YIT Oyj: Interim Report January 1–June 30, 2016: Strong development continued in Finland and CEE in Q2, Russia still weak

YIT CORPORATION Stock Exchange Release July 28, 2016 at 8:00 a.m.

HELSINKI--()--Regulatory News:

Unless otherwise noted, the figures in brackets refer to the corresponding period in the previous year.

Segment reporting, POC

Residential projects for consumers recognised as income in line with sales and construction*

April-June

  • Revenue increased by 11% to EUR 463.7 (416.1) million. At comparable exchange rates, revenue increased by 15%.
  • Adjusted operating profit amounted to EUR 20.2 (18.6) million and operating profit margin was 4.3% (4.5%). There were no adjustments in the period.
  • Order backlog increased by 21% from the end of March, amounting to EUR 2,714.1 million.
  • Operating cash flow after investments amounted to EUR 26.2 (113.3) million.

January-June

  • Revenue increased by 4% to EUR 826.1 (791.0) million. At comparable exchange rates, revenue increased by 7%.
  • Adjusted operating profit amounted to EUR 32.2 (39.1) million and operating profit margin was 3.9% (4.9%). There were no adjustments in the period.
  • Operating cash flow after investments amounted to EUR 1.1 (128.4) million.

Group reporting, IFRS

Residential projects for consumers recognised as income upon completion*

April-June

  • Revenue decreased by 14% to EUR 396.4 (462.9) million.
  • Operating profit amounted to EUR 6.6 (24.6) million and operating profit margin was 1.7% (5.3%).

January-June

  • Revenue decreased by 14% to EUR 734.0 (856.8) million.
  • Operating profit amounted to EUR 13.3 (51.7) million and operating profit margin was 1.8% (6.0%).

Guidance for 2016 specified (segment reporting, POC)

The Group revenue growth is estimated to be in the range of 5–10% at comparable exchange rates.

The adjusted operating profit** is estimated to grow from the level of 2015 (2015: EUR 76.0 million).

The adjusted operating profit does not include material reorganisation costs or impairment.

Previously, YIT estimated the revenue growth to be in the range of 0–10% at comparable exchange rates.

* In segment reporting, the revenue and profit are recognised by multiplying the percentage of completion by the percentage of sale, i.e. according to the percentage of completion method, which does not fully comply with the Group’s IFRS accounting principles. According to the Group’s IFRS accounting principles, revenue from residential projects for consumers is recognised upon completion. Furthermore, in Group reporting, part of the interest expenses are capitalised according to the IAS 23 standard, which causes differences in operating profit and financial expenses between segment reporting and Group reporting.

** Due to the new guidelines from the European Securities and Market Authority concerning alternative performance measures, the performance measure “operating profit excluding non-recurring items” is replaced with “adjusted operating profit”. The content of adjustments equals items previously disclosed as nonrecurring items and consist of material reorganization costs and impairment. Adjusted operating profit is disclosed to improve comparability between reporting periods.

Kari Kauniskangas, President and CEO:

Our result for April–June showed an expected turn for the better, with our adjusted operating result based on segment reporting increasing by 9% year-on-year. We expect this positive trend to continue, and the outlook is good particularly in the Business Premises and Infrastructure segment and the Housing Finland and CEE segment.

The result of the Business Premises and Infrastructure segment showed excellent development in the first half of the year. The segment’s revenue grew by 41% and its operating profit margin improved by 2.4 percentage points year-on-year. Growth and profitability were supported by the achievement of a significant milestone in the Tripla project currently in development in Helsinki’s Pasila district, i.e. closing of the investor deals for the Mall of Tripla. The investor deals allowed us to start the recognition of income on the project, and Tripla will play a significant role in improving our revenue growth and profitability in the coming years. We were also successful in several contracting tenders in the second quarter, which further strengthened our order backlog. The segment’s outlook is strong, and in the second half of the year, we expect the profit performance to be at the same level as in the first six months of the year.

The profitability of the Housing Finland and CEE segment also turned to growth. Our key goals in the Housing Finland and CEE segment have been to gradually shift our focus to consumer sales and to maintain strong growth in the CEE countries. Positive developments were seen in both areas during the spring. In Finland consumer demand improved, and in the first half of the year, we increased our start-ups for consumers by approximately 25% year-on-year. We also launched Smartti, our new affordable and flexible concept for consumers. The demand for Smartti apartments has been pleasingly strong in the pre-marketing phase of the first projects. In addition, we achieved our goal of normalising the level of completed unsold apartments in Finland in the second quarter. The reduced need for capital release measures was favourably reflected in the segment’s profitability already in the second quarter. In the CEE countries, we started several new projects, with our first residential project in Poland being one of the most important. The high level of residential start-ups is expected to be reflected in higher sales in the CEE countries in the coming quarters.

In the Housing Russia segment, cash flow was positive in line with previously set targets, but the result still showed a loss. The segment’s sales, measured in terms of the number of residential units sold, remained close to the target level, but we were forced to reduce our forecasted margins in certain projects. Our aim is to achieve a positive operating result in the second half of the year while continuing to reduce the amount of invested capital in Russia.

Key figures

Group reporting, IFRS

EUR million 4–6/16 4–6/15 Change 1–6/16 1–6/15 Change 1–12/15
Revenue 396.4 462.9 -14% 734.0 856.8 -14% 1,732.2
Operating profit 6.6 24.6 -73% 13.3 51.7 -74% 81.6
Operating profit margin, % 1.7% 5.3% 1.8% 6.0% 4.7%
Profit before taxes 1.8 22.5 -92% 0.6 44.9 -99% 61.3
Profit for the review period*** 1.4 17.7 -92% 0.5 35.2 -99% 47.2
Earnings per share, EUR 0.01 0.14 -92% 0.00 0.28 -99% 0.38
Operating cash flow after investments 26.2 113.3 -77% 1.1 128.4 -99% 183.7
Net interest-bearing debt at end of period 556.6 587.3 -5% 556.6 587.3 -5% 529.0
Gearing ratio at end of period, % 104.8% 98.7% 104.8% 98.7% 101.1%
Equity ratio at end of period, % 33.0% 33.8% 33.0% 33.8% 32.9%

Segment reporting, POC

EUR million 4–6/16 4–6/15 Change 1–6/16 1–6/15 Change 1–12/15
Revenue 463.7 416.1 11% 826.1 791.0 4% 1,651.2
Housing Finland and CEE 184.8 207.6 -11% 350.8 391.2 -10% 777.8
Housing Russia 58.8 69.6 -16% 107.9 140.9 -23% 266.4
Business Premises and Infrastructure 222.5 141.0 58% 371.9 263.0 41% 615.6
Other items -2.4 -2.1 -4.6 -4.1 -8.6
Operating profit 20.2 18.6 9% 32.2 39.1 -17% 65.7
Operating profit margin, % 4.3% 4.5% 3.9% 4.9% 4.0%
Adjusted operating profit 20.2 18.6 9% 32.2 39.1 -17% 76.0
Housing Finland and CEE 15.8 16.2 -2% 28.6 30.3 -6% 56.0
Housing Russia -2.7 2.3 -5.8 8.5 10.9
Business Premises and Infrastructure 12.7 3.7 242% 18.8 6.8 176% 22.7
Other items -5.6 -3.6 -9.3 -6.6 -13.5
Adjusted operating profit margin, % 4.3% 4.5% 3.9% 4.9% 4.6%
Housing Finland and CEE 8.5% 7.8% 8.2% 7.8% 7.2%
Housing Russia -4.6% 3.2% -5.4% 6.0% 4.1%
Business Premises and Infrastructure 5.7% 2.6% 5.0% 2.6% 3.7%
Profit before taxes 10.2 11.2 -9% 9.5 21.5 -56% 27.0
Profit for the review period*** 7.9 8.4 -7% 7.3 16.3 -55% 20.0
Earnings per share, EUR 0.06 0.07 -7% 0.06 0.13 -55% 0.16
Return on investment (last 12 months), % 5.0% 6.4% 5.0% 6.4% 5.3%
Net interest-bearing debt at end of period 466.2 544.9 -14% 466.2 544.9 -14% 460.8
Equity ratio at end of period, % 36.4% 36.0% 36.4% 36.0% 35.5%
Order backlog at end of period 2,714.1 2,573.5 5% 2,714.1 2,573.5 5% 2,172.9

***Attributable to equity holders of the parent company

Events after the review period

In July, residential sales for consumers are estimated to be around 90 units (7/15: around 90) in Finland, over 60 units (7/15: around 60) in the CEE countries and over 200 units (7/15: around 200) in Russia.

Outlook for 2016

Guidance specified (Segment reporting, POC)

The Group revenue growth is estimated to be in the range of 5–10% at comparable exchange rates.

The adjusted operating profit is estimated to grow from the level of 2015 (2015: EUR 76.0 million).

The adjusted operating profit does not include material reorganisation costs or impairment.

Previously, YIT estimated the revenue growth to be in the range of 0–10% at comparable exchange rates.

In addition to the market outlook, the 2016 guidance is based on the following factors: At the end of June, 50% of YIT’s order backlog was sold. Projects already sold and signed pre-agreements are estimated to contribute over 60% of H2/2016 revenue. The rest of the revenue estimate is based on estimated new sales during 2016 and capital release actions.

In Business Premises and Infrastructure, the profit performance is expected to be on the level of the first half of 2016. The demanding market situation in Russia is expected to keep the profitability of Housing Russia on a low level. Similarly to the year 2015, the investor projects’ share of revenue is estimated to remain high in Housing Finland and CEE, which will impact the segment’s adjusted operating profit margin negatively. The execution of the capital release program started in autumn 2013 will continue actively in 2016, and the capital release actions are expected to have a negative effect on the adjusted operating profit margin.

Market outlook

Finland

In Finland, the macroeconomic uncertainty is estimated to affect the residential and business premises markets also in 2016.

Consumer demand is estimated to pick up slightly and the demand to focus especially on small, affordable apartments in growth centres. The investor activity is estimated remain on a good level but even more focus will be paid on the location. Residential price polarization is estimated to continue especially between growth centres and the rest of Finland. Access to mortgage financing is estimated to remain good.

In Finland, the tenants’ demand for business premises is estimated to remain modest. The real estate investors’ activity is expected to remain on a good level with focus on prime locations in the capital region. Business premises contracting is estimated to remain active. Political support for new infrastructure projects is estimated to revitalise the infrastructure market. High activity in the construction market has resulted in lack of resources.

Russia

The Russian economy is not expected to weaken further, but the visibility is weak and economic uncertainty is estimated to continue to have a negative impact also on the residential market. The construction cost inflation is expected to moderate. The nominal residential prices are estimated to remain stable. Demand is estimated to focus especially on small apartments.

The CEE countries

In the CEE countries, the demand in the residential and business premises markets is expected to be supported by the improved economic situation. Residential prices are estimated to increase in the Czech Republic, Slovakia and Lithuania, and to remain stable in Poland, Estonia and Latvia. The construction costs are estimated to increase slightly.

Access to mortgage financing is expected to remain good and interest rates to remain on a low level.

News conference for investors and media

YIT will arrange a news conference on July 28, 2016 at 10:00 a.m. Finnish time (EEST) at YIT's head office, Panuntie 11, 00620 Helsinki, Finland. The event is in English and targeted for analysts, portfolio managers and the media.

Webcast

The news conference and presentation by the President and CEO of YIT Corporation Kari Kauniskangas can also be followed through a live webcast at www.yitgroup.com/webcast . The live webcast starts at 10:00 a.m. (EEST) and a recording of the webcast will be available at approximately 12:00 noon (EEST) at the same address.

Conference call

The news conference can be participated also through a conference call. Conference call participants are requested to dial in at least five minutes prior to the start of the conference, at 9:55 a.m. (EEST), to number +44 20 319 405 52.

During the webcast and conference call, all questions should be presented in English. At the end of the event, the media has the opportunity to ask questions also in Finnish.

Schedule in different time zones

Interim Report published The investor and analyst
event, conference call
and live webcast
Recorded webcast
available
EEST (Helsinki) 08:00 10:00 12:00
CEST (Paris, Stockholm) 07:00 09:00 11:00
BST (London) 06:00 08:00 10:00
US EDT (New York) 01:00 03:00 05:00

YIT CORPORATION

Kari Kauniskangas
President and CEO

Distribution: NASDAQ Helsinki, major media, www.yitgroup.com

YIT creates sustainable cities and better living environment by developing and constructing housing, business premises, infrastructure and entire areas. We focus on providing a first-class customer experience, high quality and continuous development of our diverse expertise. Our operating area covers Finland, Russia, the Baltic countries, the Czech Republic, Slovakia and Poland. In 2015, our revenue amounted to nearly EUR 1.7 billion, and we employ about 5,300 employees. Our share is listed on Nasdaq Helsinki. www.yitgroup.com

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Contacts

YIT Corporation

Timo Lehtinen, +358 45 670 0626

Chief Financial Officer

timo.lehtinen@yit.fi

or

Sanna Kaje, +358 50 390 6750

Vice President, Investor Relations and M&A

 sanna.kaje@yit.fi

or

Contacts

YIT Corporation

Timo Lehtinen, +358 45 670 0626

Chief Financial Officer

timo.lehtinen@yit.fi

or

Sanna Kaje, +358 50 390 6750

Vice President, Investor Relations and M&A

 sanna.kaje@yit.fi

or