Review by the President and CEO
Kari Kauniskangas in connection with the interim report for January-March 2020
YIT’s first quarter was largely in line with our expectations, and the Group’s adjusted operating profit improved to EUR 8 million (EUR -10 million). First quarter was highlighted with typical seasonal slowness in infrastructure projects and housing completions. However, apartment sales were at a strong level in all regions, particularly in Russia. The Partnership properties segment’s profitability was supported by the finalisation of the Espoo Keilaniemi project’s real estate transaction.
The Business premises segment’s result was burdened by progress in financial settlements of three previously communicated and already completed problematic projects, one of them being a EUR -7 million booking related to a final agreement on the Myllypuro Kampus project’s financial closing. As part of the agreement, the client will pay an EUR 8 million withheld payment in April. On a positive note, the Business premises segment’s order book strengthened from year-end thanks to several alliance and life-cycle projects which were won last year and were added to the order book in the first quarter.
At the end of the quarter, the operating environment changed rapidly due to the coronavirus pandemic. At YIT, we initiated anticipatory measures back in February to ensure the safety and health of our staff, the progress of our construction sites and the continuation of the business. To mitigate the impacts of the economic slowdown and to react to the sudden changes in the market, we have also initiated numerous savings measures. As an example, we have decided to temporarily lay off all our fixed white-collar employees for two weeks during the second quarter. Simultaneously, the Group management team and the Board of Director’s have reduced their salaries and fees. We also froze apartment start-ups for a month starting mid-March to evaluate the demand level in this new situation.
As of today, our sites are operating well and there have not been material issues in our operations. In April, a few of our construction sites were shut down temporarily following the decisions of the authorities or customers. However, it has been great to notice how quickly our organisation has adapted new ways of working required by the pandemic. The number of digital remote visits and transactions has also grown rapidly following the successful continuation of digital tool implementations. Customer confidence for YIT has stayed at a high level. Even though residential demand dropped in late-March, it has remained moderate thereafter and hence, we will continue apartment start-ups in the second quarter.
In the midst of market uncertainty, the importance of a strong financial position has further increased. I am pleased that the actions we have taken during the past years to strengthen our balance sheet have generated a solid basis for our business. Our balance sheet has further strengthened in the second quarter after the closing of the paving and mineral aggregates businesses sale on April 1. We will book a capital gain of approximately EUR 40 million in the second quarter which is not part of adjusted operating profit but will support our net profit. The cash proceeds of approximately EUR 285 million from the transaction will enable us to significantly reduce our gearing and consequently, to continue investments in the strategic priority areas: urban development, non-cyclical service businesses and Partnership properties.
Our primary targets for the rest of the year are to ensure the health and safety of our staff, to secure the operations at our construction sites and to secure our operating cash flow. However, during these challenging times, we also continue looking forward. By focusing on our strategic priority areas, as well as productivity and customers, we secure a strong market position and ensure our competitiveness.