Investor report March 2019
The Annual General Meeting held in March was our second AGM as a merged company. Nearly 55 per cent of the company’s shares were represented at the event held at the Messukeskus Expo & Convention Centre. President and CEO Kari Kauniskangas presented a review of key events and achievements in 2018 and answered questions from our shareholders.
In addition to the AGM, we have met with investors in Finland and abroad. In Finland, we organised a morning event for debt investors and analysts at Tripla, where a brief financial review was followed by more detailed information on the Tripla project and the Mall of Tripla as well as a visit to the construction site. The construction and leasing of Tripla is progressing on schedule. For example, the Mall of Tripla, which will open in time for the 2019 Christmas sales season, had an occupancy rate of 88% in March. Did you know that, according to a recent estimate, more than 30 per cent of all Finns live within a 30-minute drive from Tripla?
Investors continue to be interested in the status of our operations in Russia. In late 2018, YIT reached the target set in autumn 2016 of reducing the total capital tied up in residential construction in Russia by RUB 6 billion. YIT has subsequently announced a target of further releasing capital employed in Russia by approximately EUR 100 million (RUB 8 billion)during the 2019–2021 strategy period.
Following the announcement of our results for 2018, we have also been asked about our plans regarding the weak profitability of tender-based contracting. YIT’s new strategy defines urban development and non-cyclical businesses as the drivers of growth. The Group does not have growth targets for tender-based contracting. Instead, tender-based contracting is pursued where the resources allow it, with a strong focus on profitability. To improve profitability, we have invested in the development of tendering and contract processes, among other things.
Another theme that frequently comes up in discussions is the Finnish housing market. We estimate that this year’s residential demand will remain at the level seen last autumn. YIT responds to changing market conditions by adjusting the number of residential start-ups, for example. More information on YIT’s measures to reduce the risk related to completed unsold apartments is provided in the next paragraph.
New joint venture to reduce the risk associated with unsold apartments
In March, we announced that YIT is involved in establishing a joint venture that invests in rental apartments built by YIT in Finland. The investors in the joint venture are YIT (49%) and a group of Finnish private investment companies, including Oma Säästöpankki and LähiTapiola Etelä-Pohjanmaa. At the same time, YIT sold nearly 600 completed apartments or apartments that are in the final stage of construction to the new joint venture. The total value of the sold apartments exceeded EUR 100 million.
The newly established joint venture will lease the apartments it owns, and YIT’s rental apartment team will be partly responsible for the leasing. The administration of the apartment portfolio and the reporting of the joint venture are outsourced to FinCap Group. By strengthening its rental apartment offering, YIT implements its strategy by investing in non-cyclical businesses that are based on long-term service contracts and lease agreements as well as on demand that is growing at a trend rate. The objective of the rental apartment portfolio is to give YIT a steady cash flow and to create potential for value increase by optimising the sales timing.
The joint venture’s ownership, rental income and possible sales profit from reselling the apartments will be reported in the Partnership properties segment.
IFRS 16 adoption – What will change?
IFRS 16 Leases became effective on January 1, 2019. Under the new accounting standard, all leases are recognised on the balance sheet, with the exception of leases for which the underlying asset is of low value and short-term leases.
We have previously disclosed that we expect the balance sheet total to increase by EUR 300–350 million due to the adoption of IFRS 16. The adoption of the standard will affect some of the Group’s key figures, but it is not expected to have a significant impact on the profit for the accounting period or equity, for example.
YIT applies the modified retrospective approach in transition and thus, the comparative figures will not be restated. We will disclose the impacts of the adoption of the standard in more detail before the publication of the first interim report of the year.
Silent Call introduced as a new practice
In late March, we will introduce a new Silent Call practice for analysts. Going forward, the Silent Call will take place four times per year, before the start of each silent period. The Silent Call is a telephone conference in which the CFO will briefly revise the events of the ending quarter. The Silent Call will also allow analysts to ask questions before the start of the silent period.
The Silent Calls will be subsequently published on our website as podcasts.