Review by the President and CEO
Kari Kauniskangas in connection with the Half-Year Report 2017
The result for the first half of the year was clearly stronger than in the previous year, and the outlook for the rest of the year has become brighter. In July, we raised the guidance for the whole year regarding both the adjusted operating profit and the Group revenue based on the progress made in the sales process of the joint venture Kasarmikatu 21 office project. Good residential sales and the high residential demand in Finland and the CEE countries will also support the more positive development in the Group revenue and adjusted operating profit, particularly towards the end of the year.
Operating profit in the Housing Finland and CEE segment during the first half of the year grew by nearly 40 per cent year-on-year, and in the second quarter, the operating profit margin was around 10 per cent. The segment’s revenue grew by nearly 30 per cent year-on-year. We started many new self-developed projects to consumer customers, primarily in Finland’s growth centres and in capital regions in the CEE area.
Residential sales in the Russian market were weaker than expected in the beginning of the year. However, thanks to the adjusted cost level and the improved average profitability of projects, the second quarter of the year showed positive profitability. Profitability for the first half of the year was clearly better than in the previous year, despite remaining slightly negative overall.
In the second quarter, operating profit in the Business Premises and Infrastructure segment was at a satisfactory level, having strengthened significantly after a weak start to the year. Large projects have seen excellent progress, and the order backlog has remained solid. The result for the comparison period was boosted by the started recognition of the Tripla project.
In June, we made a historical announcement that was also our most important news of the first half of the year: YIT and Lemminkäinen will combine. The merger is a strategically important step for YIT and it creates a platform for the growth into one of the leading urban developers in the Northern European construction market. The preliminary combined annual revenue of the combined company is approximately EUR 3.4 billion (IFRS) and the company will employ a total of around 10,000 employees located in 11 different countries. The final decision on the merger will be made by shareholders at the General Meetings of the companies to merge on September 12, and the preconditions for the merger to be realised include receiving the necessary permits from the authorities, among other things. The combination is intended to be completed on either November 1, 2017 or January 1, 2018, as possible.
The Board of Directors of YIT also decided to establish a new Partnership Properties segment as of the beginning of 2018. The new segment will focus on financing the development of significant projects as well as owning and timely divestment of plots and developed properties. The segment will have a significant role in the financing of YIT’s urban development projects and improving capital efficiency together with partners.
Notice to Lemminkäinen Shareholders in the United States
The YIT shares to be issued in connection with the merger have not been registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”) and are being issued in reliance on the exemption from registration set forth in Rule 802 under the Securities Act.
YIT and Lemminkäinen are Finnish companies and the issuance of YIT shares will be subject to procedural and disclosure requirements in Finland that may be different from those of the United States. Any financial statements or other financial information included on this website may have been prepared in accordance with non-U.S. accounting standards that may not be comparable to the financial statements of U.S. companies or companies whose financial statements are prepared in accordance with generally accepted accounting principles in the United States.
It may be difficult for U.S. shareholders of Lemminkäinen to enforce their rights and any claims they may have arising under U.S. federal securities laws in connection with the merger, since YIT and Lemminkäinen are located in non-U.S. jurisdictions, and some or all of YIT’s and Lemminkäinen’s officers and directors may be residents of countries other than the United States. As a result, U.S. shareholders of Lemminkäinen may not be able to sue YIT or Lemminkäinen or their respective officers and directors in a court in Finland for violations of U.S. federal securities laws. Further, it may be difficult to compel YIT or Lemminkäinen to subject themselves to the jurisdiction or judgment of a U.S. court.
Lemminkäinen’s shareholders should be aware that YIT may purchase Lemminkäinen’s shares otherwise than under the merger, such as in open market or privately negotiated purchases, at any time during the pendency of the proposed merger.