Okay, I think we can start. Hi everyone, and welcome to our analyst call regarding the news we published this morning related to the change to a new revenue recognition method in segment reporting. My name is Essi Nikitin, and I am heading the investor relations at YIT. Together with me today I have our Chief Executive Officer, Heikki Vuorenmaa, and interim Chief Financial Officer, Markus Pietikäinen, on the line. We will start with a short presentation on the topic by Heikki and Markus, and after that, you will have an opportunity to ask questions. As a reminder, this call will be recorded and the recording will be published on our website after the call. Without further ado, at this point, I will hand over to Heikki. Please go ahead.
Yes. Thank you, Essi, and welcome also to this call from my behalf. Thank you also for taking it with such short notice. Like Essi already mentioned, we provided some news earlier today, and we will try to provide you the context and the background information. I am really happy to take your questions at the end of this call. Let us start with what we are actually doing in terms of our new operating model, what we are implementing here at the Finnish residential business. As we already mentioned in the Q4 report announcement, this is quite a shift from, let us say, traditional line organization towards a function-based organization going forward. That will be divided into three different important areas internally.
The reason that I am walking this through is, of course, this has an impact on how do we manage and steer our performance also in this segment going forward. First, we will concentrate our internal product development efforts, all the R&D activities, as well as the layout designs to one internal organizational element, which then will be clearly divided to distinctively different product categories reflecting the customer demand. If you would be buying a home which is targeted for upper middle class or you would be on the suburbs, the product will, going forward, also be different and will be suited for the different needs. There, the primary focus is, of course, to maintain and drive the gross margin for our projects that way that we are meeting our targets.
Then we are building a single centralized production entity that will oversee both the quality control as well as the manufacturing process development. As we have discussed earlier, we have made significant progress already in terms of our lead time shortenings, and we will continue on that path. The team will be then taking care of so-called supply chain end-to-end and ensure that the continuous improvement is also reflected on our capabilities, same way across the operating country here in Finland. The primary focus there is also to maintain the production efficiency, quality, and costing under control. Then third element, which is obviously the big impact also for performance, is that how are we engaging with the customer insights, marketing, and ensuring that the apartment sales is meeting our expectation.
There we are having a third part of this functional-based organization where we then are also working across the organization. As we move from the previous historical line organization regional approach to this different type of function-based organization, it also will be reflected on how do we steer the business, and those primary focus and KPIs are here highlighted under. That connected then to also the segment reporting is then the change behind what we are going to reflect. Markus, over to you if you want to walk through a bit more details that what does it mean for us.
Yes. Thank you, Heikki. As Heikki mentioned on the previous slide, we completed the plans now to the previously announced change in the operating model, and we will adopt the percentage of completion revenue recognition for the self-developed projects. Starting from Q1 2026, we report all operations using the percentage of completion in segment reporting. This is in contrast of previously using the method where we recognized both the revenue and profit only when the control was transferred to the customer. Going forward, we will present the financial information both according to the IFRS accounting standards and also the percentage completion. Reconciliations between the two reporting methods will also be provided.
The percentage completion method impacts the timing of the revenue and in the segment reporting, but it has no impact on the financial targets set for the strategy period 2025- 2029 or the adjusted operating profit guidance given for the year 2026.
Very good. Thank you, Markus. Let's come back to what is the big difference or the real difference there. Starting from what is not a difference between the IFRS and calculating the
Based on the POC methodology is that the actual profitability for the project is the same. It is just recognized the revenue during the construction period. You can see here an illustrative example on this page, how the POC revenue is recognized already during the construction, whereas the IFRS is then only highlighting the revenue at the point in completion. This is the major difference. Also, how do we calculate that revenue is that it is based on the completion rate multiplied by the sales rate on the project, and that gives us then the total estimated revenue. Good to note on here is that the completion rate is based on cumulated on-site costs.
It is not based on any internal assessment, but it is based on how much of a cost has been cumulated on that construction site, which is giving then us the completion rate of the project. If we then have a couple of additional examples, what is then the implications? We see that the POC will reduce quarterly variance caused by the completion schedules of the self-developed projects, and you can see here two type of an example. So, there is example when the project is fully sold during the construction period. This is illustrative example, obviously, but it shows that how the sales rate, completion rate, and how the revenue is then recognized in the POC mode, whereas on the IFRS, it would have been come just during the one quarter.
There is also example on a project if the sales would continue after the construction period, so i.e., there would be some of the unsold inventories. Of course, after the completion, the difference between the IFRS revenue and the POC revenue is not there anymore, therefore, because actually the handing over the single apartment happens after the construction is completed. So those are couple of illustrative examples still further to explain how the methodology work. If we then talk about the completion rate, I already mentioned that it will follow the on-site cost cumulation. This is not exact, accurate picture, but let us say that it is a good illustrative reflection how the completion typically happens.
When we start the project on the self-developed residential side, there is earthworks and the groundworks, which typically maybe takes a bit more time than accruing costs when you then go to hoist the frame as well as completing the internal works, the fit outs and the bathrooms and kitchens. So you tend to cumulate more cost in the shorter period of time, and then finalizing the yards and the green area is again, of course, time-consuming, but the less of costs accruing and quite close to finalizing the project. So typically the project is not linear, but it may be more follows the S curve type, when we are then measuring it based on the accrued costs on site. Then back to Markus to you. So what are the implications to our financials for 2025?
Very good. Here we have the bit of numbers. First starting with Residential Finland financials for 2025, here we have the new comparison financial information. We have the segment reporting in blue and the IFRS in a darker color. We can see that there is only slight change when it comes to the revenue, slightly lower segment reporting revenue. If you look at also on the operating profit side, we can see that there is no impact between the IFRS and the segment reporting. Here, it is good to note that we reported -EUR 8 million adjusted EBIT for 2025, but this also includes a EUR 1 million adjustment from the non-strategic adjustment, non-strategic items, which we announced previously this year. That is the reconciliation to the reported EUR 8 million.
If we move on to the CEE financials and the comparison numbers, here we can see that there is a greater impact on the numbers. We have both an increased sales for 2025, but also an increased adjusted EBIT for 2025. Here we can perhaps see that there is a better balance on the profit between the quarters. However, the volatility still remains. This is obviously driven by the completion rate and the sales rates, and the combination of the two. Here is to note that there is no impact from the previously announced non-strategic item adjustment. This EUR 9 million here is the timing difference driven from the percentage of completion. We have, finally, the group numbers. Here we have also the contracting segments included here.
We have a EUR 46 million increase in sales for the full year, and we have also an increase of EUR 8 million on the adjusted operating profit for 2025. The reconciliation goes that we announced the EUR 54 million adjusted EBIT for 2025. There is an impact of EUR 4 million from the non-strategic items, and there is EUR +8 million due to the percentage of completion, the timing. This ends up to EUR 58 million. Perhaps additional note, which we provide also in the release, is that the change in the capital employed, there is the increase of EUR 17 million at end of 2025 due to the percentage completion method.
Very good. Thank you, Markus Pietikäinen. Before opening the lines for the questions, just a couple key takeaways from this call is that firstly, as we adopted the new reporting method in the segment reporting, we do not see that there would be impact on the group full year guidance. Where we see that these new segment reporting methods, it reduces the dependence on the timing of the completions, but it will also provide more timely information as the profit generation reacts faster to the market dynamics than the IFRS or what we have historically had in the segment reporting. This new segment reporting will be applied from the Q1 2026 onwards, and the comparison figures are available now for 2025. Essi Nikitin, that is all from our side, and I think we are happy to take questions if there are any.
Great. Thank you, Heikki and Markus. We are now ready for questions. If you have a question, please use the raise hand function. Please, Atte, go ahead. You have the first question.
Yeah. Good day from my side. This is Atte. Atte from Inderes. Just a very quick question from me. Given the current volumes and timing of expected completions and the sales rates, what kind of impact from the change in reporting you expect for the current year in terms of net sales and adjusted EBIT?
Sorry. Thank you, Atte. As we mentioned, we do not see that the change would impact the adjusted EBIT guidance of EUR 70 million-EUR 100 million for 2026, even using the new method.
Okay. Thank you. That's all from me.
Thank you.
Next question we have from Lasse Rimpi. Please go ahead.
Yeah. Hi, it's Lasse here. Hi. When you say that it has no impact on targets or guidance, basically, does it mean that the guidance for 2026 and your financial targets are still based on the IFRS adjusted EBIT, or that the targets are the same, but based on the segment's EBIT?
Yeah. The latter one. The targets are the same based on the new segment reporting EBIT.
All right. Very clear. Then maybe a second one on when looking at the sales patterns between Finland and the CEE countries, could you remind how the timing of sales of apartments during the project differs between these two regions? And maybe also on how the actual cash flows, the timing of the cash flows differs between the regions.
Yeah, of course. That being said, there's also significant differences in the CEE region on the country level, but I provide you the overall view. Typically, we make the early part of the sales at the starting of the construction, where there are the ones that are reserving and interested on the apartment. Then there are the consumers that are then making decision closer to the completion. That's, I would say, the pattern that you would see on the quite the normalized market condition. Where we have been now seeing the Finland pattern on the recent years is that consumers are making a decision quite close to the completion of the apartments, and that has been a bit more Finland specific now for two, three years. That is deferring. Then on the how the payment terms for the consumers arise.
In certain countries, the payment terms are following the construction milestones, which is then, I would say, typically in Europe. For example, Poland is one of those countries, and then, for example, in Finland, it is based on that you pay certain percentages at the sales transaction, and then as the whole product is completed, then you pay the final amount. Then there's anything in between that two in the seven countries that we operate in.
All right. Thank you. That's all from me. Thanks.
Thank you.
Thanks, Lasse. Next question from Anssi. Please go ahead.
Yes. Thanks. Anssi from Skandinaviska Enskilda Banken. Just to double check that, are you planning to provide segment specific numbers with both methods, or do we have to make some group level adjustments here or reconciliations? How do you plan to report segment specific numbers?
Thank you for the question. We will only provide the percentage of completion numbers for the segments. The IFRS numbers will be available for the group.
It means that we have to figure out where the difference is coming from. How do we make these assumptions?
Well, I guess the question is that, do you need to forecast the IFRS numbers, or would you then only do the segment-based percentage of completion numbers as this still is There's no change in the business, it's just a timing difference. In the end, the numbers will be the same over time.
Okay. I guess that's all from me.
Thanks.
Thank you, Anssi. Next question from Jerker. Please go ahead.
Hi, this is Jerker from Evli. Thanks for taking my question. Was wondering a bit about, you said that or understandably the kind of operating profit will balance out more than more in the previous model, but maybe this is more a question about Finland, but given the kind of weather seasons we have here, do you expect to see that some quarters will be stronger than others? Just considering the cost accumulation.
Thank you for the question. I think the kind of cost accrual is more related to the project timing and when those have been started, compared to the prevailing weather. I would say that today the weather is giving us less of a factor on the residential construction side than other construction methods, because we are capable to hoist the frame and get the heats up relatively quickly and going then to the internal. Then the weather is not playing there anymore a role. So I would say that there is the variance on that is more based on when the projects have been started than the prevailing weather.
Understood. Maybe could you give some light on the sales, or your expectations on projects and sales of how much, or could you give some light on how much you expect to, or what kind of rate you expect to see that has been sold by completion? And how much remains unsold is or what is norm nowadays?
Perhaps one observation. Thank you for the good question. That as the capital employed has increased by 17% in these comparison numbers for 2025, that indicates that all the projects ongoing, EUR 17 million has been, on the potential completion method, already been recognized in 2025. We don't comment on the full number, but this provides an insight on how that reporting works. So effectively, when a potential completion booking is done, then the capital employed will increase accordingly, and when at completion or whenever everything is sold, then that's been released. Then on the IFRS side, you would see the full numbers being recognized only then. So that's the bridge. Yeah.
If you then think about the, of course, optimum in terms of how many percentages are sold at completion, I think the optimum is that we are selling. We are not in a business to build an inventory. Realistically speaking, if we look the inventory, for example, what we have had in CEE at the time when the market is good. We are carrying about two, three months of inventory there in a normal market. In Finland, obviously now the situation has been quite different in terms of market conditions. That is maybe not a good comparison to what we are internally targeting to have as a percentage of sold at the point in completion. But for sure, we are pushing for the maximum result there.
Understood. Thank you. That's all from me.
Thank you.
Do we have any more questions? Yes, Anssi, please go ahead.
Yeah. Just to come back on this timing difference per segment, per quarter. I think, at least you provided it in these comparison figures here, but it would be maybe helpful to provide that as well in the future, because of course, your balance sheet, I have understood, remains the same and unchanged. It is, to be honest, quite important element in forecasting YIT's numbers. Yeah.
Thank you, Anssi, for the feedback and we will take that and definitely look at it. We are much favoring on providing as much as relevant information as we can for the analysis purposes. We will take a look at that.
Just like you mentioned, it is good to note that all the balance sheet items and elements that we are very keen on, or also on management side as we have been vocal about it and communicating, will be IFRS based. This change in the segment reporting doesn't bring you that type of new elements that much on the balance sheet. But let's take a look at that, how we can accommodate that best way to our numbers.
Thanks. Because, yeah, I guess all the analysts, their estimates are based on segment figures, and of course, then we have to also estimate these IFRS numbers, so would be helpful. Thanks.
Thank you.
Thanks, Anssi. Do we have more questions? Okay. It seems that there are no more questions, so thank you all for a good discussion and thanks for participating and wish you all a great rest of the day.
Thank you all. Thank you.
Thank you.
Thank you.