Good afternoon, and welcome to YIT's Q4 2022 Silent Call ahead of our silent period starting at the end of this month. My name is Samu Heikkilä, and I'm YIT's Investor Relations Manager. With me here today is, as usual, our CFO, Tuomas Mäkipeska, but also our new CEO, Heikki Vuorenmaa. Heikki will be able to participate in the call for the first 20 minutes. We will first hear short intros from both Heikki and Tuomas, and then we will have time for questions. As a reminder, this call will be recorded, and the recording will be published on our website this afternoon. At this point, I will hand over to Heikki. Go ahead.
Thank you very much, and hello every one of you on the line. This is Heikki Vuorenmaa speaking. I started as a CEO and the President of YIT at the start of December. The company for myself is not new as such. I spent years 2015 until 2020 on the construction industry. The last time, two years ago, when I was with YIT, I was leading the paving segment, leading it through the transformation all the way then to the divestment to Peab. The past two years, I spent with the consulting company, McKinsey, leading the transformation with several clients here in the Nordics, but also in the other parts of Europe. My background before joining the construction industry is from Nokia, where I spent seven years focusing on procurement, supply chain, and also leading different types of change management project and situation in that context.
My first weeks, I've spent a lot of time meeting our customers, suppliers, employees, visiting construction sites, and also spent the time with our main owners. We have also launched an internal survey to further analyze the organization and the cultural baseline that I'm starting with the team. What I'm personally been very impressed about is the spirit, as well as the competencies and capabilities we have, especially on the urban development side, where we have the recent victory or announcement on the Kupittaa site. It's a quite impressive and true testimony of the capabilities that YIT has to provide on this industry. Personally, also, being two years away and now rejoining to the company, it has been very positive to notice the steps that the company has been taking during those two years.
A lot has been improved on the key processes and the practices that are in place. That is a very short intro about myself and about first few weeks. I do look forward to close cooperation with every one of you in the coming years. Thank you.
Thank you, Heikki. Tuomas Mäkipeska speaking here. Hello every one of you on the line as well from my side. Just going forward with the silent call in the traditional way. I will have a few comments on the general market situation and then moving on to our housing segment and the demand situation there, and then covering briefly our other segments as well. If we look at the market situation and what we actually communicated already in Q3, the market has remained challenging from many aspects. It actually hasn't improved. It is vice versa. In certain dimensions, the market has been actually getting even more challenging, and I will get back to that as well in a while. The inflation, the rising interest rates, and the energy crisis that is emerging, they are giving us headwinds in the market.
We all know, we look at the news, read the news, we know the overall inflation situation. Of course, for us, the direct impact comes from the construction material costs and the service costs. For example, now, in construction materials, certain materials, the inflation has continued to stabilize. They already started to stabilize during the Q3 or at the end of Q3, actually. This development has been progressing during the Q4 as well. Then again, if we look at, for example, the recent Statistics Finland report, even though the construction material costs are still up some 9% year-on-year, but if you look at the last couple of months, last two months, it has actually been decreasing.
This is, of course, for our business, good news are helping us in tackling the inflation impacts that we have been seeing now for 1.5 years. Also, if you look at the material and workforce availability, the situation there has been improving. Again, during the Q4, it started to improve already in Q3 as we communicated, but a favorable progress there has been continuing during this quarter as well. Then if we have a look at the consumer and also the investor demand, but starting with the consumer demand. The overall inflation, combined with the higher interest rates for the mortgages and then adding up the energy crisis. They have a big impact on the consumers and their confidence. As we all know, the consumer confidence are close to all-time low at the moment.
As a big part of our business is consumer business and selling flats to consumers, we see weakening demand in that side as well. Of course, the other key segment for us is the investors in general. Even during the Q3, the investor demand has actually remained on a pretty active and high level. Now during the Q4, we have seen increased cautiousness, in investor demand as well. That is, of course, linked to the money market situation in general as well and the rising interest rates. Then if we have a look at the housing segment situation. As reported earlier, we are completing a good number of apartments during the Q4, and a quite low number actually during the Q1 next year, as we have been showing you.
It is natural that we could see higher inventory levels now, as the demand has been decreasing significantly. Then again, it is good to know that our balance sheet withstands cyclical changes in the sales side as well and our strong liquidity position still, and the undrawn committed facilities that we have. We do not have any big risks regarding our liquidity situation and the financing situation going forward. We also have big refinancing rounds coming up at the end of next year and at the start of year 2024. Of course, if we look at the situation in the consumer demand, we have been keeping a close eye on the investments to plots, and also regarding the startups. We have been requiring higher reservation rates before starting up any project.
The cautiousness and the risk management has been in our focus during the Q4 as well. That was already the case during the Q3 as communicated earlier. As I just commented, the market has not been picking up during this quarter, so we are continuing on those practices heavily, also going forward. Just a couple of comments on the other segments. Other segments, basically, as during this year already, the transformations in business premises and infrastructure, they have been progressing quite well. Of course, the market situation has an impact and a negative impact on those segments as well. Still the transformation activities that we have been communicating. On those, we have been progressing well. Let us say a sign of our competitiveness in the market is that even though the market has been getting more challenging, the order book has been growing during this year.
That gives a volume or ensures volume now going forward. That is one sign. We have won a couple of big cases now just during the last couple of weeks, such as Kupittaan Kärki, the partnership project in Turku, and also at Tampere, the Tampere City Central office building, and the Pon.Bike factory in Lithuania as well. Those are showcases of our competitiveness in the market, even though the market situation in general is getting more challenging. That is it about the business premises and the infra side as well. Wrapping up now the situation. Of course, we are not immune from the market instability, but then looking at our business portfolio, our somewhat diversified business model provides us balance in this kind of a situation where the consumer demand is decreasing, so that also stabilizes our way forward.
As mentioned, also the pretty strong order book at the end of Q3 supports us also going forward. Then again, it is good to know that the market situation has changed pretty dramatically during this year. This makes us to seek more productivity gains in our operating model, in our segments. We are closely looking at the improvement levers and of course, planning some actions also to improve our cost efficiencies and so on. This is something that we are taking very seriously. Actually, we are accelerating the productivity improvements as stated in our strategy as well. Having said that, we are confident that with these actions and our strong capabilities that Heikki Vuorenmaa was referring to as well, we are capable and we will steer the company forwards even though the market situation looks challenging.
That is to conclude the introduction now, and we would now be happy to take some questions for you guys.
Yes. Thank you, Heikki, and thank you, Tuomas. Now we are ready with questions, and if you have a question, please use the raise hand function. It seems that we have the first questions from Svante. Please go ahead.
Thank you. A couple of questions from my side. First one, you mentioned the declined investor demand, which is not a surprise, but looking at what you have done in recent history when you have had unsold consumer apartments, which we probably can assume will happen this time around, too, do you think there is any possibilities to unload those into JVs or is that now more difficult? It probably is more difficult, but is it possible now to have that kind of a solutions?
Thank you, Svante. D efinitely we are looking at the situation very carefully, as always in this kind of a situation. It is possible to do these kind of moves on the market as well. W e are, as mentioned, considering our options and looking at the situation all the time, what would be the best for the company. That's basically where we are right now.
Thank you. Then on productivity, I think you had a run rate of EUR 20 million in cost savings after Q3. Should we expect that still to grow in Q4?
Well, that is something that we cannot disclose at this point, but as mentioned, this is at the core of our strategy and we are targeting productivity gains throughout the organization. That is basically all we can comment now.
Okay. Thank you.
Thanks, Svante. Next questions from Olli.
Yeah, thank you for taking my question. On the property market and the yield requirements, what kind of fair value impacts are you expecting on your assets based on the rising yield requirements this year? Mainly talking about Tripla here.
Yes. Thank you, Olli. As mentioned, the investor demand has been decreasing, and one of the reasons there is, of course, the rising pressures on the yields. That's for sure. As mentioned, we are closely monitoring the situation and evaluating the impacts. Tripla is one of them, but also we are looking at the market as a general, and if there is some impact, they will be then reported in Q4.
All right. Just to follow up on Tripla, can you comment on how Tripla sales and traffic has been in the shopping mall this year? The year is coming to close. Has it been any better than last year?
Well, in general, we can comment that the situation in Tripla, in general, it has been developing to the favorable direction. In general, the shopping mall is doing well. The traffic and the sales are developing well, let's put it this way. No major changes there.
All right. Thanks.
Thanks, Olli. Next, a question from Anssi.
Thanks. It's Anssi Raussi from SEB. I have a couple of questions. The first one is about the material costs and how do you think that decreasing costs will affect your selling prices of apartments. How long it takes before we see any impact, and how would you describe the dynamic as you have been building apartments now with higher material costs? If I understood correctly, you're now seeing decreasing costs, and you have higher inventories maybe than usual when going into the next quarter.
Well, yes. Thank you, Anssi, a good question. As we've been communicating during this year, we've been seeing the material and the construction services inflation on a rise, let's say, for the last almost two years now. We've been tackling, of course, the rising costs with our suppliers and using our, let's say, buying or purchasing power appropriately. This is something that we've been kind of seeing now for two years. Now the situation has changed a bit since at least for some of the material costs has been actually already decreasing. In this kind of a situation, it's fair to say that we are pushing pretty hard also now in the situation to the suppliers as well. We are kind of heavily negotiating the prices as we speak. That's I think the basic thing.
Now, if we look a bit forward, it is very challenging to predict how the material costs are now kind of going to develop, how the energy prices going to impact the costs and so on. We are in a kind of situation where it is hard to forecast. All we can say now is that we are using our purchasing power appropriately. Then again, if we look at the selling prices of the apartments, that is more tied to the general market situation. This is something that actually I already commented. Now the market situation from the demand perspective has been decreasing and the price sensitivity of demand. This is something that we are closely kind of analyzing and making changes.
Since some of the apartments are already completed, or pretty much of them are already completed, and the cost has been tied long before. There is the time lag between the cost incurrence and then the selling the apartment. There is a big kind of a time lag between them.
Okay, thanks. The second one is about your balance sheet. Of course, this is purely speculative question, as you have said that there is no need or risk for an equity issuance. I f you had to name one metric you are worried about or something which could be a trigger for equity issuance, what would it be? Like some equity ratio or whatever it is? Anything to point out here?
Well, you put a challenging question, but I can comment on that on a general level. If we look at our debt structure, what we have been presenting you in Q3. I would still argue that we have pretty low risk profile in our gross debt. Getting back to the IFRS 16 lease liabilities and the housing company loans related to the unsold apartments. Those present pretty big amount of our net debt. When we would be excluding those from, so to say, adjusted net debt. That would actually kind of illustrate our risk levels more appropriately. From that sense, we are, in our view, on a pretty low risk side still with our gross debt perspective.
Okay. Thank you.
Thanks, Anssi. Do we have any further questions? It seems that we do not. Thank you all for participating. We will publish our full year results on the 10th of February. At this point, we would like to wish you all happy holidays.
Thank you.
You too.
Thank you.