Yit Oyj Unsp/Adr (YITYY) Q3 2026 Earnings Call

0:00 Welcome to YIT's third quarter 2026 results webcast. My name is Essi Nikitin and I'm heading the investor relations at YIT. Together with me here are our CEO Heikki Vuorenmaa and CFO Erkka Repo. We will first hear Heikki to go through the third quarter developments in the company. Following that, Erkka will walk you through the latest financial developments. We arranged a capital markets update in September to clarify how YIT is positioned to benefit from the current data center market growth. At the end of the presentation today, Heikki and Erkka will summarize the key messages from that event.

0:49 After the presentation, the participants will have an opportunity to ask questions from Heikki and Erkka. But now, without further ado, I will hand over the floor to Heikki.

1:02 Yes, thank you very much, Essi, and good morning also from my behalf. Welcome all to the third quarter webcast. And as tradition, we start with the key highlights from our third quarter performance. Our revenue increased 14%, driven by the strong growth in our contracting segments, as well as in the residential CEE. Profitability also improved and adjusted operating profit increased 26% to 30 million euros. We recorded over 900 million worth of orders for the contracting segments from several customer segments. And we can clearly say that our order book will also support the growth going forward.

1:52 But let's go more into the details. The group's quarter revenue stood at 530 million euros and adjusted operating profit margin reached 5.7%. This was now the third consecutive quarter that our revenue continued to increase, and the growth for the full year now exceeds 7%. Revenue and adjusted operating profit improvement came from the residential CEE, building construction and infrastructure segments. Let's start with the CEE. The revenue growth was close to 10% compared to previous year, while the profitability continued on the good level at 13%. It's overall a solid performance in a favorable market.

2:41 Building construction revenue increased 35% and the profitability also took a clear step forward. This profitability improvement is supported by some very successful project completions significantly ahead of schedule. Infrastructure revenue growth was above 20% with the profitability exceeding 6% level. This was now seventh quarter in a row that infra-revenue continued to increase and we maintained solid profitability on that segment as planned. Residencial Finland continues to operate in the muted market conditions, and the team is working hard on turning the segment profitable with taking cost efficiency measures.

3:27 We are seeing a progress, yet it's fair to say that as the top line continues to decline over 35%, the task is fairly challenging for the organization. The overall group operative performance direction is something we expected, and we are on track to deliver our strategic targets. Let's go to the segment level details and we start with the residential Finland. While we still see year on year significant decline in revenue, compared to actually the previous quarter, the development is now more stabilized. This is due to the fact that now most of the projects are for consumers and the investor part of the business is at its lowest level.

4:12 We do still see challenges with the investor market during 2026. However, improving occupancy rates might positively impact the outlook for the investor project in the coming year. We will continue to adjust our operations for this declining revenue and prevailing market conditions, obviously, and the cost-saving measures now implemented earlier this year is only partially reflected in the segment performance by now. Apartment sales were modest at 116 units, which is still a slight improvement from the previous quarter. We started two projects with a total of 43 units, but what is more significant is that these projects represent our new customer-centric residential concept launched during the year, Olo and Formia.

5:05 The third concept, Fiksu, has also been launched, and the first projects are now on pre-marketing. The new concepts Olo and Formia have received a positive response from our customers. Looking forward, we see that there are no further barriers in this Finnish residential market actually to prevent the market recovery to start. Economy is growing, purchasing power is increasing, and the housing is affordable. Also in the new build we see that the reservations for those good projects are accumulating faster than in the past few years and the funding for projects and the customers is available. Stock is at normal level and there is a limited amount of new build ongoing.

5:53 So to conclude, there are conditions for a rebound in the residential construction in 2027 when we look at the consumer market. There were 131 apartment completions and 43 starts. Hence the apartments under construction decreased to 514 units. And as mentioned, the production for investors is at historically low level. Only one project with the 61 apartments. Sales rate remains stable at 30%. It's actually reflecting very well the consumer behavior of postponing the purchase decision closer to completion.

6:38 and today we have some 15 to 20 newly designed projects ready for pre-marketing and launch as the market conditions are right for those. But then we move to our main residential business, the residential CEE. Revenue increased by close to 10% from the comparison period and now the rolling 12 months revenue keeps climbing and it's at 392 million euros. Also on the rolling basis, profitability is now at a solid level of 13.3%, quite close to the strategic target of 15. It's overall a solid performance from the residential CE, but at the same time, on the group level, we are focusing our efforts to allocate further capital to this segment and accelerate growth even more in this favorable market.

7:33 Apartment sales were 406 units for the quarter. And the starts were moderate level of 148 units as we communicated already earlier. However, when we look the next quarter, we are anticipating that to be much more active as much of the project launches in 2026 are expected to take place in Q4 this year. Overall, market remained favorable across operating countries. Apartments under construction decreased somewhat to 3400 units as there were a bit more completions than the starts. Sales rates of the apartments under construction is at 51% which is reflecting the good market conditions as well as our excellent product and brand fit on those specific markets and cities that we are operating in.

8:32 Let's move then to our contracting segments and this time we are starting with our building construction segment. The revenue was a strong 217 million euros, growing 35% from the comparison period. While the data center construction was obviously the fastest growing sector, we are also seeing growth from the various other customer segments. Our improved operative efficiency, as well as increasing volumes, are supporting the profitability. And the profitability continues to improve. On a rolling 12-month basis, the profitability is now at 3.1%, and for the single quarter was at a very good level of 5.2% in this segment.

9:23 Moving on to infra. And the growth in our infrastructure segment continues. This was now the seventh consecutive quarter for the growth. Revenue increased by 23%. The story is very much the same here. The data centers are the fastest growing sector, obviously, but we are seeing growth also from other customer sectors. Our adjusted operating profit margin remains stable at a good level of 4.2% on the rolling 12-month basis. Overall, our infra continues solid and strong performance. As we discussed on the previous pages, both of the segments are on the growth mode and already in the opening I was discussing the amount of orders we recorded and it's a pleasure to say that the contracting segments recorded total over 900 million euros of new orders, which will then support the growth going forward as well.

10:27 Launches of this order was the data center at North in Kovola, which we already announced in July, with a total value of approximately 300 million euros. Also, there was other orders from the data center sector. Another order from our long-term collaboration with XDX was recorded to order book in third quarter. Activity continues strong in the other segments and during the quarter we recorded also the implementation phase of Jätkäsaari swimming pool and sports center, value of 94 million euros, as well as orders from the Reiland defense sectors. The strong order intake is visible in both building construction and infrastructure order books, which increased 32% and 24% respectively.

11:23 But let's then one more time double click on the data center business. So as said, the data centers are providing a considerable boost to both of our contracting segments, as well as outlook for the group, as we will discuss a little bit later with Erkka here. If we look at during the past 12 months, the data centers have now generated more than 250 million euros in revenue, which is translating close to 20% of our contracting segments combined revenue. And these figures has continuously obviously increased. And with our strong order book and the recent order intake from this sector, we expect this development to continue. In addition, we are having several ongoing discussions with the customers that are planning to invest in Finland.

12:17 But then we move to market environment. We see that an economic recovery in Finland, as well as other visible positive indicators, combined with the decline in the residential supply, are creating conditions for a rebound in the residential construction in 2027, especially when we look at the consumer market. Therefore, we are upgrading our view on the Finnish residential market short-term outlook from stable to improving. However, the market is still weak and remains consumer-driven, and a broad-based recovery remains still some way off. No other change is in our outlook, with the CE residential market and the Finnish infrastructure market continuing as our strongest markets.

13:09 But that's all from my first part, and time to hand over to you, Erkka, to cover the financial development for the quarter.

13:18 Thank you, Heikki. Let's start with the summary of our Q3 financial development. Operating cash flow after investments improved from the comparison period and was 19 million euros positive for the third quarter. Gearing was at 90% and net debt was 604 million euros at the end of the quarter. Net debt decreased by over 60 million euros from Q3 2025. Return on capital employed improved and was 6.7% at the end of the quarter, up from 5.7% a year ago. Let's look at each of these topics in more detail in the next slides.

14:10 Our operative capital employed amounted to roughly 1 billion at the end of the quarter, which is close to 40 million less than a year ago. On a segment level, there were no significant changes during the quarter. Return on capital employed is on a positive trend and increased by one percentage point from the comparison period to 6.7% at the end of the quarter. Capital efficiency in business operations as well as the improved adjusted operating profit are visible in this metric. It is good to note that these figures are excluding our non-strategic items, which we intend to dispose of during the strategy period ending in 2029.

15:00 Non-strategic items amounted to 257 million euros at the end of the quarter. We will continue to drive profits and capital turnover to reach our financial target of at least 15% return on capital employed by the end of 2029. Let's move on then to the cash flow development. Operating cash flow after investments was 19 million positive for the quarter, which is an improvement from the comparison period. If we look at a longer time period, we have generated close to 140 million euros of positive cash flow during the past 12 months, which is 60 million more than in the comparison period.

15:53 This increase in cash flow has allowed us to increase our investments to plots to secure our future growth in the residential CEE. We will continue our work to further improve gas generation across the operations. Net interest bearing debt decreased both from the previous quarter and from the comparison period, amounting to 604 million euros at the end of the third quarter. The net interest-bearing debt includes IFRS 16 lease liabilities of 254 million euros as well as housing company loans of 180 million euros related to unsold apartments.

16:41 When excluding these items, the adjusted net debt amounted to some 230 million euros. Gearing remained at the previous quarter's level but increased by five percentage points year on year and was at 90% at the end of the quarter. Gearing has been impacted by the redemption of the outstanding 2021 issued hybrid bond of 46 million euros in the first quarter of this year. We aim to reduce the debt level of the group and operate within the Z financial framework of 30-70% gearing. Our balance sheet remains asset rich.

17:31 We have over 700 million euros worth of plots enabling a pipeline of almost 30,000 apartments across our operating countries, which we see as an important platform for future profitable growth in the residential segments. Completed apartments and real estate in our inventory amount to 225 million euros and investments amount to 168 million euros. The book value of Tripla is now 93 million euros, reflecting a 19 million negative fair value change during the quarter due to an increase in the yield requirement and the fair value impact of the profit sharing agreement.

18:20 In maturity structure of the interest bearing debt, having only minor amortizations to be performed this and next year, providing us stability and allows us to further allocate capital for growth in residential CEE. Moving on to the guidance. We have now narrowed the range for the adjusted operating profit guidance. We now expect group adjusted operating profit for continuing operations to be between 80 to 90 million euros in 2026. Previously, we expected the adjusted operating profit to be between 70 to 100 million euros.

19:08 The guidance update is a result of stable financial performance of the businesses during the first nine months of the year. Our outlook remains unchanged. Thank you and now back over to you Heikki.

19:25 Yes, thank you very much Erkka. I promised there in the beginning, or was it you actually, Essi, that promised that we will touch base on the capital markets update material that we provided. It's been about a month since we updated the data center view, how we are present there, but I think it's good to discuss and get some key highlights. But before we go there, so let's look at our progress towards the strategic targets as a whole. So as you can see, we have been now updated our revenue growth to be at least 10%. We're seeing the growth coming. It's at the moment signalling 5% growth, knowing is that we have been having this year now first time three quarters in the row growth for some times in the group history.

20:17 When we then look at our profitability, it is trending in the right direction on a rolling four-month basis, 3.5%. Obviously, still work to be done to reach our financial target of 7%. And as a conclusion, while our capital is lowering and our profitability is improving, so we see that the return on capital employed is also increasing and is now at 6.7%, as you, Erkka, discussed earlier. Still way to go and work to be done to reach the 15%, but we are on the right track there. One element that is supporting us to reach those strategic targets is, of course, The recent news and the development in the data center industry and what comes to Finland.

21:07 And if you look at the data center development in Finland that is now projected until the 2029, at the end of our strategy period, we see that there is 10x plans to increase the deployed capacity in Finland. This data is coming from the Confederation of Finnish Industries, as well as there is another data point, which is the Finnish connection agreements. Both of these are from the August, the time that we also were providing update to the capital markets. And we do recognize that these numbers, especially the Confederation of Finnish Industries dataset has been updated upwards, which is telling the increasing interest and activity to invest data center operations to Finland.

21:56 If we then look at what does it mean for construction industry, we see that this is actually an unforeseen opportunity. We are looking up to 15 billion addressable market for the construction industry companies through to 29. It would be approximately 10% annual on top of the current industry volume. Direct employment impact 25,000 as well as all would be in operational would create approximately 7,000 permanent jobs. So we talk about the massive opportunity on the society level as well when this is executed and correctly done. Regional and local impacts to be mentioned.

22:42 Obviously, many of these investments are planned to be located on the cities that have been maybe waiting for new business opportunities and growth for some years by now. We have established ourselves since we launched our strategy over approximately two years ago. We have established ourselves in a strong position. And at the time when we announced and see that where we are, so we are approximately having 30% market share. from this industry, operating with the three dedicated campus teams, capability to scale up to six simultaneous data center campuses and obviously growing beyond that to meet the market and customer demand.

23:28 So we are in a good position, but Erkka, we discussed there also that how does this look in the YIT planned figures during the strategy period?

23:39 Thank you, Heikki. So we have translated the potential market development paths into three illustrative revenue scenarios for YIT in 2029. In all of the three different scenarios, the business grows very strongly. The difference primarily being in how quickly data center investments can move from plans into construction. In our base case, power availability develops as expected, customer investment activity continues, and projects move forward under normal delivery conditions. As our base case, we see a credible path to about 1 billion euros of revenue in 2029. In the low case, where the beforementioned factors developed more slowly than expected, we still see the data center revenue reaching about 700 million euros in 2029.

24:39 The high case illustrates the upside. If infrastructure is built out faster, customer investments remain strong and more sites become construction ready within the period. In that environment, data center revenue could reach about 1.3 billion euros in 2029. While the exact pace will depend largely on external conditions, the direction is clear. Data centers offer YIT a material, profitable and scalable growth platform. And given the scale of the opportunity and the momentum we already are seeing in the market, we also announced an increase in our strategic growth ambitions in the event.

25:29 The most significant change was our group growth target, which was doubled to at least 10% annual growth rate from our base year of 2024 through 2029. In building construction and infrastructure, we raised our growth targets to at least 6% and at least 15% respectively. All other targets remained as is. We are also confident that the data center growth will support us reaching our group profitability target of over 7% EBIT margin. These were the highlights from our capital markets day and we are now ready to take questions.

26:17 To ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Anzi Rossi from SEB. Please go ahead.

26:36 Yes, good morning all and thank you for the presentation. I have a few questions and I go one by one. I start with the non-core assets and I think the number was 257 million euros in Q3, decline of more than 40 million euros quarter over quarter or so. Of course, triple had an impact, but could you comment on this sale of an office building in Lithuania, like what was the value of this transaction and also was this included in your operating cash flow after investment. Thank

27:14 you. Thank you, Anssi. So indeed, we sold that during the quarter. The value of the transaction has not been disclosed due to the Request also from the customer. The value, as you can see it from the numbers of the values that how much we have there at the moment for different type of an assets. It is included obviously to our quarter cash flow as well.

27:49 Okay. I guess it's clear and then on your guidance so if we look at your full year guidance this number or range indicates some 20 to 30 million euros of adjusted EBIT in Q4 so of course your EBIT was 30 million euros in Q3 so could you comment like which segments or in which segments you see that the earnings could decline a bit quarter over quarter

28:21 So we will come back of course to the exact numbers in the month of February where we looked at the third quarter so like mentioned so we had a fairly good completion of projects that was executed on Well ahead of schedule during the third quarter to support, for example, our building construction segment performance. And our guidance is then highlighting the kind of the confidence what we have at the moment on our operations that we see that what is the level that we are going to perform towards the end of the year.

29:09 Okay, got it. And the final question from me. Regarding the housing Finland second, so I think you have like 453 apartments under construction in Finland right now and you expect to complete 350 in Q4. So how do you plan to adjust your capacity going into 27 or do you plan to start new projects in early next year or how do you see this period?

29:40 Well, we will of course need to look at how the overall market developments and in what conditions we continue to operate. We have ready projects or the projects that are ready to start, some 15 to 20 at the moment. So the starting capability is there. We need to assess city by city the situation and the micro market and when we are making those decisions. There's another element which also I addressed there a bit but maybe to elaborate a bit further is that we see quite a strong phenomena of consumers postponing their purchasing decision making closer to the completion of of the apartments which is fairly natural in a way people they want to be sure that they are capable to sell their own existing apartment as well as then that they can see the the project to be final and ready and we've observed that trend now with the several completions that has been taking now third quarter and that are going to take place in the fourth quarter.

30:44 All that included, so we have capacity capabilities to start, but we are still kind of ensuring that we do not take unnecessary risks as a company when we make those starting decisions. And like I said, so we will... Sorry, Anssi, still do one point that you asked there. So we continue to, of course, adjust our capacity according to the market demand. Thanks. The next question comes from Atjordica from Indiers. Please go ahead.

31:24 Good morning. This is Atte from Indiars. Thank you for taking my questions. So first going back to the data centers and asking again the question that I asked in the capital markets update. So you expect data centers to support contracting profitability from next year onwards. So why didn't you raise the margin targets for those segments and when you only raised the growth targets?

31:55 Thank you Atte for the question and I need to give you the same answer as before so data centers is of course it's a one kind of area of the business it's growing but it's one customer segment that we see which is for our building construction and infra segment So obviously, like we communicated, that will support us to reach those strategic targets, which are for both segments is to be above 6%, not exactly a six or so.

32:37 Yeah, understood. Then on residential CEE, so you expect the majority of starts to go forward in Q4, so Summing up the starts in Q1 to Q3, that would mean more than 1,200 starts in the quarter. So is this the correct take on that? And on which markets and projects are these starts coming from? And how confident are you in the timing?

33:11 I start with the last one. We are confident with the timing of the starts. And when we look the kind of the Q4 like we said so the activity will be the highest in the Q4. And then what comes to the actual numbers and the countries and how we are then kind of going into, we'll come back to those as the kind of the starts has been then actually accumulated like we do. If overall looking the Market conditions and operations in the different kind of city by city. So we see that the activity is in a very good level. It's more about our capability to allocate capital and get the projects ready for the start instead of what the market provides us at this point in time.

34:06 So that's the kind of starting situation on the CEE.

34:14 Yes, and then finally from me on the non-core assets, so triples written down again. Is there still a realistic path to exiting that asset during the next year or two?

34:27 So we continue to work on that. The AAA is performing really well. If you look at the number of visitors and how the mall is performing, then like I said, so there's third parties evaluating the yields, kind of evaluating the asset, and now the view on the third quarter was that the yield expectations were increasing, which is then negatively impacting us. That being said, we see that there's still somewhat demand on the prime shopping malls across Europe and we feel that Tripla is the number one in Finland.

35:11 Thank you, that was all from me.

35:14 Thank you very much. As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Svante Krokfors from Nordia. Please go ahead.

35:32 Good morning. Svante from Nordia. Thank you, Heikki, Erkka and Essi for the presentation. A couple of questions left from my part. Let's start with the popular theme of data centers. Given the media report regarding Google's environmental issues in Finland and the postponements there, has that had any impact on your discussions on your data center projects?

36:10 I think, of course, broadly speaking, every project is It's an individual project as such and the individual discussions are more related to ready for service and the power availability and all those related questions than other factors at the moment.

36:37 So you wouldn't say that the sentiment has become more hesitant than

36:45 I wouldn't draw that conclusion myself.

36:51 Okay, that's clear. Thank you. And you talked a bit about... I mean, your investor... On the residential side, the investor projects are almost non-existent. Have you seen any change Any change in interest in that side?

37:18 Not the material change. It's always the question about, you know, does the Excel work right? And there's still kind of positive drivers which comes for the occupancy rates that are from our Viewpoint is those are on an increasing trend. But of course, at the moment when we look at the increasing interest rates on a global level, that doesn't really help the Excel calculation, what comes from the investor's perspective to get these projects up and running.

37:59 Okay thank you and last question coming back to the mall of Tripla. I mean you have been quite successful in leveraging up the joint venture and you have been able to take out money from that project and I guess the LTV has gone up quite significantly there so and now LTV probably goes or also goes up as you have Or as the value of Mall of Tripla has come down, there is no risk. You see that you would have to inject some more equity into the Mall of Tripla joint venture.

38:41 Mall of Tripla performance continues to improve all the time. So that's the situation. And it's a difference between the valuation on our balance sheet and how the operative performance and the capability to generate cash is. So those are not linked per se.

39:04 OK, thank you. That is all from me. The next question comes from Anzi Rossi from SEB. Please go ahead.

39:17 Yes, one more question from me. It's on the Baltic and CEE countries segment. So you described the market as resilient, but I think this was described as solid in Q2. So have you seen some changes in market environment in some countries or is there anything behind this? Outlook change.

39:41 Well, one positive change is actually Estonia. And there for quite some time, Estonian market was very much looking like Finland, so muted. Due to the fact that there was no economical growth also in Estonia for several time being. Now we see that Estonia actually the economy recovery has started alongside with also the residential sales. And it's a quite small market for us in a whole portfolio of CE that to be acknowledged, but we saw a clear step change in that market actually in a month of July and has continued since. And it's good to note that it actually follows a very much similar pattern that we've seen in other CEE countries, for example, in Lithuania some time ago, some quarters ago.

40:43 So it went from much muted where there was and a lot of uncertainty to actually one of the highest volume countries. Same happened in Latvia, and the kind of residential market rebound was quite fast. And now we saw that in Estonia during the third quarter. And like I said, so kind of materially, it's not that big for us, but it means that we have been capable to sell more and obviously encouraging us to continue our ramp ups and scaling that business as the market has been there a bit more favorable for us.

41:29 Okay, so it's more like resilient but higher level, I assume.

41:34 Yes, and it means that when you have more operation countries performing on a better level, so that provides us the resilience. That's what we're also discussing, is that we are not solely on a single revenue stream dependent, but we are actually capable to generate our business from multiple operating countries. And I think it's even more to talk about cities, actually, when we look at our Thank you. There are no more questions at this time, so I hand the conference back to the speakers.

42:34 Thank you. As there are no more questions, we thank you all for participating and wish you all great rest of the day.

42:41 Thank you. Thank you.