Most significant short-term business risks
The general economic development, functioning of the financial markets and the political environment in YIT’s operating countries have a significant impact on the company’s business. Negative development in consumers’ purchasing power, consumer or business confidence, the availability of financing for consumer or business, or interest rates would likely weaken the demand for YIT’s products and services. A drop in residential prices or an increase in investors’ yield requirements would pose a risk for the profitability of the company, should these factors materialise.
There is still significant uncertainty related to the economic development of Russia, although the situation seems to have stabilised. The volatility of the oil price and the ruble, geopolitical tensions and inflation may have an influence on the demand for apartments due to a weakening in purchasing power and consumer confidence. Declining purchasing power also impacts the development of residential prices. The mortgage subsidy program of the Russian state ended at the end of 2016, which may impact the housing demand.
THE GROUP’S SHORT-TERM RISKS
In 2016, Finland accounted for 75% of the company’s revenue, which highlights the significance of Finland’s economic development for YIT’s business. The slowing recovery of the Finnish economy and the indebtedness of the public sector may weaken consumers’ purchasing power and general confidence, which would have a negative impact on the demand for apartments and business premises. A persistent increase of public sector debt could also make it more difficult to finance infrastructure investments. Investors have played a central role in YIT’s Finnish business in recent years. An increase in price levels, rental accommodation and / or weakening in tenant demand on the business premises or residential market and better yield of alternative investments could lead to a significant decrease in investor demand.
Ensuring competitive products and services corresponding to customer demand is critical for YIT’s business. Changes in customer preferences and in the offerings of competitors present risks related to the demand for the company’s products and services. New competitors, business models and products on the housing market may present risks related to the demand for the company’s products and services.
In Finland, the availability of the resources needed for growing the production volume might prevent increasing the production as planned. Competitors’ need for resources also presents a risk of losing key personnel and expertise.
Most of the company’s business is project business, meaning that successful project management plays an integral role in ensuring the company’s profit. The most significant project management risks are related to factors such as pricing, planning, scheduling, procurement, cost management and, in the company’s self-developed business, also the management of sales risk. YIT’s major business premises and infrastructure projects in Finland, such as the Tripla project and the E18 Hamina-Vaalimaa motorway, make up a significant share of the company’s expected revenue in coming years, meaning that successful project management in the projects is integral.
Changes in legislation and authorities’ permit processes may slow down the progress of projects or prevent them from being realised. There are uncertainty factors related to authorities’ actions, permit processes and their efficiency particularly in Russia and the CEE countries.
The improvement of the capital turnover will continue as a part of normal business. The company’s target is to decrease the capital employed in Russia by RUB 6 billion by the end of 2018. Measures to release capital in a challenging market situation involve the risk of financial losses.
The most significant financial risks are the risks related to foreign exchange rate development and the availability of financing. The Group’s most significant currency risk is related to ruble-denominated investments. Further information can be found in the Capital structure and liquidity position section of the January-March Interim Report. More information on financial risks and their management is provided in Note 28 to the financial statements.
More information on the company’s risks and risk management is provided in the Annual Report 2016.