Good morning, everyone, and welcome to YIT's first quarter 2025 results webcast. My name is Essi Nikitin, and I'm heading the Investor Relations at YIT. Together with me here are our CEO, Heikki Vuorenmaa, and CFO, Tuomas Mäkipeska. Without further ado, I will hand over to Heikki. Please go ahead.
Thank you, Essi and good morning to all. Let me start with the key highlights from our first quarter results. Our adjusted operating profit increased in all segments. The residential CEE apartment sales increased, and the market remained favorable in all operating countries. In Finland, residential profitability improved due to a favorable sales mix, and the market is recovering as we have expected. All segments also contributed to our profitability improvement, and the benefits of our transformation program seem to be already visible across our operations. Overall, a solid start for the year. Let's dive into more details. We start with the overview of our financial performance. The group adjusted operating profit improved from negative EUR 14 million to positive EUR 8 million.
Due to profitability improvements across all the segments, the group revenue decreased by 6% from the previous year, amounting to EUR 386 million in the first quarter. Revenue increased in both residential CEE and infrastructure segments, while building construction and residential Finland revenue declined compared to the previous year. When we look at the profitability improvement, the efficiency gains from the transformation program were a common factor on that, although that only partially accounts and explains the profitability improvement year on year. We will go through further details on the following pages. We will start with our residential operations in Finland. During the first quarter, our revenue continued to decline to EUR 81 million due to lower production volumes and sales during the quarter.
The market conditions over the past two years have impacted new project starts as well as investor products, with both impacting negatively on the segment's revenue. While the segment's profitability improved by EUR 6 million from the comparison period, it remained still negative EUR 1 million during the quarter. Profitability improvement is connected to internal efficiencies and to our improved sales mix. The capital employed continues on a declining trend as inventory of unsold apartments is declining according to our expectations. Just to remind that the fundamentals are in place in this segment to reach the set targets as the market returns back on normal level. Our inventory of completed apartments continues to decline. At the end of the first quarter, the total amount of unsold inventory amounted to 682 units, of which 70% is located in the capital area.
As the demand in the capital area is now improving, the declining trend on inventory will continue in the coming quarters. We remain confident that the inventory level will normalize during 2025. We also had a new start during Q1 as we launched a new project in Espoo, Finland. This project is actually the first in the capital area since 2023 and is, as such, a signal of improved demand in the region. As a segment, we have a clear plan for the new project starts during 2025, and the pre-marketing is ongoing for many new projects already. On the right-hand side, you can see the graph which summarizes the development of demand, supply, and inventory over the past two years.
Our inventory has now declined for the past five quarters as the sales volumes have increased and the number of new starts has been on a historically low level. This picture also clearly illustrates the headwinds the Residential Finland segment has had over the past few years due to the residential market downturn that now lasted three years. During this year, inventory will balance, and we will see further opportunities to increase the amount of new project starts as the year progresses. To completions, we will have a low amount of completions in Finland this year. During the first quarter, we had only 74 in Finland. For the next two quarters, our completions are on zero level, and during Q4, we expect to complete approximately 200 apartments more. For now, we continue to sell from our inventory this year, which is supporting our cash flow.
However, the low amount of completions is limiting our capability to generate profit from the residential Finland segment during the year. We move to our residential business in CEE. Our growth story continues in all operating countries. Revenue increased compared to last year, and also on a rolling 12-month trend, our revenue has increased 25% within a year. Our profitability improved from EUR 2 million to EUR 5 million compared to the previous year, and our operating margin is close to 12% on the rolling 12-month trend line. Even though you can see that we have a very clear growth in revenue, we have simultaneously reduced our capital employed on the segment's balance sheet. After the transformation program, our operations are now more efficient to use the capital, and consequently, return on capital on this segment is improving.
Our apartment sales in CEE during the first quarter was the highest since Q4 2021. You can see that our rolling 12 months, we have already exceeded the 1,000 apartment mark. Supported by these favorable market conditions, we continued to start new projects. In total, more than 500 apartments during the first quarter of the year. These new projects are already selling well and will support our coming year's revenue and profit generation. Our land bank is strong, and it supports new project starts in all operating countries. As you look at our history over the past two years, the demand and supply have remained in balance, and the inventory is under control like it has been over the past few years. When we then look at the completion distribution in the residential CEE, it actually looks very similar to that in Finland.
We had 278 completions during the first quarter, and the next approximately 750 will be Q4 this year. This obviously creates a strong seasonality to the segment profitability as well. Our way to recognize profit at completion will make the year quite back-end loaded on this segment. One more element which is connected to our residential CEE operation is the construction that we are doing with our joint venture partners. Also, in that part of the business, our sales increased compared to last year, and the number of unsold apartments is less than 100. Overall completions this year are 223 units, which is 60% less than year 2024. I could say that also our operations in joint venture are progressing exactly as we have planned. Now it is time to leave our residential segment and move to the infrastructure segment. Infrastructure also had a great start for the year.
Our revenue increased 30% from the comparison period to EUR 110 million, and our profitability from EUR 1 million to EUR 3 million. The team has done excellent work to provide cost-efficient solutions to our customers, and that is also visible as part of our increased revenue. The profit improvement has been done by internal efficiencies and lead time reductions, and these both are also benefiting our customers. Our 12-month rolling profitability is now at 4.6% and trending upwards. The segment capital employed remained negative, contributing positively to the group's financial position. Oops, we go to the order book still, because our order book in infra segment remained strong. It is over EUR 800 million, and it equals approximately 24 months of work. We see further opportunities both in the public and private sector, and we will come back to this later in the market outlook section.
Also, the most recently announced governmental investment plans are supporting our medium to long-term view on this segment. All in all, infra is on a good track. Now we move to building construction. The building construction revenue continued to decline during the first quarter. Competition situation in the market has impacted the development of our order book during the past quarters, which now resulted in declining quarterly revenue as well. Adjusted operating profit improved to EUR 2 million. The comparison period included a negative fair value adjustment of EUR 10 million, which is impacting the comparability within this segment. We did not have any significant divestments during the quarter, hence, we continue to have EUR 257 million worth of capital employed on this segment. The good news is that the order book developed positively during the quarter.
We recorded projects from the development phase to our order book, such as Salvia in Meilahti, worth of EUR 190 million, and Melkinl aituri School in Helsinki, value of EUR 44 million. We also won a new project in Lithuania as we renovate the shopping center, worth approximately EUR 47 million. The order book now corresponds to approximately 18 months of work, which is on a good level. However, it requires still further attention as we go forward. Some key highlights from our supply chain, and we have collected here our key operational metrics across all the segments. If we look at the production of homes under construction, it increased from the previous quarter. We have now almost 3,000 units under construction, of which 70% is located in the residential CEE segment. Before the market downturn started, the total volume reached approximately 9,000 units.
Our production is still lower than year 2021. An important metric for our contracting segment, which is a project margin net deviations. If you look at the historical trend from year 2023, we have improved significantly, supported by our transformation program on this specific metric. During Q1, the situation remained well under control. This is largely behind the contracting segment operative performance improvement that you can see from our financial statements. Finally, if you look at our supply chain status, availability of key raw materials as well as workforce remains either good or normal. We see a normal situation in concrete structures due to the startups that we have observed on our operating countries, which typically first require concrete solutions in the early part of the process. Altogether, our operations are well under control.
Then we move to the market environment, and we have made changes and upgrades to our market outlook. Firstly, we updated our view on the residential market in Finland. Based on data from the secondary market transaction, mortgage lending volume, improved sales in the capital area, and the success of the pre-marketing projects across the country, we estimate that the residential market in Finland is now improving. The market is still weak and recovery fragile. However, these signals provide us confidence that the market is improving. We also updated our view on the infrastructure market in Finland. Based on ongoing projects and tenders, both in the private and public sector, future investment plans, and announced decisions by government, we see that the market situation is further improving.
These investments are naturally subject to the potential impact of the global political turmoil, as well as the local government decisions that may impact our view in the medium term. Those were the two changes we did for the market outlook. When we looked at our residential market in the Baltics, it remains on a normal level, and in Central and Eastern Europe, it continues still further to improve. Our building construction market remains normal across our operating countries. Now it's time to leave the market environment update on my part and actually hand over to you, Tuomas.
Yes, thank you, Heikki. The first quarter of 2025 was stable from a financial perspective and solid from an operational perspective, as you mentioned.
Capital efficiency has been a key focus area for us in recent years, and capital employed decreased by some EUR 200 million from the comparison period. Cash flow for the quarter was minus EUR 16 million due to the typical seasonality of our business. Net debt decreased some EUR 80 million from the comparison period and remained stable when compared to the end of Q4. Gearing was at 91% at the end of the first quarter. Let's have a closer look at the financials. The capital release from the balance sheet and capital efficiency in business operations are top priorities in our strategy. On a group level, capital employed has been on a downward trend in recent quarters, and all in all, we have released some EUR 200 million of capital during the past 12 months. Our return on capital employed has been on a positive trend as well.
The successful capital release measures, capital efficiency in business operations, as well as improved adjusted operating profit are really visible in the metric now. The segment-level development was overall stable during the first quarter. As a key highlight, I would like to mention residential CEE and infra. In CEE, we released over EUR 30 million of capital during the first quarter, mainly as a result of project completions, strong sale of apartments, and other capital release measures. The infrastructure segment reached the target to operate with negative capital employed already in Q2 last year and has since remained on the same path. This is a strong result and really supports the whole group's financial performance. We will continue to drive profits and capital turnover to reach our financial target of at least 15% return on capital employed by the end of the strategy period.
Let's then look at the cash flow development. The measures to improve networking capital efficiency have continued to yield results as the 12-month rolling operating cash flow after investments has now been positive for the last five quarters. Cash flow during the first quarter was EUR 16 million negative, decreasing from the comparison period. However, it is important to note that the cash flow for the comparison period was supported by net cash inflow of EUR 29 million from the sale of businesses. When excluding the effect of the sale of businesses, the cash flow also improved from the comparison period. We have now improved cash conversion across the operations to generate positive cash flow going forward. Net interest-bearing debt remained stable from the previous quarter and decreased from the comparison period, amounting to EUR 689 million at the end of the first quarter.
The net interest-bearing debt included the IFRS 16 lease liabilities of EUR 269 million, as well as housing company loans of EUR 169 million related to the unsold apartments. The housing company loans have decreased by some EUR 70 million from the comparison period, along with our decreasing inventory of unsold apartments. When excluding the IFRS 16 lease liabilities and long-maturity housing company loans, the adjusted net debt amounted to some EUR 250 million. Gearing was at 91% at the end of the period. As said, we aim to reduce indebtedness of the group and operate within the set financial framework of 30%-70% gearing going forward. If we then compare our interest-bearing debt to the key assets, we can see that our underlying asset base continues to be very strong and amounts to well over two times the net debt.
We continue to have a land bank of EUR 760 million, which we see a critical platform for future profitable growth both in Finland and CEE countries, as Heikki mentioned. Completed apartments and real estate in our inventory amounts to some EUR 400 million. During the quarter, we announced a successful issue of a new green bond of EUR 120 million, maturing in three years. We also announced tendering of the bond maturing in 2026 and extended the bank facilities' maturity from 2026 to 2027, according to the plan. The successful transactions extend our average debt maturity significantly and highlight the capital markets' continued confidence in YIT and the outlook for our business. Let's then revisit the guidance. Our guidance remains intact. We expect the group-adjusted operating profit for continuing operations to be between EUR 20 million and EUR 60 million in 2025. Our outlook remains unchanged.
Before handing over to you, Heikki, I'll summarize the finance section. All in all, we can say that from the financial perspective, the first quarter was really a step forward in line with our plans. The improved adjusted operating profit, along with better capital efficiency across all our businesses, has put the return on capital employed on a positive trend. Sales improvement in the capital-intensive residential businesses supports our cash flow generation. The maturity structure of the interest-bearing debt was extended significantly during the quarter, and having only minor amortizations scheduled for this and next year really provides us stability and allows us to focus on executing our strategy. The strategy execution serves actually a transition back over to you, Heikki.
Thank you very much, Tuomas, and great overview on our finances.
I can say that we are actually, well, we have been touching a bit on the strategy already, and we announced that last year in our Capital Markets Day . What we're saying is that what is our both operationally but also financially our targets for years 2025 to 2029. Now the first full quarter is executed. We actually have 20 quarters on that strategy period, so it's a one out of 20. On those three different metrics, if you look at our financial targets that we were setting ourselves, we talked about revenue, and we are looking at annual growth of 5%. Obviously, the start still requires further work, and this performance is impacted by the residential market in Finland, but also our decisions to exit the infra business. The two other metrics what we have here are already pointing and trending towards the right direction.
When we look at our adjusted operating profit margin, we are targeting a performance over 7%. Now, on the 12-month rolling basis, we are at 3%. It is a step towards the right direction. Obviously, still work to be done. I think when we look at our transformation program gains, also the recovery of our residential market and our operations in residential CEE, those will play an important role to reach this profitability target during the strategy period. You talked already about our actions to reduce the capital, which we are determined to do. As our profitability improves and our capital allocation, kind of use of capital also is going down, our return on capital employed will increase consequently. Now we are at 3.6%. The target is to reach the 15% on the strategy period.
As a summary, small steps towards the target, two out of three metrics during the first quarter. If we then looked at kind of operationally what we concretely are doing to reach those targets, and just pick one operational highlight from the previous quarter. That is our decision to expand our operations and enter into the new city of Kladno in the Czech Republic. We started there with an investor project to mitigate the sales risk, and we will continue with our own production thereafter. First steps, the kind of is about 200 apartments, but we have a target to reach 800 apartments and actually more as the market supports. These are the concrete steps that are behind and building our success also during the coming years and how we are going to reach our strategic targets.
I have to say that the whole YIT team is excited about the new strategy, and we are all passionate to execute it in the coming years to come. Now I think it's time to say thank you for your attention and the operator. It would be time for questions.
If you wish to ask a question, please dial #5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial #6 on your telephone keypad. The next question comes from Anssi Rausi from SEB. Please go ahead.
Thank you, and hi all, and thank you for the presentation. I have a few questions, and I go one by one. First, about your number of sold apartments in Finland. The number declined a bit in Q1, but was there any specific reason or changes in trends, or was it just quarterly variation there?
Yeah, thank you, Anssi. No drama, no specific behind quarterly variation. We are very pleased with our sales mix that took place during Q1.
Okay, that's clear. Continuing on the residential side, you have done a lot of efficiency measures and taken actions. What kind of lead times do you have currently in Finland and in CEE? How fast can you react if demand improves rapidly?
You're right, we have implemented a multiple of efficiency and activities there. When we are in the location where we are not needing underground parking, mainly outside of capital area, our lead time is less than 12 months. Ten months is also achievable, depending a bit on the project.
When we then come to the capital area, maybe more demanding earthworks and the kind of underground parkings and structures, it is something between 14-18 months. That is in Finland. If you want to, Tuomas, take the CEE.
Yes, thank you, Heikki. Generally, I would say that the lead time in CEE, on average, is a bit longer than in Finland. As you alluded, Heikki, 14-16 months in general, I would say, is on average in the CEE countries. That, of course, varies a lot project by project, but that is on average. Also, Anssi , you asked what is our kind of capability to react to the market turns. Also, from a starting perspective, we have a very good capacity and capability to react fast. We have financial and other resources to react fast if and when the market picks up.
Thanks, that's great to hear. Maybe the last one from me for now. We have had a lot of public discussions regarding data centers lately. Have you seen any changes in investment plans, or is everything progressing as initially planned with your customers?
Yes, I actually wrote the opinion piece on the importance of investment, kind of security of Finland in a way that what is the long-term view. We are in active dialogue with our customers, if I broadly speak there. I think that we have a very close cooperation with our customers, and we look forward to the projects starting in Finland also on a bigger scale. Is that ambiguous enough?
Yes, thank you. I'll get back in line.
I'm not being very specific on that one, but of course, it's a lot of confidential discussions with the customers there that are ongoing.
Yeah, I understand that. Thanks.
The next question comes from Svante Krokfors from Nordea. Please go ahead.
Good morning. Thank you, Heikki, Tuomas and Essi for the presentation. I have a couple of questions. First one regarding residential Finland and the clear improvement in earnings despite lower sales. Could you elaborate a bit on the positive sales mix that you explained, and also how much was it impacted by, let's say, more staying improvement like cost control?
Yeah, the sales mix improved, and for sure during the first quarter, and we have now seen activity increasing here in the kind of also in the capital area, which is then more balancing the demand between all kind of across Finland. Not going to all the details, but I would say that we are looking some 50-50. That would be a good proxy on how that is impacting.
If I may just continue a bit on that, as you also mentioned in the presentation. Really now the transformation program that was completed at the end of last year. That is, of course, supporting the cost efficiency and other efficiency metrics as well across our operations, across the business segments. That is really supporting the residential Finland business as well.
Okay, thank you. That is helpful. On consumer apartment discounts in Finland, any changes there during Q1?
To consumers, no changes that would be. I think we are running a successful campaign again, which started a bit later than in Q1.
It is gaining positive momentum on the market, where we are then providing benefits for the customers that are buying home from us in terms of support for the initial six months, as well as help with the selling of their own apartment, as well as the moving-in type of elements. I think those are the typical support that we are giving, and time to time also negotiating about the price.
What we can say here is that on a group level, in the residential Finland, the discounts are lower than in the comparison period. That we can say.
Very clear, thank you. Regarding the investor apartments in Finland, have you seen any changes or light at the end of the tunnel there?
No concrete decisions, but the amount of discussions are increasing.
That is, of course, supported by the fact that there is quite a limited amount of new completions in terms of rental units. The second element, which is that the interest rate is declining. No concrete decisions, but I would say that more discussions than during the last year.
Thank you. The last one, I do not know if you would like to comment on the governmental decisions published last week. I mean, there is a number of ones that could be argued to be supportive for you.
Yeah, I think that is a good conclusion. We see that there are positive signals. Overall, the message about the growth investments quite often is connected to overall construction industry and activity that is required to make that growth that we are here talking about.
But also when we look at activities to support the home buyers, we see those positive also in the medium term to the business environment.
Okay, thank you. That is all from me.
The next question comes from Anssi Rausi from SEB. Please go ahead.
Yes, thanks. One follow-up actually on Svante's question. If we think about your residential inventory of these unsold completed apartments, how should we think about the earnings capacity and the margin potential in this inventory? Is it more like that the last ones are maybe those which are a bit more difficult to sell, or is it so that once the supply decreases, it's easier to take down discount campaigns? If you can help us with this one, thanks.
I would actually kind of look at the picture from a regional level.
What last year was quite clearly visible is that the demand was better outside of the capital region, where we were selling more. If you look at our inventory levels in cities like Turku and Tampere and the eastern part of Finland, for example, those almost disappeared already by now. Now 70% of our inventory is here in the capital region. That is more kind of a playing factor here than what would be the easiness or attractiveness. I think all of the apartments are in a great location and attractive units as such. That is the answer on that.
Yes, that is helpful. Thank you.
As a reminder, if you wish to ask a question, please dial #5 on your telephone keypad. The next question comes from Emil Immonen from Carnegie. Please go ahead.
Hi, Heikki and Tuomas. Thanks for taking my questions. I wanted to ask on the profitability improvement across the segment and the project margin net deviation. There's clearly been good progress here. How confident are you that you can continue with this good progress when construction volumes increase?
Thank you, Emil. I have to say that the behind of that improvement is the hard work and dedication that YIT team members have done. It is a day-to-day management that happens on the sites as well as the visibility and our culture to address the challenges if there are any. We have put a lot of fundamentals in place during the transformation program that is a visible part as a result. Meaning is that how do we ensure that we have the project management tools and capabilities in place?
How do we support the processes that are needing the support, as well as we have completely renewed our procurement and supply chain functions? With these kind of capability improvements, we remain confident that the businesses continue to have the projects under good control. This is not improvement by the market situation, but this is the improvement done by YIT employees. Therefore, we are confident.
On a follow-up on that, would you say that you're now more prepared also for a market where construction or material costs in general, for example, rise unexpectedly, that you're more resilient to changes in the market?
For sure. We have taken absolutely massive steps forward on our capabilities to foresee, predict, as well as manage such changes on the market environment. That is big thanks to our supply chain and the procurement team. We are much more prepared than what we historically have been.
Great. Does that also mean that we could assume that the profitability improvements we are seeing in building construction and infra Q1, of course, it is a small quarter of the year, but still there is clear improvement year on year in both those segments. That kind of improvement track should also continue going forward.
Yeah, of course, we remain very focused to deliver our strategic targets. Both segments still have kind of room to improve in order to reach that 6% on the profitability. That is what we are working towards. As well as then the building construction side, we are carrying a balance sheet. As we have communicated on that balance sheet, we would like to also operate with the negative capital employed. We continue to release the capital. Both segments are working towards those goals.
Great, thank you. Last question maybe on the housing or residential segment in general. Given the really low completions you're going to have in Q2, Q3, is that going to reflect then on cash flows from those segments as well and their ability to be profitable?
If I look at the cash flow perspective, we expect, of course, then our inventory of complete apartments to decline clearly and significantly during this year, which is then providing us the cash to our business. That is even though we don't have the completions during next two quarters.
On the profitability, is that expected to reflect negatively, meaning that on profits this year is going to be very heavily back and loaded to Q4?
Yeah, we are recognizing the profit from the completions time. The Q4 is going to be a massive quarter for completions, both in Finland as well as the CE. Hence, it will make it quite back and loaded.
Okay, thanks for the clarifications.
Thank you.
There are no more questions at this time. I hand the conference back to the speakers.
Thank you. As there are no more questions, we thank you all for participating and wish you a great rest of the day. Thanks.
Thank you.