Q3/2019: Group revenue increased year-on-year, and adjusted operating profit decreased as anticipated.
In the third quarter, group revenue increased year-on-year, and adjusted operating profit decreased as anticipated. Mall of Tripla opened as scheduled on October 17, attracting more than a million visitors right after its first opening week.
In the Infrastructure projects segment, revenue and profitability growth continued. The segment's profitability was on a good level at approximately 4.5%. The segment's order backlog has grown over 50% from the beginning of the year. After the reporting period, YIT was selected by the City of Helsinki, Finland, as the main alliance partner for the Crown Bridges tramway project.
Our dedicated work to improve customer experience and the consumers' trust in our brand were visible in the Housing Finland and CEE segment's sales figures. In Finland, sales to consumers grew 46% quarter-on-quarter and 22% year-on-year. The segment's adjusted operating profit decreased year-on-year, in line with our expectations, due to the clearly lower number of completions in Finland. The segment's consumer start-ups have been increased supported by good demand and high pre-booking rates. Sales to institutional investors continued to be good as well. At the end of the period, YIT agreed on the construction of rental housing projects worth approximately EUR 112 million for a company jointly established with Ålandsbanken.
In the Business premises segment, revenue increased year-on-year, but operating profit decreased year-on-year and was negative in the third quarter. The operating profit was impacted by project cost increases in the completion phase of Mall of Tripla and two other large projects. With regard to Mall of Tripla, after four years of construction we are proud to have successfully completed the largest shopping mall in the Nordic countries in time for its planned grand opening on October 17, 2019. The start of the operations has been a success: the one-million-visitor milestone was reached right after the first week of operation. The Tripla project is the biggest project in YIT's history, and as a whole it is uniquely profitable for us. The project will exceed the initial profit target even though costs in the third quarter were higher than anticipated. In the fourth quarter, the Partnership properties segment will recognise a significant positive effect in operating profit of fair valuation of the Mall of Tripla. After the reporting period, the company has won for instance the public private partnership bidding for the City of Espoo, Finland, on three day care centres and five large schools with 20 years maintenance, total contract value of approximately EUR 240 million.
The profitability of the Housing Russia segment improved due to a bigger number of project completions than last year, higher project margins and synergy savings visible in the segment's cost structure. Another factor contributing to the improved profitability of the segment was this summer's decision to focus business operations in profitable units and to discontinue operations in unprofitable or capital-intensive regions.
In September, we published our updated strategy and presented it in closer detail at our Capital Markets Day at the end of the month. We have taken decisive steps in implementing our strategy in the past year and we will achieve our targeted financial stability after the planned sale of the Scandinavian paving and mineral aggregates businesses has been completed in 2020. Now we are concentrating our efforts on improving profitability as well as developing and growing the non-cyclical Partnership properties and services businesses. In Partnership properties, we strive to extend our role in the value chain towards managing real estate assets, property management and life-cycle responsibility. In services, we target to be a holistic service provider, which means that also for instance rental apartments will be a larger part of our offering. Additionally, we will step up sustainability as we aim to considerably reduce our CO2 emissions in the years to come.
Our outlook is positive. YIT's order backlog is strong, and after the completion of Mall of Tripla, fair valuation of the investment will be done during the last quarter. We estimate that the adjusted operating profit of the company's continuing operations will increase from the comparison period also in the last quarter of the year.
Fair valuation of the Mall of Tripla investment
The Mall of Tripla shopping mall was opened in Pasila, Helsinki, Finland, on October 17, 2019. In the last quarter of the year, the Partnership properties segment will recognise a significant positive effect in operating profit of fair valuation of the investment in the company Mall of Tripla Ky. YIT's share of ownership in Mall of Tripla Ky is 38.75%.
The Tripla urban centre includes the Mall of Tripla, the largest shopping mall in the Nordic countries measured by number of shops, one of the largest hotels in Finland, 50,000 square metres of office space, the new Pasila railway station and more than 400 apartments. The project is estimated to be completed during the year 2020.
Large projects added into the order backlog
After the reporting period, a project company formed by YIT Corporation and Meridiam Investments II was selected by the City of Espoo, Finland, for the public private partnership project including financing, design, construction and maintenance for 20 years of three day care centres and five large schools to be built over the next five years. The total worth of the project is approximately EUR 240 million.
Additionally, YIT was selected by the City of Helsinki, Finland, as the main alliance partner for the Crown Bridges tramway project. The Crown Bridges will connect the Laajasalo, Korkeasaari and Kalasatama districts of Helsinki to the city centre with a 10-kilometre tramway.
The Group revenue of continuing operations for 2019 is estimated to be in the range of +6% and +2% compared to the 2018 combined revenue of continuing operations (pro forma, restated 2018: EUR 3,201.0 million). Previously the company estimated the revenue in 2019 to be in the range of +5% and -3% compared to 2018.
In 2019, the adjusted operating profit of continuing operations is estimated to be EUR 160-185 million (pro forma, restated 2018: EUR 132.0 million). Previously the company estimated the adjusted operating profit of continuing operations in 2019 to be EUR 160-200 million.
The result guidance for 2019 is based, for instance, on the estimated time of completion of residential projects under construction and the company's solid order backlog. At the end of September, 78% of the order backlog was sold.
Significant fluctuation is expected to take place between the quarters due to normal seasonal variation, closing of sales of business premises projects, the timing of completion of residential projects and the fair valuation of Mall of Tripla. As in 2018, the last quarter of the year is expected to be clearly the strongest. The company estimates that the adjusted operating profit for the fourth quarter of 2019 will increase from the comparison period (pro forma, restated 10-12/2018: EUR 99.3 million).
The IFRS 16 Leases standard was issued in January 2016 and the company started applying the standard on January 1, 2019. The new standard replaces the IAS 17 Leases standard and related interpretations. YIT adopted the new standard based on the modified method, thus the comparison period is not restated. The company has published a stock exchange release on April 18, 2019 regarding the adoption of the IFRS 16 standard describing the accounting policies among others. The impact of IFRS 16 adoption can be found in note 3.3 of this interim report.
YIT announced on July 4, 2019 the sale of its Nordic paving and mineral aggregates businesses and on June 20, 2019 measures in Russia to reduce capital and enhance profitability.
Continuing and discontinued operations
Change in the reported segments
Restated pro forma figures
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YIT's interim report 1 January - 30 September 2020
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