Lemminkäinen and YIT boost

Finnish contractors Lemminkäinen and YIT, which are planning to merge, have both said they expect to see increased profits for this year.

Lemminkäinen has called an extraordinary general meeting for Tuesday, 12 September, 2017, for its shareholders to ratify the board’s decision on 19 June to absorb the company into YIT.

The merger is intended to be completed on either 1 November, 2017, or 1 January, 2018.

For the second quarter of this year, Lemminkäinen has reported order inflow of €426.1 million, compared to €382.8 million for the same period a year earlier. Its order book at the end of the period amounted to €1.65 billion, up from €1.50 billion, and net sales were up from €457.1 million to €466.0 million.

For the first six months of 2017, Lemminkäinen said that its order inflow was €850.4 million, compared with €783.3 million in the same period of 2016. Net sales totalled €706.3 million, up from €673.8 million.

It reported an operating loss of €17.0 million, compared with a loss of €10.2 million last year. The operating profit included €3.4 million compensation paid by Lemminkäinen related to the Helsinki Court of Appeal’s decision regarding a breach of the Finnish environmental protection law, and €1.8 million transaction costs related to the planned merger of Lemminkäinen and YIT.

The company said that its profit guidance for 2017 remained intact. Lemminkäinen estimates that its net sales in 2017 would grow from a 2016 figure of €1,682.7 million.

Paving sector

President and CEO Casimir Lindholm said the decline in operating profit had been mainly caused by the paving segment, where the season start had been delayed as a result of exceptionally cold weather.

“In infra projects,” he said, “lower operating profit was mainly due to lower margins in the Baltic countries. Building construction, Finland, improved its result, which was supported by higher volumes and margin improvements.

“In Russian operations, the result also improved due to higher volumes in building construction.”

He added, “Of our segments, building construction, Finland, and Russian operations have strong order books. In paving and infra projects, we are still seeking order book growth. The market outlook in our main market area remains positive, which should support our growth targets.

“We have also strengthened our organisation in infra projects Sweden as planned.”

At YIT, group revenue for 2017 was estimated to grow by 5 to 12%, with adjusted operating profit estimated to be in the range of €105 to 115 million.

Group revenue was previously estimated to grow by 0 to 10%, and the adjusted operating profit was estimated to be in the range of €90 to 105 million.

Kari Kauniskangas, YIT president and CEO, said, “The result for the first half of the year was clearly stronger than in the previous year, and the outlook for the rest of the year has become brighter.

“Good residential sales and the high residential demand in Finland and the CEE (Central and Eastern European) countries will also support the more positive development in the group revenue and adjusted operating profit, particularly towards the end of the year.”

Operating profit in the housing Finland and CEE segment during the first half of the year grew by nearly 40% year-on-year, he said, and in the second quarter, the operating profit margin was around 10%.

“The segment’s revenue grew by nearly 30% year-on-year. We started many new self-developed projects to consumer customers, primarily in Finland’s growth centres and in capital regions in the CEE area.

“Residential sales in the Russian market were weaker than expected at the beginning of the year,” he said. “However, thanks to the adjusted cost level and the improved average profitability of projects, the second quarter of the year showed positive profitability.”

He added, “Profitability for the first half of the year was clearly better than in the previous year, despite remaining slightly negative overall.”

In the second quarter, operating profit in the business premises and infrastructure segment was said to be at a satisfactory level, having strengthened significantly after a weak start to the year.

“Large projects have seen excellent progress,” said Kauniskangas, “and the order backlog has remained solid.”

Strategically important

He said the merger with Lemminkäinen was a strategically important step for YIT and that it created a platform for the growth into “one of the leading urban developers in the Northern European construction market”.

He said, “The preliminary combined annual revenue of the combined company is approximately €3.4 billion and the company will employ a total of around 10,000 employees located in 11 different countries.”