Selvaag Bolig ASA

Good morning, and welcome to the third quarter's presentation for Selvåg Bolig. My name is Sverre Målvik, and I'm going to, together with Finance Director Kristoffer Brunvold, go through today's agenda. We'll start by looking at some highlights, the operational ones. Then Kristoffer will go through the financial ones, and then we'll take market and future outlooks, and some Q&A at the end. The third quarter was, or we had a satisfying, to use that word, sale in the third quarter, given the difficult market circumstances, with high living costs, very high living costs for most people, and increased interest rates. The result for the quarter in general was good, given relatively few delivered units. Another highlight is that we see that the building costs are going down. This is good news in terms of the likelihood of getting a building cost that we can live with in terms of selling and starting new units in the future. The key figures are 905 million in turnover after IFRS, with a margin of 15.1% adjusted EBITDA. The current calculation is 788 million in revenue, and an EBITDA margin of 12.2, which is a project margin of about 17%. Kristoffer will come back to this later. Let's talk again about the building costs. It has been true that we have been A huge inflation in material costs, which was partly caused by the pandemic, on a supply squeeze there, which was further strengthened at the start of the war in March, where both steel and concrete prices, and wood for that matter, went up a lot. The cost of wood has gone down again to normal levels, while steel and concrete continue to stay high, especially due to the energy that goes into producing these materials, plus the logistics, of course, and the supply side. What we are seeing now is that the cost of building has begun to fall in all the other material ingredients, and also in terms of wages and efficiency, while steel and concrete are still hanging. It will also go down there, to the extent that they will not be able to sell steel or concrete, which is the case now in all of Europe, that they do not start new projects due to high building costs. How long it will take is uncertain, but we believe that we are back on track for the new year. over the spring, that we will be able to count projects again. We have a business model where we secure our costs before we start building, and we have a pre-sale of 60%. So that's what needs to happen before we come up with new projects, largely over the first six months. There are 800 units ready to start selling and building over the first half year. Soon market conditions allow that. It is not true that all projects will stop, but in areas where sales prices are below 80,000, the cost of building is so high that it is not feasible for so long. If we look at the sales, we sold, as I mentioned, 83 on our hand and a little over 100 brutto. A little over a day's brutto, and that's not so bad in a market like the one we had in the quarter. The value of this was 439 million. So far this year, 404 units on our hand, now over 500 brutto. The annual sales are around 3.4 billion, with an average value of 5 million, which we have held on to for many years. We start building in the quarter 68 units, while we finish 142, which means that we get an annual reserve of 6.2 billion, 1268 units under production. which is more than what we had in the same period last year, but a little less than in the previous quarter. 73% of this year's reserve was sold at the beginning of the quarter. 75% of what we have under production is in the Stora Oslo region. When we look at the guidance on delivered units, or finished units in the future, is that we follow the same guidelines as last quarter, 586 for this year. And we have also received some next year. 94% of what is delivered this year is sold. And next year we are guiding at 744 failures. Of that, about 75% is sold. Then Kristoffer can take us through the financial aspects.

Good morning. I will now take us through the main financial aspects of the quarter. I will start as usual with the result after IFRS, where the income and costs in our projects meet the results of the delivery of the homes to our customers. We completed 144 units in the quarter, which is significantly lower from the same period last year, when we completed 314. Only one of these was from collaboration projects this quarter. In the same quarter last year, we had a lot of shared projects, so that comes back to the pro forma result. It is worth mentioning that the average housing in Kvartalet had an average price of SEK 6 million, due to the fact that we delivered a building loan to Landås Plus with very high unit prices. So the average price of SEK 6 million is a lot higher than our average housing of SEK 5 million. Then we report revenues of SEK 905 million. The quarter included 15 million in other revenues, which are attributed to the project management of our collaboration projects, and services in sales and plus services, which we have every quarter. We have a project cost of 742 million kroner. We are delivering a quarter of the cost within budget, which means that we are able to deliver good margins, even with relatively few annual deliveries compared to last year. Included in these project costs are 29 million in interest costs, which are included in the EFRS project costs. This has been corrected when we calculate the adjusted EBITDA. We then repeat other costs of 55 million, which are on the same level as last year. Adjusted EBITDA in the quarter at 137 million and a margin of 15%. This is comparable to 887 million last year, and a margin of 25%. This is due to the fact that in the quarter of last year, we had many approved agreements from cooperation projects, and a project in Oslo that had good margins of over 30%. Next, we report... A result per share of 85 euros, which is of course down from the same quarter last year, which was 1.64 kroner, and that is due to the fact that we have half of the year's revenues in this quarter. Then we will look at a pro forma result calculation for the quarter, where we have included our share of income and costs in our collaboration projects, that is, we have brutificated it. The co-operative projects come in on their own line in the official result, as our result after tax on their own line on the net. Here we have brutificated it, as I said. We give a turnover of 914 million in the quarter, margin of 15%, compared to a turnover of 1.3 billion in the same quarter last year, with a margin of 19%. Again, a higher margin last year because we had a large project at Enski Oslo that had good margins of over 30%. We don't have this in our portfolio anymore. The same rate base at 85 euros per share. Then we move on to segment reporting. This follows the Norwegian accounting laws, which are the current calculation method. This shows a better picture of the ongoing value creation that takes place in the company at any given time. The ongoing calculation method is that it takes all the projects under construction, then it takes sales degree times completion degree, which gives an output degree, which means that we are constantly taking out revenues, costs and results in the project's execution time. In this regime, we have a turnover of 788 million. and a margin of 12%. This is then to be noted after overhead costs, so we still deliver good project margins for what is in production. If we look at 12 months rolling, we have a speed of 3.1 billion, approximately the same level as previous quarters, and a rolling margin of 13%. Let's have a look at the cash flow. It went into the quarter with 709 million in the bank. The main point is that we have positive cash flow from DRIFT at 126 million. This is due to deliveries and good results. We have positive cash flow from INVESTING at 119 million. This is due to the fact that we have received exchanges in the quarter from our collaboration project. And then we have a negative cash flow from financing, which mainly is due to the exchange rate in the quarter at 187 million. Just then, an increase in cash at 65 million brings us out to 775 million per 39 in cash. Moving on to the balance sheet, here you have There are no major changes in the balance sheet. This is quite similar quarter to quarter. We report a single-capital share of 37.5%, which is down from the same quarter last year. This is due to the fact that the exchange that was paid out in August hit the balance with 187 million in the exchange. We have a bookkeeping single-capital of 24.30 kroner per share at the beginning of the quarter. Other changes from last quarter is that the warehouse is up by 3 million. The customer base is up by 134 million. It is often the case that we hand over our projects towards the end of the quarter, and then it always takes some time before the cash is transferred to us. It comes into the books in October. Cash up by 65 million, as we were talking about. And then we have these budgets from our customers at 164 million, which is now a lower level than in previous quarters. This is included as a yield in other short-term yields. If we look at the warehouse, it is on the same level as in previous quarters. Book for empty modeling is down by 44 million, due to the start of construction. In terms of goods and labor, up to 36 million is due to good activity on the production side in the quarter. And then we have the finished goods warehouse, which is up to 11 million, and that is due to the fact that we finished some units that were unsold at the beginning of the quarter. In total, we have 19 unsold properties at the beginning of the quarter, which is at a low and comfortable level. Let's look at the yield. We have a interest rate of 2.6 billion kroner, where the building loan is the big one with 1.7 billion kroner. We also have a debt of 587 million kroner. We also have a debt of 237 million kroner. If we look at the margin picture, there are no changes in the margins of these loans, and we have also not pulled up any of the top facilities at the beginning of the quarter. In view of the cash, we report a net profit margin of 1.8 billion, which is equivalent to last quarter. Let's look at the discount on the income tax. This is calculated as a 12-month net profit after tax. in the last 12 months, and divided on the single capital at the beginning of this 12-month period. We have a result of 512 million, after tax, in the last 12 months, and a drop of 23%. Now we have gone through the financial part. Now we will move on with an update on the market.

Yes. Let's start by looking at the supply and demand side in Oslo. Here we have completed, or it has been completed, about 3,000 units this year in the last 15 years on average. And then the housing demand has been largely higher than that, with an assumption of perhaps 18 and 19. So there has been a gap between supply and demand in Oslo, and that continues. The estimate for the future is that there will be a need for 3,300 homes annually, while this year there will be about 2,400 finished. Next year, about 3,000. at the bottom of that in 2024. This need for 3,300 units is low compared to what it was a few years ago, because this description depends on what has been completed earlier. So probably the need is higher. But anyway, there is a significant gap in relation to, or the supply side cannot meet the demand or need. If we look at Akershus, there is a need for 5,400 units a year. which is relatively high compared to Oslo with 3,300, and it is about the same population in these two areas, about 700,000 in both areas, so it would have been more natural that it was relatively the same, or perhaps higher in Oslo. Regardless, if you look at it together, there will also be a gap between the supply and demand of public units this year as well. But otherwise, it is good to build or complete good units in Akershus in relation to the need, as it looks now in the next three years, but also too little in Oslo. We see this even better here when we look at what is actually out in the market, the new housing market in Oslo, there is a box at the bottom of 1100 units, at the top of 1100 units at the end of the year. Lagt ut nærmere 1700, og det er også solgt, litt mer som er solgt, og det ligger fortsatt på 1100 enheter cirka i Oslo. Akershus, over 3500 enheter, solgt litt mer enn det som er lagt ut, og det ligger fortsatt 3500 enheter i Akershus. God tilbud siden Akershus, lav i Oslo. For en del år siden var disse like, disse områdene, lå cirka like mye nytt ute i Akershus som det de gjorde i Oslo. As we can see in Bergen, it is a bit the same. But in Trondheim and Stavanger, it has sold significantly more than what has been put out. And I think that is mainly because it was not put out large after the start of the war, due to the high construction costs, that you could not count on projects. So it was actually just sold on what was actually allowed. So there is a low supply side in Stavanger and Bergen as well. Stavanger and Trondheim, and Bergen for short, which means that what is out in the market now is ticking and selling well, because there is no more coming out. You get a very rare situation where you get a kind of squeeze on the supply side again, despite the fact that interest rates and everything go up, and so it is still balanced out on the supply side. Relatively low supply side, yes. You can also see here that what is out in the market in relation to the number of people in Oslo is very low, 1.6 units per 1,000 capital, while in Akershus there is a healthy supply side of 5 units per 1,000 capital. And then it is a little more varied. Trondheim has a pretty good supply side again, while it is now going down, especially in Stavanger. Stavanger is also a special situation, because it is the only region where we see that there are a lot of empty seats and population growth and pressure in the Stavanger region. This can be seen even more clearly here. If we look at the used market, there is a shift from last quarter, when we reported this, when there was still a low supply side on used. And then the interest rates have gone up. The inflation has continued. People have less to deal with and are now selling their own homes first, instead of buying first, is the trend, we think. That is the main reason why there has been a huge shift in the supply side of used goods. The exception here again is in Stavanger, and it is also our thesis that this is due to the high pressure in Stavanger. A big question mark in relation to the supply side, and migration again after many years with the opposite. If we look at price development, price development in use so far this year, 2.9% in Oslo. The prices have fallen in Oslo after the holiday. Stavanger remains strong, which underpins our thesis that there is good pressure in Stavanger. It is true that they come from low levels, so it is still not new. It is not sustainable to put out new projects with today's building costs, but it will come. In Trondheim, the growth is 4.3, and in Bergen, it is 4.9. It is lower in all the cities, aside from Oslo. Oslo's price growth is still higher this year than it was last year. If we look at the projects we are working on and that are coming up, we have a large volume in Lønnskog station town, It's a large project of 2,000 units. We have about 800 units to sell. Skårebyen, which is also on Skåresletta, has 1,100 units, of which 450 are still to be sold. Bjerke is a new large area in Oslo with 1,500 units, which we hope to get regulated as soon as possible. But I don't think there will be a sales start before 2025. It can come before, provided that we get it regulated. We've been doing this for a long time. Fornebu, 2,000 units. It is a partnership with MON. The sale start is expected to be in 2025. It is a bit more complicated there, because it is built on the end station on Fornebubanen. Then we have a project going on, a big plus project, Ringve, on Ringve, or Lade, in Trondheim. There we have about 500 units left to sell. Somsli, Bergen, 450. There will be a new project next year at Minde. It is a cooperative of about 650 units. Fredrikstad will also be regulated, we hope, in the course of next year. And that we can put that on the agenda. A large cooperative project. It will last for many years. About 2,000 units. Landås has completed a plus project, or is completing now. It has been approved, among other things, for this quarter. There we have 450 units left to sell. Solbærskogen is a new project in ski with 300 units, which we expect to start selling at a given building cost in the new year, first quarter, second quarter. We'll see. We have about 550 units left in Kallnæs Brygge. The project in Barkaby, which is ready to be laid out, also depends on building costs, we will be able to lay it out when it fits. Whether it will be in Q1 or when it will be, we will see. It is ready. Otherwise, we have under regulation, Lillaker, we have a project that we expect can also be regulated earlier, but we take a chance on that, maybe in 2024, to start selling. Lørenvangen we have been regulating since 2016. It takes time. It is our old headquarters. We expect to start sales in late 2024. The project in Ballerud we expect to start sales next year. About 160 units. Then we have 200 units in Røffle again on a project in Lervik in Stavanger, which will also be put up more. There we have things for sale now, but there will also be more when the market allows it. That is to say building costs. These are some of the projects we have in the pipeline, and some of those that are out there. If we look at how we look at the world in the future, then there is still a supply squeeze on the housing side in Oslo, which makes it profitable in the Greater Oslo region. build and sell, and still be able to build and sell with today's building costs. We see that the building costs are on the way down. It will be exciting to see how fast, how long it takes before it comes down to a satisfactory level, which means that we can also start building in areas with the so-called normal income side, perhaps around 80,000 plus. We think this is already happening early next year, because there is a squeeze in the chain. The entrepreneurs are not getting anything done, and neither are those who produce cement and steel. We have 400 units under production, and sell units under production. We have a lot of work to do. immediately when the market allows it, both for building costs and the market in general. In summary, the quarter was okay, i.e. satisfactory when it comes to sales, given the market situation in general. And we have delivered a good result on what is delivered in the quarter, given the number of delivered units. And as I said, we look forward to being at the top when it comes to high building costs. and that it is on its way down now, then you can't say for sure what will happen next. But we believe that we will get started with new projects and new contracts in the new year, but not now in Q4. When it comes to contracting new projects, that probably doesn't happen before the new year. That was what we had. Then there are some questions, if anyone has any.

Simen Mortensen from DNB. You have also put a lot of emphasis on urban property and talk about the cost of building it. But when the housing prices fluctuate a bit and we have a more fluctuating sales market, it is also a question of what is the value of the empty ones. And as you can see now, you have over 7% funding cost on the empty bank in urban properties with margin and where Nibor is located. To what extent do you take this into account, and are you willing to look at the value or profit you are building on, given that the interest rate is so high on that bank, and that with waiting, and that the sales market and prices are on the way down?

We have our smallest release requirements before we start building a project. But of course, and that is lower than what we have started very much on. Of course, we want to start projects to keep things going. It is not true that we require a sky-high discount on that. When it comes to the funding cost in urban property at 7% it also costs a little to borrow money from the bank on the day and a single capital discount. So that is more profitable than the funding most companies have otherwise. So that is not... That is not a problem. The problem is that the building costs are maybe 5-10,000 kroner per square meter too high. Of course, we will start projects at a lower rate than 12%, for example at 10%, and maybe below that too. But we are not there now on many of our projects. But we start building projects in Oslo on margins above that, and in Lørenskog as well. We are not there yet, but we don't start projects at 3-4%. We don't do that.

You talk a lot about building costs, you think it's on its way down, but now CO2 emissions have increased on, among other things, concrete for next year, so it's probably going to go further as well. How much do you think building costs can fall into such elements, which are still likely to press things up in costs as well?

The big problem now, and what makes the price not fall more than it has already fallen, is the energy flow into the production of steel and concrete. At the same time, there is less... There is far less demand for these materials, for example in China and other places, and very little cement is produced in Europe compared to other places where energy costs are lower. So what will happen is that the market will find a way, and cement will be imported from other places, where the market does not normalize itself. Because it is not allowed to produce at the costs that are today, so Europe stops elsewhere. So the market forces will win, or else the finished concrete companies will not have anything to do. And that happens quite quickly. They are already starting to get a very small order reserve. And the market will find a way. The question is just how much it falls. I'm a little unsure, but I'm pretty sure that at least half of what has gone up will come. That means that the price per square meter in the 40s, or between 45 and 50, I think we will see pretty quickly. And that is what is going to happen. Now it is far over 50. Or maybe not right now, but it was in July-August when it was far over 50, and you may not have been able to reduce the costs at all. But now we see the price at around 50,000, and I hope it will go down to 3-5,000 more. But how much, I don't think I can say.

In the new building activity, you also show the need for housing. What are the conditions there? Now the Norwegian population growth is down to 16,500, and you have quite unchanged housing needs. What is the reason for your calculations here? And the same when you show the number of new people in the market, you also show that you have a lot of sales ready, which is on the way. How real are the numbers, do you think, given what you yourself and probably others are doing in the background?

This is just us, our pipeline. Of course, there are many who have a pipeline. Who can build the cheapest and have the best projects? Of course, there are many who have a lot done. But that's not what it's about. What it's about now is if we can contract so there is a significant gap between income and costs. When it comes to population growth, the number we get is calculated. It's not just the number of born children that matters. Many want to live in the capital. Urbanization is ongoing. Urbanization is ongoing in all our cities. Even though it has been written that people want to live in the country during the pandemic, it is not true. It is reversed. And it is not just something that happens in Norway. It happens all over the world. The trend you saw a little during the pandemic has turned out to be wrong. So people are back in the cities and want to live in the city. That is what the main numbers are focused on. At the same time, it is strange to see that, for example, the need in Oslo is at 3,300 units, while the need in Akershus is at 5,400 units. It is very strange, since it is the same number of people. I guess it is a real need. If you run an interview with people, there are far more than 3,300 who would like to live in Oslo, but do not have room. The need is a need. No one has to live in Oslo. There's a balance in this. It's a question mark. which shows to be true in relation to what we see in price development, on how much prices grow in Oslo versus other places, and how much they have grown in Akershus as an exported price growth. And that's an indication of supply and demand. It's not a need as such, but it's a question mark.

You mentioned that you don't want to contract anything in the fourth quarter. Does that mean zero housing starts in the fourth quarter?

No, that does not mean that. It means that we do not contract, because it is no fun to ask the entrepreneurs now, because they do not dare to give a price that is good enough yet, or it does not matter. They still have an order book, which is probably full, maybe out next year. That's why we're asking about the new year. There's no reason to ask and get an answer that we know is not good enough. Then we'll wait until next year. But that doesn't mean that we have contracted a lot from before, so we're not going to start building in the fourth quarter. I'm not saying that.

We're almost halfway into the fourth quarter as well. How has the new housing sale been so far into the fourth quarter? Can you comment on that? There have been some comments out there.

Nye boliger kommenterer jo sjeldent. Jeg kan si at vi selger boliger, men vi selger under en om dagen. Men vi selger boliger. Og igjen så er det ikke det samme som det var under finanskrisen, for eksempel, hvor det var helt stopp. And there are many who want to have housing, and there are also many who get benefits from their loan application. And of course we see more of that now, when the interest rate has risen so much. I have said many times before that it is five times the income that trumps the loan and not the ability to serve. Now the interest rate has risen to a level that makes it very often that those who want to buy a house get benefits based on compared to before, because you have to run the stress test with a daily interest rate of plus 5%. That will be exhausting for many.

And that will also be adjusted for a new Sintef budget for next year. And how do you see it? There will be even more inflows in the interest rate, and then it will come up again. How much is there in the financing business compared to the prices you now see in the market?

You can say that on the even... What is happening now is that it should be tightened up, perhaps, or there has been a proposal to tighten up the housing legislation further. And then we'll see what the politicians do. They do a lot on the day, so it's not good to say if they want to know that it will be four and a half times... Bruttoinntekt, som er forslaget blant annet, og om man vil opprettholde stresstesten på samme nivå. Jeg skal ikke uttale meg om hva jeg synes er intelligent i det her, men det er klart at hvis man stopper opp alle muligheter for nye mennesker og førstegangsetablerer til å kjøpe seg bolig, så blir det et leiemarked deretter. And I don't think anyone has earned that. Then the prices will skyrocket. So hopefully there will be some reason for this at the end of the day. That is to say, I think it will probably be more moderate and that the banks will have the opportunity to run a higher interest rate. And I think and hope so that you can use common sense in the evaluation of each individual. So they then don't have to pay a house rent that costs far more than it costs to buy a house, which is the case in many places today.

How do you see the purchase of tomatoes now in the market?

Yes, the purchase of tomatoes again, that was positive. We are in good terms with that. And of course, that is counterproductive. We are interested in buying tomatoes, of course. And there will be more offers out in the market from either those who do not think it is so fun to keep doing it longer when it is a bit heavy, or that they have to sell it. And that is perhaps a bit early, but I think there will be good opportunities on the tomato purchase side.

That was all the questions. Thank you, and congratulations with a good Q3.

Thank you. Questions on the web. You have answered some of them before. It's from Bengt Jonasen in ABG. How much must we build down for you to get a satisfactory profitability and start new projects? Overloading 2024. Even though you would dare to say something about deliveries in 2024, what phase are you in?

The general decline in building costs is at the same level as I mentioned. It went down about 5,000 kroner per meter compared to what we saw before the holiday, and then maybe a third of that went down that far. If I were to assume something, it would be difficult to say. It depends on which entrepreneur you ask and how little they have to do at the time they offer. And it is not a general number, because there is such a big price difference on the income side. That is, what we sell out in Oslo and, for example, in Sandnes. We want to be able to start building projects in Oslo, for example, on a daily basis, while we do not have a chance in Stavanger. That is... A little vague answer, but it has to go down by about 10%, so that it will be interesting to put out generally in all the areas we operate in. We will of course put it out in the areas where there is a higher price, so we can take part of it on the income side. And when it comes to deliveries, we are over 740 in 2023. And then it comes down to how much we can start building in 2024. for next year, which will also affect the construction in 2024. And of course, how much we start building in Q4 will also affect the construction in 2024. And that's not what I just said. Now we can't guide on that, but it's not true that we're not going to start building in Q4 in 2022. But we have to speculate a bit about the room of failure, because it depends on how much we manage to sell and start building in Q1 and Q2, which in theory can be completed and delivered in 2024. That is very difficult to say anything about now. It depends on when the interest rate tops out, and the signals around that. We, or at least I, have my own opinion about When that happens, I think the market will be okay for the first half year. The question is whether that will happen in February, March, April, I don't know. But I think, in my experience, it will be a good market for the first half year. But how much we manage to sell and start building, is also an unknown factor in this. So it is almost impossible to sell.

Of the 775 that are ready for sale, are you contracted and cost of construction set?

No, it's just those that are not set, while the 400 units that we are in sale with, the cost of construction is set.

Tomtekjøpet, Urban Property, Kvartalet, can you tell us a little about that? Tomtekjøpet, Urban Property, Kvartalet, can you tell us a little about that?

Yes, I can take that. We have bought back two road numbers before the property quarter. We have bought on Skåreløka and on Sintsenveien, which then started.

Then there are no more questions on the web.

Then we say thank you for today. See you again on February 14.

Thank you for today.