Review by the President and CEO
Kari Kauniskangas in connection with the Interim Report January–September 2018
The operational performance of the segments was as we expected. Approximately EUR 6.5 million of operating profit shifted to the fourth quarter due to the postponements of handovers. The profitability of the Paving as well as Housing Finland and CEE segments was almost 10 per cent. The company’s order backlog is very strong, which gives a good outlook for the rest of the year as well as the whole next year. We reiterate the whole year guidance given in June.
We signed several significant lease agreements during the period. The most important of these was the agreement signed with Telia Finland, which was YIT’s all time largest. The successes achieved in leasing support our ongoing efforts related to property sales. Based on the offers we have received and the ongoing negotiations, we estimate that the sale of several significant business premises projects will be completed as planned.
The adjusted operating profit of the Housing Russia segment was poor due to the postponement of handovers, given discounts and weakened project margins in contracting. In line with its strategy, YIT has continued to have a strong focus on housing sales to release capital employed in Russia, partly at the expense of profitability. Obtaining the commissioning permit for a project in St. Petersburg, which has a significant impact on the segment’s profit, was postponed to the fourth quarter. The revenue and adjusted operating profit of the Housing Finland and CEE segment declined year-on-year in spite of a higher number of completed apartments. This is due to a low number of completions in the Helsinki metropolitan area as well as the substantially smaller average size of the completed apartments. Consumer demand remains at a good level in Finland, but the residential demand of private investors has started to decline during the year. In the CEE countries, the demand for apartments has remained strong in all countries. The postponements of project handovers both in Russia and in Finland have shifted the recognition of the operating profit by approximately EUR 6.5 million to the fourth quarter.
The Paving segment performed well in the third quarter and improved its result year-on-year. However, the operating profit of the Infrastructure projects segment declined year-on-year. The segment’s operating profit was burdened by additional costs related to the Court of Appeal’s decision in a dispute related to the construction of the Niittykumpu metro tunnels. We have begun implementing an action plan to improve the Infrastructure projects segment’s sales mix and competitiveness. We will also allocate resources to areas with good demand.
In September, we announced our new strategy for 2019–2021. The target of YIT’s strategy is to improve profitability and to strengthen financial stability. The company’s strategic priorities, sources of growth and structural profitability, include urban development and non-cyclical businesses. The Board of Directors confirmed a 12% or higher return on capital employed (ROCE) and a gearing ratio of 30–50% as the long-term financial targets of the company. In addition, the company’s target is to increase its dividend annually.