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Review by the President and CEO

Kari Kauniskangas in connection with the Half-Year Report January-June 2018

In the second quarter, cash flow and order backlog developed strongly. The Group’s result improved clearly from the first months of the year, but it is not satisfactory as the segments perform unevenly. The strong development of the Housing Finland and CEE segment continued. In April–June, the segment’s adjusted operating profit margin was nearly 10%. The Group result decreased from last year due to the Infrastructure projects segment’s weak result. As anticipated, no projects were completed in Russia, which is reflected in the low revenue and operating loss. We expect the remainder of the year to be strong, driven by the active paving season, the sales of business premises projects and the increasing completion of residential projects. The positive development is further supported by the measures to complete the integration as well as achieving the synergy benefits.

The order backlog of the Business premises segment grew significantly. New orders in the order backlog include, for instance, the Tripla office buildings as well as life-cycle and turnkey projects won in competitive tendering. In business premises projects, renting has proceeded well and, as stated in our guidance, we expect to sell some business premises, under construction and with full or nearly full occupancy, in the Helsinki region in the fourth quarter. During the quarter, the Keilaniemenranta area development project took giant leaps forward as the city launched further zoning in the area and the renovation of the old high-rise building began.

During the quarter, the consumer housing demand in the Housing Finland and CEE segment remained good in Finland and excellent in the CEE countries. The segment’s performance was good in general and particularly strong in the CEE countries. In Russia, the housing demand has as such remained steadily at a rather good level. The price level is still low but stable. Good results have been achieved in releasing capital in Russia but the measures taken burden the operating profit.

Infrastructure projects’ revenue was low particularly in Finland, and the result was weak due to low revenue and the low margin level of order backlog recognised as revenue. However, positive developments include, for instance, successes in competitive tendering in Scandinavia and the Baltic countries, as well as in the competitive tendering for the West Metro extension, with the Soukka station recorded in the order backlog during the review period. The paving season has got off to a good start and the result, excluding restructuring costs, was rather  satisfactory. The order backlog of the Paving segment at the end of June improved year-on-year.
Integration to merge YIT’s and Lemminkäinen’s operations has been proceeding well and will continue in the near future. I thank the personnel for the good commitment and effort in the beginning of the year. Supported by the implementation of best practices cash flow improved significantly and the gearing ratio decreased. As part of financing rearrangements, the company issued two notes, amounting to EUR 250 million, that extend the maturity of the debt portfolio. At the same time, the company repaid earlier notes totalling EUR 150 million. We will present the company’s new strategy at the Capital Markets Day that will be organised in Helsinki in September.