Good morning everyone and welcome to YIT's Fourth Quarter 2023 Results Webcast. My name is Essi Nikitin and I'm the Head of Investor Relations at YIT. Together with me here are our CEO Heikki Vuorenmaa and CFO Tuomas Mäkipeska. At this point I will hand over to Heikki. Please go ahead.
Thank you Essi. Good morning everyone and welcome to Fourth Quarter and Full Year 2023 Results Webcast. Since the first quarter of the year we experienced a notable positive trend in housing sales especially in Central Eastern European countries, showcasing the impact of our own actions and market resilience. Group operating cash flow continued to improve towards the end of the year and our debt level declined during the last quarter. Both of our contracting segments continued to improve underlying performance even though the fair valuation of assets impacted our Fourth Quarter results. Throughout the year our diligent cost management initiatives have been implemented across the organization. As a result we have streamlined, customer-focused operations at the moment. Additionally strategic capital release actions have been successfully executed, contributing to a strengthening financial position and setting the stage for the coming years.
I would like to thank all YIT employees for the overall solid closure of the year given the market environment. If we then look at the Full Year 2023 in brief, our financial performance during the year was clearly impacted by the Finnish housing market demand. To respond effectively to the market challenges and also secure the long-term competitiveness, we launched a holistic transformation program at the beginning of the year. We decided to focus on our three segments: infra, business premises, and housing. To ensure we have the right competencies and capabilities to serve our customers most efficient way. Our target is to improve our competitiveness and financial performance while reducing and reallocating capital employed between the segments. We have progressed faster than anticipated, and by now we have achieved EUR 25 million net recurring benefits and released a significant amount of capital from the operation.
Q4 strong cash flow and reduced net debt level is a signal that we are on the right track. However, there is still a lot of work ahead during this year. If we then look at the full year in numbers, our revenues stood at EUR 2.2 billion, which is 10% less than in a comparison year. Adjusted EBIT decline is mainly connected to the Finland housing market and changes in fair valuation of Q4 in business premises. Let's break down the EBIT more closely to our segment level. On the housing segment, profitability is driven by all-time high performance in Central Eastern European countries. Market conditions in Finland continued muted throughout the year, which impacted the segment's full year profit.
Despite the declined profitability, our operations are in great shape on all operating countries and we are well positioned to deliver again as the market turns in Finland. Our business premises profitability were impacted by the rising yields and high construction material prices in fixed price projects. As mentioned, our operative performance in that segment is improving and throughout the year we implemented a significant amount of changes and control points to improve segment competitiveness on coming years. On the infrastructure segment, good performance in Finland operations continued, reaching 5.1% EBIT level while the Sweden impacted our segment's full-year results. Next we go more into the details on each segment and start from housing. The main driver for the declined EBIT was low apartment sales in Finland as mentioned. During the year we sold approximately 400 apartments in Finland.
It is approximately one-quarter normal sales for us in more favorable market conditions. Clearly, positive highlight is the sales in the CEE countries, total of 767 units. Our demand and supply is in balance as we started almost the same amount of new units during 2023. We also continue to have a good stock of apartments available. Now more than 90% of those on the capital region or university towns in Finland and Central Eastern European countries. Our apartment sales on the fourth quarter increased close to 70% in the Central Eastern European countries. Quarter four was actually a third consecutive quarter of improved sales in the total housing segment. On the Central Eastern European countries recovery started earlier and has continued positively especially in Poland, Czech and Latvia.
Actually, if you look at the Q4 sales, the total sales in units exceeded already the comparison quarter volume. As I mentioned, we started to adapt our operations to the market situation strongly during last year. It is also visible now on our ongoing construction volume, where we have approximately 3,400 units under construction. The vast majority of those in CEE countries. Our sales rate of apartments under construction is approximately 50%, which reflects the lower portion of investor sales. We will continue to accelerate the construction volumes on coming year especially outside of Finland and we will return to the Finnish market as the market conditions are more favorable. When we look from the completions perspective, also our capacity adjustment is visible here. During 2023, we completed approximately 2,600 apartments 50% in Finland and 50% in Central Eastern European countries. Year 2024 will look different.
We expect to complete approximately 1,800 units of which almost 70% in the CEE market. As mentioned in Finland we have a healthy inventory of apartments to sell to the market during 2024 and early 2025. Our total unsold portfolio of completed apartments in Finland was 890 at the year end. It is approximately 20% of the total Finnish market's unsold new housing units. The share of unsold apartments in Finland is less than our market share has been during last year. Our portfolio of apartments locates on the growth cities on the prime locations. If we look on the city by city level example in Tampere and Turku our sales stock is approximately two months sales on the normal market conditions.
When we then look at the overall Finnish market so here we have summarized all the completions from the players to the Finnish market during 2024 up to 2025. This is then illustrating the supply to the market. The total supply to the market on this year is approximately 3,700 units. 15% of completions comes from YIT. The supply will even further decline during the first half of 2025 as the industry balancing is expected to continue. To summarize the segment situation our segment is operatively in very good condition and is ready to deliver as the cycle starts to turn at scale. Let's move to the other segments and we start with the Infra business. Our management and all the infra employees they have really improved the profitability during the year 2023.
Our operating profit improved to 3.3% on the segment level, and as mentioned, in Finland we reached over 5% while our order book continued to increase. This is a very strong result from the team, and as we then gradually are exiting from Sweden, our segment profitability still continues to improve. Excellent progress, and we all have good reasons to expect a similar track to continue on the coming years as well. Then to the business premises. The year was overall challenging for the segment. Rising yields impacted assets' fair valuation, and material cost increased to fixed-price contracts. During last quarter, we changed the management of the segment and also reorganized ourselves to face the challenges that we have. Several improvements are already implemented to improve the operative performance and leverage the group best practices all the way from tendering to the final product delivery.
I'm very confident that we can expect similar profit improvement and reach similar operating margin as we already see on the infrastructure segment in the next two years. We had success to release capital from the segment during last year in the foremost selling our office premises Maistraatinportti. We need to continue on that path. The potential to reduce the segment balance sheet is almost EUR 400 million. We are working on that in full speed. If we then look overall at the market environment where we are operating, the market environment continues similar as in the last quarter. Housing market in Finland and Baltic countries is expected to continue weak. The Central Eastern European market continues on a normal level already.
The real estate market in our operating countries is on a normal level and we see activity both in the industrial and public sector to remain normal. In Infra Finland we see actually several potential projects under calculation this year of which construction would start early 2025. Overall the market remains normal for us. Now it's time to hand over to you Tuomas to go through our financials more in detail.
Yes, thank you Heikki. Also from a financial perspective the fourth quarter was another step forward for YIT. We consequently closed the financial year of 2023 on a positive trend. Despite the market situation our order book remained strong ensuring future volumes and profits. However the housing market in Finland challenged us throughout the year which led to a clear decrease in overall profitability. During the year we took determined actions to improve our financial performance.
We made progress especially in releasing capital and generating cash flow from our operations. Consequently, we decreased the net debt by over EUR 70 million during the last quarter of the year. Let's have a closer look at the financials. We are pleased with the fact that the order book development was relatively stable throughout the year despite the housing market conditions in Finland. In the contracting segments, business premises and infrastructure, the market conditions have remained on a fairly normal level. In fact, the order book improved in the infrastructure segment both year-on-year and quarter-on-quarter, which we see very positive. There, our approach of focusing on the tendering processes where we have competitive advantage is paying off.
Business premises segments order book has developed relatively steadily and currently includes also more than EUR 300 million of life cycle project service periods providing recurring revenue and profits for long term. Housing segment order book declined during the whole year due to the lower apartment startups in Finland. But altogether the order book level of EUR 3.2 billion ensures our operations and profits going forward. Let's next have a look at the profitability more closely. As mentioned the overall profitability decreased clearly from the comparison period. The change in Adjusted EBIT was roughly EUR 70 million and profitability decreased especially in housing Finland. The main driver behind this development was the low consumer sales of our apartments in Finland. As Heikki mentioned the demand in CEE countries has been clearly higher and we reached all-time high profits there which is also strategically very important for us.
The underlying profit performance improved in business premises and the work continues to strengthen segments' profitability. Unfortunately the progress was more than offset mainly by the decline in fair values especially in Mall of Tripla which is operationally performing well though. In infrastructure the overall performance continued to improve and ended up with solid profitability in Q4 which we also see very positive. YIT's infrastructure business in Finland has improved its profitability significantly and simultaneously increased the order book which are clear demonstrations of competitiveness in the market. Moving on to the development regarding the cash flow and capital employed. From cash flow generation and capital employed perspective the year was clearly twofold. In Q1 we recorded a very low cash flow due to high construction volumes tying a lot of capital while simultaneously consumer sales nearly stopped in Finland providing very low cash inflows.
As a result we launched several cash flow improvement and capital release actions. With the measures taken we were able to turn cash flow positive already in Q2 and continue on a positive track the rest of the year. In fact from Q2 to Q4 year-on-year the Operating Cash Flow after investments improved over EUR 300 million. In Q4 the cash flow reached nearly EUR 70 million. The main drivers behind the cash flow improvement were the determined actions according to the capital release program on which I will elaborate a bit in a minute. Increasing Capital Employed was stopped in Q2 and during the second half of the year we achieved a positive trend downwards despite the fact that completed apartments in Housing Finland tied up more capital.
The sale of the apartments from inventory will release capital and low construction volumes will slow down the amount of additional capital tied to apartments in upcoming quarters. In the big picture we see that running our business profitably requires clearly less capital than before and we aim to release capital significantly from our operations going forward. For example we have shifted our housing focus to CEE countries and reached growth and all-time high profitability while simultaneously decreasing capital employed by adopting capital efficient ways of doing business there. Let's double click on the capital release measures taken so far. First of all I'm pleased to see that we have executed our transformation program according to plan. Results are clearly visible in both cash flow and capital employed as demonstrated on the previous slide. Altogether we have taken actions worth EUR 200 million so far.
But the capital release program measures worth of some EUR 100 million have been executed. During the Q4 we were able to sell our renewable energy business to Eolus Wind and recorded a EUR 46 million gain on sale. We have put focus on achieving permanent improvements in the cash conversion cycle and some results are visible already. In that area we see a lot of further potential to be realized this year. The cost efficiency measures especially in IT and procurement supported the profits and cash flow as well. We also completed the sale of the CE Live- On co-investment vehicle in Q4. But on top of the capital release program we have achieved net working capital efficiencies worth of some EUR 120 million. The sale of Maistraatinportti office property was of course a successful closing for Q3.
We have also sold some plots in Finland and CEE countries to improve liquidity. Finally we have executed some apartment bundle deals to investors to deleverage the balance sheet. This work continues and we are expecting significant further gains during 2024. Let's next have a look at the key assets and net debt position. Our underlying asset base continues to be very strong. Key assets totaled to EUR 1.9 billion. We have a land bank over EUR 800 million to serve as a platform for future operations and profits. Inventory assets under production amounted to EUR 400 million decreasing EUR 100 million from Q3 and reflecting the declining number of apartments under construction. Completed apartments and real estate in our inventory increased to EUR 390 million. Investments were worth of EUR 290 million decreasing from Q3 by the sale of CEA Live On as mentioned.
Net interest bearing debt decreased significantly to EUR 795 million due to strong cash flow in Q4. Approximately EUR 520 million of our gross debt is related to IFRS 16 lease liabilities including the leased plots and long maturity housing company loans that are then transferred to the buyer at the point of sale. So the adjusted net debt is consequently only EUR 280 million. So our underlying asset base continues to be strong and our net debt structure remains balanced. And going forward we see that the optimal situation for YIT is to operate with clearly less debt and utilize mainly project-based loans. We are aiming to reach this kind of a position by the end of 2026. The equity ratio of the company remained stable throughout the year and ended up with a slight improvement in Q4.
Gearing decreased nearly 10 percentage points due to the strong cash flow and decrease in net debt in Q4. Overall YIT's target is to deleverage the balance sheet in the short term and to return to clearly below 50% gearing level in the long term. Regarding the interest-bearing debt we completed the refinancing of the term loans during Q4 and consequently improved the maturity structure of the debt portfolio. There is a EUR 100 million bond maturing in the spring which we are currently planning to redeem. Now moving on to guidance and outlook. We have updated the guidance for 2024 as follows. YIT expects its group adjusted operating profit for continuing operations to be between EUR 20 million and EUR 60 million in 2024. The operating cash flow after investments is expected to be positive.
The housing market recovery in Central Eastern Europe is expected to continue but in Finland the housing market is expected to continue to be weak in the first half of the year. In business premises and infrastructure the underlying operational performance is expected to improve. YIT's performance will be supported by the increased efficiencies from the transformation program launched last year. Changes in the macroeconomic environment especially in interest rates may impact the housing market demand and the fair value of investments. Delayed apartment completions could lead to postponement of revenue and profit from quarter or year to another. Actions to release capital may have an impact on the company's profits. To summarize the financial situation we have key assets of EUR 1.9 billion. We have achieved results from the capital efficiency measures and the determined work continues on that.
Most importantly cash flow has improved significantly and net debt decreased consequently. Thank you and back to you Heikki.
Thank you Tuomas. Before we open the lines for questions let me recap the main messages. We continue to focus to improve our segments' profitability complete our transformation and substantially release capital employed from the operations. We are building on our talented professionals to deliver solutions to our customers. We have a high focus on risk management while sizing all the opportunities this market provides for us. Thank you and operator it's now time for the questions.
If you wish to ask a question please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question please dial pound key six on your telephone keypad. The next question comes from Svante Krokfors from Nordea. Please go ahead. Thank you.
Good morning, Heikki and Tuomas, thank you for the presentation. The first question regarding your guidance at EUR 26 million in adjusted EBIT seems a bit shy given the support that you will get from the exclusion of Swedish infrastructure business. Could you give some guidance per division and also regarding business premises do you still have fixed price contracts that will burden in 2024?
Yeah, thank you, Svante. If I little bit elaborate and provide more color segment by segment there. So we do expect that the Finland infra business to continue on a good path. And like you mentioned there so the impact and the influence of the Swedish infra is going to decline. We actually are having less and less revenue coming from there as we are then gradually managing it towards the end. So that's where we see the infra business this year.
When we then look at the business premises side, the vast majority of those contracts that have been taken on a fixed price with a lower material cost were executed during last year. We may still have a couple of those continue this year. So what we are expecting overall is that the underlying profitability on the business premises is going to increase this year. And what we were impacted last year was also the sales of our asset base as well as the fair valuation of the assets on that segment, which quite significantly impacted the performance in 2023. And of course those are then unknown factors in 2024 how the yields and the interest rates are going to develop on the market.
On the housing segment side twofoldly so the CEE where we have now the 70% of the completions during this year we expect it to continue on a very strong path. The Finland market as we mentioned there we see at the moment that the first six months to continue on the weak level which has the highest I would say uncertainty on our outlook hence the relatively broad range what we are now stating. Anything Tuomas you would like to complement?
Not really that I think covers it all. Thanks.
Thank you and then you have a new campaign with interest rate caps on new apartments. How has I think that has now been running for a bit more than a week. How has the response been there? Can you give any color on that?
Yeah absolutely. So first of all that has been very well received. I think it is a signal and it has been welcomed as a positive new product to the market. Since we are now capable to give a five-year certainty for a home buyer, what would be the interest rate 2% or lower on that period of time. And if you look at it from the individual's perspective that is actually quite a significant decline on those monthly payments that one has to make in order to buy a new home.
What we are already seeing is that there has been interest on consumers in terms of contacting the banks that are supporting us here Nordea and Aktia. And also what we have seen is the amount of people visiting the open houses and the apartments and the contacts has been increasing now since we have been launching the campaign.
Too early yet to conclude the full impact. Obviously we expect and also wish that the individuals are taking their own time and considering the best apartment to select for their own need.
Thank you, and then I guess a lot of focus into the next month or two will be on your bond maturing at the end of March. Can you give some color? I know that you don't want to comment that but could you give some color on that and also the fact that you have been drawing slightly on your RCF during the quarters how will that impact on your bond refinancing options?
Yes, thank you, Svante. I'll take this one, and yes our plan currently is to redeem the EUR 100 million bond at the beginning of April.
The idea is to fund that one by the capital release and the cash conversion that we have been actually generating throughout the second half of the last year. Also, we had cash and equivalents, roughly EUR 130 million, at the end of December. And planning to continue on that path releasing capital and increasing cash flow. So that's basically the idea and the funding behind redeeming the bond.
Thank you. Perhaps the last question regarding your EUR 400 million capital release program. You elaborated a bit on that earlier, but you still believe that EUR 400 million is a relevant number given that you probably received less for the renewable business and you didn't receive anything from Swedish infra operations.
Yeah, I can continue from here and probably you can fill in then, but yes, the EUR 400 million potential what we have stated is still intact. And we stated that there is EUR 400 million potential and of course we are looking at our options in several items on the plan or on the roadmap. It's for sure one kind of a big ticket item there is the Mall of Tripla what we have disclosed publicly as well. There we are looking at our options during this year and making let's say best possible decisions to our shareholders. And that's of course one thing which is still unsure. The other ones let's say kind of a smaller capital release items we are at full speed on executing those. And as I mentioned already in the presentation we see a lot of potential both from the working capital and the disposal items to be gained during this year.
Yeah. Okay thank you Heikki and Tuomas that's all from me.
Thank you Svante. Thank you.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Olli Koponen from Inderes. Please go ahead.
Hello, everyone, and thank you for the presentation. I have a few questions left, and first I will start with infra segment. Can you tell us, was there some extraordinary in infra segment profitability in the quarter, or should we kind of assume that you're able to make this kind of profit now in the segment now that the Swedish infra has been downgraded?
Yeah, thank you, Olli, and we had very successful completion of the projects during Q4. What you should expect is the full year, I would say, the level, not the individual quarter, as the project starting and completions might vary a bit within the year, but that is a level that we are pleased with. There is actually where our Finnish infra has been already for a period of time.
Okay, thank you. There's just another question about the cash flow and the guidance of the cash flow. You expect your cash flow after investments to be positive this year but how do you kind of expect it to behave in the first half if you can elaborate on that and does it depend on you selling a lot of apartments from your balance sheet?
Specifically maybe not comment on how the between the quarters and the years but the main driver for us on the past quarters tying up the capital has been that we've been the construction volumes has been tying the capital for the Finnish apartments that we haven't sold all of those.
As we mentioned now, so the completions in Finland especially will be really low and we are approaching a point in time where we have less and less production ongoing. Hence the production itself doesn't anymore tie up so much capital into it. The capital starts to decrease. If you look at the point there that Tuomas was presenting and historically you compare the level of working capital between the years 2021-2023 you can observe that we have been tying approximately EUR 400 million more capital into our working capital during the period of time. And what we are signaling messaging here is that that tide is going to turn and we see that we're going to have a positive cash flow this year and we are taking steps to release the capital both on the investment side as well as the working capital side.
As a consequence, as a result, then to have a healthier balance sheet, deleverage the company, and return on our capital employed result as well.
Exactly, and if I may continue a bit on that, so for sure there is the underlying seasonality in the cash flow, for sure. But also, what will impact the cash flow and the timing of the cash flow development is dependent, of course, on the capital release program and the items and the measures that we are taking there. So that will kind of impact and give some seasonality for the cash flow, for sure. But anyway, so that's, in a big picture, what Heikki mentioned is that we are releasing capital totally from our operations throughout the year.
Okay, thank you. That's all from me.
Thank you, Olli. The next question comes from Emil Immonen from Carnegie. Please go ahead.
Good morning Heikki and Tuomas thank you for taking my question. Emil Imonen from Carnegie. I just wanted to understand a little bit better the financial costs in Q4 EUR 20 million. Is there some one-offs there or are those expected to continue at this high of a level?
I'll take this one. Thank you Emil for the question. Regarding the financial cost in Q4 so there are actually kind of two kind of items. First of all the increase in the interest rates have started to be visible in our financing costs. And then on top of that so related to the refinancing procedure that we completed during the Q4 so regarding that there are some one-offs as well. Okay so but they will still be higher than maybe we saw in the three first quarters this year?
Well, we are not disclosing any financial cost development through this year, but anyway, so it's good to note that the overall increase in the interest rates will have a kind of a negative impact on the financing costs as in general. Okay, because I was thinking that with your guidance, which was quite soft, I think you're then almost guiding for a loss-making year in 2024, is that correct? Well, as mentioned, so we are not guiding specifically the financing costs, but it's of course true that with the EUR 20 million to EUR 60 million adjusted EBIT there is somewhere there is also the break-even point for the net profit as well, that's for sure.
Okay, that is all from me, thank you. Okay.
There are no more questions at this time, so I hand the conference back to the speakers.
Great, thank you. So yes, it seems that there are no more questions, so we thank you all for participating and wish you all a great rest of the day. Thank you. Thank you.