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YIT reviews its strategy: Sustainable urban development to drive performance through cycles
YIT’s Board of Directors has reviewed the company’s strategy for 2020–2022. The target of the reviewed strategy continues to be to improve profitability and to maintain financial stability.
The core of our business model and growth engine is sustainable urban development and our unique ability to generate self-developed demanding projects. Strong project flow and close collaboration between project development and other businesses will increase productivity in the construction phase, long-term earnings opportunities in Partnership Properties and opportunities for lifecycle services. This positive and self-reinforcing circle will help us to grow profitably in all areas of our business and to stabilise earnings through cycles.
Our strategic priorities, i.e. sources of growth and structural profitability, are, as previously, urban development and the non-cyclical Partnership properties and services businesses. Cornerstones of success supporting these priorities are (1) top performance, (2) success with customers and partners, (3) happy people and, most recently, (4) stepping up sustainability.
”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. We will now be concentrating our efforts on improving profitability as well as developing and growing the non-cyclical Partnership properties and services businesses. Additionally, we will step up sustainability as we aim to considerably reduce our CO2 emissions”, says Kari Kauniskangas, President and CEO.
Solid progress in strategy implementation during the past year
In July, we announced the sale of its Nordic paving and mineral aggregates businesses for EUR 280 million. Additionally, we announced the focusing of Russian business to reduce capital and to improve profitability. The capital released and the cash flow generated through these transactions will enable lowering gearing to a level defined in the strategy targets; additionally, it will enable investments needed for implementing large urban development projects and expanding the services business.
The cornerstones of success have been extensively strengthened. For instance, we already implement practices improving productivity in all units and several sites instead of stand-alone pilots. Technical integration related to the merger between YIT and Lemminkäinen has been completed apart from certain IT and accounting related operations. Strengthening corporate culture and implementing new ways of working continues. YIT is the most preferred employer or one of the most preferred employers in its main countries of operation. Customer experience metrics have improved. Responsibility-related actions target in particular improving occupational safety and reducing CO2 emissions.
Growing Partnership properties and services businesses level out cyclicality
The Partnership properties business is based on a strong generated project flow, structuring of investment products, asset management and further on rental income from own investments, their value development and eventual asset sales. We strive to extend our role in the value chain towards managing real estate assets, property management and life-cycle responsibility.
We have invested approximately EUR 150 million in funds or joint ventures that we have created together with our partners. Our additional annual investments are planned to be EUR 50 million at the most. In addition to investing, we are also the project contractor.
The Services business is based on long-term service agreements, maintaining and developing the built environment or customer service. At the moment, road maintenance, renovation, property management and living services of YIT’s businesses are counted as services. In housing, we target to be a holistic service provider, which means that also for instance rental apartments will be a larger part of our offering.
We target an annual operating profit of approximately EUR 100 million from the Partnership properties and services businesses combined by the end of the strategy period. In addition to organic growth, targeted acquisitions are being considered in these businesses to strengthen capabilities in strategic priorities and to widen the customer base.
Sustainability as a cornerstone of success
The Board of Directors has established three sustainability goals guiding business development:
- halving CO2 emissions of own operations and self-developed projects by 2030 compared to 2019
- aiming for carbon neutral use of buildings
- starting to report project-specific CO2indicators of self-developed projects from 2020 onwards.
As part of the Green Growth development programme, we have investigated opportunities to improve productivity through resource efficiency and on the other hand to reduce the CO2 emissions and energy usage of our operations and products. To reach the targets, it is necessary to expand the services offering and presence during the property lifecycle. The targets will also impact the choice of materials and suppliers used.
Development of success factors supported through group-wide development programmes
As a result of the strategy review, we are initiating a fourth group-wide Services Development programme to support growth in the services business. The aim of the programme is designing the Group’s service architecture, developing a common service platform and supporting service development and service design in the business segments.
Other cornerstones of success are being strengthened through the Performance, Green Growth and Customer Focus development programmes started last year. Actions and targets for 2020 have been specified in connection with the strategy review. Additionally, we will strengthen resources in priority areas such as the Partnership properties segment.
Long-term financial targets
YIT’s confirmed financial targets are unchanged:
- - over 12% return on capital employed (ROCE)
- - gearing 30-50% including the impact of IFRS 16 by the end of the strategy period
- - annually increasing dividend per share
The Board of Directors has decided to propose to the Annual General Meeting a change in dividend payment to be done in two tranches starting with the dividend paid for the year 2019.