Investor Report June 2018

The smell of asphalt on the roads is a sure sign of summer. Orange-coloured paving trains adorned with the YIT logo move swiftly along, leaving behind a steaming pitch black road surface. The paving season starts in spring when the ground has warmed up and typically continues until the end of October. The recent merger saw YIT add an entirely new business area to its product offering. The Group now has 86 asphalt plants in eight countries and about 300 gravel pits in five countries. Each year, YIT produces more than six million tonnes of asphalt and maintains a road network of about 30,000 kilometres.

Only by the first days of June, all stations are open and the paving season is under way throughout the region, from southern Denmark to the northernmost parts of Norway and Finland. This means that the profit and revenue from paving tends to be generated during June-October. While paving is a seasonal business, it is a relatively stable process-driven business in the long run. The majority of the customers are public sector entities. Contracts with local and national governments provide much-needed volume, but private sector accounts are also very important.
 

In early June, we held an Analyst Day at YIT’s Sammonmäki asphalt station, where we gained an inside look at the production process and carefully designed logistics chain of one of Europe’s largest asphalt plants. We saw how different asphalt mixtures go from a computer screen to the back of a lorry and how the lorry then proceeds from the asphalt plant to the paving site via the weighing station and payment point.

Numerical guidance for 2018

The integration of YIT and Lemminkäinen has reached the phase that the Board of Directors considered publishing a numerical guidance justified. The company published a numerical guidance as well as an estimation on completions of residential projects on June 27:

The Group pro forma revenue 2018 is estimated to decrease by -2% – -6% from pro forma revenue 2017 (pro forma 2017: EUR 3,862.5 million).
 
IIn 2018, the adjusted pro forma operating profit is estimated to be in the range of EUR 130–160 million (pro forma 2017: EUR 138.9 million).

Pro forma figures include Lemminkäinen figures for January, and adjusted operating profit does not include material reorganising costs, impairment or other items impacting comparability.

In the second quarter, the adjusted pro forma operating profit is expected to be low due to the low number of apartment completions as well as the ramp-up phase of paving and infrastructure volumes. In the third quarter, the adjusted pro forma operating profit is expected to be on the good level of last year, driven especially by the paving season. During the first months of the year, YIT has signed several significant, long-term lease agreements and the estimate regarding the adjusted operating profit includes divestment of some of the business premises in the Helsinki metropolitan area to final investors during the fourth quarter.  In the fourth quarter, the adjusted pro forma operating profit is expected to be clearly better than last year.
 
YIT has started to report according to IFRS principles since the merger with Lemminkäinen in the beginning of February 2018. The largest difference with the previous percentage-of-completion (POC) reporting principle is, that in accordance with the IFRS accounting principles, revenue from the company’s own residential construction projects is recognised on completion. In order to improve visibility, YIT gave an estimation regarding completions of the housing projects under construction at the end of Q1. IFRS based rprofit can fluctuate greatly between quarters depending on the completion of the projects. The stock exchange release including the estimated completions of residential projects is available in here.

Quarterly asphalt volumes at YIT

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Hanna Jaakkola
Maija Hongas

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