As a reminder, this call will be recorded, and the recording will be published on our website after the call. But at this point, I hand over to Tuomas. Please go ahead.
Yes, thanks. Thanks, Essi, and good morning, everyone, on my behalf as well. We will be covering four topics in the introduction here, starting with the market update regarding housing business in Finland and CEE countries, then following with the market update regarding the other two contracting segments. As a third topic, we will be handling the cash flow and the financial situation. And fourth one, the transformation program and capital release, what we are executing. Basically, I'll cover these four topics first, and then we'll have some time for the questions. First, a few words about housing operations. In our guidance and outlook for the rest of the year, we state that the housing market recovery in Central Eastern Europe is expected to continue. And in Finland, the housing market is expected to continue to be weak in the first half of the year.
Overall, the year has started on a positive note with continued strong housing sales in Central Eastern Europe and a clear pickup in the Baltics, anticipating continued strong performance for the year in these markets. In the Central Eastern European countries, the recovery started earlier and has continued positively, especially in Poland, Czech Republic, and Latvia. As we commented in our Q4 earnings call, our apartment sales in the last quarter of 2023 increased close to 70% in the Central Eastern European countries. This year, over 70% of our apartments will be completed in our international operations. Thus, the good market conditions are key to the group's performance. The Finnish housing market has seen positive developments in terms of reservations, ongoing negotiations, and completed transactions, although the overall market has remained weak.
The market has received our five-year 2% interest rate cap campaign very well, and consumers have understood its significant potential impact in improving housing affordability in the current interest rate environment through lowering the monthly cost of housing. Last week, we also announced a new campaign where YIT is introducing a new rent-to-buy model to the housing market, where the process of buying a home starts with renting it. In this model, a preliminary contract is signed, subject to a deposit. Within two years of signing the preliminary contract, the buyer can become the homeowner, and the deposit and rents paid will be deducted from the price when the sale is completed. And the deposit is 1% of the net price of the apartment. Regarding these two campaigns, we have received positive feedback from the market and many stakeholders, and both campaigns have clearly added activity.
We see an increase in the overall interest, and there have been a growing number of visitors in the open houses as well. Based on these experiences, we see that there is clearly consumer demand in the market waiting for the uncertainties related to interest rates and overall economy to ease. 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 end of 2023. 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 the last year. Our portfolio of apartments is located in the growth cities and prime locations. There is also clear investor demand visible at the market.
We have not made any bundle deals so far, but we are constantly monitoring the opportunities at the market. There is clearly capacity to do bundle deals, but we haven't executed one yet. That covers basically the housing part of the market update. If we then shift our focus to our contracting segments, business premises and infrastructure. In business premises, the underlying operational performance is expected to improve during this year, and the work continues, of course, to strengthen the segment's profitability. Unfortunately, the progress was more than offset in the last quarter of 2023, mainly by the decline in fair values. Operationally, Tripla is performing well, though. The real estate market in our operating countries is on normal level, and we see activity both in industrial and public sector to remain normal.
As one highlight of the activity, we announced recently that YIT has been chosen as the development phase partner for the new building of the Meilahti Pharmacy, central kitchen, and parking facility in Meilahti, Helsinki. We actually won the tender with the highest price and highest quality points, which is an evidence of the value of our expertise in complex projects. We are currently building the Oak Hospital in Meilahti as a collaborative project management contract, and it's great to be part of developing a new property for who's using the same model. In infra business, as we already commented in Q4 earnings call, the overall performance continued to improve and ended up with solid profitability in the last quarter of 2023. We see this development very positive.
YIT's infra business in Finland has improved its profitability significantly and simultaneously increased the order book, which are clear demonstrations of our competitiveness in the market. The Finnish infrastructure market is active, and there are currently several tenders ongoing that fit our expertise as well. As an example of recent successes, we signed an agreement of the implementation of the excavation contract for the Espoo City Rail two weeks ago. The contract allows us to use the competence of our infra segment extensively in both rail and bridge construction, as well as ground and rock engineering. For our part, we want to promote the construction of emission-free traffic in cities, and the Espoo City Rail project is a great example of this. As we announced already in January, strategic review of our Swedish infra business was completed.
As a result of the review, the company decided to close down the infra business in Sweden. The closing down will allow us to focus our operations and release capital for businesses that support our strategy. Then, moving on to the third topic, cash flow and financial position. We announced two weeks ago that YIT had executed a substantial financing arrangement, including equity and enhancements to existing loan terms, leading to an improvement in liquidity in excess of EUR 100 million. We actually held a separate analyst call on the day of announcement regarding the arrangement, and the recording is available at our website, but I will briefly go through the main elements of the arrangement here as well.
The arrangement consists of three elements: a directed share issue of EUR 33.5 million at market price, an issue of EUR 36 million convertible notes due March 2029 with a coupon of 8% per annum and a strike price of EUR 2.25 per share. As a third, a maturity extensions of the EUR 300 million RCF and a EUR 140 million term loan with other positive amendments to key loan terms, including postponement of amortizations. Combined, the amendments to loan terms increase available liquidity by over EUR 30 million. We are very pleased with this funding, which actually exceeded EUR 500 million in total. The announced package reinforces our position as the largest and strongest player in Finland with a significant position in the Baltics and the CEE countries and ensures our ability to respond to upcoming opportunities, especially in the Finnish housing market.
The transaction brings continued long-term support to our operative business and strategy implementation as we now have funding arranged for years to come. It also facilitates us to return to the debt capital markets when the market situation offers the opportunity. We have communicated earlier that we plan to redeem the EUR 100 million bond maturing in couple of days, actually. The bond will be redeemed with proceeds from the previous asset disposals and capital release measures. For the cash flow, we have guided for the year that the operating cash flow after investments is expected to be positive in 2024. In 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. Increase in capital employed was actually stopped after first half of the year 2024. Sorry, 2023.
During the second half of the year, we achieved positive trend downwards, despite the fact that completed apartments in Housing Finland tied up more capital, and this is the path we aim to continue on. 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. Moving on to the fourth topic of transformation program and capital release. We have now started the second year of our transformation program, announced in February 2023, and I am pleased to note that the program has continued to progress faster than originally expected. As we communicated in February this year, with the actions taken by the end of 2023, we will gain annualized run rate cost savings of EUR 25 million, which will be fully realized by the end of 2024.
We have had good progress in all our transformation program initiatives. Besides the actions focusing strictly on our cost discipline, we have also made clear progress towards improving our productivity, project management, procurement, and pricing. With the changes implemented during the program, we will be able to clearly improve our competitiveness in the long term. The transformation program also aims to improve capital efficiency. In June 2023, we estimated that as part of the program, the company had the potential to release approximately EUR 400 million in capital, excluding current assets such as self-developed projects, unsold apartments, and land plots. With the actions taken by the end of 2023, YIT had released approximately EUR 100 million of the stated potential, and the work continues on that front. In January, we announced that YIT had agreed on the sale of the entire share capital of YIT Kalusto Oy.
The company subsidiary, which provides in-house equipment services, was sold to Renta. As a part of the arrangement, YIT and Renta signed a long-term cooperation agreement on the delivery of equipment services to YIT in Finland. The enterprise value of the transaction was EUR 37 million in total. The estimated net cash inflow from the arrangement was specified to approximately EUR 28 million, and YIT recorded an estimated gain on sale of approximately EUR 70 million. The gain on sale is reported in EBIT adjusting items, and thereby it has no effect on YIT's guidance for this year. The transaction improves our capital efficiency and strengthens our financial position.
With the sale of our equipment services and the cooperation agreement, we can strengthen our competitiveness and further increase the efficiency by focusing more strongly on our core business and ensuring that we have access to comprehensive range of equipment and latest digital services. The transaction was closed on February 29th. We have covered the four topics, and as a conclusion, we continue to focus on improving our segment's profitability, and completing our transformation. We have achieved results from the capital efficiency measures, and the determined work continues on that. We are building on our talented professionals to deliver solutions to our customers, and the recently announced financial arrangement enables us to also utilize the opportunities opening at the market. That covers my part, so we are ready to take some questions if you have.
Yes. Thank you, Tuomas. If you have a question, please use the Raise Hand function. I think we have first question from Simen. Please go ahead, Simen.
Simen, we can't-
Simen, do you have a question?
...we can't hear you.
We see you're speaking, but we can't hear you.
Can we now?
Yeah, now.
Yes.
Yeah. Rent-to-buy model, which you announced. I have two questions, by the way. In the rent-to-buy-
Simen, we cannot hear you well.
I'll come back in two seconds.
Okay, we'll take-
Let's take Emil next, and maybe if you can log in again, Simen, or something. Emil, please go ahead.
Yeah. Thank you. Emil from Carnegie. Just a couple of questions. You mentioned that you have chosen to not do any bundle deals for apartments. What's the reason behind that?
Yes. Thanks, Emil, for the question. Yes, as I mentioned, we have been monitoring the market all the time, of course. As I mentioned, there is clearly capacity in the market. There is demand for bundle deals. We are, of course, looking our options and searching for the best deal that we can do. That is also what we have communicated before. Every time, we want to maximize also the shareholder value. Up until now, we haven't seen a so attractive deal, so we haven't executed one yet. But there is clearly demand, and there are discussions going on.
Okay, I see. Thank you. Then, on the capital release program, you had a target of EUR 400 million, i s the Mall of Tripla and the Swedish operation included in the EUR 400 million?
Well, in a big picture, we stated that we have EUR 400 million potential back last summer. All in all, it is including, of course, Tripla as well. Tripla is a big-ticket item there, EUR 190 million in fair value. That was definitely included. Then there were also several other topics, one of them being also the Swedish infra business, but several others as well, what we are executing as we speak.
Okay. You don't expect to reach that EUR 400 million, then, we could assume?
We clearly have the potential left as we have communicated. Let's put it this way, that we have a program going on with several activities, and we are determined to execute on that one. The big question is, of course, the Tripla Mall. That is something what we are all the time looking into. Is there a demand? I can say that there is demand in the market, but of course, in that case, we want to secure best possible deal. If it's possible during this year, fine, but if it's not, it will be then executed later on. Basically in the strategic perspective, that will be exited at some point.
Okay. I understand.
Depends on the market situation and the demand for the asset, of course.
Yeah. Thank you.
Okay. Simen, let's try your line. Is it better now?
I can hear you. Can you hear me?
Yes.
Yeah.
Good. I have two questions. One is on the rent-to-buy model, which you have released in Finland. Just wondering about how you plan to finance this and the potential scope of how much capital that might be tied up in this rent-to-buy setup.
I missed your queue. Was it regarding
Second campaign.
The second campaign, yes.
Yeah. How to finance it and sites.
Yes. Yeah. Our campaign now it is kind of a pilot phase now. It is in a limited scope of apartments. We are piloting the campaign now to see is there a demand for this kind of a product or entry, owning an apartment. It is funded by the general funding of the company. No problems there. Let's say that the magnitude is not that big at this moment that it would require any further funding. The interesting point is that how the market perceives this kind of a product, which we haven't actually seen in Finnish market so far. If it would be picking up heavily, we will need to plan the financing more carefully going forward.
Okay. Do you want to say anything about potential sizes which you are now offering in the market?
You mean apartment sizes?
Yeah, no, the overall volume of the program. You say it is small, but are we talking single digits or double digits or?
We are definitely talking about double digits, and we are focusing more on the smaller apartments, which would be, as we anticipate, that would be of interest for the markets and for the potential home buyers.
Okay. Thank you.
Double-digit kind of pieces of apartments.
Okay. My second question is in terms of the refinancing, which you announced. You communicated a bit on delays in the term loan. It was some EUR 30 million amortization and EUR 140 million down payment schedule for next year, if I recall correctly. Can you say something about how much this has been postponed, and the new profile of those term loans?
Well, you are correct. The new package includes the postponements of amortizations. We haven't disclosed any specifics on that. It is based on the agreement what we have with the banks, and there's some optionality, of course, going forward as well. We are not talking about long-term postponements. They are from quarter- to- quarter and so on. There is the amortization program still in place, but it is a little bit postponed in the new package. That's all that we can disclose.
But we are talking quarters and not years, if I understand correctly.
Exactly.
Okay. Thank you. Those were my questions.
Thank you, Simen.
Great. Then Svante, please go ahead.
Yes. Thank you. Hope you can hear me.
Yes.
Good. You had some postponements in completions in CEE in previous quarters. Can we expect any on that side, or are those issues solved, or could you open up a bit on that?
Yes. Thank you, Svante, for the question. You are correct. We had in Q3 and Q4, actually, some postponements of commissioning processes in CEE countries. That is the situation at the end of every quarter. This is regarding the commissioning process locally. It is not related on the completing of the construction. We do not have any issues regarding our own schedules and completion of the apartments. There are still some uncertainties, always, with the commissioning processes in these countries. It is a bit country-specific process, and there is a risk of delays from one quarter to another and one year to another. This is a normal commissioning process or practice in these countries, and we currently see no specific risk on that.
Okay. Thank you. Regarding the new financing agreements, are there any restrictions from the banks introduced on, for example, your housing sales or startups? Is there any restrictions to startups going forward?
That's a good question. Thanks, Svante. No restrictions on sales or startups of the apartments. Basically, what we say here is that we all know that the market here in Finland has been, especially here in Finland, quite weak. The market will turn at some point. Then at that point, it's more analyzing and forecasting the demand of consumers, and then making the startup decisions. So that's now more based on the demand. Earlier, without the financing package, it would have been more driven by the available capital. But now I think as we have communicated, we have a possibility to play also a bit offensive when the market demand picks up.
Okay. Thank you. That's clear. That's all from me.
Thank you, Svante.
Thanks. Then we have next question from Anssi. Please go ahead.
Thanks, and hi, all. A couple of questions left. First, about Tripla Mall. You mentioned that it's possible that you will postpone the sale of this asset to 2025. How should we think about the fair value of Tripla Mall if this is the case? Because, of course, we know that you're willing to sell this asset, and if there's no demand, I guess that the fair value is too high. Would there be any other reason than, let's say, asking price to postpone this?
Thanks, Anssi. Very good one. The fair value of the Tripla Mall in our balance sheet is EUR 192 million currently. The valuation, we have disclosed the basics of the valuation model. The valuation model is, of course, reviewed by the third party, and the applied yield is also provided by third party. The valuation model, it's also audited every quarter. Basically, I think our valuation model is based on the market facts and the reviewed model, and we continue to use that. Then again, if we think about Tripla as an asset, it's quite the big one here in Finland and also for international investors. Always in this kind of a situation, the price would be as a result of the negotiation process. Of course, debating on the yield and other topics, NOIs, and so on.
My point is that the selling price will be determined by a selling process more than a valuation model that we have in place, because the market situation is so untypical right now. That's basically what we can say here. What I also commented already is that we are looking our options and of course, the anticipated price of the deal is, of course, one of the biggest criteria here. But there are others as well. For example, the capital which is tied to the assets and the cost of that capital.
Okay. If I continue on that, I think you mentioned that you know that there is demand for this asset.
Yeah.
What is preventing you from selling it right now? Are there any contractual elements here regarding other owners of this asset or something like that?
Yeah. There are no restrictions. We could execute the deal from that perspective. It is more a commercial issue, and as we have mentioned already earlier as well, there is demand. There are potential buyers in the market. But this kind of a process takes a long time. It is a big asset. It is a big mall, requires quite a heavy selling process before it is completed. That is basically the situation. As a part of that kind of a process, the price is also determined as we all know.
Okay, thanks. Finally, about these campaigns in Finland. You mentioned that you have seen good activity, but I think you have mentioned this in previous calls as well, like one year ago, that you are seeing good activity. But do you see that this activity is actually converting to sales right now, or should we expect intensifying in these campaigns in the coming months?
Well, this is something that we of course hope as well, that the market picks up. We are by our own operations. By these campaigns, we want to stimulate the market for sure. But also in our guidance, we already say that we expect the market to be weak during the first half of the year. This means basically that we are not dependent on the market pickup during the first half of the year.
There are certainly good signs in the air, but we do not see a fact that would be a pickup in the market during the Q1 or Q2. Let us see how the spring goes. Normally, March, April, and May or April, May are very active months in housing. We will see how the seasonality evolves now going forward, but anyway, we for sure are ready to utilize the opportunities in the market, and that is why we have also, I think, two quite attractive campaigns going on at this time of year.
Okay, thanks. Actually one more from me. It is about your business premises, and if we exclude Mall of Tripla, can you remind us about other, let us say, bigger projects in this segment? What is the situation with Tuultenristi and so on?
Yeah. We have two self-developed projects, bigger ones, in business premises. One of them is Tuultenristi, which is actually completed already. We are renting out the spaces right now. When we have, let us say, high enough renting ratio there, we would be selling the asset. We are planning to sell Tuultenristi during this year for sure. It is dependent on, of course, the rental interest towards the asset. That is one thing. Then we have the Sky Office in Lithuania, a bigger office building, which is in the same kind of a situation, near to completion, and we are planning to sell that during this year. We are renting it out already. Those are the two ones. We are not disclosing the value of those two, but of course, they are in business premises, balanced, significant ones.
Okay. Hey, thank you so much. That is clear.
Thank you.
Great. Simen, did you have a follow-up?
Yes, I do. It is on the infra segment. Hopefully, you can hear me this time.
Yes.
There has been a few light rail contracts out in the market the last six years, which all has gone to competitors of YIT. This has historically been orders you have done well with in the past, but now you have lost two large projects, as I am aware of in Helsinki. There are two more coming. Can you give any flavoring on the competition landscape in the market, et c, and how you look at the recent contracts being awarded?
Yes, very good question. We have been actually quite successful in railroad projects. For example, in Tampere, we have constructed every part of the Tampere tram here, and we have extremely good references from there. You are right, we have now lost two competitions or tendering processes in light railroads or trams. We see that we definitely have competitiveness on that sector still, and there are going to be tender processes, for example, in Vantaa and Helsinki light tramways. We are targeting to win in those kind of tendering processes going forward. We think that we are definitely competitive in the market still.
Okay. Was it price that was the main difference, or has it been on the criteria in terms of the orders you lost?
Well, probably I am not commenting any specific projects, but as we all know that price is always one factor there. Usually, the weight of the price as a decision criteria is something like 40%-60%. In most of our cases where we have been active, we have received quite high quality points in general, I can argue. Then, in certain projects, there has been quite a tough price competition.
Even though with the lower quality points, with the low price, you can win this kind of a tendering process. We are not willing to go to that direction. We are focusing on the expertise and the quality and our references. For example, that is not in infra, but I mentioned here in this call also a nice win in Meilahti Pharmacy and central kitchen and so on. We had clearly highest price, but also clearly highest quality points, and that is the sweet spot we are aiming at. Definitely, there are competition in the market, and that is good for us, everybody. I do not see that as a big issue as such.
Thank you.
Great. Thanks. Markku, please go ahead.
Yeah. Thank you for taking my questions. Regarding the housing market, I'm just trying to understand what is the main difference between the CEE countries and Finland, because the demand has already picked up in the CEE countries for quite some time now. I would assume that the higher interest rate environment is affecting those countries as well. So are the apartment prices lower compared to the overall income level of the people in those countries? Or what is the main difference or driver why the CEE countries are performing better than Finland at the moment?
Yes. Thanks, Markku. This is a very good question as well. As we said, in Poland, for example, Poland has been the best performing market during the last two years, even though the market circumstances and the war in Ukraine and so on. In Poland, the overall demand has been very high, and it's even increasing still. We see that very positive, and there are several factors behind. I think one is that the demand is so high because there are so many immigrants moving to the country. The second one is that there is a government support for buying a home regarding the interest rate or mortgage rates. So that's also supporting the market. Then there are country-specific drivers behind. In some of them also the government support, of course, in some form, government support supports the market.
But then there are also. For example, if we take Baltics. So the Latvian market is now also picking up. It was decreasing, let's say, the last country in the Baltics was Latvia to decrease the market in the new situation, and now it's picking up again. Picking up again, and it's very good for us because we have some apartments for sale there. But then again, in Estonia and Lithuania, the housing demand has continued to be on a quite low level. Although for us, for example, the Estonian market is very small, but still. So there are very country-specific drivers behind the demand.
It is related solely to the consumer demand and then, of course, the amounts of immigration and then the government support, which is country specific in this area. So very challenging to give you a compelling answer to this because it's so country specific. And for us, I think the main topic is that we run the businesses locally, country by country. We know the markets and the dynamics very well there locally. And we are very happy that 70% of our completions this year are in these countries and not in Finland.
Okay. Thank you for the color.
Great. Are there any further questions? No, it seems that there are no further questions. So thank you all for excellent discussions. We will publish the first quarter results on the last of April, so talk to you then. Thanks, and wish you all a great rest of the day.
Thank you very much.
Thank you. Bye.