Salonen. I am Tommi Järvenpää, head of YIT's IR. Please note that the call is being recorded, and the recording will be published on our website after the call. We will get the questions after Ilkka's update. At this point, Ilkka, please go ahead.
Thank you, Tommi, and welcome to the silent call. If you look at the Q3 shots, it has been pretty much as expected. Previously, we have started with a COVID update. At this stage, it is quite easy one just to say that it is expected that those restrictions will be removed in Finland in the beginning of Q4, and things from that side are going to the right direction. If you look at the segment by segment, generally the solid performance in the housing businesses in Finland, CEE, as well as in Russia, continued into housing Finland and CEE. The activity itself has continued in a good level after the summer vacation, and that is, of course, good item. Also, as our target has been to have more startups during this year compared to last year, that we are performing.
Of course, the completion pattern, which was also seen in the Q3 reporting, it is heavily overweight to the last quarter. Actually, in the third quarter of this year, we have roughly about 150 apartments in Finland than last quarter. They expect there is about 1,200 units. In housing Russia, also, the activity has continued to be in a good level. As already in Q2, our warehouse for the completed unsold units was in a historical low level, and that trend has continued. Even the COVID situation in Russia has been more severe than in Finland. Both sides have operated normally over there. In business premises side, we can say that the activities among customers and investors are more or less normalized. There has been a number of tenders in the public sector, especially.
In the private side, it is still open, as it has been for a while, that how the whole office premises will be removed, renovate due to the corona situation. There is one clear, let's say, step change during the last month at quarter in the tender processes that sustainability has became a criteria not only in the public side, but also in the private sectors. In a couple of public tenderings, actually, we have won the cases based on our sustainability, not with the price. That is, of course, where we are also focusing and investing in the future as well. In the partnership property side, the activities among investors, it has mostly returned. That part which has been more active than it was in the beginning of the year is what comes to the tenants. That is the companies.
They have activated to start to look at their next office location. It is good to remember that there are expiring a number of old rental agreements in the market every year. Actually, the customers, they have to make an active decision what kind of office premises they will have in the future. So the investor side has more or less activities around there has more or less returned. In the tenant side, it has really activated during the last quarters. If you look at the customers visitors in Tripla, they have improved steadily during this year as the COVID restrictions are less severe than they used to be in the beginning of the year and last year. Also, if you look at the COVID restrictions, they are expected to be removed in Finland early next quarter.
The further improvement are expected over there towards the end of the year. Ilkka Tomperi, he started in the beginning of August in his position as the Executive Vice President. On the infrastructure side, there has been and there will be a number of public tenderings. What we have seen lately, there has been quite many bridge tenders in the market. In September, we signed the Crown Bridges agreement with the City of Helsinki. Government local governments, they are expected to stimulate, but it takes time. Planning and designing phase takes time. But one part which has activated is the major track investments. They are expected to come in the coming years. Of course, they are still in very early phase, so it is not any major things within the coming quarters.
As we have mentioned earlier this year, there is a stabilizing period from going in infrastructure, and that is similar type we have had in business premises starting last year. That is progressing as planned. Of course, the big topic of the infrastructure side is the Lestijärvi wind power project. It was signed in February and closing latest in 2022. But of course, we are targeting to get it done before the end of this year. But in that process, we are not in the driver's seat, but that is for sure our target. In infrastructure segment, Pasi Tolppanen, he started in the end of August as the Executive Vice President.
What we have stated earlier here is that we are preparing our strategy or making the strategy update have been going on since the second quarter, and over there, we will announce the new auto-updated YIT strategy later this year. An operating model work or the exercise what we started also in Q2 that is ongoing as planned, and the new operating model as well as the cost savings from the new model, those will be reported later this year as well. One part which has been on the table for a couple of quarter is the inflation and price increases in the construction materials as well as subcontracting. Yep, that is true. If we look at the moment, how we see the world is that the price inflation should start to ease in the end of this year, beginning of the next year.
Actually, the first indications in certain areas we have seen already. If the world goes based on that pattern, then the impacts for our profitability will not be materialized this year and also they will not be materialized next year. That was my sort of update and introduction for the Q3 performance. We are ready for Q&A session.
Yes, indeed. Let's move to the Q&A. Always please raise your hand if you have a question. Anssi was first. Go ahead.
Thanks. Starting with the large projects, as you highlighted, the demand from investors side as well as consumer side, it has normalized. This is crucial part when you are making these processes in the background, trying to finalize the deals and start the large projects. Could you a little bit elaborate on project-to-project basis, how is the development phase going on in the background?
Let's look at the big ones. The Keilaniemi, K Tower, Trigoni, Maistraatinportti, Maria Campus. Let's start from the Maria Campus. Over there is a claim, what comes to the city plan in the, let's say, public process where it is the decisions or the, say, the core decisions are expected to come through in the end of this year, in the beginning of next year. That's waiting for that one. In K Tower, there we are in the design phase and of course over there it's more what comes to the tenants financing, that kind of topics over there. Then in the Trigoni, over there, we have a discussion with the City of Helsinki. That is still in the planning phase. Then what comes to the Maistraatinportti, the [Maistraatinportti] over there. We have activities in the tenant side as well as in the investor side.
The same story is in the Maistraatinportti.
Okay, thanks. On [Maria Hospital]
Yeah
When you get the court decision, is it a go?
Of course, it depends on what is the end result from there. The claim is what comes to the size of the permits over there. Of course, when we get the court decision over there, then it is time to look at with our JV partner what is our next step.
Okay, thanks. Then second theme. Now talking about the turnaround process in business premises and infra project management and all that stuff. Could you indicate what is the situation? Starting with business premises, still stable and things are progressing as you planned? Then on infra, have there been any surprises? Because during 2021, we have seen couple of surprises coming from infra. So, any surprises there and what is the situation in the turnaround?
Yeah. If you look at in the business premises side, that segment fixing started last year in Q2, and that has been stabilized. Of course, there are still some, let us say, old tales of the long-lasting projects which are still pressuring. But over there, say that no surprises from that side as been seen during the last couple of quarters. What comes to the infra project side, there is some number of projects which are underperforming. Now, of course, Pasi Tolppanen has just joined to the segment head. What comes to the, let us say, totally surprises, not so much in that side. But of course, when you dig in deeper to the projects, the margin decreases or the risks related for the margins. Yes, there we have seen some more.
But at the same time, I have to say that a big part of infrastructure business is healthy and good, especially those ones which are the alliance type of projects, for example, like Tampere Tramway and so on. So we have seen also some positive surprises in some projects. But to make it simple, last year we started with business premises. It takes roughly about one and a half year to get it back on the track. Then infrastructure pretty much the same. We are in the stabilizing mode at the moment. Not too much expectation for this year what comes to the projects side. But of course, the next year should be already in the stabilizing phase.
Okay, thanks.
Thank you, Anssi. Next we have question from Simen.
Thank you for taking my questions. First of all, wood prices during the quarter has been something most construction companies have seen fluctuate quite significantly. How has availability been for that for you guys, and how has price volatility impacted, for instance, your own developments in housing? Has it been an issue? The second one would also be in terms of access to labor. How has that been from instance in Finland, from the Baltics? Are you seeing that it's easy to get the capacity you need? Is YIT also, as some other has reported, seeing that getting people back is an issue, and you might say actually, how are wage inflation developing in relation to that? Could you please offer first questions first?
Good. If we start with the price inflation and procurement and lack of some materials, we haven't seen lack of materials in our construction site. Of course, there are some lacking, but hasn't had impact for the completion of the products or the buildings. If you look at in our own development side and price development over there in Finland. Because before we start the marketing or selling the apartments, it's for at the same time when we make the startup decision, and quite many of the materials and contracts have been locked on that point. So it means that the price inflation doesn't have too big impact during the construction side. Of course, there are some parts which will be procured later during the process.
Then in the other countries, we have the dynamic pricing model, which means that the prices of the apartments are increasing or decreasing. So it's during the construction period. So over there, the natural hedge is quite easy to make. What comes to the lack of resources, I see that it's pretty much a quite permanent situation in the construction companies. But I don't see that there would have been a clear development that it would be tighter than it used to be, for example, three or six months ago or one year ago. Of course, now, the new YIT has been roughly about four years. I would say that more indications from the businesses and flagging of the lack of resources was actually in 2018 rather than at this stage.
The market is quite hot in Finland, and it is one of the resources which has to be tackled, and so far, I would say that we have succeeded on that side. Not only the own employees, but also among the subcontractors, of getting the subcontractors to the sites. What comes to the wage inflation, there has been wage inflation in Finland, but I would say that not only in the construction side, but also in some other industries as well. Over there as well, not a remarkable impact from that side either. How to get the people back to work, of course, in our industry, most of the people have been working on site all the time, so it is more related for the people working in the offices.
Over there, we actually have rules and instructions country by country because the restrictions are also related country by country. In Finland, which is clearly the biggest operation country, we are getting back to the office starting when the restrictions have been removed. Now it is expected in the middle of October. For example, in my organization, where we have in Finland roughly about 150 people, I haven't heard that it would be a problem to get people back to the office. Of course, there are some individuals who are scared to come back or some other reasons, but in the big picture, not a big challenge. Of course, let's say that during the rest of the year, we are having more or less a hybrid model where everyone will be in the office a certain period, and then a certain period can be remote site.
For sure, we also look at in the operating model side that is there some roles or the duties which you can actually do mostly remote, which we didn't do previously. I can see easily in my organization some of the works which are in the transactional side, where most of the work can be done at home. It is more efficient, not only for the company, but especially for the employees, but also for the company.
I just have another follow-up question in regards to the alliance projects. Tampere Tramway, to my understanding, one of the project stages there were completed in Q2. How has that impacted figures? For instance, the Jokeri Light Rail also that those light rail projects up and running again well enough to cope with the revenues Q -on -Q? Are we going to see, because they had a project completion in Q2, a dip into the Q3 figures in infrastructure, and how has that impacted the overall progression? Also before the Crown Bridges projects eventually start entering the books.
Yeah. If you look at the Tampere Tramway that was completed in Q3, actually came to the operations in the end of August, and also the Jokeri Light Rail. Those revenue recognition is based on the percentage of completion. We have seen them already during the construction period. So there is not one-offs in the end, but in both cases, as they are alliance model type of projects, there are some incentives for the construction company or the bonus scheme where, let's say, the measures are usually related to the public. Let's say, how you are seen in the press, whether is it a negative or positive attitude what the people have towards the project and the end product, and also what comes to the occupational safety and different kinds of topics. And they will be settled after some months the completion, but those are not big jumps.
Shortly, those alliance trams you can see and you have seen those ones during the construction period. Then the Crown Bridges. Yes, it was approved or the agreement was signed this September, but really the construction doesn't start until next year.
Sorry, there was a bit weak line, but I'll come back to Tommi later on. I couldn't hear all. Sorry. But thank you for taking my questions.
Okay.
Thank you. Next, we have a question from Svante.
Yes. Thanks. Perhaps a question regarding your landbank plots. How do you feel about that and what is the price development there? Are you starting to get short of good plots?
I would not say that we are short, but it is a resource where there is more demand than supply, especially when we are talking about the hot spots. I would say that we have succeeded on that side. But definitely it is an area which is in our focus and must be in the focus because otherwise we will not have the end products what we want to have. What comes to the price development, when the COVID came, quite many expected that the plot prices will come down. No. We have seen, let's say, the price inflation on that side during the last one and a half year. Probably the hottest area on that side has been actually our Russian operations, especially St. Petersburg and Moscow.
Okay. Thanks. Then perhaps really interested to hear your view on the residential market and the investor demand. Looking at, for example, Helsinki region, quite a lot of completions, quite a lot of completion of rental apartments. How do you look at that segment going forward? Do you think that there could be a clear slowdown in, a significantly clear slowdown in construction of investor apartments?
Actually, on that side, I would not say so. If you look at the market and the demand over there has been very active during the last couple of years or last years. Also there has been newcomers to the market, and there is a number of players abroad who would like to come to the market. So based on that, I would say that we expect that the investor market remains as good market and not any drastic slowdowns over there.
Okay. Thank you.
Thanks, Svante. Next question from Matias.
Yes. Thanks. I have a question concerning on the cost side and the inflation. So what is the typical share of cost that you have fixed before the startup in housing production and in business premises production?
In the housing side, in the own development side, I would say that most of the costs are fixed when we start. In the business premises side, it depends on about the case by case, and it also relates to the contract type what we are having, and based on that one, the impact for ourself. To summarize about the inflation in our side, I would say that the own development housing as well as for the sales for the most of the investor side, it is because they are our own developed project anyway, but we don't sell those ones to the consumer, but to the investors over there.
Before we start, before we set the price, our own price, we can set most of our costs from our materials as well as from the subcontractor side. In the other countries also during the construction period, when we sell the unsold apartments, we can use the dynamic pricing method over there. In the alliance type of projects in infra as well as in business premises side, because there the price increase is shared with the alliance partner, it is usually the city or the state. Based on that one, the biggest risk what we have is in the cases where we give the fixed price in the tender process, and the tender process will last a longer period of time. Proportion of those ones is clearly lower than the rest of our product mix.
Okay, thanks. Just to get some concrete idea here. If you look a project like these PPP projects of these schools in Espoo. Obviously you have won that project a long time ago, and of course, there is some kind of fixed price tag there. How do you hedge the cost side with this kind of project? Because I think most of the construction works have just begun.
Yeah. Over there, actually, we made the agreement in the summer of 2020, and then we have had the design and developing phase. Over there, we have been able to make the subcontracting as well as the material orders during the last one to roughly 1.5 years. In the processes where you are, I would say that the riskiest ones are the just price competition cases where you have a tendering which may last for three, four months, especially if you had those ones in the beginning of the, let us say, or in the end of first quarter of this year, and you would get the answer in Q3 this year. There you have been at risk. There are players in the market who has actually even they have won, they have rather taken the penalty not to start the smaller ones.
We have not been in that phase. As we have in both business lines, in business premises as well as in infrastructure, we have decreased the proportion of the price competition projects during the last years. That has had an impact for our operations as well.
To conclude is that you do not say that your margins in these kind of PPP school projects in Espoo, they do not have squeezed, they are still intact and at the planned level.
Yeah. Over here, because it is quite safe to say that no impact. I am sure that there is some impact, but it is not a material impact.
Okay.
Yeah.
Okay, thanks. Then a question about this Finnish housing market. We saw a record high housing starts during Q2. What is your feeling? Is the market peaking now? Where do you see the demand going on when we going to the next year?
Yeah. It is a record high. The demand is over there. Actually, if you look at the mix between the investors and the consumers. In the consumer side, what we have seen in the market is the tight RS loan situation, which has been there already for a while. Meaning that the capacity what the banks have towards the RS loans for the construction period is limited. That has an impact for the startups in the own development. Then the investor side, that has been reactive and, let us say, investment money from that side, it has been over there and it will be. So the fact is that the demand for the new apartments, it is over there. But will we see the same kind of levels as we see today?
If you look at that, we have speeded up our startups and we will further have higher startups than, let's say, 12 or 24 months earlier. In our proportion, of course, the startups development is increasing.
Okay. My last question concerning your layoffs and this
Yeah
new operational model that you are planning. Do you see any risks that you would lose some competencies and resources in your development businesses?
Of course, it's always a risk, but once again, not a material one. If we look at our side, the development is definitely one area where we have our competencies, which is our focus area. In the operating model, it's more a question that how we organize certain type of doings. Are they centralized or are they spread segment by segment? What we don't continue to do this kind of topics and all those are not, let's say, part of development side.
You are not cutting costs from the development side?
No. Not from that phase as you think. Of course, we look at different kind of other. That was a very good question. It is not a haircut, the cost-cutting topic is. We make up the operating model first, and then we look at that where we have over capacity internally, and the cutoffs will be over there.
Okay. Thank you, Ilkka.
Thanks.
Thanks, Matias. Does anyone else have any questions left? Seems that there is no more questions. Thanks for the questions. Thanks, Ilkka. Our Q3 results will be published on-
29th
November 29th.
Good.
See you then.
Thank you very much.
Thank you.
Thanks.
Thank you.
Thank you.
Thanks.