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What a busy summer! After the strategic steps in Russia that we discussed in our previous investor report, we announced that YIT will sell its paving and mineral aggregates businesses in Finland, Sweden, Norway and Denmark to Peab for 280 million Euro.
The transaction is estimated to be implemented in January 2020 when we will book a positive cash flow of approximately EUR 240 million and a capital gain of approximately EUR 40 million. We must say that we are happy with the sales price. With the capital released through the transaction YIT will accelerate the growth of the company and improve its profitability in the strategic priority areas defined in its strategy: urban development and non-cyclical businesses.
In the June Investor report we discussed the changes in Russia to reduce capital and enhance profitability. These decision will focus our business and strengthen our performance and financial position. The changes also impact our financial reporting already from the second quarter on. In our Half-year report in July we presented continuing and discontinued operations and adjustments of different kinds. How did our reporting change and how should one read the report and what should one pay attention to?
To put it simply, on our figures and comparison figures: from the beginning of 2018, in our income statement the paving business has been moved into “discontinued operations” and road maintenance into Infrastructure projects. The paving business in Russia that will either be closed down or sold is not reported under any segment but under Other items.
The changes made in Russia and the businesses to be closed down are not reported as ”discontinued operations”; operating losses from those businesses are booked in adjusting items instead. For example, when a block of flats is completed in Moscow, we will record revenue and operating profit or loss after commissioning. This operating profit or loss has no impact on the adjusted operating profit of the segment or the Group. We estimate that we will complete approximately 3,000 apartment in Russia during the autumn, half of which in areas which we will exit and the operating profit of which will not impact our adjusted operating profit. Neither will the above mentioned paving business in Russia impact our adjusted operating profit.
The balance sheet has not been restated (because IFRS reporting rules say it must not be restated!), nor will we restated the cash flow statement.
The whole Half-year report is about ”continuing operations”, and ”discontinued operations” are reported separately. The company guidance concerns continuing operations, and regarding operating profit our guidance is for the adjusted operating profit of continuing operations.
On the market in general we can say that construction volume in Finland has been on a good level in the first half of the year. Institutional residential demand has been good and consumer residential sales in Finland has been progressing as estimated. We estimate that consumer institutional investor demand for apartments will remain stable on the level of autumn 2018. Activity among private residential investors is expected to be on a lower level than in the past few years. Location and price level continue to be in a central role. Demand for new rental apartments in good locations continues on a good level. In the CEE countries, residential demand continues to be brisk, and we estimate it to remain on a good level.
In the next few years, the traffic investments in the new government policy will stabilise the outlook for Infrastructure projects in Finland. In Sweden and Norway, infrastructure construction outlook continues to be strong. In Russia, the changes in the regulation concerning the housing market implemented in the beginning of July have increased general insecurity in the market.
There are changes in YIT’s investor relations: Hanna Jaakkola will pursue her career outside YIT. If you have any questions, Tiina Kuusisaari and Hanna Raitanen are there to help you.