YIT Oyj

OMXH:YIT

Earnings Call Transcript 2022-Q4

[Samu Heikkila, executive]

Hi guys, and welcome to this extra Q&A session. My name is Samu Heikkila. And I'm the YIT's IR. And I'm here with our CEO, Heikki Vuorenmaa; and CFO, Tuomas Makipeska.

As you may have noticed, we had some unfortunate technical difficulties in our webcast on Friday, so we decided to have this extra 30-minute session for all of the questions that you may have. On -- the recording of the Friday's webcast is still intact, and if you missed anything on Friday, you can find a recording on our investor website.

Just as a note before we start, this Q&A session will be recorded. [Operator Instructions]

[Samu Heikkila, executive]

We have the first question from Robin.

[Robin Nyberg, analyst]

Yes. All right. So looking at the number of unsold completed apartments rose quite significantly in Q4. How should we think about the development this year and also the sales mix? You are probably going to sell more to investors this year. How is the investor demand? And what kind of discounts are they requiring in this market?

[Tuomas Mäkipeska, executive]

Robin, it's Tuomas Makipeska here. I can take this one. Yes, it's true that the number of unsold completed apartments increased a lot during the Q4. And as mentioned, so this is mainly due to the market situation and the lower demand for apartments amongst the consumers.

This is something that we've been monitoring pretty closely during the last, let's say, second half of the year. And of course, now going forward, we will monitor it closely as well.

We have different kind of options, of course, to aim at decreasing the inventory -- so-called inventory. The first ones are the campaign or the sales campaigns that we have used in housing business. So far, no major discounts so far given to the consumers. A couple of exceptions and tests to the market have been made. But anyway, so we are closely monitoring the situation and, of course, evaluating our options now going forward.

Of course, investor sales is one of the options that we are considering. But we, of course, need to take into account or, let's say, balance the cash flow and the profitability impact of these options. So that's basically where we are right now.

[Robin Nyberg, analyst]

All right. Then looking at the level of start-ups decreased quite a bit but it seems that there are some signs that activity has picked up slightly in January. What kind of start-up level should we expect in the near term? Any comment would be helpful.

[Tuomas Mäkipeska, executive]

Yes, I can continue from here as well. So as communicated during the last year, we have been more cautious with the start-ups during the '22 already since the market has been developing to the challenging direction.

Now if we look at the market in the short term, so as we have communicated it's -- the demand is still muted. So there are no clear signs on increased demand at least yet. So this means that we will take a cautious approach to the startups also going forward.

But we still have also exceptions or, let's say, projects where we have high pre-reservation rates and the locations are, let's say, they are prime locations. So if we have high pre-reservation or sales rates and the location is good. So we are ready to startup that kind of project now going forward as well.

[Operator]

Thanks, Robin. Next question from Svante.

[Svante Krokfors, analyst]

Perhaps still on housing and the Q4 sales mix, if you could refresh us there. The margin was quite good. Should we expect that the unsold apartments are less attractive? Or how should we see the increased unsold apartment margin going forward?

[Tuomas Mäkipeska, executive]

For the Q4 in housing, we were able to achieve pretty good margins during the Q4, and that was mainly due to the couple of, let's say, good or profitable projects that were completed in the Central Eastern European countries, and that was supporting our Q4 earnings in housing.

Now also, if we look at the inventory or the unsold completed apartments. So those are mainly in the good locations, good products and from kind of a wide spread of -- on the range of products. So there are no heavy differences between the mix of the apartments. Meaning that there are no one-room apartments on a higher weight or so.

So the inventory itself is, let's say, well balanced and in good locations and prime products. So we don't see any risk in that sense in the margin from the inventory point of view.

[Svante Krokfors, analyst]

And then on the 3,400 investor apartments that you had under construction, if I recall correctly. What kind of margin certainty do you have on those? What kind of agreements do you have in place if, for example, costs start to trend downwards?

[Tuomas Mäkipeska, executive]

Well, regarding the investor sales in general, so we are for the time having constructive dialogue with the investors. Some of them we have already contracts in place, but we don't comment any specific contracts here. But in general, we have active discussion ongoing with the investors and the different kind of options are open to go forward there as well.

[Svante Krokfors, analyst]

And then regarding the efficiency program. You mentioned that the EUR 40 million run rate by end '24 and more than half of that by end '23. How about the one-offs, EUR 50 million to EUR 70 million that you will incur, should that -- will that be majority coming in '23? Or how should we look at it?

[Tuomas Mäkipeska, executive]

Yes, that's a good question. And as communicated, so the benefits of the cost savings will -- or majority of that will be achieved in the run rate of this year. In general, we can argue that the one-off costs are following the benefits as well, but also there are some of the actions that we have planned. They will need to have a good timing as well. So therefore, we cannot comment specifically when will be as one-offs of year in point of time.

[Samu Heikkila, executive]

Thanks, Svante. Do we have any further questions? [Operator Instructions] Yes, we have a question from Simen.

[Simen Mortensen, analyst]

Yes. Sorry, I was a bit late and you might have answered this already, but you have a bond maturing end of like in 1 year time. And ERP is also -- you see where it's trading and very, very quite significantly low.

Also following real estate, I know that bank margins are on the rise. Could you just give us a bit of coloring in how you're addressing this kind of situation, which we are seeing in terms of financing cost, and what your plans are, and how you'll address and think about the market?

[Tuomas Mäkipeska, executive]

Yes. Thank you. Thank you. And well, in general, I can comment that we are, of course, all the time planning our refinancing. And we know that the market has been interesting or pretty challenging there as well. But as just a normal financing planning that we do in the company, so we take our -- here as well, different kind of options into account. And when we will decide to go forward with any of them, so we will, of course, communicate appropriately. But no further comments at this point.

[Simen Mortensen, analyst]

Okay. But can you maybe see about a bit of financing for like building loans, et cetera. How is that -- are you seeing that? And does that actually impact the margins for residential development?

[Tuomas Mäkipeska, executive]

Sorry, can you repeat the question? I didn't...

[Simen Mortensen, analyst]

Higher interest rates. How are they impacting both in terms of higher interest rates, which I assume you capitalize under construction period and also the higher lending margins from banks and how much that weighs in on the margins in housing.

[Tuomas Mäkipeska, executive]

Well, in general, here as well, so I can continue. So yes, we see the borrowing or the mortgage rates increasing, which will have an impact or has had an impact already on the housing demand for the demand of apartments here in Finland and also the -- in the CEE, countries where we operate in. So that's the one side of it.

And then, of course, getting back to the financing of the company. So we see also the higher interest rates for the loans and bonds, and we are monitoring the market from that perspective as well. But as mentioned, so that's part of the normal financial planning of the company.

[Simen Mortensen, analyst]

Can you just tell us and can you help us understand how much historically over the last 3 years have been interest rate in terms of your total cost in housing?

[Tuomas Mäkipeska, executive]

Sorry, can you again...

[Simen Mortensen, analyst]

How much of your cost like in housing -- Housing Finland has been interest rate costs in terms of the profits to do development? Because we know how interest rates have trended. We just have a figure on how much the cost relating to commit capital is moving.

[Tuomas Mäkipeska, executive]

Yes, your question now. This is something that we are not disclosing, unfortunately.

[Samu Heikkila, executive]

Thanks, Simen. Any further questions? It seems that there are no further questions. So thank you all for participating, and have a great rest of the day. Thank you.

[Tuomas Mäkipeska, executive]

Thank you. You too. Bye.

[Heikki Vuorenmaa, executive]

Thank you. Bye.