Investor report December 2018

YIT organised a traditional Analyst Christmas Lunch in November, ahead of the holiday season. We started the event by visiting the Oodi site just a few days before the grand opening of Helsinki’s new Central Library, constructed by YIT. The main theme of the day was renovation. In our previous analyst events, we had covered the other non-cyclical businesses defined in our strategy, namely living services, paving and partnership properties. This time, our topic was renovation.

A few investors have asked why YIT puts emphasis on in renovation services when many other companies have struggled with the renovation business. As the chart shows, the volume of renovation activity has increased steadily since the 1970s, regardless of economic cycles, except for a decline that coincided with the recession in the 1990s. Housing stock is ageing and the majority of Finns’ wealth is tied up in building stock. We need to manage and maintain our wealth.

The size of the Finnish professional renovation market relevant to YIT is estimated to be EUR 4–5 billion, which represents about 1/3 of the total renovation market. YIT’s revenue from renovation projects last year amounted to almost EUR 200 million, including Lemminkäinen’s renovation business. YIT engages in traditional renovation contracting, negotiation-based contracting and self-developed renovation projects. As with other types of construction, the longer the value chain of the  project is, the higher the margin.  In traditional contracting, YIT has not set volume targets, except for services provided to housing companies mainly in the Helsinki metropolitan area. In negotiation-based contracting, we develop service concepts and customise our services according to customer needs with the aim of minimising the disruption to the customer’s business: more time spent on planning means less time spent on implementation.

In a telephone conference, a London-based investor recently asked us “How can you have this much confidence in a business that is as competitive as renovation?” In the big picture, our approach differs from the traditional and highly competitive world of renovation. The Tietotie 6 property that was sold on December 19 is a great example of YIT’s self-developed renovation projects. YIT, HGR and their joint venture Regenero worked together with the tenant, the City of Espoo, to convert the former corporate head office into modern office premises and a school that are customised according to the tenant’s needs. YIT reports the transaction in the Partnership Properties segment and the renovation project in the Business Premises segment. Our focus is particularly on negotiation-based and self-developed renovation projects where our competencies enable us to create significant added value for customers.

Just before Christmas, we announced two significant property sales transactions: Tietotie 6 and the offices at Tripla. While the transaction price was not disclosed in the release, the sale of the offices at Tripla was the largest office property sale in YIT’s entire history. With this positive news, we can start the new year in good spirit. We will publish our Financial Statements Bulletin on Friday, February 1. As usual, the publication of the bulletin will be accompanied by a live-streamed news conference in English.

Renovation and modernisation of building construction in Finland

Source: Confideration of Finnish Construction Industries RT October 2018