U.S. Markets closed

Edited Transcript of YTY1V.HE earnings conference call or presentation 27-Apr-17 7:00am GMT

Thomson Reuters StreetEvents

Q1 2017 Yit Oyj Earnings Call

Helsinki May 2, 2017 (Thomson StreetEvents) -- Edited Transcript of Yit Oyj earnings conference call or presentation Thursday, April 27, 2017 at 7:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Esa Neuvonen

YIT Oyj - CFO and Member of Management Board

* Hanna Jaakkola

YIT Oyj - VP of IR

* Kari Kauniskangas

YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment

================================================================================

Conference Call Participants

================================================================================

* Ari Järvinen

Danske Bank Markets Equity Research - Analyst

* Artem Beletski

SEB, Research Division - Analyst

* Johannes Grasberger

Nordea Markets, Research Division - Senior Analyst of Materials

================================================================================

Presentation

--------------------------------------------------------------------------------

Hanna Jaakkola, YIT Oyj - VP of IR [1]

--------------------------------------------------------------------------------

Good morning, everybody. Welcome to YIT's First Quarter Result Info and Webcast. We have the traditional agenda today. President and CEO, Kari Kauniskangas, will go through the results and the highlights of the Q1. And CFO, Esa Neuvonen, will dig into the financials after that. We have also here Executive Vice President, Head of Business Premises and Infrastructure segment, Tero Kiviniemi, here present, and also Head of Housing Finland and CEE, Antti Inkilä. They are ready for questions after the presentation. All the material here will be found on our group, YIT Group web pages under Investors. My name is Hanna Jaakkola.

And without further ado, Kari, please.

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [2]

--------------------------------------------------------------------------------

Good morning on my behalf. We had a bit better start for the year than we expected 3 months ago. Q1 result was clearly better than the year ago even it was on a low level as we expected. Group revenue and an operating profit grew. Clearly, profitability was as expected. The housing sales in Finland and CEE continued on a very good level. In Russia, the sales was weak and dropped, clearly as it seems to happen in markets overall. In Business Premises and Infra, revenue grew, but the profitability was low. I will come back to this topic later. The cash flow was strong and supported, and it leads to decrease in net debt.

The revenue increased a lot. It's good to notice that we had around EUR 50 million measures to improve capital efficiency during the quarter, but even without that, that the growth was almost 20%. The backlog remained stable on a very good level. The EBIT improved clearly from the previous or last year similar quarter. Especially strong development was in Housing Finland and CEE. In Russia, the result overall was a bit in loss, but the result was better than a year ago. And the gross margin of Russian operations has continued to improve since the autumn.

In Business Premises and Infra, the profitability was low due to weakened margins in certain projects in CEE countries. Also, in Infra, the seasonality impact during this year was stronger than year ago. In other items, we had EUR 1 million new costs connected to development programs that we started at the end of last year and which will support our growth and improvement of profitability during this oncoming years.

Then in Housing Finland and CEE, the overall market has continued on a very good level. The consumer confidence is on the highest level during this millennium. The prices in Finland are on a stable level in Helsinki region slightly improving. The consumer demand is increasing in affordable and middle-size apartments when the previous trend has been only towards the small apartments.

In CEE countries, the overall market environment has stayed stable on a very good level. Prices slightly increasing. Just an example, in Czech Republic, the prices have increased within the last 2 years around 15%. In Housing Finland and CEE, the revenue increased a lot, but the main part of those capital efficiency measures was done in this segment to support the cash flow and growth and in future, and the impact of that was almost EUR 50 million. Plot sales from the balance sheet to those plot funds was around EUR 25 million. Order backlog stayed stable on a good level.

From profitability and operating profit point of view, this was the best quarter within few years. Profitability without those capital efficiency measures was almost 9%. And the return on investment or from now on return on capital employed increased above this 15% level, which is the strategic target of YIT group. We changed the definition of this group return on operating invested capital, which was reported earlier as a return on capital employed. The formula calculation formula remained untouched, so this is only the change in definition. The capital employed decreased due to these plot sales but also due to those capital efficiency measures.

The consumer sales continued on a very good level compared to last year. The growth was even 76%. And the sale of units sold to consumers was on a good level, 62%. During the quarter, we sold around 100 apartments to bundles, [assets] to bundles to investors. This is not anymore capital release but, let's say, capital efficiency measures. We are keeping the capital efficiency on a good level to ensure that we are able to grow according to market opportunities at the moment.

In April, the sales has been a bit lower level than during last few months, but still on a good level. There will be a lot of new start-ups with good reservation rates during this quarter also. During the year, we are targeting to start almost 500 Smartti apartments as we started a year ago.

In Finland, we also launched a new way to acquire an apartment, which is so far called optional purchase right model, meaning that consumer or client is able to buy an apartment or rent it and then buy later, quite flexible way. In CEE, the number of start-ups was on a very good level, and the sales for consumers grew by 24% compared to last year. In addition, we sold 1 project with 106 apartments to the YCI Housing Fund, one which we established together with some partners at the end of last year. We have also continued plot investments in this area to support the growth in coming years. In April, the sales has stayed on a good level, around the same than a year ago. And overall, in Housing Finland and CEE, the production volumes are continuously growing. The sales rate is on a very good level, taking into account that the shift towards the consumer sales is strongly happening continuously. And the number of unsold, completed apartment is on a very low, low level at the moment.

Then Housing Russia. The operating environment is a bit mixed. The macro outlook for this year is clearly better on, let's say, not clearly, but better than during last 2, 3 years. The overall expectations for the GDP development are positive for this year, mainly expecting around 1% improvement during the year. At the same time, there was a clear drop in demand at the beginning of the year, which is driven by 2 main factors. At the end of last year, the government mortgage subsidy program was ended, and that has impacted the amount of demand of mortgages. The subsidy program as such is not the main reason, but the comments given by government that they are expecting, clearly, lower market rates and interest within the year. And now, people are waiting. At the end of the quarter, the interest rate of mortgages was, on average, 11 percentage points. The second reason is that ruble exchange rate has strengthened during the last year quite a lot. And now, people are having their currency deposits, and they are expecting devaluation and that is also impacting cautiousness among consumers. The overall price development has stayed stable on average in our cities. From revenue point of view, the revenue decreased 11 percentage points in ruble terms, which is I think more relevant than the revenue in euros, which is impacted heavily by stronger exchange rate than a year ago. Backlog of orders has stayed stable. The operating profit was negative, but the reason is totally different than a year ago. Now the reason is clearly lower volumes, which can be seen from the sales figures. The gross margin of the reported projects have continued to improve since last autumn month-by-month, and then the development overall is going the right direction.

The capital employed in ruble terms has stayed stable. We have this target to reduce RUB 6 billion from the capital employed from Russia by end of next year. We have clear land, what are the sources for that, and we are proceeding in that area. So far, the progress has been modest. Just an example, on those actions to release capital from Russia, we are selling part of our long-term plot portfolio. In St. Petersburg, Novo Orlovsky we are planning to sell 2/3 of the 0.5 million square meters that we have in Novo Orlovsky area. The auction is planned to be organized next month. But to understand the way of auctions in Russia, it doesn't mean that immediately after the auction, the plot is sold. It is just the start of the negotiation process. We will more accurately inform later how this is proceeding.

And as we can see from the sales figures, the drop was clear, almost 40%, during the quarter. And the drop happened 1st of January, so it was very easily or easy to notice. And then based on our market analysis, it looks like that similar changes happened also for other players in the area. The main reasons for the drop was explained earlier, devaluation -- or strengthening Russian ruble and this change of terms in mortgages. In April, the sales has been still on a low level, a bit below 200 units; one year ago, it was over 250. In March, the operating profit in Russia was positive, and the sales in March was above this 200 units.

The production volumes are clearly lower level than a few years ago, and we will keep according to current plans that the level. The number of unsold completed apartments is very low, and that is also showing that those completed apartments are, even in current market environment, enjoying a good demand.

In Business Premises and Infra, the market situation especially in Finland is very good. At the moment, there are several huge projects under tendering phase, and overall outlook is quite positive. Companies are looking for new premises. There are good demand also for shopping malls in right locations. The revenue increased in the segment, mainly driven by Tripla construction and also Business Premises and -- Business Premises division. In Infra, the revenue decreased compared to last year, and as I said, that the seasonality impact was stronger this year than a year ago. Last year, for instance, this E18 Hamina-Vaalimaa project was proceeding throughout the winter. Now we have had 2 months stop because the production is already quite far. Backlog of orders has stayed on an exceptionally high level and on a very good, good level. The profitability was weak also in our eyes. The main reason is those few projects in CEE area, especially in Estonia and Slovakia where we had some challenges and changes in cost estimations. One of those project is Tartu University, which has been mentioned also in media. ROCE return on capital employed in this segment stayed on a very good level or good level, let's say so. It can be also higher. And the invested capital employed has stayed stable, even the investments in Tripla has increased. During the quarter, we started several self-developed projects like this terminal for Posti and logistic property in Vantaa. We won this lifecycle project in Espoo. One quite important success was also the leasing of this Kasarmikatu project. We have achieved the rate of 94% in leasing, and the selling of the project has started. So far, the closing date is not known, and the sales price is open so we have not include the sales expectation for our forecast or guidance yet. The Tripla project, as such, is proceeding very good. Yesterday, we signed the contract, final contract to construct the hotel for Sokotel and it will be owned by Exilion. The Tripla Mall leasing is proceeding quite well. At the end of the quarter, the leasing rate or occupancy rate was 94 -- 45%, and it's continuously improving.

Then Esa will continue with the financial figures and positions.

--------------------------------------------------------------------------------

Esa Neuvonen, YIT Oyj - CFO and Member of Management Board [3]

--------------------------------------------------------------------------------

Good morning also on my behalf. I'm very pleased to be here commenting the first quarter results. Positive results in many aspects.

I'll start by commenting on one of our key targets, return on investment, improving -- continuing to improve, and also the invested capital has come down slightly compared to end of last year. Kari already commented the target to reduce capital in Russia. I'm repeating the message that we have a solid plan in place, how to continue on the reduction of the capital consisting mainly of plot sales and apartment sales and the mentioned auction of Novo Orlovsky plot coming in May. But still, there is good room to improve and reach our group target levels and return on investment.

Strong cash flow, very good development in the first quarter, putting us back on track in 12 months. Rolling cash flows, as our target is to have positive cash flows after dividend payout, so this is the level where we aim to be also in the future. And I think that this is very good outcome, taking into account that we have still continued investing in plots and joint venture shares.

Net debt came down to a level of EUR 551 million. Also, it's good to notice that the definition is now changed a little bit. We are now netting the interest-bearing receivable, of which we previously already gave information, but now that is calculated in. The reason for this change is that we think that this gives a fairer view on our net debt. And also, a second reason is that the receivable from City of Helsinki now, city has started activities in the area so there is background for that.

Then some new aspects on our net debt position. I think it's very, very important to distinguish the financing needed for construction stage, and that is shown on the graph, on the right side. But I think the most important relevant view for our debtness is the debts against plots and investments in joint venture shares. And as you can see, fairly moderate leveraging there illustrate the loan-to-value is around 45%.

Then a very often discussed topic, what is the contents of our land assets? We are now disclosing some new information regarding this on Finnish housing, plot assets. You can see that the maturity of the assets, they are in value in Helsinki metropolitan area. If you would look from a square meter point of view, then that is less than half. Also, new information about the division of Business Premise and Infra, land assets shown on the graph. And then additional information about our land base, more than 5 million floor square meters in our assets, giving us a very good basis for future growth, and which is very important to see that when we look to Finnish housing plot base, we have been able to move into a capital-efficient structure. 65% of the assets, they are either rented or then through pre-agreements, so very good structure in there. All in all, our financial key ratios, they improved fairly well in the first quarter. Gearing came down very strongly. And also, net debt-to-EBITDA ratio improved. Already, when commenting the year-end results, we communicated that book ratios, they are shown the direction of where we are going in the financial ratios, hence they are still continuing to improve, so in the direction, we're also -- the IFRS ratios are moving in the future.

Summing up the results. Very positive quarter in many angles. The gear ratios, they moved clearly on a right direction. Strong cash flow, having many capital efficiency measures in place, giving us a solid and good basis for future growth. Financial expenses came down fairly strongly, mainly explained by value increase of derivatives. But also, very important to notice that the underlying average interest rate is improving. All in all, a good quarter, and I'll hand back to Kari to continue on the presentation.

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [4]

--------------------------------------------------------------------------------

And what is left is mainly outlook and guidance. Finland, shortly, market outlook is good, practically in all areas of construction. Last year, the growth in construction was on an extremely high level. Now the speed is slightly declining, but still increasing mainly due to lack of resources. In Russia, as I said earlier, the overall macroenvironment looks a bit positive, but we expect that it will still take time before the consumer confidence and the purchasing power starts to improve again and impact positively to housing sales and sales prices. In CEE, the good market environment, especially in Czech, Slovakia and Poland will continue stable on a good level. We had a bit better start for the year than we expected internally. The forecast for the whole year are still within the original ranges, so we repeat the guidance given at the beginning of the year. The group revenue is estimated to grow by 0% to 10%, and the adjusted operating profit is estimated to be in the range of EUR 90 million to EUR 105 million. From now on, we expect that the group operating profit starts to improve step-by-step in coming quarters.

So I think this was the presentation. Now if there are any questions, we will start from the (inaudible) and then continue on line.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Unidentified Analyst, [1]

--------------------------------------------------------------------------------

(inaudible) this infrastructure profitability problems in (inaudible) and so on, are they one-off expenses? Or are they going to continue?

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [2]

--------------------------------------------------------------------------------

First of all, in Infrastructure, there was no profitability problem. This is in normal construction area, Business Premises side. There are few projects in Estonia connected to closing that area units in that area. And those are not one-off as such, but we don't have, let's say, those are part of normal business. Sometimes, some project has challenges. If no more questions from [copula], then questions online. One more from the copula .

--------------------------------------------------------------------------------

Unidentified Analyst, [3]

--------------------------------------------------------------------------------

This is (inaudible) I was just wondering, you described shortly the project margins in Russia as well as these few projects mentioned. You're separately in the CEE area, but how would you describe the project margins on this new projects, for example, in Finland and CEE especially?

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [4]

--------------------------------------------------------------------------------

You mean the project margins in Finnish housing?

--------------------------------------------------------------------------------

Unidentified Analyst, [5]

--------------------------------------------------------------------------------

Development, yes, especially for the new projects.

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [6]

--------------------------------------------------------------------------------

Yes. In consumer, in projects which are targeted to consumers that profitability expectations have been stable last year and this year. And of course, when the mix is improving towards the consumer projects, that the overall profitability expectations are higher than earlier. And now online.

--------------------------------------------------------------------------------

Operator [7]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from the line of Ari Järvinen from Danske Bank.

--------------------------------------------------------------------------------

Ari Järvinen, Danske Bank Markets Equity Research - Analyst [8]

--------------------------------------------------------------------------------

So I have a few questions. I start with this a bit like technical thing that, did you have like a positive impact from the timing of Easter in the Q1? And basically then, also, the April sales in Finland was basically flat? Was there then a negative impact may be due to the Easter?

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [9]

--------------------------------------------------------------------------------

Maybe I didn't hear right the first part of the question, but April sales was on a good level. It was around the same than year ago. The main reason is that in April, there was no start of sales in new projects, which usually brings the strong start or strong sales at the beginning. So even we started big amount of new projects within the first quarter, the sales of those projects will start within coming months. And if you repeat...

--------------------------------------------------------------------------------

Ari Järvinen, Danske Bank Markets Equity Research - Analyst [10]

--------------------------------------------------------------------------------

Yes, I repeat the first part. Basically, can you estimate was there some kind of boost from more selling days maybe on the resi -- consumer housing given the timing of the Easter so that the Q1 comparisons were basically easier?

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [11]

--------------------------------------------------------------------------------

Of course, Easter this year was in April. Last year, it was probably at the end of March. It may be so, but I have not considered that to be so important in long run.

--------------------------------------------------------------------------------

Ari Järvinen, Danske Bank Markets Equity Research - Analyst [12]

--------------------------------------------------------------------------------

Yes, of course, but it basically had some impact on your sales activity as well?

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [13]

--------------------------------------------------------------------------------

That's true.

--------------------------------------------------------------------------------

Ari Järvinen, Danske Bank Markets Equity Research - Analyst [14]

--------------------------------------------------------------------------------

Okay. And then on the net finance cost slide, could give an estimate of what kind of level of cost should we expect on quarterly basis because now the Q1 was exceptionally low?

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [15]

--------------------------------------------------------------------------------

That is showing the direction, but Esa may answer.

--------------------------------------------------------------------------------

Esa Neuvonen, YIT Oyj - CFO and Member of Management Board [16]

--------------------------------------------------------------------------------

Yes, that is true that the first quarter financial expenses, they were extremely low. I think that you can get a good idea of that, as we indicated earlier, that the whole year finance expenses, they are coming down, around 15% this year. So all in all, it should be fairly stable. Then the value appreciation on derivatives, they are, of course, then affecting.

--------------------------------------------------------------------------------

Ari Järvinen, Danske Bank Markets Equity Research - Analyst [17]

--------------------------------------------------------------------------------

And was that based on IFRS finance cost?

--------------------------------------------------------------------------------

Esa Neuvonen, YIT Oyj - CFO and Member of Management Board [18]

--------------------------------------------------------------------------------

That the guidance, the 15% which we gave, that was on book.

--------------------------------------------------------------------------------

Ari Järvinen, Danske Bank Markets Equity Research - Analyst [19]

--------------------------------------------------------------------------------

Okay. And then just a little bit about the forward-looking statements. You're still keeping the sales growth guidance 0% to 10%. And you have a strong backlog flying start for the Q1, of course, boosted by the sand plot sales also. But why is the range so wide? What are the impacts on that?

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [20]

--------------------------------------------------------------------------------

Yes. Let's say, so that the probability to have only 0 growth is quite low at the moment. But we will specify the outlook when we have more information. Last year, it happened in July. And hopefully, this year, we have the same view.

--------------------------------------------------------------------------------

Ari Järvinen, Danske Bank Markets Equity Research - Analyst [21]

--------------------------------------------------------------------------------

Okay. And then if we just move on to the next guidance statement about the EBIT improvement, the EUR 90 million and strong consumer confidence in Finland, growth in CEE continuing and the margin is improving. So why still having that kind of low level of improvement, in my view. What are the negative like risks related to the EBIT improvement pace?

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [22]

--------------------------------------------------------------------------------

As said, the start for the year was a bit better than we expected, but the internal forecasts are still within the original range. And we will, if needed, if we have better or more accurate visibility, we will specify when the visibility is.

--------------------------------------------------------------------------------

Ari Järvinen, Danske Bank Markets Equity Research - Analyst [23]

--------------------------------------------------------------------------------

Is the main thing here the potential divestments or capital release actions in Russia? Is that the biggest like item?

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [24]

--------------------------------------------------------------------------------

Let's say, for instance, the sale of Novo Orlovsky plot, at the moment, it's not included in our forecast. And for sure, for instance, concerning the status of that sales, we will have more information during the summer, as well as concerning the Kasarmikatu project.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

We have one more question remaining in the queue from the line of Anssi Kiviniemi from SEB.

--------------------------------------------------------------------------------

Artem Beletski, SEB, Research Division - Analyst [26]

--------------------------------------------------------------------------------

It's Artem from SEB. Two questions. First of all, kicking off with Business Premises and Infra and the margin. You highlighted there that the CEE, some projects in CEE burdened the result. And in a way, how should we look the development in Q2, perhaps Q3? Will there be also impact coming from the projects in your highlighted area?

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [27]

--------------------------------------------------------------------------------

Those projects are close to completion, and I think that the main impact is already in both in result and in forecasts. So from those projects, we are not expecting any more big impacts.

--------------------------------------------------------------------------------

Artem Beletski, SEB, Research Division - Analyst [28]

--------------------------------------------------------------------------------

Okay. And then perhaps continuing on the same segment. Q1 last year was really strong. So given the current outlook, is it perhaps fair to assume that profits and sales are coming down in Business Premises and Infra in Q2? Is that fair assumption?

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [29]

--------------------------------------------------------------------------------

It's good to remember that last year, we started the profit and revenue recognition from Tripla project. And the revenue and profit recognized from Tripla in Q2 last year was 12 months' works. Now the Tripla is progressing only 3 months. And the revenue and profit recognized is the works done during these 3 months. So it's obvious that the Tripla impact will be clearly smaller in Q2 than last year.

--------------------------------------------------------------------------------

Artem Beletski, SEB, Research Division - Analyst [30]

--------------------------------------------------------------------------------

Okay. Great. And then perhaps closing my questions with a question regarding Housing Finland and CEE. You highlighted that the EBIT margin, operational profit margin would have been 9% without the capital release move that you have made during Q1. So I guess this is a sequential improvement. And I'm just trying to figure out what is the 2017 outlook? Is there outlook for further improvement? And is there also a potential for further improvement?

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [31]

--------------------------------------------------------------------------------

Let's say, so that in long run, I have said that I am satisfied when the operating profit in that segment is above 10, and I think that's quite a realistic target. Then what is the time when we'll reach that level that time will show.

--------------------------------------------------------------------------------

Artem Beletski, SEB, Research Division - Analyst [32]

--------------------------------------------------------------------------------

Okay. But for the time being, you are pretty comfortable that you're moving to the right direction, right?

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [33]

--------------------------------------------------------------------------------

That's right.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

(Operator Instructions) We have one more question remaining in the queue from the line of Johannes Grasberger from Nordea.

--------------------------------------------------------------------------------

Johannes Grasberger, Nordea Markets, Research Division - Senior Analyst of Materials [35]

--------------------------------------------------------------------------------

Just a few questions still on my side. So thinking here, the ex-Russia and apartment sales, very, very strong figures in Q1. But still, a bit puzzled that the margin didn't come up as quick or as strongly in this quarter. Maybe you could comment on the price impact there. Were there still some apartment sales that had a dilutive impact on the profitability? Whereas we should see the profitability coming up still doing this year has kind of the dilutive impact of this is out of the money apartments fades out? Is this anywhere close to the reality what has happened?

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [36]

--------------------------------------------------------------------------------

In Russia, the market price sensitivity is quite low, so we don't believe that changing prices would improve the sales a lot. So we have decided not to make changes in price lists. So we accepted the lower sales.

--------------------------------------------------------------------------------

Johannes Grasberger, Nordea Markets, Research Division - Senior Analyst of Materials [37]

--------------------------------------------------------------------------------

But this was question on the ex-Russian housing market, so Finland and CEE. Because it looked to me as I checked through the housing data that obviously, as you have been highlighting, that sales volumes were extreme. I was puzzled with a quite massive increase in top line that the margin didn't come up faster. And so the question is, was there any kind of dilutive impact from the price or mix or anything like that?

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [38]

--------------------------------------------------------------------------------

No, there was almost EUR 50 million impact of plot sales from our balance sheet to plot funds, and this around 100 units bundled sales deal, which had a positive profit, but it didn't have as big impact as was the revenue. So if you looked at the clear operating or operative revenue without those capital efficiency measures and the profit, so the gross margin is continuously slightly increasing and the mix is improving.

--------------------------------------------------------------------------------

Johannes Grasberger, Nordea Markets, Research Division - Senior Analyst of Materials [39]

--------------------------------------------------------------------------------

So if I take out those plot sales and (inaudible) deals from the top line, and assume some kind of profitability, I suppose. Were you then quite close to an EBIT margin of 10% already in Finland in Q1?

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [40]

--------------------------------------------------------------------------------

It was 9% for the -- almost 9% for the whole segment. And in CEE, in CEE, the operating profit or profitability is above this then.

--------------------------------------------------------------------------------

Johannes Grasberger, Nordea Markets, Research Division - Senior Analyst of Materials [41]

--------------------------------------------------------------------------------

Okay, very good. And then just maybe on the Finnish housing market, if you could discuss that a little bit more. I saw in the report this morning that you were talking about kind of improved demand also from the larger apartments. So it seems like it's not only about the affordable, small housing demand anymore, that it starts to be quite widespread recovery in the housing market. So could you discuss more, more how you feel about it going forward till the end of this year? Do you think that it is even getting better, better with the data points that you're seeing today?

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [42]

--------------------------------------------------------------------------------

Consumer demand is on a good level, and affordability is still important. But in addition to those small apartments, that the demand for middle-size apartments is increasing and that the demand of larger as well. It's good to remember that larger apartment, if you are talking on apartments, worth more than EUR 0.5 million each. It's very minor part of the market.

--------------------------------------------------------------------------------

Johannes Grasberger, Nordea Markets, Research Division - Senior Analyst of Materials [43]

--------------------------------------------------------------------------------

Right. And then I suppose on the guidance then, I mean, when I calculate through the apartment data. I'm seeing that you have a very much higher sort of under construction base in the Finnish and CEE housing market versus a year ago. And the sales rate is higher, and then the consumer mix is improving. So shouldn't this have quite good earnings outlook for this segment towards end of the year? I'm just curious here as well that why are we not seeing the guidance being higher? Is it just very conservative on the Russian economy overall? So if we see a pickup in the consumer demand for Russia, would that possibly be a trigger for a kind of upgrade this year?

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [44]

--------------------------------------------------------------------------------

So you're right that the outlook is good. One topic I forgot to say earlier is that good sales is mainly connected to projects started at the end of last year, so the percentage of completion of those projects is still on a quite low, low level. And it's right that from that perspective, when the projects are proceeding that revenue and profit recognition from those projects starts to increase. And as we said already at the beginning of the year, the impact of very good sales at the end of last year, at the beginning of this year, the main impact will be seen at the end of this year and at the beginning of next year.

--------------------------------------------------------------------------------

Johannes Grasberger, Nordea Markets, Research Division - Senior Analyst of Materials [45]

--------------------------------------------------------------------------------

Right. Right. That makes sense. So basically, assuming that, okay, the consumer confidence stays good throughout this year in Finland and demand for apartments continues to increase, we will, with those fundamental facts, we would most likely see quite strong H1 next year when basically these apartments that are currently under construction are completed but they're basically already sold-out, right?

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [46]

--------------------------------------------------------------------------------

That's one good, good guess.

--------------------------------------------------------------------------------

Johannes Grasberger, Nordea Markets, Research Division - Senior Analyst of Materials [47]

--------------------------------------------------------------------------------

Okay. A final question then on the Infrastructure division. So kind of curious here that you had some, I'm not sure if this question was already asked, but some additional cost elements and cost adjustments in the first quarter results. How does this really play out then towards end of this year? Because if you had a cost adjustment in this quarter that has been kind of booked for the construction projects so far, so will that have a dilutive or a negative impact then on the future earnings during rest of this year? Or are we kind of talking about -- with this cost adjustment, kind of a -- in a way one-off event in Q1, and then we're returning to this kind of the normal profitability and earnings curve for Infrastructure from Q2 onwards?

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [48]

--------------------------------------------------------------------------------

The overall outlook of that segment has not changed for this year. Three months ago in last session, we said that this year, the impact of Tripla will be smaller in terms of revenue and profit than it was last year. And good target is that we keep the positions that we reached last year, and that is still relevant, relevant comment.

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

It appears there are no further questions from the audio participants at this time. I'll turn the conference back to the speaker for any additional or closing remarks.

--------------------------------------------------------------------------------

Kari Kauniskangas, YIT Oyj - Chairman of Management Board, CEO, President and Head of the Housing Segment [50]

--------------------------------------------------------------------------------

If there are no more questions, I remind you on Capital Markets Day, which will, this year, organize in Haltia, Espoo at the end of September. You are all warmly welcome. Thank you for this session.