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Questions and answers regarding the demerger

What is the key rationale behind the partial demerger?

Construction Services operations in Russia have successfully been developed as stated in our strategy (especially in terms of management of capital employed) – as a result, the Construction Services business is capable of financing and carrying out its operations independently.

Further development of businesses as separate groups enables:

  • more effective implementation of independent strategies
  • more focused management of the business operations
  • personnel development
  • further enhancement of customer service

The growth strategies of the companies are different, and we believe that the separate companies offer more attractive investment opportunities than the current setup.

Operational synergies between the businesses are limited as they mainly operate in different geographical markets, so splitting-up the businesses is rather straightforward and should not result in any meaningful increase in operational costs.

Why is the partial demerger made now?

According to the Board of Directors´ evaluation this is good time to move on to the next development phase e.g. due to the good development in International Construction Services, especially in Russia. Construction Services can now independently finance and carry out its operations both in Finland and in Russia & CEE.

Both businesses are also now large enough to operate on a stand-alone-basis.

What is the planned timing for the partial demerger?

The partial demerger will become effective when the Extraordinary General Meeting of YIT (to be held on 17 June, 2013) has approved the partial demerger and its implementation is recorded with the Finnish Trade Register.

The planned registration date is 30 June 2013, after which the shares of Caverion will be admitted for public trading on Nasdaq OMX Helsinki Oy. Trading with Caverion shares is intended to commence as soon as possible after the implementation of the partial demerger.

Why have you chosen partial demerger as the structure to implement the split-up of businesses?

The process of partial demerger is more practical and in terms of transaction related costs cheaper, and in general more suitable in YIT’s situation than full demerger.

Partial demerger means listing of just one company (Caverion) while YIT will continue to be listed with its shareholdings unaffected by the demerger. In full demerger existing YIT would have been demerger into two new companies, both of which would have had to be listed on the stock exchange separately.

What happens to the current shareholdings?

Shareholdings in YIT remain unchanged. Shares in Caverion will be issued as demerger consideration to YIT shareholders in proportion to shareholdings in YIT (1:1) at the moment of demerger implementation.

No action is required from the shareholders in relation to the receipt of the demerger consideration.

As a result, the ownership structures of continuing YIT and Caverion will be identical at the moment of the demerger implementation.

Where and how will the demerger be resolved on?

Shareholders of YIT will resolve on the partial demerger in the Extraordinary General Meeting, to be held on 17 June 2013. Shareholders received an invitation to EGM in early May.

The partial demerger requires approval of 2/3 of shares and votes present in the EGM.

How will current YIT share price be split in the partial demerger?

YIT share will continue to be listed on the Helsinki Stock Exchange and its value is determined based on normal share trading. The company cannot speculate on the market value of Caverion, which will correspondingly be determined based on normal share trading once Caverion is listed following the demerger implementation.

Will the partial demerger result in tax consequences to YIT or its shareholders?

YIT has received an advance ruling from the Finnish tax authorities confirming YIT’s initial view that the partial demerger does not cause any additional tax consequences for the company.

The company cannot speculate on any potential tax impact to shareholders, which may also vary between various countries of residence. The company recommends that a shareholder independently confirms potential tax consequences of the partial demerger to himself / herself.

Which owners are supporting the partial demerger?

Structor S.A., Mutual Pension Insurance Company Varma, Mandatum Life Insurance Company Limited and Mutual Pension Insurance Company Ilmarinen, which together represented approximately 28 % of the company’s shares and votes at the moment of partial demerger publication (5 February 2013), have initially communicated a positive view regarding the partial demerger.

Who will lead the new companies?

Juhani Pitkäkoski has been designated to lead the preparations for Caverion (Building Systems) and Kari Kauniskangas for the remaining YIT (Construction Services).

Further nominations will be announced at a later stage when such decisions have been made.

 

The Board of Directors of YIT Corporation has conditionally appointed Juhani Pitkäkoski as President and CEO of Caverion Corporation in accordance with the proposal of its Personnel Committee.

At the same time, the following persons were appointed conditionally as members of Caverion’s Management Board: Karl-Walter Schuster, Building Services Central Europe and Project Excellence; Matti Malmberg, Building Services Northern Europe and Service Efficiency; Antti Heinola, CFO; Sakari Toikkanen, Business Development; Marcus Kerriou, Human Resources; Päivi Alakuijala, Communications; and Division Directors: Jarno Hacklin, Erkki Huusko, Ulf Kareliusson, Peter Rafn, Knut Gaseruud, Ralf Lutz and Manfred Simmet.

YIT Corporation’s Board of Directors has also conditionally appointed Kari Kauniskangas as the President and CEO of YIT Corporation and Tero Kiviniemi as his deputy.

Furthermore, the following persons were appointed as members of YIT Corporation’s Management Board: Timo Lehtinen, CFO; Pii Raulo, Human Resources; Juhani Nummi, Business Development; and Division Directors: Harri Isoviita, Matti Koskela, Timo Lehmus, Jouni Forsman, Tom Sandvik, Teemu Helppolainen, Mikhail Voziyanov and Yuri Belomestnov.

Will there be changes in the strategies of the businesses?

YIT published updated strategies for continuing YIT and Caverion on 4 June, 2013.

YIT’s strategy is well-managed, profitable growth, which is targeted focusing on its own development projects, in all business operations (housing, business premises, infra) and within all of its current geographic regions (Finland, Russia, Baltic countries and Central Eastern Europe). In particular, growth is being pursued in emerging markets and residential construction. The focus is being placed on improved resistance to economic cycles and widening financial operating space, as well as accelerated reform.

Caverion's strategic objective is to achieve a leading position in the European building systems market. The strategy has three main objectives:

  • In Northern Europe, the key aim is to improve profitability.
  • In Central Europe, Caverion will pursue strong growth, especially in Germany and German-speaking countries. The aim is to grow both organically and through acquisitions.
  • Extensive new and advanced projects and services. The company will pursue growth and profitability by putting an emphasis on long-term service agreements in the service and maintenance business, Design & Build projects and deliveries related to energy savings.

Which financial targets do you have for the businesses?

In its meeting held on June 3, 2013, YIT’s Board of Directors ratified the financial targets for continuing operations for 2014–2016:

  • Annual revenue growth above 10 per cent on average
  • Return on investment of 20 per cent
  • Operating cash flow after investments sufficient for paying dividends and reducing debt
  • Equity ratio of 40 per cent (previously 35 per cent)
  • Dividend payout of 40 to 60 per cent 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 and 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’s Board of Directors set the following financial targets for Caverion until 2016 on June 3, 2013:

  • Revenue growth (%): Average annual growth in revenue of more than 10 per cent
  • Profitability (%): EBITDA over six per cent of revenue
  • Operating cash flow after investments: Strong operating cash flow to enable organic growth, repayment of loans and distribution of dividend

Does the partial demerger add costs?

The final cost impact is obviously not yet known, but according to initial estimates there shouldn’t be any meaningful increase in operational costs (partly due to limited operational synergies between the businesses).

It is possible that the financing costs will increase, but this will depend on e.g. exact debt levels of the individual Groups, which are not known until the completion of the partial demerger.

There are obviously some additional costs related to the actual partial demerger process, but these costs are of one-off nature.

Some additional resources might be needed in Group Service functions (such as head office), but the need for such will be analysed and planned as the demerger preparations proceed with any potential increase assumed to be limited.

How do you split the assets and liabilities between the companies?

The partial demerger concerns only YIT Corporation, i.e. the parent company of YIT Group, and thus only the assets and liabilities of YIT Corporation will be split-up. Building Systems related assets and liabilities in current YIT Corporation (parent company) will be transferred to Caverion Corporation.

As presented in the demerger plan, the assets related to Building Systems business and thus transferred to Caverion Corporation totaled EUR 549m in 31 December 2012 (incl. certain adjustments as presented in demerger plan). Other YIT Corporation’s assets remain in YIT parent company, and these totaled EUR 1,092m at the corresponding moment.

Final amount of assets and liabilities transferred will be determined at the moment of partial demerger implementation, so the above amounts are only indicative.

Large part of YIT Group’s assets is related to land bank and work in progress in construction, and these will obviously remain in YIT (Construction Services). Correspondingly, also major part of debt is planned to remain in YIT.

Had the partial demerger been executed on 31 December 2012, taking into account the adjustments presented in the demerger plan, the interest-bearing net debt of Caverion Group would have been estimated at approximately 184 million euros and the interest-bearing net debt of YIT Group at approximately 657 million euros.

What kind of Group level balance sheets will result from the partial demerger?

Final balance sheet amounts at the moment of demerger implementation depend on YIT’s operations and financial performance during H1 2013, so exact amounts are not known at this stage. Pro-forma Q1 2013 (31 March 2013) balance sheets for Caverion Group and remaining YIT Group will be published in connection to prospectus publication planned to take place in early June.

Indicative illustration of the YIT parent company level balance sheet split is presented in the demerger plan. The assets related to Building Systems business and thus transferred to Caverion Corporation totaled EUR 549m in 31 December 2012 (incl. certain adjustments as presented in demerger plan). Other YIT Corporation’s assets remain in YIT parent company, and these totaled EUR 1,092m at the corresponding moment.

In addition to these, there are significant assets and liabilities in the subsidiaries, which will naturally remain in the relevant company’s balance sheet. Operative assets in Building Systems subsidiaries totaled EUR 1.2bn on 31 December 2012. Operative assets in Construction Services subsidiaries totaled EUR 1.9bn on 31 December 2012. Group level balance sheets are also affected by eliminations of Group internal items.

What kind of Group level equity levels will result from the partial demerger?

Final equity amounts at the moment of demerger implementation depend on YIT’s operations and financial performance during H1 2013, so exact amounts are not known at this stage. Pro-forma Q1 2013 (31 March 2013) balance sheets for Caverion Group and remaining YIT Group will be published in connection to prospectus publication planned to take place in early June.

Indicative illustration of the YIT parent company level equity split is presented in the demerger plan. The net assets related to Building Systems business and thus equity transferred to Caverion Corporation (parent company level) totaled EUR 112m in 31 December 2012 (incl. certain adjustments as presented in demerger plan). Other YIT Corporation’s equity remains in YIT parent company and this totaled EUR 531m at the corresponding moment.

In addition to these, there are e.g. retained earnings in the subsidiaries affecting Group level total equity, with final amounts at the moment of demerger implementation depending on e.g. profit for the period in H1 2013.

How do you arrange the financing for the demerging companies?

YIT has had negotiations with its core banks achieving agreements securing sufficient financing as well as back-up and guarantee limits for separate Groups.

YIT has agreed with a group of Nordic banks new financing arrangements for Caverion. Such arrangements include a long-term loan agreement of EUR 140 million, a revolving credit facility of EUR 60 million and a bridge financing agreement of no more than EUR 67 million.

However, all details are not yet agreed upon, and the exact debt levels for individual Groups will not be known until the completion of partial demerger. YIT will continue the negotiations with its lenders to finalize the financing agreements

Which options do the bondholders have?

Statutory creditor protection pursuant to Finnish Company law applies to bondholders in the partial demerger. Those creditors to YIT Corporation, whose receivable precedes the registration of the demerger plan (22 February 2013), have a right to object the partial demerger by informing of this in writing to the National Board of Patents and Registration of Finland no later than 4 June 2013.

Does the partial demerger have a positive impact on the YIT share price?

Our aim is to create potential for increasing shareholder value. However, we do not give any estimates for the future share price development.

Equity analysts independent from YIT and following the company give their views and target prices for YIT share according to their normal procedures.

Is the completion of the partial demerger certain?

The partial demerger requires approval of 2/3 majority of the shares and votes present in the Extraordinary General Meeting, planned to be held on 17 June 2013.

Why is Caverion planned to be listed on the Helsinki Stock Exchange?

This is a natural choice, as YIT is also listed on the Helsinki Stock Exchange and Caverion shares will be initially issued to YIT shareholders. Majority of YIT’s owners are also based in Finland, including the over 30,000 retail shareholders.

Does the partial demerger result in additional risks for the companies?

The partial demerger results in a statutory secondary liability for each company on the other company’s liabilities existing before the partial demerger. Such secondary liability requires an effective insolvency of the primarily liable company.

In any case the total amount of liabilities will not change due to partial demerger.

When and where can I get more information about the partial demerger and the two companies?

YIT will update the “Demerger” section of its website during the process as and when more relevant information and material is published.

The EGM invitation was published in early May, including e.g. proposal for the composition of Caverion Board of Directors.

The demerger prospectus was published on 5 June, 2013, including e.g. historical carve-out financials for Caverion and other information on Caverion that is relevant for investors, such as strategy and risk factors.

Adjusted historical financials for remaining YIT were published separately through stock exchange release on 21 May,  2013.

Where can I find more information on the noteholders’ meetings to be arranged for the holders of the fixed rate notes of YIT?

More information has been presented in the Financial section under Noteholders meetings. Read more »

 

Where can I find more information on the voluntary tender offer of the floating rate bonds issued by the company?

More information has been presented in the Financial section. Read more » 

When do I have to buy YIT shares at the latest in order to receive Caverion shares?

Caverion shares will be distributed as demerger consideration to YIT shareholders according to ownership at the moment of the registration of demerger implementation (on or around 30 June 2013). In order to receive demerger consideration (Caverion shares), assuming that the registration of demerger implementation takes place on 30 June 2013 as planned, YIT shares must be bought at the latest on Friday 28 June 2013, the last trading day prior to the registration of demerger implementation.

The settlement period for trades in normal share trading is 3 banking days. Thus any trades made between Wednesday 26 June and Friday 28 June 2013 are not settled yet on Sunday 30 June 2013, and therefore not visible in YIT’s shareholder register.

  • If you buy YIT shares during the abovementioned period, you will get upon settlement both YIT shares and Caverion shares corresponding to the amount of YIT shares bought – i.e. the YIT share is split into two shares (YIT + Caverion) during the settlement period.
  • If you sell YIT shares during the abovementioned period, you will first get an equal number of Caverion shares to your book-entry account on or around Friday 28 June 2013 (in the evening after closing of stock exchange trading) as the number of YIT shares held. However, the right related to the sold YIT shares to receive an equal amount of Caverion shares transfers to the buyer, who receives these Caverion shares upon settlement.

YIT share will continue to be listed on the Helsinki Stock Exchange and its value is determined based on normal share trading. Friday 28 June 2013 (estimated) is the last trading day with Caverion included in YIT share and its price. Caverion shares will trade as its own class of shares starting on Monday 1 July 2013 (on or around). Therefore, starting from Monday 1 July 2013 (on or around), the combined value of one (1) YIT share and one (1) Caverion share is comparable with the YIT share price prior to the abovementioned date.

What is the record date of the demerger?

There is no such record date in demerger as there is for example in rights offerings. Caverion shares will be distributed as demerger consideration to YIT shareholders according to ownership at the moment of the registration of demerger implementation (on or around 30 June 2013) (due to technical reasons recorded to book-entry accounts already on or around on Friday 28 June 2013). Regarding the YIT share trades which are in the settlement process on that date, please see the answer to question “When, at the latest, do I have to buy YIT shares in order to receive Caverion shares?”.

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