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Review by the President and CEO

Review by the President and CEO

Kari Kauniskangas in connection with the half-year report for January-June 2020

In spite of prevailing uncertainty and demand volatility caused by the coronavirus pandemic, YIT’s operations in the second quarter performed well without major disturbances. The Group’s adjusted operating profit decreased to EUR 5 million (28), negatively impacted by financial settlements of EUR 17 million in the Business premises segment. The rest of our businesses performed according to our expectations. The order book increased from the previous quarter, apartment start-ups continued at a good level, and some significant investor sales were agreed. Cash flow was very strong, supported by stronger operating cash flow compared to the comparison period as well as the sale of the Nordic paving and mineral aggregates businesses in April.

The Business premises’ weak operating profit during the first half of the year has been impacted by the completions of and progress in financial settlements of three challenging projects. Consequently, we have made significant changes to the way we operate. Responsibilities and organisations in the Business premises and Partnership properties segments have been renewed, management resources strengthened, and risk management processes developed further. Going forward, the Business premises segment will focus on project management and productivity improvement in construction. The Partnership properties will be responsible for commercial project development and life-cycle services, as well as investment portfolio management.

Regarding the three challenging projects, Myllypuro Campus was fully settled in the first quarter and Hertsi shopping mall in the second quarter. At the Tripla project, some 1,800 subcontractor contracts had been settled at the end of the second quarter and only few contracts in building systems area are still in progress. Due to disputes, their settlements can take some quarters and may have an impact on our results when agreed. The rest of the business and the order book in the Business premises segment are at a healthy level. We expect the segment to be profitable in the third quarter.

The impact of the coronavirus pandemic on YIT has been moderate. In Housing Finland and CEE, consumer sales dropped markedly in April but demand recovery since then has been encouraging. Residential investor activity has also been high. In Russia, apartment sales have continued at a good level, but decisions made by authorities in a few regions have led to site closures delaying completions with minor financial impact. Strong financial position, advanced digital sales channels and good reputation among clients have supported housing sales and speedy recovery in all countries. In Infrastructure projects, development has been positive, and stimulus packages by the public sector are expected to support demand during upcoming winter and next year. Number of customers in the Mall of Tripla fell in March due to the pandemic but recovery since May has been rapid.

During the second quarter, YIT signed significant leases in upcoming and completed commercial real estate projects. Based on customer feedback, there will be need for new premises even though remote work will become more common. New requirements for safe working environment support demand also in renovation.

Key uncertainties for the rest of this year relate to the possible second wave of the coronavirus pandemic and its implications to apartment sales to consumers and project completion timings at the end of the year. Our liquidity is solid, and we continue to strengthen our operating cash flow to secure our stable position even in the worst scenarios. Our reliable brand and strong order book in all segments give us confidence for positive outlook for the rest of the year and for 2021. We believe that our performance during the rest of the year will be substantially better than during the first half and we are in a solid position for next year.