Investor report June 2019

Right before Midsummer YIT announced significant changes in its Russian business. In line with its strategy, YIT has for the past few years been reducing capital employed in Russia.  

The previous reduction target was achieved through selling unsold completed apartments and parts of large plots, among other things. Last autumn YIT announced a target of further reducing capital employed in Russia by approximately EUR 100 million and improving the profitability of the business in Russia. This is the reason why YIT decided to discontinue residential construction in Moscow, the Moscow region and Rostov-on-Don, as well as contracting and paving.

YIT is not leaving Russia but concentrating operations in cities where business has remained profitable throughout the Russian recession, plots are available at reasonable prices and the purchasing power is sufficient with respect to YIT’s product. YIT will continue to operate in and to further develop the residential construction business in St. Petersburg, Kazan, Yekaterinburg ja Tyumen. YIT has lately been investing in living services and maintenance business for its properties in Russia. This business will be continued and grown also in the future. At the moment YIT is responsible for the maintenance of approximately 50,000 apartments or retail units and the services of YIT’s Dispatcher 24digital platform are used by 500,000 households.

What will these decided strategic moves mean for our figures, then?  Cash flow, write-downs and  translation differences. There will be a positive net cash flow of approximately EUR 50 million during this year and the next two ones. When we exit businesses, we sell plots, among other things, and it is difficult to estimate the timing of the resulting cash flow. Due to these arrangements, YIT will in the second quarter recognise a one-time write-down of approximately EUR 31 million on the balance sheet values of the businesses being closed down and a provision of EUR 9 million related to the closing down of businesses. In other words, this will have an impact on both equity and operating profit but not on adjusted operating profit on segment or group level.

When the operations have been closed down, the translation differences caused by foreign currency exchange rates already booked in YIT’s equity will be recorded in the income statement. This is because YIT has in its Russian business income, expenses and balance sheet in Roubles, but reporting in Euros. Exchange rates have been visible under translation differences in the statement of comprehensive income and the balance sheet. Approximately EUR 14 million of these non-cash translation differences will be recorded in the income statement in 2019 and approximately EUR 64 million in 2020–2021. These translation differences will be recorded when the operations have been closed down. Recognising the translation differences as described above will have no impact on cash flow or total equity.

All operating profit or loss from the businesses to be closed down listed above will be recorded in adjusting items from the second quarter on and they will not be presented in adjusted operating profit. When, for example, projects are completed in the Moscow region, also the operating profit from them is recorded in adjusting items. In other words, adjusted figures will reflect the cities and businesses that we will continue to invest in.

The decisions made and bookings made based on these decisions will not have an impact on the Company’s guidance 2019. We have now announced the Board’s decisions, and implementation will take time. Completing the projects, selling plots and possibly selling businesses will be implemented as planned. This will take time and result in exiting the businesses in the mentioned regions approximately during  2020-2021. 

YIT has been operating in Russia for 50 years and we have a strong  plot reserve, brand and position in cities we will continue to operate in. This is about implementing the strategy and allocating capital to urban development targets such as Tripla in line with our strategy.

You can listen to our Silent call podcast mainly on our release on Russia here.