Hi, everyone, and welcome to YIT's fourth quarter 2023 silent call ahead of our silent period starting soon. My name is Essi Nikitin, and I am heading the investor relations here at YIT. Together with me here is our CFO, Tuomas Mäkipeska. We will first hear a short intro from Tuomas, and then we will have time for your questions. As a reminder, this call will be recorded, and the recording will be published on our website after the call. At this point, I will hand over to Tuomas. Please go ahead.
Thank you, Essi, and good morning on my behalf as well. We will cover basically four topics in this intro, following pretty much the same structure as before. Starting with the market update related to the housing segment, then moving on to the market update related to the other business segments, and then a few words about our cash flow and financial position, and fourth one being the transformation program and the capital release. Starting with the first one, the market update related to the housing business.
In our guidance and outlook for the rest of the year, we state that we expect the market recovery in CEE countries to further continue. In Finland, we have said we expect the market to continue to be weak in the fourth quarter. Starting with the current market situation in Finland. Although the demand has still remained on a historically low level, we have started to see some clear positive signs of gradual recovery in the operating environment. Meaning that the inflation has slowed down faster than expected, reflected in the quite significant decline in market interest rates towards the end of the year.
According to several banks' recent housing market reviews, and the Finnish Real Estate Agents' Association's recent study, the number of trades has increased towards the end of the year, and market is starting to recover. The government's decisions related to taxation of the first-time home buyers have also accelerated the activity in the last months of the financial year. In CEE countries, the overall market has continued to be more active compared to Finland.
As we commented in our Q3 earnings call, the market has continued to improve, especially in Poland, the Czech Republic, and Latvia, and the gradual market recovery is expected to continue. Business in CEE countries have proceeded according to plan during the Q4. As mentioned before, during the recent months, we have seen some delays in commissioning processes in those countries. Therefore, as we have communicated before, delayed apartment completions or commissioning processes could lead to the postponement of revenue and profit from one quarter to another.
If we then shift our focus to our contracting segments, business premises and infrastructure, we have seen quite a good level of market activity in both of them. In business premises, as we announced during the quarter, we have identified the need to change the operating model of the segment to be more customer-oriented and to strengthen our competitiveness, and the actions are ongoing to implement the change.
As communicated earlier this week, the change negotiations relating to the organizational change in the segment have been concluded now, and the new operating model and the ways of working will be effective starting January 1st next year. There is a good amount of planning and bidding activity in the markets. As one highlight of the activity, we announced during the quarter that we have agreed on the construction of a new research building in Otaniemi, Espoo, with Technopolis. There are other examples as well, and we are happy about the commercial successes achieved so far.
In the infrastructure segment, the low-margin legacy projects in Sweden continue to burden the profitability in an otherwise well-performing segment. The infrastructure business in Sweden is under strategic evaluation, but we have no news to comment on that yet. A few words on our cash flow and financial position. We announced a month ago that we have signed a new EUR 140 million term loan facility agreement replacing previous loans totaling EUR 150 million maturing in late 2023 and in spring 2024. The new loan is secured and will mature in April 2025.
The financing arrangement supports our operative business, strengthens our financial position, and adds flexibility to our financing structure altogether. I am very pleased with the successful completion of this arrangement and the opportunities it brings for the further development of the company. In accordance with the refinancing announcement, we communicated that as a part of the measures aiming to lower the indebtedness through the previously announced capital efficiency program, we plan to redeem the EUR 100 million bond maturing in the spring 2024.
We also announced that as a separate decision, the Board has assessed the industry's business cycle, prevailing market conditions, and the projected cash flow of the company, and determined, based on these factors, that it will not propose profit distribution for the financial year 2023 to the AGM to be held in March 2024. As mentioned earlier, for us, one of the main drivers of cash flow is, of course, the sales of apartments to consumers and investors.
Our main focus is on improving sales, but as communicated earlier, we have also continued to focus on our cost discipline to support our cash flow in this current market, and the measures have continued also in the fourth quarter. Moving on to the final and probably the most important topic, our transformation journey towards improving our profitability and capital efficiency. Our transformation program has continued to progress faster than originally expected.
As we communicated in November, by the end of the third quarter, we have proceeded with the measures to achieve the targeted cost savings. With the actions taken by the end of third quarter, we will gain annualized run rate cost savings of EUR 20 million, which will be fully realized by the end of 2024. This work has continued also during the fourth quarter. We have had good progress in our transformation program initiatives altogether. Besides the actions focusing strictly on our cost discipline, we have made clear progress during the quarter towards improving our productivity, project management, and especially procurement.
With the changes implemented during the program, we will be able to clearly improve our competitiveness in the long term. We will, of course, come back to the progress of the transformation in more detail in accordance with the Q4 results. The transformation program also aims to improve the capital efficiency. In the beginning of the fourth quarter, we announced the selling of our stake in the Sia Live On co-investment vehicle in Latvia. In early December, we announced that as a result of the strategic review, YIT has signed an agreement on the sale of the renewable energy business to Eolus Vind AB.
The sale includes YIT's project development portfolio of wind and solar power and the personnel working with the business. The transaction was closed actually last week, and YIT recorded an estimated purchase price of EUR 48 million and a gain on sale of EUR 46 million for the fourth quarter. The gain on sale is reported in EBIT adjusting items, and thereby it has no effect on our guidance for 2023. I am very pleased that the strategic review of the renewable energy business has been now successfully completed through this transaction. The deal strengthens, of course, our financial position and improves our focus on our core businesses.
We are working on the capital release program on many fronts, as we speak, and we have several negotiations ongoing, and we will come back with further communication related to that in due course. To conclude, all in all, in a challenging business environment, we have again taken many steps ahead and made good progress on our key initiatives. We are very pleased to see clear positive signals in the market that has been apparent in the market lately, and of course, hope that the positive development continues. We have a clear plan, and we are executing it to build the stronger and more competitive YIT going forward.
Excellent. Thank you, Tuomas. We are now ready for questions. If you have a question, please use the raise hand function. We have a first question from Anssi Raussi. Please go ahead, Anssi.
Thank you, and hi all. Thank you for the presentation. A couple of questions, starting with this market recovery you mentioned. You said that you see clear signs of recovery in Finland, but are these your own expectations based on the market fundamentals, or are you actually seeing some concrete signs of recovery in your own business?
Thanks, Anssi, for the question. It is actually a bit of both. Mainly driven, of course, the market fundamentals, and as mentioned, the decreasing inflation and interest rates. Those are supporting the consumer confidence, of course. On top of that, we have seen actual activity increase in the market also in our business. Of course, it is supported by the governance decision on the tax, what I mentioned before for the first home buyers. But at the same time, if the market fundamentals continue to go to the same direction, we expect that it will have a positive impact on the market during the next year as well.
Okay, thanks. Then about this bond maturing next spring. I have understood that you are planning to finance this buyback with your capital release program, but do you have any plan Bs? Because, of course, it might put you in the position of being a forced seller here, and I guess that buyers would know this as well. So any plan Bs? Because I guess your own operational cash flow is not enough.
Yes. Thanks, Anssi. Again, yes, we are planning to redeem the bond and finance it by the capital release program that we are executing. But of course, we always have plan Bs and Cs. But we are determined to execute on our capital release programs. That is number one priority. If there would be some hiccups or we would be in the position of, let us put it this way, that the financial conditions or viability to execute certain deals, then we would, of course, not execute them, and then we would need some plan Bs, and we have those in place already.
Okay, thanks. I will jump back in the queue.
Okay, next question from Olli Koponen. Please go ahead, Olli.
Thank you for the presentation and taking my question. First, on the housing market, a few questions there, and mainly focusing on Finland now. We have seen some quite clear discounts in the market for new apartments for certain companies in your field. Have you been able to sell your apartments without any kind of major discounts to the list price?
Yes. Thank you, Olli. We have, of course, continued our determined sales efforts during the Q4, and as we actually mentioned in our Q3 earnings release, we have new campaigns in place also in housing for the consumers. The thing has been mainly that we attract the consumers to the negotiations and look individually what would suit best for the individual consumers.
That has actually worked quite well. In some cases, of course, there has been some discounts. We had already in Q3 the discounts related to the operating cost of the apartment and taking over those for two years and so on. Yes, we have been negotiating discounts as well, but not that heavily that it has been probably in the media or so.
Okay, thank you. Following up on that, how about have you done any smaller bundle deals on consumer apartments? I think we haven't seen any bigger ones.
Yes. We haven't seen any bigger ones. We have been active ourselves in the market, and I can confirm that there is demand for the bundle deals in the market currently. We have, of course, evaluated our options during the quarter. At least so far, no major bundle deals done. Some smaller ones, yes. Now, when we look at the situation from the market fundamentals point of view and a decrease in interest rates, that has had a positive impact on the investor markets as well.
Now the so-called excels are starting to work a bit better than before. We have seen activity in the market, and there is demand for larger bundle deals as well. That's of course, good place to be or better place to be. We are currently evaluating our options on executing on those.
Okay. Just the last one, continuing on Anssi's question on the redeeming the EUR 100 million bond next year. Could you elaborate if you can, your plan A, plan B, plan C, what you have in mind if the market situation is as it is right now?
Well, on a high level, I can communicate that as we have mentioned before, we are currently executing our capital release program, and it's targeting to increase our liquidity, and deleveraging the company. Those are, let's say, the most important short-term goals for the company. As mentioned, of course, we are in a sense, in a capital release program. We have actually progressed quite well. We are in the situation all the time that we need to evaluate certain deals, and the financial conditions in them.
Then based on our judgment, decide on a go or no-go. Of course, the capital release is a function of those kind of disposals or asset sales. That's what we can communicate. Also on top of that, we are releasing capital from our operations from the net working capital side as well, improving our days payables outstanding at the same time. So there are several sources of cash to be released from the operations. And by that, we are planning to redeem the bond. That's our plan A.
Okay. Thank you. That's all from me.
Thank you, Olli. Next question from Svante. Please go ahead.
Thank you, Essi. Couple of questions left. First one regarding the secured EUR 140 million term loan. Could you give some color on terms and how much assets you have had to pledge and so on?
Yes, thank you, Svante. As mentioned, first of all, we are happy to have concluded the process and have the EUR 140 million facility in place. It is secured and maturing in the Spring 2025. We are happy about that. Of the covenants, we have that also when we announced the deal. We also announced the covenant. We have covenants related to the liquidity and gearing there, and possibly ICR as well. Also, we announced that some of the covenants are tested on a monthly basis and some of them on quarterly basis.
That is all that we can disclose at this point. It is good to note also that we had a very, let us say, constructive process with the banks. It took a long time, and it is very understandable also from the bank's perspective that the whole sector and their exposure on the sector is something that had an impact on the negotiation. Anyway, we are happy to have concluded those at this point.
You do not want to go into any more specifics regarding what kind of assets, how much you have had to pledge and what the margins are?
Well, unfortunately, that is information that we are not disclosing.
Okay, then second question about your capital release alternatives. Is there investment capacity left in your housing JVs, which could pick up some of your unsold apartments?
Well, as mentioned, altogether in the market, there is capacity and there is demand for bundle deals. That's as mentioned, so it's better and good place to be. I think the market in that sense, has improved during Q4. So there is capacity altogether in the market, and that's a good thing for us. So we have options going forward.
Okay, thanks. Last question about the competitive landscape. We have seen the news flow on your smaller peers and their difficulties. What can you-- Give some color on competitive landscape both from domestic and Scandinavian players.
Yes. Thanks, Svante. I think overall, as we all know, the market situation is pretty challenging for all of the companies operating in the sector. We have seen the news, of course, of the bankruptcies and so on. It is very unfortunate for the companies in this kind of a business cycle. We are in a cyclical business, and we have seen the results in this low cycle. It has had an impact on the players in the market. Of course, from our perspective, it gives a bit of more room to operate or improves our position in the market.
Anyway, for the whole sector, of course, it is challenging and it is unfortunate that it has these kind of consequences as well. Not commenting any specific competitor's moves, but let's put it this way, that there is clear change in the market which gives us probably more competitive space going forward.
Okay. Thank you.
Thanks. Then we have a follow-up question from Anssi Raussi. Please go ahead, Anssi.
Thanks. Actually, a couple of questions. The first one about the divestment of wind power business. Did you have multiple bidders in this deal, or how was the competition for this business? Because I think that the price was actually on the low side. Was it about the quality of this pipeline, or was it just that there were no other bidders?
Thanks, Anssi. We had a thorough process, and I can confirm that there were several, actually plenty of, let's say, companies interested in our asset. At the end of the process, we weren't in the situation that we only had one player to negotiate with. So from process perspective, this was a good and thorough process. What comes to the price, not probably commenting specifically, but as we mentioned, there is a significant upside also in the variable part of the purchase price. The variable purchase price is defined based on project sales and completed projects, and it's amounting to EUR 0 million- EUR 75 million. I mean the variable part of the purchase price. That gives you more color on the probable final price.
But of course, we have been prudent, and we have now, based on the information that we have in our hands, we estimate the variable purchase price weighted with the probabilities of the project development portfolio and ended up recognizing EUR 23 million of that variable part. Also, it's good to note that now the portfolio has found a new home in Eolus, and they are very professional player in the field, focusing on the renewable, basically solar and wind energy. We are confident that they are very capable of taking our portfolio forward.
Okay. Thanks. Maybe the last one from me, I'm not sure if I have asked this before already, but good to hear an update. Going into 2024, and we know that the construction volumes are coming down significantly. How do you see the whole value chain if you think about your own suppliers? Are they able to survive this cycle? Do you have to make some significant changes in your own supply side and, of course, your own organization? Do we have to see some kind of concrete recovery already in Q1 to continue with the current organization? How do you see the situation if we think about the big picture here?
Thanks, Anssi. That's a very good question, actually. The players in the whole value chain are in a challenging position. That's fair to say. At the same time, internally, as we have mentioned, as part of the transformation program, we have been actually developing our procurement heavily. Based on that work, we are moving more towards category-based approach, which means actually that we consolidate our supplier base a bit more heavily so that we choose the suppliers that we want to do business with. In that selection criteria, we take into account the financial position of the supplier.
So that's one thing. The suppliers that we want to work with also in future. So we are, by the means that we have in our own hands, we are supporting them to secure the long-term capability to do business. That's something that we have been working during this year quite heavily, actually. But it's fair to say that also there has been a lot of challenges in our suppliers already now, and I'm pretty confident that we will see these challenges to continue also during the next year. That's very unfortunate.
Okay, thanks. But I guess you won't be building any so close ties to any suppliers that you would be dependent on those and those suppliers surviving this cycle.
No. That's not the approach that we are taking.
Yes. Good to hear. Thanks.
Thank you. Then we have a question from Emil Immonen. Please go ahead, Emil.
Thank you, Essi. I just had one more question related to housing completions in CEE countries. You were expecting quite a lot of completions now in Q4. Have you seen any more delays in those? If you have seen delays, what are they related to?
Yes. Thank you, Emil, and that's true. We have, as stated earlier, pretty much completions in CEE countries. As mentioned already, from an operative and production point of view, no major delays during the quarter so far. So in a sense, from our production perspective, we are in a stable situation. But, as I mentioned, there has been some, let's say, delays or hiccups in the commissioning processes in these countries during this year, actually.
This is something that gives us a bit uncertainty. Is it going to continue, and how it's going to play out now that we are approaching the year-end. So that's what we can comment. We are working on that as well, and it's good to know that we don't have any internal production challenges there.
Okay, I see. Thank you.
Thank you. Are there any more questions? It seems to me that there are no further questions, so thank you all for good discussions again. We will publish our financial statements full ending on February 9th, so talk to you again then. Thank you all. I wish you happy holidays and all the best for the new starting year.
Thank you very much. Merry Christmas.
Thank you.
Thank you.