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Welcome to Inderes TV! YIT published its Q3 earnings this morning, and I have the company's CEO here for an interview on that topic. Hi, Heikki! Hi. Shall we go through the main points of the quarter from your perspective? Let's do that.
Indeed, we published our quarterly earnings, and sales grew, the bottom line improved, the order backlog grew, and cash flow was positive. So those are essentially the key highlights from the quarter, quite strong.
You also narrowed your guidance for operational EBIT. Now you believe it will land between 80 and 90 million EUR. So which segment is the biggest variable behind this? Regarding the upper and lower ends of the guidance range for the final quarter.
We certainly started the year. If we think about it, from 70 to 100, which is relatively wide, and that speaks to one of the markets we have, housing Finland, and how the full-year picture of housing in Finland unfolds, and that has been the question mark. Now after the third quarter, we can already see quite well what this full year is going to look like. And at the same time, we narrowed the lower and upper bounds now to 80 to 90 million, and with that. Outlook, we will proceed until the end of the year.
But the contracting segments are progressing in a relatively balanced manner. So one could probably summarize that in the housing segments' earnings, this Q4 sales of homes.
Naturally, the volatility of consumer demand is the individual factor, if you think about it. Currently, since we have transitioned to percentage-of-completion revenue recognition, those completions of individual homes or projects are no longer as critical for our earnings reporting as they were, for example, in our previous reporting. But now, what the speed of sales of homes is, what the speed of housing production is, that naturally affects the performance of the housing segments in revenue-recognition-based reporting.
Indeed. If I recall correctly, you estimated that the impact of the efficiency measures in the spring could positively affect earnings by 7 million EUR already this year. Was that already visible in the Q3 earnings?
It is visible in Finnish housing, meaning that it naturally weakened compared to last year, but at the same time, our sales still dropped by 35% from the comparison period quarter. But our earnings and situation improved from Q2 onwards. The team there is working hard to first reach the break-even level and then push from there in a better direction. Naturally, we see that quite difficult years are behind us. We have seen that there. There has recently been subsidized housing as well, the total volume has dropped, and investor demand has been very scarce for a long time. But even fewer new housing projects have started there, and now we rely very heavily on consumer demand regarding how business is currently conducted in Finland.
Indeed. If we move first, however, to CEE housing, in Q3 only around 150 homes were started. You expect these housing starts to be weighted towards Q4 now, so are housing starts shifting significantly from Q3 to Q4?
Well, perhaps not quite. You cannot say that they shift, that they are certain. As you said, precisely so. Meaning that in Q4 we see that our activity is already much higher. And it is more a question of how quickly we have been able to get projects to that start phase, that the market is favorable for us, and we understand that one key thing to continue the good trend we have is to get those new starts underway there now during the fourth quarter, but also strongly next year.
And we are aiming to double the business from our 2024 level. And now in Q3 sales grew by 10%, and our target is 15%. So, this certainly encourages us as well. To simply accelerate the pace. When we are in a good market, we operate.
Indeed. In Q4. You expect almost 1,000 homes to be completed. In CEE housing, do you believe that those accelerating starts can compensate for the stock leaving through completions?
Well, let's look at the rolling 12 months and then what the start opportunities are there. We have sometimes clearly accelerated oversales in certain quarters, and lagged a bit in others, but overall we are definitely on that growth path. We must be able to continue to be so.
Can you elaborate further on the bottlenecks in the background? Regarding those starts?
It usually relates to permit processes. It relates to that. Building permits, which in Finland are, frankly speaking, quite straightforward and even quite fast. And there are quite a few uncertainties. Perhaps also a time shift regarding when building permits are obtained for a project and we can get them started, that is more of the question on the CEE side.
Indeed. Then if we move to Finnish housing. The market still feels rather gloomy. But you raised the short-term outlook, so what is behind this?
Yes, and indeed, if we look, we are projecting two things: what the current situation is, and how we see where we are heading over the 12-month period. The current situation is. The market is weak. That's it. It is completely clear that we are still down 90 percent from normal consumer sales volumes. But when we look ahead, we do see opportunities for the housing market to recover during 2027. And particularly when we talk about, look at consumer-side volumes, and that is actually based on the fact that there is not very much supply at the moment. These inventories are already at a very normal level. There are several cities where we are at very low levels.
And then at the same time, however, there is still pent-up demand in the market. Cities are growing, and we see that, for example, at present, for those desired family apartments, there is quite good demand in certain micro-locations in large cities. And through that, we see that opportunities for recovery in 2027 exist, which is very much the same as what RT, for example. RT in its review. Highlighted a short while ago. Of course, all of this also relates to whether the Finnish economy grows and enables our employment to improve and overall economic activity to rise, because those have a lot to do with economic activity. Then to housing sales, and we have seen that in all our other European countries where we operate as well.
Indeed. How do you view, for example, this recent interest rate movement? Does it affect. It probably affects this negatively as well.
Well, if we look at that then. We have already been operating. If we look at the 12-month Euribor, which is quite a typical Finnish reference point, we have been operating at around the 3% level during August. However, that is not an exceptionally high interest rate by historical standards. It is always more about what economic growth, real earnings, and purchasing power are relative to that interest rate level, and also in Poland, for instance, interest rates are well over 5%. So an individual interest rate does not prevent it if these other elements are in place.
Yes. If I recall correctly, housing in Finland had 365 completed homes unsold at the end of the quarter. Well, how about Q4? Are you focusing on clearing inventory or maintaining margins?
Probably both. That is always the CEO's answer to this. But we have. We have a strong balance sheet. We have. We are already far from the situation seen, for example, during 2024, when we had a thousand unsold homes in Finland. So that inventory. In fact, if we look at many cities. Well, we have. We do not have a single home in them. Certainly we do. What is more important at this point is that we get homes and projects moving that meet consumer requirements. In this market, we see that doing so enables us to conduct positive business.
Right, then let us move on to contracting. There, the order backlog grew strongly to EUR 2.5 billion, so how significant a share is that, probably not. Data centers are now one growth driver, but how significant a share is that, for example?
Yes, data centers are of course a significant share there, but it is quite broad-based. This came to us. During the quarter, however, railway projects and sports construction such as in Jätkäsaari were launched. A major project and so on, so no, it is not solely data center construction that is visible there, and we are quite pleased about that, and I am really happy for the team in how they have been able to build a competitive offer for our client and achieve such strong growth during the quarter, our order backlog.
Right. Then, looking from a slightly different angle regarding profitability, the building segment rose above 5 percent. The adjusted EBIT margin for infrastructure was over 6 percent. How much support does this relative margin receive? Data center construction?
A good project, when executed, always supports it. We ourselves always like to. A single quarter is important, but we ourselves always like to look at the trailing 12 months. It gives a bit more support and trend. And it is worth noting that the building segment has improved for several consecutive quarters now. And there, it is our own efficiency, the efficiency of our own operations, but also the fact that we have now been able to communicate about many projects being significantly ahead of schedule, which brings a lot of benefit to the client, the end user, the consumer. But of course it is typically a financially successful project for us as well, and the Helsinki and Uusimaa health and well-being center is likely one of the records now. A little over 400 days ahead of schedule, so one can say that it is. It is an exceptionally successful execution in that project.
Right. Then, moving on to the sentiment around data center construction. Google's work. Put on hold by an authority decision. In Muhos and Kajaani. So how do you believe news of this type has affected investment intentions during the autumn?
Well, perhaps not. Naturally, we are informed by the same information regarding this first topic, and we must act in accordance with the legislation. We do not see, perhaps, if we look at our projects and their execution, any immediate impact. Naturally, if we look at public debate in general, it has activated quite a lot following various events since last summer. There are probably also a couple of other questions, which have been the sufficiency of electricity and the price of electricity. And now we also received clear answers to that this week from electricity providers that electricity is indeed sufficient in Finland. And the availability of electricity can be secured.
Right. You indeed have a EUR 300 million data center contract underway in Kouvola until the end of 2027. Or to be completed by the end. So at what stage in that project are volumes at their highest?
We will certainly not start disclosing that any further for an individual project. There, in fact, when an update was given on this data center market regarding how this value is distributed across the entire project, it gives a good picture of how the overall projects are progressing. I managed to visit on Wednesday, which was two days ago. At the project site, and I must say that projects of this scale move forward with tremendous speed once they are put into execution.
How do you see it, do these data center construction contracts change the typical seasonal fluctuation of construction within the year?
They can change that too, but perhaps I would highlight another angle that they will change, and in my view, very positively for the construction industry. And one big thing that we can scale from these to everything. To our operations is the occupational safety requirement level, which is undeniably at a different level in international projects than what we still have in Finland. And I see that the entire industry has a great opportunity to learn from that and further improve our occupational safety on construction sites. That is always our number one priority issue as well. But when we also look at how much attention is paid to it at these data center sites. Regarding work planning, the delimitation of hazardous work and areas, and so on, there are things there that. I hope the entire industry can scale and adopt.
But do you see an impact on that seasonal fluctuation?
On seasonal fluctuation. It depends on the project and depends on how those projects are recognized in earnings, so I cannot comment specifically from the perspective of the entire industry.
Then finally, regarding Tripla. Then again, impairment, with the required return having risen. So has the interest rate movement changed the sales schedule or price expectations from your perspective?
In terms of schedule, we have of course said that we want to bring the transaction to the finish line when the time is right. And we see that our shopping center. Performs extremely well. The asset is very good, but we are not the right owner for it. We have stated several times that we would like to release and transfer the capital from there. That has not as such changed the schedule. How we view the whole. But of course one can see here that return expectations have now changed, which then also affected its valuation on our balance sheet during the quarter.
All right. Thank you for the interview.
Thank you very much.
Automatic translation from Finnish. Give feedback in the Inderes forum.
Revenue rose driven by new contracting orders, even though the housing market has slowed down. CEO Heikki Vuorenmaa is interviewed by analyst Atte Jortikka.
Topics: (00:00) Introduction (00:10) Review of Q3 (02:59) Housing starts (05:00) Housing in Finland (06:43) Interest rate movement (07:23) Unsold apartments (08:15) Contracting (10:12) Data center construction (13:09) Impairment of Tripla