YIT looks ahead
By Thomas Allen26 September 2018
Finnish-based contractor YIT has set out a new strategy, along with updated financial targets, for the period between 2019 and 2021.
The aim of the new strategy was said to be to improve the company’s profitability and strengthen its financial stability.
YIT’s strategic priorities, which are sources of growth and structural profitability, include urban development and non-cyclical businesses. The firm plans to increase these businesses actively both organically and through investments.
For urban development, YIT intends to play to its strengths of project development, design and planning management, and management and co-ordination of complex projects. It was said that managing the entire construction value chain from planning through to maintenance brings the greatest productivity and customer benefits.
With regard to non-cyclical businesses, these are based on long-term service contracts and lease agreements, as well as on demand that is growing steadily or at a trend rate. For YIT, these businesses include paving, mineral aggregates, road maintenance, renovation projects, real estate investment, property management and living services. The company’s target is to generate an annual operating profit of approximately €100 million from its non-cyclical businesses from 2019.
The strategy is based on the megatrends of urbanisation, sustainability and digitalisation. YIT recognises that urban structures near public transport hubs are becoming increasingly dense, causing cities to grow upwards and underground in these areas; the circular economy is gaining a strong foothold; and digitalisation offers the prospect of improving customer experience and enhancing productivity, with the collection and analysis of data creating new business opportunities.
The board of directors outlines four cornerstones of success that support the company’s strategic priorities. The first is top performance. Through the integration of YIT and Lemminkäinen, it is hoped that between €40 and €50 million will be gained in synergy benefits by the end of 2020. It was said that common ways of working are created as part of the integration, and good practices can be scaled up. Alos, productivity can be improved through, for instance, applying lean principles, the use of BIM (Building Information Modelling), and the increased use of prefabricates.
The second cornerstone is capital efficiency. YIT aims to decrease its net working capital and to release capital in selected geographical areas by selling slow moving assets. In Russia, for instance, the company will decrease the risk level and develop its business model in a less capital-intensive direction.
Success with customers and partners is another cornerstone. Knowing the customers and understanding their needs was said to help YIT develop improved solutions and better services. In addition, YIT will continue to expand and strengthen collaboration with its partner companies.
The final cornerstone is happy people. YIT said it strives to create a working community where the company culture, management, tools and atmosphere support commitment and satisfaction.
The board of directors has confirmed a 12% or higher return on investment and a gearing ratio of between 30 and 50% as the long-term financial targets of the company. YIT also has the aim of increasing its dividend annually.
Expressing enthusiasm about the opportunities opened up by the merger of YIT and Lemminkäinen, Kari Kauniskangas, president and CEO of YIT, said, “The keys to the company’s success are our skilful personnel, strong corporate culture and innovativeness. Our target is to strengthen our position as a leading urban developer and to decrease the impact of economic cycles on our businesses.”
Share-based incentive scheme
YIT’s board of directors recently decided on a directed share issue for Lemminkäinen Performance Share Program’s reward payment from the 2016 performance period.
In connection with the merger of YIT and Lemminkäinen, the companies agreed to use shares in YIT to pay unpaid share rewards earned under Lemminkäinen’s long-term incentive plan.
In the share issue, a maximum amount of 50,911 YIT shares will be issued and conveyed to the key persons participating in the incentive scheme according to the terms and conditions of the incentive scheme.
Lemminkäinen’s board of directors decided in December 2015 to implement a long-term share-based incentive plan for key personnel. It was said that the aim was to combine the objectives of the shareholders and key personnel in order to increase the value of the company, while committing the participants of the plan to the company and increasing their ownership in the company.
After the directed share issue, the company holds 1,051,143 of its own shares.