YIT – More Life in Sustainable Cities
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YIT – More life in sustainable cities Esa Neuvonen CFO yitgroup.com Contents 1 Strategy and merger update 2 Housing Finland and CEE 3 Housing Russia 4 Business Premises and Infrastructure 5 Looking ahead and conclusions YIT | 2 | 1 Strategy and merger update Balanced business portfolio 41% 15% 44% of revenue of revenue of revenue in 2016 in 2016 in 2016 HOUSING FINLAND HOUSING RUSSIA BUSINESS PREMISES AND AND CEE INFRASTRUCTURE BUSINESS We construct and develop apartments We construct and develop apartments We build offices, shopping centres, care OPERATIONS and entire residential areas. and entire residential areas, and we facilities, roads, bridges, rail and metro operate in service and maintenance stations, harbours and more. We also businesses. operate in the area of road and street maintenance. OPERATING Finland, Estonia, Latvia, Lithuania, the Seven regions in Russia: Rostov-on- Business premises: Finland, Estonia, COUNTRIES Czech Republic, Slovakia, Poland Don, Yekaterinburg, Kazan, Moscow, Latvia, Lithuania, Slovakia Moscow region, St. Petersburg, Infra: Finland Tyumen CUSTOMERS Households, private and institutional Primarily households Businesses, the public sector and investors institutional investors MAIN Lemminkäinen, SRV, Skanska, Bonava, PIK, LSR, Etalon, SU-155, Lemminkäinen, SRV, Skanska, NCC, COMPETITORS Lehto Group, Lapti, Merko Ehitus, local Lemminkäinen, local players in different Merko Ehitus, Destia, Kreate, Peab, players in different countries cities Consti, Lehto etc. YIT | 4 | A real estate developer and construction company with positive market outlook Revenue by segment*, EUR 1.8 bn Housing Finland and CEE 44% 41% Housing Russia 15% Business Premises and Infrastructure Adjusted operating profit by segment, EUR 80 million 59.9 Housing Finland and CEE 38.1 Housing Russia Business Premises and Infrastructure -2.3 Revenue by geographical area 11% Finland 15% Russia 74% CEE YIT | 5 | 2016 figures based on segment reporting (POC) *%-shares excluding other items Renewed strategy for 2017–2019 More life in sustainable cities INNOVATOR ANNUAL GROWTH FOR LIVING 5–10% in Housing Solutions for urban living e.g. affordable apartments Living Living services Renovation services Performance leap Higher value-add for customers e.g. hybrids, big infra, alliances GROWTH INNOVATIVE PARTNER in Business Premises & Infrastructure YIT | 6 | YIT’s and Lemminkäinen’s recent years in brief Speeding up Target to growth Seeking growth become together a leading urban Improving profitability developer in Northern Europe Focus on cash flow Seeking growth and strengthening Focus on stronger balance sheet balance sheet and operational efficiency Partial demerger Turnaround 2013 2014 2017 YIT | 7 | YIT and Lemminkäinen to combine Deal rationale • Target to become a leader in urban development Strong platform • More balanced business portfolio 1 for growth (Infra, Housing, Business Premises, Partnership Properties) • Wider geographical presence in several economic regions Synergies and • Good references and wide pool of professional people 2 improved • Potential for profitability improvement competitiveness • Wider opportunities for specialization and scale Improved • Counter cyclicality of businesses and geographies financial position • Lower financing costs 3 and reduced risk • Lower dependency on investment demand profile • Significant market value, good liquidity of the share Enhanced • Balanced and improved risk profile 4 investment case • Growing dividend expectation YIT | 8 | Combined portfolio 2016 Illustrative combined revenue splits 2016* Geographic revenue split, 2016* Infrastructure (EURm) construction and Paving: 552 Geographic split* Operational split* YIT Building construction incl. Lemminkäinen housing: 581 Baltics, CEE and others Paving and maintenance Russia Business Paving and Housing premises, Building Infrastructure Housing and construction: 55 Scandinavia construction and Infra: 1,316 Paving: 377 Finland Housing: 269 Infra projects Business Infrastructure premises construction and Paving: 117 Business logic split* Real estate development Business premises and Housing: 199 New contracting Own based Residential development Contracting- * Preliminary combined high level illustrative estimates for the geographical, operational and business logic based splits reflect the external and internal reporting of YIT and Lemminkäinen prepared under both POC and Maintenance, IFRS principles for the year 2016. Illustrative high level estimates of splits presented are based on a renovation and paving hypothetical situation and are not intended to project the revenue split of the Combined entity in the future. The illustrative information should not be viewed as pro forma information. YIT | 9 | Synergy potential Description • One top management Short-term • Combined premises and external facility services synergies • IT expenses • Insurances, audit costs and other savings from being one listed entity • Skillful pool of professionals ensuring future growth and sustainable urban development • Unified operations and functions in overlapping areas Operational • New opportunities within the broadened international organization synergies • Best practices from both sides, harmonized processes and tools • Scalable solutions in digitalization • Higher volume of international sourcing Full EBIT improvement potential per annum EUR 40 million YIT | 10 | Preliminary financial targets Long-term Target financial target level ROCE >12 % Dividend per share Growing annually Equity ratio >40 % Positive after Cash flow dividend payout To be specified, when merger is completed and management team starts operation Helsinki Central Library Helsinki, Finland YIT | 11 | The merger of YIT and Lemminkäinen Next steps in the merger process INTEGRATION PLANNING IMPLEMENTATION OF INTEGRATION Starting from June 19 12.9. Most probably 25.8. EGM’s of both January 1, Spring 2018 Prospectus companies 2018 AGM The Board of The Board of Directors elected Directors elected in Competition authority process in the EGM the AGM Day 1 readiness, organisational structure, Structural changes, targets, management, follow- management model, synergy evaluation... up, culture, synergies, ... YIT | 12 | 2 Housing Finland and CEE Koti Hyacint Prague, the Czech Republic Housing Finland and CEE Operating environment in Finland in Q3 • Consumer confidence was on a • Consumer demand was on a good • Mortgage interest rates stayed on record high level level, no signs of overheating, supply a low level and margins continued on a high level to decrease • Residential investors were more selective, demand focused on • Demand for larger apartments • The volume of new housing loans capital region, Turku and Tampere continued to improve in addition to increased the good demand for affordable apartments Prices of old apartments New drawdowns of mortgages and Consumer confidence (index 2010=100) average interest rate (EUR million, %) 30 120 2,000 5.0 1,800 25 115 1,600 4.0 20 1,400 110 1,200 3.0 15 1,000 10 105 800 2.0 5 600 100 400 1.0 0 200 -5 95 0 0.0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Consumer confidence Finland Capital region New drawdowns of mortgages, left axis Long-term average Rest of Finland Average interest rate of new loans, right axis Sources: Statistics Finland and Bank of Finland YIT | 14 | Market update: Finland High construction volumes compensating quiet years in the past • Sales are proceeding well, clear change Change in YIT’s sales mix (pcs) in mix from investors to consumers 3,502 3,192 3,040 2,765 2,757 2,779 2,730 • Good development in growth areas in 2,432 2,515 78% 68% 68% 68% 58% Finland 56% 52% 45% 39% 1,890 1,893 1,869 2,063 • Urbanisation trend favors blocks of flats 1,567 1,555 1,315 1,251 1,596 • 500,000-600,000 people to move from countryside to cities by 2030 Consumer sales Investor sales Share of consumer sales Housing start-ups in Finland in general (pcs) 43,000 40,000 36,168 35,582 36,549 7,900 34,187 33,922 34,472 35,200 33,652 31,326 31,944 32,051 32,966 31,714 8,400 30,343 29,957 6,791 28,566 29,130 27,817 13,020 25,103 6,459 24,306 12,626 14,165 15,593 16,907 16,542 23,377 23,480 12,511 11,605 10,377 11,662 9,834 11,019 11,767 15,355 8,128 18,337 7,533 6,719 11,510 9,298 35,100 6,641 29,758 31,600 25,255 19,966 20,282 23,148 21,561 21,141 21,361 20,123 16,773 17,547 17,363 19,757 18,879 18,293 19,040 16,696 19,689 18,384 11,696 11,867 14,182 Block of flats and terraced houses Single family houses and other Long term average (1995-2018e) Source: Statistic Finland 1995-2016, Confederation of Finnish Construction Industries RT 2017e-2018e YIT | 15 | Urbanisation is supporting growth • Population growth continues in growth centres despite the overall slowing trend in Finnish population growth Population development in HMA Population development forecast until 2040 in HMA 1,400,000 1,400,000 1,300,000 1,300,000 1,200,000 1,200,000 20% growth 1,100,000 1,100,000 during 1,000,000 1,000,000 2016–2040 900,000 900,000 800,000 800,000 1987 1991 1995 1999 2003 2007 2011 2015 2016 2019 2022 2025 2028 2031 2034 2037 2040 Helsinki Metropolitan Area Helsinki Metropolitan Area Population development in other growth centres Demographic growth trend until 2040 290,000 290,000 240,000 240,000 190,000 190,000 140,000 140,000 90,000 90,000 1987 1991 1995 1999 2003 2007 2011 2015 2016 2019 2022 2025 2028 2031 2034 2037 2040 Jyväskylä Kuopio Oulu Tampere Turku Jyväskylä Kuopio Oulu Tampere Turku Source: KTI YIT | 16 | Housing Finland