YIT Group credit update - Well-managed and profitable growth

Transcription

1 YIT Group credit update - Well-managed and profitable growth Janne Tallqvist, Group Treasurer Pohjola Markets Finnish Corporate Bond Seminar December 10, 2013 Tripla, Pasila Helsinki

2 Contents YIT Group in brief Current set-up Historical performance and markets Strategy for Profitability of businesses Investment policy and risk management Group balance sheet and cash flow Market outlook and guidance Summary Townhouse area Prozorovskoye-Golitsyno Moscow Oblast, Russia YIT 2 Finnish Corporate Bond Seminar December 10, 2013

3 YIT Group in brief

4 YIT Group Creating better living environments Revenue in 2012 EUR 1.9 billion. Operating profit EUR 201 million. Revenue by area in 2012 YIT s offering: - Construction services Residential development Business and public premises Infrastructure - Focus on own developed projects Over 43,000 shareholders at the end of November Operations in 7 countries. Over 6,000 professionals at the end of Share quoted on NASDAQ OMX Helsinki (Large cap, Industrials) 2012 figures (segment reporting) Russia 24% Finland 69% Baltics and CEE 7% Adjusted non-ifrs figures based on segment reporting (POC), published on May 21, 2013 YIT 4 Finnish Corporate Bond Seminar December 10, 2013

5 YIT s Management Board Kari Kauniskangas President and CEO Tero Kiviniemi Executive Vice President Timo Lehtinen CFO Pii Raulo HR Juhani Nummi Business Development Divisions: Harri Isoviita, Matti Koskela, Timo Lehmus, Jouni Forsman, Tom Sandvik, Teemu Helppolainen, Mikhail Voziyanov and Yuri Belomestnov YIT 5 Finnish Corporate Bond Seminar December 10, 2013

6 YIT s reported segments Construction Services Finland Business description: Residential development Business and public premises Infrastructure Key figures 2012*: Revenue: EUR 1,329 million EBIT: EUR 134 million Personnel: ~3,500 Finland Estonia Latvia Lithuania Russia St. Petersburg Kazan Moscow Oblast Moscow Tyumen Yekaterinburg International Construction Services Business description: Residential development Business and public premises (Central Eastern Europe & the Baltics) Key figures 2012*: Revenue: EUR 600 million EBIT: EUR 80 million Personnel: ~2,800 The Czech Republic Slovakia Rostov-on-Don *) Adjusted non-ifrs figures based on segment reporting (POC), published on May 21, 2013 YIT 6 Finnish Corporate Bond Seminar December 10, 2013

7 Revenue growth and healthy profitability through economic cycles Construction services have proven strong and stable revenue growth through economic cycles Q4 2007: International Construction Services segment established due to growth of operations in Russia and the Baltic countries : Financial crisis affected market conditions especially in the Baltic countries and Russia (i.e. ICS) Good track of improved profitability after 2009 Further measures to improve profitability in both Construction Services Finland and International Construction Services % 55 Construction Services 828 Revenue development (EUR million) by business segment International Construction Services Construction Services Finland , , , , CAGR +8% 1, ,632 1,631 1,384 CAGR +12% 1,716 1,573 Operating profit (EBIT) development (EUR million) by business segment Construction Services International Construction Services 7.3% % % % 11.0% , Construction Services Finland EBIT-% 11.8% % 487 1, % , % , % , % , , % Note: Segment level figures (POC), i.e. sum of Construction Services related segment figures in YIT financial reporting and thus excluding effect of Other Items; International Construction Services part of Construction Services from 2000 to 2006; 2011 and 2012 figures excluding IAS 23 adjustment, i.e. in line with reporting standards adopted starting from 1 Jan 2013 YIT 7 Finnish Corporate Bond Seminar December 10, 2013

8 Good market position in all markets Construction companies on YIT s markets Number of apartments sold in 2012 YIT s markets and market sizes 2012 (apartments) Russia*) PIK Group 10,123 Etalon 4,862 YIT LSR Group 4,209 4,185 Finland 27,000 Russia 788,000 NCC 496 St. Petersburg Lemminkäinen Finland YIT Lemminkäinen 141 (Sales to consumers) 1,869 1,013 Baltics 9,800 43,000 Moscow region 89,000 Moscow 23,000 Skanska 1,009 NCC 736 SRV 477 Baltics & CEE Central Group** Ekospal** 700 1,216 The Czech Republic 24,600 Slovakia 12,500 Finep** YIT MERKO NCC *) Listed companies elsewhere than Russia **) 2011 figures YIT 8 Finnish Corporate Bond Seminar December 10, 2013

9 YIT a significant player on European level in housing business Housing sales (pcs) in 2012 EBIT % in ,637 11,042 10,123 9, % 16.1% 7, % 8.2% 11.4% 13.0% 10.4% 4,862 4, % 4,185 3, % 10.6% 2,952 1, % YIT 9 Finnish Corporate Bond Seminar December 10, 2013

10 Strategy for

11 YIT s Strategy Well managed and profitable growth Growth in own development >10% growth per year Strong growth in residential development and construction in emerging markets (Russia and CEE) Strengthening the position in Finnish residential business strong market share, new concepts and best customer experience with high quality brand Increasing the share of own-based development projects in Business Premises and Infra Services Wider financial operating space Capital for reuse >EUR 250 million Releasing capital from slow-moving assets New funding sources and increasing utilization of partnerships in large area development Diverse financial instruments supporting business and customers Solid set up for market cycles Cash flow annually >EUR 0 YIT 11 Finnish Corporate Bond Seminar December 10, 2013 Housing production and sales inventory management - ability to react fast Strengthening sales risk -free and long-term cash flow business Competencies to take real-time advantage of changes in the market environment

12 Financial targets for the strategic period up to 2016 Annual revenue growth >10% on average ROI of 20% Operative cash flow after investments sufficient for dividend pay-out and repayment of debt Equity ratio of 40% Metro tunnel Espoo, Finland Dividend pay-out: 40 60% of net profit for the period YIT 12 Finnish Corporate Bond Seminar December 10, 2013

13 Profitability of businesses

14 Revenue growth and profitability in Russia Revenue in Russia Revenue development (EUR million) H1/2013 Operating profit excluding one-offs (EBIT) development (EUR million) Operating profit EBIT-% 13.8% 15.5% 13.4% 7.1% % 1 9.4% H1/2013 YIT 14 Finnish Corporate Bond Seminar December 10, 2013 Note: Excluding group level items.

15 Revenue growth and profitability in Housing Revenue in Housing Revenue development (EUR million) H1/2013 Operating profit (EBIT) development (EUR million) Operating profit EBIT-% % 10.8% 12.9% % 4.1% 5.4% H1/2013 YIT 15 Finnish Corporate Bond Seminar December 10, 2013 Note: Excluding group level items.

16 Revenue growth and profitability in Business Premises & Infra Services Revenue in Business Premises and Infra Services Revenue development (EUR million) H1/2013 Operating profit (EBIT) development (EUR million) Operating profit EBIT-% % 7.5% 6.6% 6.2% 6.5% % H1/2013 YIT 16 Finnish Corporate Bond Seminar December 10, 2013 Note: Excluding group level items.

17 Investment policy and risk management

18 Investment policy The Group Investment Board responsible for planning of capital allocations and investment Centralised decision making ensures consistent investment risk management Members of the Group: CEO, deputy CEO, CFO, SVP, Investments and Business Development and VP, Group Accounting The Group Investment Board reviews and decides: Plot investments, divestments and start-ups (housing and real estate development), proposals prepared by local management Equipment investments (> EUR 2 million and all investments outside accepted annual plan (6 months period)) Acquisitions Group level development programs Required project margins by region Lowest requirements in Finland, next CEE, highest requirements in Russia Group-wide targeted project return on investment 20% YIT 18 Finnish Corporate Bond Seminar December 10, 2013

19 YIT s risk management Risk management is a central element in YIT s business management Wide risk management practices implemented throughout the Group Due diligence process in plot acquisitions Corporate governance Simulations of market shocks impacting business Continuous actions to mitigate impact of possible market shock Actions related to ordinary business management Securing balanced portfolio of own-developed projects Securing balanced and adequate financing Strict project control; design, apartment size Consumer/investor option in Finnish housing Improving amount of sales risk free order backlog Actions during shock period Sales strategies to boost sales and cash flow Increasing number of investor projects in housing Renegotiation of contracts, salaries and payment schedule Adjust investments, potential asset sales Organizational adjustments, fixed cost control YIT 19 Finnish Corporate Bond Seminar December 10, 2013 Simulation description Starting point & assumptions Simulation based on existing YIT business portfolio and volume Revenue Operating profit and profitability Cash flow Parameter changes in shock period in development projects Length of market shock Sales time Change in down payment and payment terms Price Production volume Elasticity of construction prices

20 Managing sales risk YIT manages sales risk by matching the number of housing start-ups with the estimated residential demand and the number of unsold residential units and by normally securing key tenants and/or the investor prior to starting a business premises project. FINLAND The role of advance marketing essential in sales risk management Evaluation of the competitive supply Ensure the right product in right place with a proper timing RUSSIA Central and favourable project locations reduce sales risk Sales tactics Sales speed Pricing YIT 20 Finnish Corporate Bond Seminar December 10, 2013

21 Sufficient plot reserve leaves room for cash flow management Cash flow of plot investments EUR million International Construction Services Construction Services Finland Major investments in land bank and own-developed residential production in Russia in 2006 Variation in plot investment volume has been high good possibilities to adjust the investments, if needed In plot pre-agreements payment schedules tied to permitting processes Additional focus on payment terms Average annual cash flow of plot investments ( ) on a level of EUR 150 million YIT 21 Finnish Corporate Bond Seminar December 10, 2013

22 Group balance sheet and cash flow

23 Adjusted consolidated balance sheet as of September 30, 2013 Revenue* Assets (EUR million) - Inventories, WIP in particular, account major share Equity and liabilities (EUR million) 2, Non-current assets 2,540 1, (12%) 83 (4%) Equity (33%) Non-current borrowings 317 2,036 (80%) Inventories 1,035 (51%) 2,036 Current borrowings 593 1,893 WIP 317 Trade and other receivables 52 Cash and cash equivalents Q4/12-Q3/13 Q3/13 Land areas and plot owning companies Shares in completed housing corporations Other Inventories Advances received Trade and other liabilities Other liabilities** Q3/13 *) Last 12 months, non-ifrs figures based on segment reporting, published May 21, 2013 **) Includes deferred tax liabilities, pension obligations, provisions and other liabilities NOTE: Adjusted non-ifrs figures based on Group reporting (IFRIC), published on May 21, 2013 YIT 23 Finnish Corporate Bond Seminar December 10, 2013

24 Net debt increased, liquidity ensured Interest-bearing debt (EUR million) Q1 Q2 Q3 Q4 Q1 Q2 Q Net debt Cash and cash equivalents Large share of the recent increase in debt comes from excess capital tied to Ongoing Business Premises projects Completed unsold apartments Average interest rate in 9/13 2.7% Long-term debt maturing in 2013 EUR 15.3 million Undrawn committed credit facilities totalled EUR 280 million (9/13) New facility of EUR 50 million signed in October Construction costs remaining 9/13: EUR 933 million (9/12: 798) Financial covenant tied to the Group s equity ratio (minimum level of 25%) according to Group reporting (IFRS) in bank loans and RCFs Equity ratio (IFRS) 9/ % Note: 2012 and Q1/2013 non-ifrs figures published May 21, YIT 24 Finnish Corporate Bond Seminar December 10, 2013

25 Bonds and commercial papers are key source of capital Sources of funding Percentage of total Gross debt and average interest rate EUR million (%) % 15% 12% % 24% 32% % 28% 32% 18% 24% 15% 3% 17% 17% 25% 16% 4.7% 23% 32% 30% 36% 41% 40% 53% 3.6% 3.4% 3.2% 3.1% 2.7% /2013* Bonds & CP Other bank-based** Banks Insurance companies *) Post-demerger situation **) Includes selling receivables, factoring, project finance and other sources /2013* 2009-Q2/2013: according to IFRIC : according to POC Interest-bearing liabilities Average interest rate YIT 25 Finnish Corporate Bond Seminar December 10, 2013

26 Equity ratio declined slightly Gearing Percent Equity ratio Percent Strategic target: Equity ratio 40% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q1 Q2 Q According to group reporting (IFRIC 15) According to segment reporting (POC) Note: 2012 and Q1/2013 non-ifrs figures published May 21, YIT 26 Finnish Corporate Bond Seminar December 10, 2013

27 YIT s cash flow Cumulative cash flow after investments /2013: EUR -140 million EUR million /2013 Typically plot investments and volume of own-developed projects key drivers for cash flow Increase of EUR 97 million in working capital in Q3, mostly in CSF Increase in work-in-progress in ongoing own-developed Business Premises projects in Finland, EUR 26 million YIT aims at selling several major business premises projects by the end of 2013, however timing of sales uncertain as year end approaches Leasing proceeding well Total value of the projects more than EUR 80 million Positive impact on cash flow Note: 2010 and 2011 figures calculated by deducting Caverion -carve-out figures from reported YIT-figures YIT 27 Finnish Corporate Bond Seminar December 10, 2013

28 Good possibilities to decrease the leverage Net Debt/EBITDA Multiple (x) Strategic target: Equity ratio 35% 4.8x More efficient use of existing assets Rotate and release capital from balance sheet 2.7x 3.0x 3.6x Strong cash flow focus Further improve plot acquisition structures and create partnerships to reduce plot investment needs 12/2012 3/2013 6/2013 9/2013 Ability to adjust plot investment needs Current plot reserve provides a good base for growth and profitability for the coming years According to group reporting (IFRIC 15) Note: 2012 and Q1/2013 non-ifrs figures published May 21, YIT 28 Finnish Corporate Bond Seminar December 10, 2013

29 Measures to improve cash flow and ROI Invested capital Managing inventory of completed unsold apartments and successful sales execution in Business Premises in Finland (in the short term) Book value of unsold completed apartments >EUR 150 million and ongoing commercial real estate development projects >EUR 60 million In normal situation capital tied to these <EUR 100 million Releasing EUR 150 million from slow moving assets during the strategy period Mostly in International Construction Services Capital for reuse and debt reduction Efficiency in plot acquisitions and large area development projects New off-balance sheet partnership models, EUR 100 million Continuously improving payment terms Operating profit Successful sales execution in Business Premises in Finland (in the short term) Room for profitability improvement in ICS Foundation laid during past years Good opportunities for operational leverage Cash inflow from customers at earlier stage of construction Opportunities still to improve design and pricing skills Increasing the share of own-developed projects Targets: Group cash flow annually >EUR 0 and ROI >20% YIT 29 Finnish Corporate Bond Seminar December 10, 2013

30 Market outlook and guidance

31 Market outlook 2013 Construction Services Finland Residential Construction Forecasted housing start-ups 27,000 units in Finland in 2013 (RT, Confederation of Finnish Construction Industries, October 2013) while the estimated long-term annual need is 24,000-29,000 units (VTT Technical Research Centre of Finland, January 2012) In the long term, housing demand is supported by migration and demographic factors In the short term, the risks in the residential market have increased due to macro uncertainties and weaker customer sentiment Housing prices expected to remain stable Moderate increase in construction costs mainly due to changes in energy norms Business Premises Commercial construction is expected to decrease by 12% and office construction by 30% (RT, Confederation of Finnish Construction Industries, October 2013) Vacancy rate in the office sector high, demand will focus on modern and energy-efficient premises Infra Services Infra construction forecasted to remain stable (VTT Technical Research Center of Finland, September 2013) Rail and metro construction works main driver of the market at the moment Wind farm (illustrative) Lestijärvi, Finland YIT 31 Finnish Corporate Bond Seminar December 10, 2013

32 Market outlook 2013 International Construction Services Finski residential area Shchelkovo, Moscow oblast, Russia. Russia Huge long-term need for housing Housing construction is estimated to increase in 2013 YIT expects housing prices to be stable in 2013 Mortgage rates have started to stabilise GDP growth estimates have been cut recently; volatility in oil price and EUR/RUB exchange rate The Baltic countries, the Czech Republic and Slovakia Long-term need to improve living conditions Housing construction volumes increasing slowly from low levels in the Baltic countries Housing start-ups expected to remain stable in the Czech Republic and Slovakia YIT 32 Finnish Corporate Bond Seminar December 10, 2013

33 YIT estimates that the revenue and operating profit based on the Group's segment reporting for 2013 will decrease from the level of 2012, excluding non-recurring items* Guidance for 2013 Continued uncertainty over the general macroeconomic development impacts YIT s business operations and customers *Guidance, based on segment reporting (POC = percentage of completion), has not been updated since September 11, 2013 Novo Orlovski St. Petersburg, Russia YIT 33 Finnish Corporate Bond Seminar December 10, 2013

34 Summary Growth is based on own-developed projects Growth is financed internally through better capital efficiency Target is to keep the annual cash flow positive in all market conditions YIT s ability to manage cyclicality has improved Liquidity buffers secured Wide risk management practices implemented throughout the Group New strategy enables reaching financial targets and lowering leverage YIT 34 Finnish Corporate Bond Seminar December 10, 2013

35 Disclaimer Important Information This presentation has been prepared by, and the information contained herein (unless otherwise indicated) has been provided by YIT Corporation (the Company ). By attending the meeting where this presentation is made, or by reading the presentation slides, you agree to be bound by the following limitations. This presentation is being furnished to you solely for your information on a confidential basis and may not be reproduced, redistributed or passed on, in whole or in part, to any other person. This presentation does not constitute or form part of and should not be construed as, an offer to sell, or the solicitation or invitation of any offer to buy, acquire or subscribe for, securities of the Company or any of its subsidiaries in any jurisdiction or an inducement to enter into investment activity. No part of this presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investments decision whatsoever. The information contained in this presentation has not been independently verified. No representation, warranty or undertaking, expressed or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or the opinions contained herein. Neither the Company nor any of its respective affiliates, advisors or representatives nor any other person shall have any liability whatsoever (in negligence or otherwise) for any loss however arising from any use of this presentation or its contents or otherwise arising in connection with the presentation. Each person must rely on their own examination and analysis of the Company and the transactions discussed in this presentation, including the merits and risks involved. This presentation includes forward-looking statements. These statements contain the words "anticipate", will, "believe", "intend", "estimate", "expect" and words of similar meaning. All statements other than statements of historical facts included in this presentation, including, without limitation, those regarding the Company s financial position, business strategy, plans and objectives of management for future operations, including without limitation those regarding the demerger plan and its execution, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company's present and future business strategies and the environment in which the Company will operate in the future. These forward-looking statements speak only as at the date of this presentation. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. The Company cautions you that forward-looking statements are not guarantees of future performance and that its actual financial position, business strategy, plans and objectives of management for future operations may differ materially from those made in or suggested by the forward-looking statements contained in this presentation. In addition, even if the Company's financial position, business strategy, plans and objectives of management for future operations are consistent with the forward-looking statements contained in this presentation, those results or developments may not be indicative of results or developments in future periods. Neither the Company nor any other person undertakes any obligation to review or confirm or to release publicly any revisions to any forward-looking statements to reflect events that occur or circumstances that arise after the date of this presentation. YIT 35 Finnish Corporate Bond Seminar December 10, 2013

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