YIT takes significant steps in Russia to reduce capital and enhance profitability according to its strategy
In the autumn of 2018, YIT announced a target of further reducing capital employed in Russia by approximately EUR 100 million and improving the profitability of the business in Russia. To achieve these targets, YIT has decided to discontinue residential construction in Moscow and the Moscow region, where the business has been very capital intensive and the operating environment challenging. The implementation of the plan will take place in stages and be completed approximately by the end of 2020. YIT will finish all ongoing construction projects and is responsible for handing them over to customers as well as will continue the permit processes and planning of the unbuilt projects. YIT has also decided to close down the contracting business for external clients in Russia entirely. All contracting projects under construction are expected to be completed during 2019. In addition, YIT will sell the undeveloped plots in the city of Rostov-on-Don and discontinue residential construction in the region. Currently, YIT does not have any projects under construction in Rostov-on-Don. Furthermore, YIT will exit the paving business in Russia either by closing down or by selling the paving operations by the end of 2019. The reported adjusted operating loss of the aforementioned business operations amounted to approximately EUR -30 million in 2018.
YIT will continue to operate in and to further develop the residential construction business in St. Petersburg, Kazan, Yekaterinburg and Tyumen — cities in which business has remained profitable throughout the Russian recession. These locations are characterised by good plot availability and their size as well as average price level make it possible for the company to operate in a capital-efficient manner. Also consumer purchasing power is sufficient in the mentioned cities with respect to YIT’s housing product. YIT will also continue and grow the maintenance business for its properties and to offer and develop living services in Russia. YIT is responsible for the maintenance of approximately 50,000 apartments and retail units and the services of YIT’s Dispatcher 24 digital platform are used by 500,000 households.
”YIT has long traditions as a residential developer in Russia and we want to continue building quality homes in Russia also in the future. By simplifying the structure and discontinuing the challenging business operations, the whole segment’s performance will be enhanced, capital employed will be released and the profitability will clearly improve,” Executive Vice President, Housing Russia Teemu Helppolainen comments.
The divestment of the businesses and plots will generate a positive net cash flow of approximately EUR 50 million during 2019–2021 with the majority during the last two years. Due to these arrangements, YIT will in the second quarter recognise a one-time write-down of EUR 31 million on the balance sheet values of the businesses being closed down and a provision of EUR 9 million related to the closing down of businesses. When the operations have been closed down, the translation differences caused by foreign exchange rate changes already booked in YIT’s equity will be recorded in the income statement. This item will not have an impact on the company’s total equity since the translation differences have already been recorded in the Group comprehensive income statement and equity. Approximately EUR 14 million of these non-cash translation differences will be recorded in the consolidated income statement in 2019 and approximately EUR 64 million in 2020–2021. The aforementioned items related to closing down of businesses affecting the operating profit will be presented in adjusting items and will thus not have an impact on adjusted operating profit. Additionally, from the second quarter on, operating profit or loss from the businesses to be closed down will be recorded in adjusting items and will not be presented in adjusted operating profit. The final impact related to the businesses to be closed down will be specified as the operations have been discontinued.
These decisions, and the bookings based on these decisions, will not have an impact on the company’s guidance for 2019.
For further information, please contact:
Hanna Jaakkola, Vice President, Investor Relations, YIT Corporation, tel. +358 40 566 6070, email@example.com
Teemu Helppolainen, Executive Vice President, Housing Russia, YIT Corporation, tel. +791 5 316 8216, firstname.lastname@example.org
Vice President, Investor Relations
Distribution: Nasdaq Helsinki, major media, www.yitgroup.com
YIT is the largest Finnish and significant North European construction company. We develop and build apartments and living services, business premises and entire areas. We are also specialised in demanding infrastructure construction and paving. Together with our customers, our nearly 10,000 professionals are creating more functional, more attractive and more sustainable cities and environments. We work in 11 countries: Finland, Russia, Scandinavia, the Baltic States, the Czech Republic, Slovakia and Poland. The new YIT was born when over 100-year-old YIT Corporation and Lemminkäinen Corporation merged on February 1, 2018. Our pro forma revenue for 2018 was approximately EUR 3.8 billion. YIT Corporation's share is listed on Nasdaq Helsinki Oy. www.yitgroup.com