And it should be noted that the profitability was negatively impacted by the write-downs of EUR 15 million in the Trigoni project and EUR 8 million on the nonstrategic plots. So the underlying performance was very good. We improved our margins as a result of our favorable sales mix. And of course, we have been in a strong market situation, which is expected to continue. I'm very happy to see that our high level, actually highest in the market, of customer satisfaction remained during 2021. We are now ready to grow in the selected regions according to our strategy, so the growing regions around Helsinki, Tampere and Turku in Finland and then in the Central European countries of Poland, Czech Republic and Slovakia. Housing Russia had a very good year as well. The operational performance improved further. And -- however, as we have communicated earlier, despite of the good housing market and despite of the good operational performance, the business in Russia ties more capital than it does in the other markets. And that's why we have initiated a strategic review of the future options in that market. That work is ongoing, and when we have something to communicate, we'll, of course, tell about that. Our construction business in the Business Premises gained black numbers as a result of the turnaround work -- hard turnaround work, and I'm very satisfied with the results. What we did was we had a rigorous project selections, and that has led not only to a healthy order book, but because we have been concentrating on our strengths, our order book has been strengthened further. We have also revamped our project management practices to ensure that during the delivery time of the project, we can keep our profitability. Even if the segment's name is Business Premises, I would like to highlight that in our order book at the end of 2021, 78% is coming from public sector projects, like hospitals and schools and others, and the rest from private sector. And that's, of course, reflecting that the market situation, which is better in the public sector, but telling much about our capabilities and agility to move according to the changes in the market. We started our transformation in our Infrastructure segment, similar that we started already in 2020 in Business Premises. Now in Infrastructure, we started that in 2021. What we did was that we established a project portfolio analysis and then cleaned up the project portfolio. So the project portfolio cleanup is now finished, both in Business Premises and in Infrastructure. Again, even here, we looked at what are our core competencies and, accordingly, then had rigorous project selection and tendering practices. As a result, the majority of our underlying project portfolio is now healthy. There remains to build a few legacy low-margin project, where in 2021, we had, from our revenue, 24% of the revenue in Infrastructure of this low-margin project. Now going to 2022, that is reduced to 15%, 2023, 9% and then marginal. So that is just explaining how the legacy project will have a lower and lower impact to our overall profit in the Infrastructure business. We totally changed our business model in the Partnership Properties. And it's been reshuffled now to a new Property Development segment that started 1st of January 2022. The role of that new segment is, like I mentioned earlier, is to feed high-margin projects for the construction segment and then gain development margin on top of the construction margin. What we did last year in Partnership Properties was, again, we went through our assets and projects, cleaned them up, changed our strategy so that service business is no longer in focus. And as a result, our development project pipeline is now very attractive for the coming years. We launched a new strategy in 2021. Our aim in our new strategy is to leverage further on our strengths and deliver predictable, market-leading results. What we did, we redefined and clarified our business model with a clear focus so that we have 4 segments. We have Housing, Business Premises, Infrastructure and then our Property Development segment, all of these clear customer segments, clear competencies playing together for the best of the group. Our execution of our strategy, we will do it through 3 strategic priorities: focus, productivity and ESG. And we are confident that this has created a solid path to reach our target's EBIT margin of over 6%. Even if we start with our new strategy now from beginning of 2021, we have already taken, during 2021, significant steps on our priority areas. So we already -- we started to move to the strategic direction during 2021. As I have alluded to earlier, on the focus area, we are already and have been more selective in our project, which has generated a much more healthy project portfolio. As a big strategic item, we are evaluating our options in Russia to release capital to be invested in other markets. We have clearly streamlined our business portfolio, for example, no more focus on service business. On productivity, we have now executed and finalized a thorough analysis of our project portfolio, which has led to this margin reductions, but we have a healthy project portfolio moving forward. We have established strict and clear processes and practices, both during the phase when we are developing or tendering a project, which is an important foundation for the success of the project, so how we select, how we calculate the project. And secondly, clear processes and practices on project management during the delivery time and follow-up practices over there as well. And then we have implemented a new agile and empowering operating model, which is cost-competitive as well. On ESG, I'm very proud that we made a decision last year that we are now committing to the science-based targets, i.e., do our part of the work to limit the global warning -- warming to 1.5 degrees according to the Paris Agreement as the first construction industry company in Finland. We launched our Green Finance Framework. And consequently, we issued EUR 300 million green bonds, favorable bonds for us last year. And last, but definitely not least, we improved our safety performance. Safety remains to be a clear #1 focus in our operations moving forward as well. We are now well positioned to achieve our financial targets according to our strategy for 2025. So our EBIT margin increased to 4%, and we are well on our way to over 6% margins. Our gearing went down to record low, 30%, which means that we have a strong balance sheet that we can use for our growth. And we are planning to have a stable growth on our dividend as well. So let's have a look at our financial performance a bit more in detail. So I have our new CFO, Tuomas Makipeska, here together with me to tell a bit more of our financial performance.
Yes. Thank you, Markku, and good morning, everybody. Let's have a look at how the financial performance developed in 2021. All the most important KPIs developed favorably during the year. The order book strengthened significantly despite of the turnaround work and higher selectiveness of the projects. We also improved our productivity and adjusted EBIT accordingly despite the heavy write-downs. Also, our operating cash flow improved significantly, leading to a remarkable decrease of net debt. So let's now have a look at each of these a bit more in detail. The order book development clearly illustrates our competitives -- competitiveness in the market. The order book was increasing in all of our segments. The majority of the increase comes from the Housing businesses. But also despite of the turnaround of work and the transformation work done in Business Premises and Infrastructure, the order book in both of the segments grew at the same time. So this is a clear kind of an indicator of our competitiveness in the market. If we look at the revenue and net sales development during the year, so as mentioned, we have been turning around Business Premises and Infrastructure businesses. And in both of the segments, we saw a decline in revenue, which was planned and which was according to the selectiveness and the focus according to the strategy. Also, there was the -- a decrease in the volumes in Russia, which was also related to the derisking of our operations there. So that's explaining the declining revenues of the business, and it was planned, and it also underlines that we've been doing turnaround in 2 of the segments. We then have a look at the EBIT -- adjusted EBIT development of the segments. So here, I would like to point out that, as Markku already mentioned, so we wrote down assets and margin reductions in all of the segments. And if we look at now by segment, so Housing, even though the EBIT decreased a bit in the business, so the underlying performance actually improved since we did EUR 23 million write-downs during the Q4 in the business. Also, if we look at the Housing business in Russia, as Markku mentioned, so we had extremely good year in Russia in terms of profitability since the comparison period included one-offs of plot sales and also the POC calculation method change. So in that sense, also in Russia, the underlying business developed extremely well. If we then look at the highest improvement in EBIT is in Business Premises, and this is something that we are very happy about since the turnaround of the business started already during the 2020 and was accelerated during the 2021 year. And here, we can see the EUR 54 million improvement in the EBIT is significant. And it also then includes the write-downs of EUR 13 million during the Q4. In Infrastructure, the operational development was not positive. But of course, you can see here that the sale of Lestijärvi supported our EBIT for the year. But as the CEO already mentioned here, so we are -- we have kicked off now the turnaround work, and we have cleaned the project portfolio. And we are ready to -- we have stabilized the business operationally, so we are ready to move on and generate cash profitably. Also, the Partnership Properties and the new Property Development, as mentioned, its business model have been reshuffled. Even though the margin was decreasing in the business, so we also did there EUR 8 million write-down during the Q4 and also there -- despite of that, made a positive result in 2021. Altogether, as already mentioned, so we reached EUR 114 million EBIT and 4% in relative terms. If we then have a look at the cash flow development, as mentioned, so we had a very strong cash flow, and the main reasons behind the positive development was, of course, the improved EBIT. But then high number of the completions and, again, low number of unsold apartments under construction has extremely good or had an extremely positive impact on our cash flow. And on top of that, there were some postponed plot acquisitions from year 2021 to 2022. If we look at the comparison figures, so it also included the 2020 year, so it included the sale of the paving business. So excluding that, the jump in cash flow was significant. Basically, the same reasons led also to decrease in capital employed. And the strong apartment sales, low apartment start-ups in 2020 and, consequently, the low number of unsold completed apartments in the Housing were the main reasons for the decrease in capital employed. What is important here is that we were also able to release capital from our cash-generating segments, Business Premises and Infrastructure. They both -- both segments ended up having negative capital employed at the end of the year. Also, a third important thing here was that we were also able to release some capital from our Russian operations. So this is now the starting point going then forward and investing in -- according to the strategy, investing into Housing businesses in Finland and CEE countries. Our debt structure developed extremely positively because of the strong cash flow, of course. And there, on the left-hand side, you can see the breakdown of our gross debt. And I would like to highlight that, as you can see, there's IFRS 16 lease liabilities of EUR 230 million and housing company loans, altogether summing up to EUR 340 million. And since they are not conventional debt instruments, so by excluding them from the calculation, we would have negative net debt. And this is an extremely good starting point to, of course, execute our strategy. On top of that, on the right-hand side, we have worked a lot on our finance during the year. And our favorable maturity structure of interest-bearing debt also supports the strategy execution. And we reorganized our debt portfolio during the year. We issued EUR 100 million senior unsecured green bond and EUR 100 million green hybrid bond as well. And also, we signed a committed EUR 300 million RCF linked to the sustainability targets. Simultaneously, we canceled our previous EUR 300 million committed RCF. So in that sense also, our debt portfolio is favorable going forward. If we then have a look at the balance sheet in general. So all of the financial information presented so far then led, of course, to a stronger or strengthened balance sheet. Markku already pointed out that our gearing fell to 30%, which is -- which gives us, of course, room for maneuver. Also accordingly, our equity ratio developed favorably. So if putting all of this together, so I would like to summarize that we've built now a solid foundation for the future, and we are very well positioned to execute our new strategy. Our order book illustrates our competitiveness in the market despite of the COVID-19 and uncertainties in the market. Our EBIT development illustrates the improvement in our productivity according to the strategy. And also, the balance sheet really enables us to execute our strategy. So also from financial perspective, we are set to go with the strategy execution for this year.
Thank you, Tuomas, and let's move forward and have a look at the outlook and expectations for 2022. Starting from the market outlook, the overall picture looks good from all of our markets. So in housing market where we have extremely good market in all of our geographies in 2021, that is expected to continue during Q1 in 2022 as well. In the real estate market, which is expected to continue in a good level in Finland and the Baltic countries, we see that it will be picking up in -- or expect that it will be picking up in the Central European countries. On infrastructure, the picture remains the same, a normal situation in Finland, a very good attractive market in Sweden and a weak market, some signs of picking up in the Baltic countries. In 2022, it is notable that the number of housing apartment completions is expected to decrease in 2022. So we are expecting to complete around 3,000 new homes, apartments during 2022, which is a lower level than in 2021. Again, there's a seasonality between the different quarters, where the Q4 in 2022 is expected to be the highest among all the quarters, which, of course, creates volatility for earnings and revenues in our Housing segments. In addition to these numbers, it's good to know that we have over 2,000 units under construction for investors. And in our Housing Russia business, we have more than 3,500 units under construction in Russia. While the number of completions is expected to decrease in 2022, which is actually a result of our slower number of start-ups during the COVID time in 2020, we expect the completions significantly then go up from 2023 onwards. The picture on the right-hand side illustrates the situation. So you can clearly see from the blue line where we had lower number of apartments started for consumers during 2022 due to the uncertainty of the COVID pandemic. But we have clearly ramped up our start-ups now in the second half of 2022, and we'll continue to do that now -- 2021, and we'll continue to do that in -- during 2022 as well. And you can see that there's this around 18 months lead time, which is leading to a lower number of completions, the white line, during 2022, but it's picking up then from 2023 onwards. And again, looking forward in the markets that we are in the growing market in Finland, Poland, Czech Republic and Slovakia, the market is expected to stay, in housing, very good also in 2023 and onwards. All in all, our expectation for the YIT Group adjusted operating profit is expected to be higher than in 2021. The notable items impacting our profit and profitability in Housing is, as I was opening a bit more, the completions on consumer apartments in Housing Finland and Russia. We expect our solid underlying performance to continue in Housing Russia as well. However, the earnings, the revenues are expected to be impacted by a lower number of ongoing projects because we are derisking the situation having less capital tied in Housing Russia. We expect that our very good trajectory in Business Premises due to the good and healthy order book will continue to improve. And in Infrastructure, where we have now finalized our project portfolio review, we will, as I have explained, improve our profitability gradually, still impacted by certain low-margin projects, but the share of those will go down quarter after quarter. And again, in the new Property Development segment, we have a healthy and attractive project pipeline, which we expect to create margins for, actually, years to come. All in all, I have to say that I'm satisfied with the outcome of 2021. This was my first year as President and CEO in YIT, and I'm very proud of our organization. We have done hard work. We have cleaned up our project portfolio. We have been able to keep high customer satisfaction, especially in Housing. And we are definitely now much more resilient in our operational performance. Despite of the cleanup, we improved our profitability during 2021. We strengthened our balance sheet, which really set a good foundation for our ambitions to grow in the years to come. So we are clearly now set to deliver according to our strategy, predictable, market-leading results.
Thank you, Markku. And before taking questions from the conference call line, actually, I have one question from the webcast platform. And I think this goes to Markku. So what can be said about the prices of apartments in Finland and CEE countries? Are they still going up? And what about the demand for the apartments?
Well, if we are looking at overall situations in the apartments, the demand -- the market and demand is expected to continue good. Then it is notable that the cost level of material, cost and workforce has increased as well. And that will certainly have an impact to the market. So I expect that, of course, this is about location. Good locations where we are, where we have a strong plot reserve, I expect the prices to go up.
Right. Thank you, Markku. Let's now move to the conference call lines. Operator, we are now ready for the questions.
[Operator Instructions] Okay. So far, we have one person in the queue. That's Svante Krokfors of Nordea.
Svante from Nordea. I have a number, but I guess I'm the only one in line, so I take them all. You say that the cleanup is complete, but can we trust it this time? And have you had enough time to go through all the segments?
Thank you. And yes, we are confident that we have done a thorough job of all projects. And that means that what you have seen in 2021 as well as 2020 -- during 2020, we definitely are not expecting anything like that in that -- those amounts to come. We are, of course, in project business, and there's ups and downs. I would like to underline ups and downs. So summing up, we are definitely not -- no more expecting these kind of deviations.
Okay. That's clear. And I mean you had quite a number of one-offs in '21. And just to be clear, on the more than EUR 100 million that you referred to as margin reductions and inventory write-downs, is most of that or all of that included in the adjusted EBIT numbers?
Yes, they are all included in the numbers.
So if I continue on that, if I take your report to EUR 114 million and reduce the Lestijärvi and add the EUR 100 million, then I come to EUR 170 million, which would correspond to 5.9% EBIT margin. So my question is, is your 6% '25 target lowballing?
Thank you for the questions -- question. We definitely have high ambitions, and we are working hard to deliver above 6%. But I have to say that I'd rather keep promises that I can keep -- give. But you have done right calculations, and it tells a lot of our underlying performance. So we are definitely on our track to above 6%.
Okay. And then a detailed question on Mall of Tripla. You made a EUR 16 million write-down that corresponds to around EUR 40 million for whole of Tripla as you earn a bit below 40%. What was that, again, a 25 basis points increase in valuation yield?
So sorry, can you clarify the last part of the question?
No. Basically, I'm -- I think it was some time ago that you told that you -- or the valuation yield on Mall of Tripla was increased by 25 basis points. Was that what happened again now in Q4?
No, no. That wasn't the case. No.
So it was more related to assumptions on rental income? Or was it the repair jobs that you had to do there?
We were cleaning up some of the project items, and those were part of the Q4 write-downs. So trying to find out what you are kind of clarifying or try to find...
No, no, I'm just asking was there any changes in the valuation.
The valuation changes, we had no changes on that one. So compared to when we had in 2020, we had a change on that. And due to the good development, so the number of visitors grew in 2021 compared to the earlier year. And actually, the revenue from the tenants grew as well. So last year was a good year for Mall of Tripla. Again, that's why there was no changes in the fair value.
Okay. And then on your completion forecasts -- apartment completion forecast, I think Central and Eastern Europe is going down. But I guess that is where we are going to see the biggest increase going forward, given what you communicated at the CMD that 2/3 of growth investments will be made there in Housing Finland. Is that correct?
Exactly, exactly. That is our plan, and we see high potential and high margins. So that's why we are planning to invest more there.
And then on the cost inflation, I think you -- if I understand correctly, you have been quite good at mitigating that. But what about -- have you seen any signs of decline in construction activity or project start because of the elevated cost level?
Not significantly. Of course, here and there, but not really. So that has not been the case in the market. And if we are now looking at the current situation, we clearly see that the cost increase is leveling down, and we even see decrease in some materials. So we -- it is our expectation that the increases during 2022 will be moderate.
And then the last one on the divestment -- potential divestment of Russian business. How does the geopolitical tensions play into that? Do you want to comment that anyway? Or do you believe that it's going to be a local buyer? Do you want to comment that on anyway?
Well, I would like to highlight that the reason that we did this was strategic and quite much financial as we have commented, so the efficiency of capital employed, and that's the situation. And that has caused the reason. We are -- we have good options. And of course, one option is to continue in a selected scope as well. It's a -- it is a healthy business. And then we have, of course, dialogues going on with candidates.
And there are currently no further questions from the phone, so I'll hand back to our speakers.
All right. Thank you very much, and thank you for questions. Our first quarter results will be published on April 29. Until then, thank you, and goodbye.