YIT to sell its Nordic paving and mineral aggregates businesses to Peab for EUR 280 million
YIT and Peab have signed an agreement for the sale of YIT’s paving and mineral aggregates businesses in Finland, Sweden, Norway and Denmark. The debt-free purchase price is EUR 280 million, in addition to which net debt related to IFRS 16 lease liabilities will be reduced by approximately EUR 25 million. YIT will record a positive cash flow effect of approximately EUR 240 million and a capital gain of approximately EUR 40 million from the sale, which is not part of adjusted operating profit and which will be recognised upon completion of the transaction that is estimated to take place in January 2020.
The transaction comprises the operations of the company’s Paving segment with the exclusion of the road maintenance business in Finland and paving business in Russia. On June 20, 2019, YIT issued a stock exchange release on its intention to exit the paving business in Russia either by closing down or by selling the operations. The personnel working in said businesses will be transferred to Peab as part of the transaction. The businesses to be transferred employ a total of approximately 1,700 persons, the majority of whom work in Finland.
Streamlined business portfolio, investments in urban development projects and service business
Upon completion of the transaction, the business portfolio of YIT will be streamlined, the balance sheet will be further strengthened, and the seasonal earnings volatility of the company will decline. With the capital released through the sale YIT will accelerate growth and profitability improvement in priority areas defined in the group strategy: urban development and non-cyclical businesses.
“With the transaction, all YIT’s main businesses will be strongly interconnected through urban development, which is the company’s strategic core. YIT’s strategic goals will remain unchanged. With the help of the cash flow received from the transaction, we will be able to lower our gearing ratio ahead of time to a level in line with our strategic goals as well as to invest in large urban development projects and growth of service businesses”, states Kari Kauniskangas, President and CEO of YIT.
The company will provide additional information on its strategic priorities at the Capital Markets Day to be held in the autumn.
Significant development in paving and mineral aggregates businesses last year
Ever since the merger of Lemminkäinen and YIT, YIT has been developing its paving business in accordance with its strategy and improved its productivity, customer experience and profitability in all its countries of operation. In addition, the company carried out significant measures in Sweden and Norway in order to rehabilitate its business in 2018. The results of these measures were already clearly visible in the Paving segment’s adjusted operating profit for the final quarter of last year, which was EUR 6.2 million higher than in the comparison period, and in the adjusted operating profit for the first quarter in 2019, which was EUR 10.6 million higher than in the comparison period.
“I’m very pleased about today’s deal. The business has a strategic position and a very competent organisation. After the acquisition we will be the leader in the Nordic paving and mineral aggregates business”, says Jesper Göransson, CEO and President of Peab.
Transaction is expected to be completed on January 1, 2020 and it will have an impact on YIT’s reporting
YIT’s paving operations will continue their business normally as part of YIT until the end of year 2019, when the terms and conditions of the transaction are expected to be fulfilled. The transaction is conditional upon the approval of the European competition authority and the fulfilment of certain other customary terms and conditions, and it is expected to be completed on January 1, 2020. The purchase price shall be adjusted at the time of completing the transaction on the grounds agreed by and between the parties and it shall be paid fully in cash in connection with the completion of the transaction.
Illustrative key figures for the business to be sold were as follows:
|Operating profit margin, %
|Adjusted operating profit
|Adjusted operating profit margin, %
|Order backlog, end of period
Combined figures include Lemminkäinen’s financial statements for the accounting period of January 1‒January 31, 2018. The figures above are not prepared in accordance with guidance for discontinued operations (IFRS 5).
Goodwill and purchase price allocation, totalling approximately EUR 100 million, associated with the Lemminkäinen and YIT merger, have been included in the estimated capital gain of EUR 40 million. Future depreciations will hence decrease and operating profit will increase respectively. In addition to the estimated positive cash flow effect of EUR 240 million, net debt related to IFRS 16 lease liabilities will be reduced by approximately EUR 25 million.
In connection with the above described transaction, YIT will classify the operations that are part of the transaction as held-for-sale assets and will report them as discontinued operations. In its segment reporting, YIT will report only continuing operations, which means that the Paving segment will no longer be reported. The Road maintenance division that was previously part of the Paving segment is planned to be reported as part of the Infrastructure projects segment. The paving business in Russia that YIT has announced to exit either by closing down or by selling it by the end of 2019, will be under Other operations in the segment reporting. The company will publish its retrospectively adjusted consolidated group and segment level numbers for 2018 and 2019 before publishing its half-year report in July.
The sale of the paving businesses will also have an impact the company’s guidance for 2019. YIT will issue a separate stock exchange release concerning the guidance for 2019.
Access Partners, Hannes Snellman and PwC have acted as the company’s advisors in preparation and implementation of the transaction.
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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