Review by the President and CEO
Kari Kauniskangas in connection with the Interim Report 1–9/2017
The positive development experienced in the first half of the year continued in the third quarter. The July– September result improved and profitability strengthened clearly year-on-year. Revenue decreased year-on-year but strengthened over the first nine months of the year relative to the comparison period. The order backlog remained on a good level and the outlook is still bright. Consumer demand continued to be strong especially in Finland and the CEE countries. In Russia, residential sales were still lower than last year but have nevertheless picked up compared to the first half of the year, especially in the Moscow region. The large projects in the Business Premises and Infrastructure segment proceeded as expected and we recorded several new projects in the order backlog.
The record-high level of Finnish consumer confidence can be seen in our residential sales figures throughout the country. In addition to the Helsinki Metropolitan Area, residential demand has also been good in other growth centres, such as the Turku and Tampere regions. In July–September, the adjusted operating profit in the Housing Finland and CEE segment increased by 36 per cent year-on-year and the adjusted operating profit margin was 9.5 per cent. The segment’s revenue for the first nine months of the year grew by 21 per cent year-on-year. The CEE countries continue their strong performance and the region’s share of the Housing Finland and CEE segment’s result has increased.
In Russia, we estimate that the low point of the economic cycle is now behind but housing demand has still been weak and there has been oversupply of apartments in St. Petersburg, among other places. The selling prices of apartments have remained stable or declined slightly in the Comfort and Business classes. However, thanks to the adjusted cost level and the improved average profitability of projects, January–September showed positive profitability. In Russia, revenue decreased especially due to low sales in St. Petersburg.
In the Business Premises and Infrastructure segment, major projects, such as Tripla and the E18 Hamina-Vaalimaa motorway, proceeded as expected. The revenue of the first nine months of the year declined slightly year-on-year but still remained high. During the quarter, several new projects were recorded in the order backlog both in Finland and the CEE countries, including, for instance, schools constructed as life cycle projects, industrial and office properties, road maintenance contracts and water tower projects.
The preparations for the merger of YIT and Lemminkäinen have also proceeded as planned. The shareholders approved the merger in the General Meetings of both companies in September. The competition authority processes are under way and we have already received positive decisions from Estonia, Russia and Slovakia, among others. The Finnish Competition and Consumer Authority announced that it has initiated further proceedings, as allowed by law, concerning the merger. Due to this, it is more likely that the merger is completed on January 1, 2018.
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.