All right, let's get started. Good morning, and welcome to YIT's Q1 Silent call. My name is Tommi Järvenpää. I am the Head of YIT's IR, and I am here with our CFO, Tuomas Mäkipeska. We will first hear a short intro from Tuomas, and then we will move to Q&A. At this point, Tuomas, go ahead.
Thank you, Tommi. Welcome from my behalf as well. We will have a short summary of the situation in Q1 first. As Tommi mentioned, we will have time for Q&A afterwards. Now that the situation is somewhat different than anticipated earlier, we will spend some time discussing the Ukrainian crisis situation and also our situation in Russia. After that, I will just have a brief comment on Q1 general situation so far and also our strategy implementation status.
First of all, if we go to the situation of the Ukrainian crisis and the geopolitical situation. As everybody, we are devastated of the situation, what has happened, and how the situation has evolved. Of course, this has also impact on our Russian operations and also to the entire industry.
Maybe the first point from our perspective is that we have limited or actually stopped buying and importing construction materials from Russia from now on. Also, we have stopped plot investments and startups in Russia as we speak. These kind of purchases can be replaced by alternative materials and sources to large extent. This won't have, at the short- term, significant impact on our business. All in all, we see that the Ukrainian crisis brings, of course, certain uncertainties to the market. Also, this will have impact on construction material availability and also prices globally.
Especially steel, timber, and glass as construction materials will have an impact of the crisis. It is, of course, under evaluation every day how much this will have an impact, how the costs are developing, and what kind of impact it will have on our operations.
So far, it hasn't had any significant impact on our cost base. If the situation kind of prolongs, it certainly will have negative impacts on our operations as well. Also, if we think of the higher prices and the cost levels, they might have or add pressure on apartment prices, which then could have an impact also on the demand side. As mentioned, this is something that we are evaluating every day. It is still a bit too early to say how it will play out.
Also, if we think of the consumer confidence in this kind of a situation, it is very hard to predict how it will play out. So far there hasn't been significant signs on the demand side. Some kind of prolongings of decision period and so on in consumer side, but nothing major has been seen yet.
The coming months will tell us more. One topic which is important for us is the availability of the workforce, of course, as well. It is becoming more challenging in the Central Eastern European countries and in the Baltics, and also a bit in Finland. This is something that we are, of course, monitoring carefully every day as well. Every day, in any case, if we summarize the situation or the impact of the crisis for our businesses, it increases the uncertainty in our businesses. So far, major impacts on our cost levels and material availability has not seen yet. That is the situation as we speak.
The second topic today is our operations in Russia. As we informed a couple of weeks ago, we sped up our strategic review regarding the business in Russia. We still have all options open with our Russian business. Of course, the sale of the business is a preferred option in this kind of situation, while the market environment has changed so dramatically. We prefer sales of the business, but we still have the other options open as well. We have very active discussions going on all the time, and we will, of course, inform you more when there is something to inform.
It is the situation in Russia and the options of exiting operations quickly. It is difficult, as you might all know, that from a juridical point of view, it is pretty complex how to exit Russia so that it will not have significant impacts on our liabilities and finances. This is something that we are evaluating all the time.
Continuing the operations there is becoming more difficult, or it has become more difficult so far because of the sanctions and also the constant changes in the regulations in Russia. The good thing in our operation is that we have a going concern. Our business is running pretty much normally so far in Russia. Our management, of course, is doing constant evaluation, how the sanctions will play out and what kind of impact they will have on the business.
So far, we are continuing the operations pretty much in the normal mode in terms of on construction, of course. That is the situation in Russia right now. As said, we have active discussion going on, and when there is something to tell, we will, of course, publish new information. The third topic maybe here is the Q1, how it has started, and what it looks like.
Except for Russia, the rest of the business has developed pretty well and according to the plans. No significant signs of weakness in the market during the Q1. Of course, during the March, there has been more turbulent environment in our markets. Still, if you look at the Q1 as a whole, no significant signs of weakness there. One major topic for us has been that we have implemented our operating model, the new operating model as of start of January.
We will also publish the new financial figures, or the last year's financial figures will be restated before the Q1 reporting as well. If we then look at the situation from a strategic point of view, of course, this current situation and the circumstances we operate, it has an impact on short term on our operations.
From strategic point of view and in five years perspective, we think that our strategy remains intact. Of course, the acceleration of the growth will be evaluated. Again, what is the reasoning and what is the possibility to invest in growth in the changing situation. Still, the core of the strategy is still accurate and intact. The good thing, of course, as we mentioned in the CMD in November and also when publishing the Q4 and last year's results, we have a strong balance sheet.
Which, of course, gives us, let's say, stability in this kind of operating environment, but also, it opens opportunities in this kind of situation when needed. The strong balance sheet that we still have, so it gives us a good position to go through the crisis and also tap on the opportunities on what we see on the market. That's basically a short summary of the situation. I think, Tommi, we will now have good time for the questions and so on. I will welcome more questions from your side.
Yes. Thanks, Tuomas. As I said, we have now time for questions, so just please raise your hand if you have a question. Just as a reminder, please note that this session is recorded, and the recording will be published on the website later on. I think we have a first question then from Olli. Go ahead.
Yes, hello. Olli Koponen from Inderes. Thank you for taking the question. First on the Russia business there, you said you have been able to continue the business there pretty much as usual, and you're able to finish or do your projects there. Have you seen any kind of problems with money flows or anything relating to the current situation? Are you able to continue the business normally there?
Well, thank you for the question, and it is a good question. Of course, the money flow is not working normally because of the sanctions and because the banks are so carefully also monitoring the new rules and the sanctions and so on. So far, it has not had a major impact on a local level and between the countries. We have been able to continue so far normally, but of course, on a local level and also on a cross-border level. There has been changes and so on, but we have been able to manage them or navigate through them. In that sense, we have been able to continue normally.
Okay. Do you think this will have any kind of impact on you, or have you had any kind of discussions about future sanctions that might be coming, and what kind of effects might they have on you?
Yes. As mentioned, of course, we have been evaluating the situation for the past month on a daily basis, and also on a local level in Russia, but also on a group level here in Finland. We have an ongoing process on monitoring the current sanctions and what kind of impact they have on our businesses. Also, we are playing out scenarios for how this could evolve and also planning for the mitigation or mitigating activities against those risks and scenarios. This is something that we are working on a daily basis.
Okay. I would like to ask one question about the housing demand, especially in Finland and CEE. You said that the consumer confidence is quite on a good level, and the demand is there. On the investor side, how about that? Have you seen any changes in that behavior towards Finland and CEE now after this situation?
Thanks for the question. If you look at first from consumer point of view, as mentioned, we still have very good reservation rates, and we haven't seen major impacts on the demand side in that sense. Of course, this might change in the near future, but so far, no big changes from the consumer perspective. Also from investor perspective, so far during the March month, we haven't seen any impacts yet. Also, I would like to, of course, note here that there might be some effects on the investor side during the coming months if the situation prolongs. But so far, no major impacts either there.
All right. Thank you. That's all from me for now. Thanks.
Yes, thanks, Olli, and next question from Svante.
Thank you, Tommi and Tuomas, for the intro. Olli actually asked a couple of questions that I had, but also on the investor demand side, have you seen that the high input cost level has already led to hesitation among investors and projects not becoming profitable anymore?
Well, referring back to what I already mentioned, so far, we haven't seen any major impacts there. Also, what I just said, if the situation prolongs, this might have an impact, of course, on the investor side and also the possible delays of our projects, but so far, no major impacts. The situation is, as you all know, it's extremely hard to forecast how it will play out. What I can say for now is that so far, no major impacts have been seen.
Okay. Thanks. Then on the Russian side, trying to grasp what's actually at risk for you in Russia. You have the equity, EUR 210 million, and also the prepayments, a bit more than EUR 100 million in escrow accounts. Now you continue to complete the apartments which are under construction. How should we look at this in a worst-case scenario?
Well, if we look from an invested capital point of view, as mentioned, we had at the end of last year a bit more than EUR 200 million there. This is something that has been, of course, at risk. If we think of the situation now, it actually has changed because of the exchange rate development. The ruble has weakened a lot during the Q1, of course, so that has an impact on the exchange rate impact and also what we said already. We have the cumulative translation difference from Russia from the previous years.
That is something that we will have in any case, and of course, it at the same time dilutes the equity impact, what is under risk. On a gross level, the amount is pretty much the same. That's basically the risk position that we have. As mentioned, we are carefully monitoring what would be the best option from a strategic point of view, and that's still in process.
Okay, thanks. Then I think your growth investments in housing Finland and CEE, I think you mentioned that 2/3 of investments would be made in Central Eastern Europe. What does the situation look now in your three countries and the major cities there when it comes to consumer and investor demand?
Yes. As I pointed out earlier, this is something that we need to reevaluate in which kind of a schedule and at what speed we will increase our investments in housing in Finland and CEE countries because of the current situation. From a strategic point of view, as mentioned, we will still invest in those areas and in the housing business. Of course, now the situation, we are currently evaluating how much this will have an impact on the speed of investments. It's too early to say from a strategic point of view, since we don't know how long the market will be as it is right now, how fast it will recover then.
Okay, thanks. Then on Russia, you said that you make no more investments, no more plots acquired, no start touch. When will the last apartments under construction in Russia be finished, roughly?
Well, if I comment on the major projects that are going on there. We have basically three big projects coming to an end. First of all, the two first ones will be finalized during April and May, and the third one will be finalized in June. These are the three major ones that we have going on there. Those are the most crucial ones, and they are pretty near ready already now.
Okay, thanks. That is all from me.
All right. Thanks, Svante. Next, Simen.
Yes, thank you. I will just do a follow-up on those questions. In terms of those large completions in Russia, it all seems to be in Q2, if I understand correctly. Can you say something about the pre-sale ratios in these three projects?
Sorry, can you repeat the question?
Can you say something about the pre-sale ratios in the Russian projects?
Yes. The pre-sale ratios are on a high level. This has been also interesting to see how it evolves during the crisis, and we have pretty good situation with these three major projects that are going to be completed during the Q1, as you mentioned. From that sense, on the short term, we don't see any big risk. The ratios are high, as they have been actually pretty long already now.
Yeah. In terms of high levels, are we talking 80s or below? Can you comment?
Yeah. Well, this is something that we are not disclosing. Let's put it this way, that they are on the same level as they have been on the longer term. No major changes there either compared to the normal situation.
Thank you. In terms of the Russian operations, the rest of it, how self-financed is this? To what extent are you using local currency, local banks, long-term versus group financing, perhaps then financed through euros in terms of your debt financing, and what kind of exposure do you have?
Yeah. In a big picture, we have, of course, the project loans that we are using locally there in rubles, and they are used to finance the project. In that sense also, the business is pretty much actually funding itself. In that sense, we don't have a big need to inject euros from Finland to Russia. That's a good situation. They are also managed in pretty strong cash flow mode during Q1 or has been during the March period. It's pretty much self-funding business as we speak.
The existing plots?
Well, we have the plots reserve, what we had basically at the year turn. As mentioned, we haven't been investing in new plots there. This is also, of course, included in the capital employed there.
Yeah. Do you have debt on those? What kind of financing is on those plots?
No, we don't have debt on those.
Thank you. Second question is from my side or second theme is the building cost inflation. In terms of tendering, how do you handle this now? Based on what I've seen in other Nordic markets, fewer and fewer construction companies are now willing to enter fixed tenders based on the high situation of uncertainties.
We have also seen quite significant step-ups in the cost in terms of building a residential plot, in terms of price per square meter. Can you give us some commentary on how you handle the risk? Are you still bidding for fixed cost? What, in terms of the price gains on new tenders, are you seeing in the market?
Yeah, that's a good question. Thank you. Of course, this new situation or changed situation has had a major impact on our tenderings. Of course, we have a couple of ways to mitigate cost increases during the projects also. In every case, we have been taking into account the new situation, and we have priced in, of course, the cost inflation that we understand is going on right now.
Of course, we have been increasing our risk buffers in our tenders as well, so that we mitigate the risk of further cost inflation. From that perspective, we haven't been taking any more risks than previously. Actually, we've priced in pretty much cost inflation and risk buffers on our tenders.
Do you want to quantify something on those figures, or is it something you don't disclose?
That's something that we are not disclosing, but we will be describing the situation in more detail in Q1 release, because this is something that we are, as mentioned, on a daily basis, we are analyzing how much there will be cost increases or cost inflation by construction material and so on. We'll, of course, elaborate on those a bit more in Q1. As mentioned, those are taken into account in tendering, of course.
My last and third and final question was in terms of disruptions in deliveries and in project supply lines, et cetera. Am I understand correctly that that hasn't been halted yet in terms of lack of transport truck drivers from Ukraine, which usually did a lot. We've seen some disruptions in other markets in terms of getting products to the building site. Have that impacted you at all so far, or is it something you haven't seen?
Well, thank you for the question. This is also part of the package that we are evaluating. How much the material availability, and is there delays or a shortage of materials in our supply chain? Far, as I mentioned, we haven't had a big impact yet.
We have been cautious, and we have ordered a bit more materials already in February. We haven't been suffering of the shortages yet. If the situation prolongs, this will become more challenging, that's for sure. So far, we've been able to manage pretty well the situation, but the material shortages and of course, combined with the cost inflation. That's a risk that we are constantly monitoring.
Just last final question. In terms of risk of project write-downs or plot value changes to the negative side, especially on the Russian assets, at what time you think you will look at that and, if any, communicate something to the market? Secondly, is that something It is natural risk, especially in Russia, but when will you, at least ahead of Q1, make us a risk assessment of that?
Yes. As mentioned, we have active discussions now going on about the Russian operations. This, of course, as I mentioned, when we will have something to inform, we will of course do it. That's all that we can say right now.
Even in silent periods, you will come out with something on this, if I understand correctly?
Of course, if we have something to tell, we will tell it immediately. Of course.
Thank you. Those were all my questions.
Thanks, Simen. Then a question from Anssi.
Yes. Thank you, Tommi and Tuomas. It's Anssi Raussi from SEB. Quite many of the questions I was thinking have been asked already, but to summarize some of these points. You said, Tuomas, that you're quite happy with your balance sheet, and it actually seems strong enough, but you do not see any need to strengthen it further, just in case. Just to make this clear.
We don't see any current needs to strengthen our balance sheet further. Of course, I always get back to what I already said. The situation right now, it's pretty challenging to forecast how it will play out, the geopolitical situation, also the kind of supply chain developments and cross-border actions and so on. It's difficult and challenging to forecast. But right now, we don't have any plans to further strengthen our balance sheet. There's no need.
Thanks. Second one about Eastern Europe. You said that you haven't seen any major slowdowns, at least so far. Some companies I've been talking with have been saying that at least the renovation activity has been taking a hit already due to current situation, and it has been estimated that startups might be cooling down as well later this year. Just to make clear this as well, you haven't seen anything of this yet?
Yes. You put it correctly. We haven't seen any impacts yet. Of course, I think for sure if the situation prolongs, it will then have an impact, of course, on the demand side and also our kind of appetite to invest and so on. This is something we've been kind of four weeks now since the war started, so we've been evaluating the situation, and the situation has been changing all the time because of the sanctions going on and coming in.
We are, of course, monitoring the situation country by country, and so far, there hasn't been any big impacts. I need to still point out that if the situation prolongs, I think it's inevitable that it will have then an impact on our operations as well.
Okay. That's clear. Thank you. I think I don't have anything else to ask.
All right. Thank you, Anssi. Then we have follow-up from Olli.
Yes. Thank you again. Just one follow-up on the Russian operations. Have you been able to continue the Russian operations with kind of normal profitability, or have you seen any changes in that?
Yes, we have been able to continue on a normal profitability level so far.
All right. Thank you.
All right. Thank you, Olli. It seems that there are no further questions, so thank you for the participation, and thank you, Tuomas, and we will talk to you soon.
Thank you from my side as well.