Bonava AB (publ)

Good morning, everyone, and welcome to Bonava's Q1 2020 report presentation. Speaking is Louise Cheddar, head of IR, and with me is Joakim Hallengren, CEO, and Ann-Sofie Danielsson, CFO. Joakim will begin and take you through the highlights of the quarter, including an update on the effects and risks to Bonava related to COVID-19. And Ann-Sofie will then take you through the financials for the group and the segments. After the presentation, we will open up for a Q&A session. So with this, I will hand over the word to you, Joakim.

Thank you very much. Good morning, all. Looking at the first quarter for us at Bonava in 2020, I think it's fair to say that we had a really good start, especially when it comes to sales. And then, of course, this quarter is, as you already know, twofold. But strong introduction. We increased the number of sold units. We sold more in all of our segments but St. Petersburg. Maybe most important, we sold more in our main markets, both in Germany and in Sweden. We also sold more on an aggregated level and we sold investor units that we did not sell in the quarter last year. Looking at the number of starts, we were slightly down from last year. However, the majority of the started units last year came out of the St. Petersburg region. It was almost 600 out of the 700-ish started units that came out of there. And of course, that's the dynamic in the St. Petersburg market with huge projects. But the takeaway from the starts is that we have started more numbers in Germany and in Sweden. And this is something that we have communicated for a while now, that we would see increasing starts in 2020 in those two markets. However, the EBIT was lower, mainly due to two reasons. We have a pretty challenging benchmark where last year's result came out of, or the majority of it came from St. Petersburg, who contributed with both large volume, but also an exceptionally good margin in the units that were handed over. But nevertheless, we are also impacted by the challenges that we have had in the past with projects in the nordic sentiment both in denmark but also in finland there are no new projects that has affected us at this point but it's old well-known bad performing projects that now is entering into a completion phase and we have had A few of those, especially in Denmark, being completed this quarter. And, of course, they come in with a top line, with a net sales, but with none or, in some cases, a slight negative margin in the quarter. And, of course, that affects our EBIT result and also the margin. I think it's also important to remind you that we have communicated earlier that we will have more completions both in the second quarter and the third quarter of this sort of dead turnover projects, especially in the Nordic segment. Looking at key figures for Q1, we have net sales more or less on par. EBIT is down, as we said, as is the unit in production. However, the strong sales thoughts of the year has given us a substantially higher number of value of sold but not yet recognized units. We're up from 20.2 billion Swedish to 21.8. And also, we have increased the sales rate in the portfolio from 66% to 77%. And of course, that's a sort of a guarantee stamp on the Bonava development portfolio. Having 77% secured already in these insecure times is a really strong signal that Bonava is a company with a really solid performance in that type of sense. The number of units sold, as I said before, we had a flying start of the quarter. We have sold 1,129 units compared to 731. We sold more, both in the investment and the consumer segment. Slightly lower numbers of starts, but out of the 723, almost 600 were out of the large St. Petersburg projects last year. So 531, but the takeaway is good starts in both Germany and in the Swedish segment. The COVID-19 effects, and I will get back to sort of a longer outlook in a few slides, but the effects on our operations in the first quarter were actually pretty limited. Of course, we were impacted as everybody else by rules and restrictions made by authorities and governments to try to prevent the spreading of the virus. However, we had all our sites up and running throughout the quarter. They are not as efficiently run as they could be, but that's due to all these rules and regulations, not least the social distancing part, which makes it pretty difficult actually to drive a construction site with full throttle. But the good news is that they are up and running. However, there are challenges. We've seen already small disturbances when it comes to supply of people and material. I will get back to that. We had a financial impact due to a delayed handover in Germany. That was an investment project, small student homes that were delayed. And that will now be recognized in the second quarter instead. And then when we talk about the actions that we at Benava have taken, we have done a lot of mitigating actions. First of all, our employees and our customers and our partners' health and safety is extremely important for us. So that was the first things that we did. starting to protect all these groups, working mobile, introducing all kinds of social distancing activities. We went quickly over to things like digital sales starts. We had digital signing processes and so on. But then, of course, also we focus very hard on protecting our cash flow. It's so important for any company entering into an uncertain situation to protect the cash flow. And we do that by trying to lower costs. We have stopped development projects. I'm not talking about construction sites. I'm more talking about strategic development projects. And we have also introduced short-term work programs and other kinds of activities to lower our costs. And, of course, we want to do that to increase our agility and flexibility and to be quicker developers. to adjust in a very unsecure environment. But overall, the effects taken all the activities apart on the first quarter has been pretty limited. These are two examples of projects that has affected our business this quarter. To the left, you have one of the started projects, consumer project in Helsinki. To the right is an investment project in Lund in Sweden, which was already earlier started, but it was sold in this quarter. Many of you recognize this. This is the expected completions and sales rate. We have developed this graph a bit. We have introduced more periods. And as you can see now, it covers the full year of 2020, but also the full year of 2021. And then we also have a later bar, which is beyond 2021, so 2022 and forward. We want to give a bit more transparency on this, but we also realized that many of our projects are pretty complex and with long production time. So that means that it was obvious for us that we needed to be more transparent when it comes to the expectations of the projects in a later phase. And it will be even more obvious when I change the picture to the investor side, where you can say that, We are really backloaded here and with more than 1,000 units with an expected completion time beyond 2021. And all the numbers out of which this graph is built is, of course, as usual, available on our corporate website. Looking at the risk then regarding COVID-19 forward, It is very difficult to foresee, but I think that we have to look upon this in two dimensions. The first dimension is sort of the regulatory part with all the mitigating actions taken to stop the spread of the virus. And of course, that threatens our production in our sites due to very complex and delicate supply chains. Supply chain of material, But also the supply chain of people. And as you most likely know, if you follow this industry, the construction industry all over the world, and not least in Europe, are dependent on labor that is actually migrating in from other countries to perform work somewhere else. And with our profit recognition model, or principle, the completed contract model, Of course, we are very sensitive to postponements, postponements of completions. Then we might also, due to all these restrictions, see postponement of handovers. Even if the units are ready, it's not evident that the consumers, due to local registration, can actually physically take those over. And then we might see postponed production stops. And of course, if we have a postponement, that will also delay the recognition of those projects. It might be from a quarter to another, but it might also be from 2020 to 2021 and so forward. But that has nothing to do with the profitability as such or eroding margins. It is 100% correlation to the way that we recognize our projects. However, the first phase with all the actions to mitigate the spread of the virus will be followed by a much larger uncertainty. How had this shutdown affected the economy? And probably we are seeing a period now where the regulations are slowly but surely lifted. But it will leave us with some uncharted territory when it comes to the impact on the macroeconomy, but also on the personal economy. So we foresee that we will have a lower volume of sold units until we have more clarity or until the consumers have more clarity regarding their financial status and whether they have a job or not. And of course, if we sell less, then we will start less units. And again, there might be, there is significant risk that we will have delayed profits due to disruptions in our sites or handovers. But that is not erosion. It's just parallelization. With that, I would like to invite our CFO, Ansipi Danielsson, to share the quarter more in detail. figures and details.

Thank you very much, Joachim. Yes, I will give some more details regarding our income statement, the different segments, balance sheet, financial position, and last but not least, our cash flow. Income statement then, to start with that. First of all, I will again comment what Joakim commented upon, that we have a net sales. If you take the currency effects into consideration, we are on par with the net sales from last year. But of course, there are a number of different explanations why it has developed as it has. And I will come back to that. EBIT, 31 million compared to 165. And again, I will come back to that, what has happened during 2020 compared to 2019. Just in a couple of seconds, yes. So net financial items... Almost the same as last year, and also tax rate 25%, which is normal for a business. We end up the first quarter with a net profit of 2 million for the first quarter of 2020. So if we look a little bit deeper into the EBIT development, 31 million compared to 165. If you look a little bit deeper into this, you can see that the biggest deviations are in St. Petersburg, Baltics, and in the Nordics. And to make it short here, St. Petersburg, Baltics, that's most of all volume-driven, We have substantially fewer units recognized in St. Petersburg 2020. We had very high numbers of units recognized last year and also with a very good margin. And now we have fewer units due to the fact that we have fewer to sell. And the Nordics lower a bit, even negative. And as Joakim stated in the beginning here, there are no negative surprises. We have some low performing projects, both in Copenhagen, but also in Helsinki. And some of them have been recognized in this quarter, giving us this EBIT of minus 64 compared to two last year. So that's the two biggest reasons why we have an EBIT of 31 compared to 165 last year. So let's go further on with some comments regarding our segment stand, starting with our biggest one, Germany. What you see here is that we have recognized 180 units quarter one 2020 compared to all in all 217 last year. And here I would like to take the opportunity to say that quarter one is actually a rather small or short period. We have substantially more units recognized all over the years. So if we have, as we now have in Germany, Some projects with somewhat lower gross profit, gross margin, and they are quite few this quarter, and also with lower gross profit margin than last year, that will give an effect on the EBIT result as we have here, 7 compared to 28, and also a lower EBIT margin. We have a very good portfolio in Germany with... with good margins in the ongoing production that we have here. So the deviation here compared to last year is mostly connected to the fact that we have quite a few units recognized in one specific quarter giving us this result due to the fact that there are a few units with... somewhat lower gross profit margin to cover the ongoing running costs that we have in the business in Germany. I also take the opportunity to comment upon And what we always estimate, Joachim showed you the big picture previously, and here are some more details regarding Germany. And what I want to say here is that when we completed 2019, we said that we expected to have 351 units to complete in the first quarter. 167 to investors and 184 for consumer. And what has happened? Well, first of all, those units that we expected to hand over to investors, they have been delayed. And that is actually an effect of COVID-19. The authorities were not allowed to go out and visit our project and give the... to say okay to finalize the project and to hand it over to the investors. So that project in Heidelberg has been delayed and will be handed over in quarter two instead. And the other thing here is that not so big deviation, but still something to comment upon, just to say some words about the revenue recognition method. We have completed 169. However, we have recognized 180 units. That means that we have sold and handed over some units from our stock and from our balance sheet. So more units recognized than we have completed in the first quarter here. And a strong sales start in Germany. We have also started more units than we did last year before the COVID-19 breakout. That was something that we commented a lot about last year. We said that the sales and also the starts in 2019 were a little bit lower than previous years and we said that we expect starts and sales to catch up in 2020 and when we started the year. That was also what has happened. We see a very strong interest for our housing units in Germany with good sales start and also good production, high production starts in the first quarter. However, we still see what we also saw last year, that we have delays to get the building permits. The authorities are overwhelmed with requests for building permits, and we were hit by that last year, and we still see some effects of that. So we have one project in Cologne that we expected to start in quarter one, but that will... be delayed and started the coming quarters when we've received the building permit. Sweden then, we have handed over more units than last year and also for consumers and this has given us a good EBIT development and also a decent and good EBIT margin. Driven by this volume effects more units to consumers, higher net sales and also with decent good EBIT margin. So 114 compared to 81 thanks to this. The year started well in Sweden as well. Market catched up late 2019 and that is also what we see here. It continued to be strong before COVID-19. A good number of sales. 169 units here to investors. As Joakim said, that was the project in Lund that we started already in quarter four. Normally, we sell and start units to investors in the same quarter, but this one we started already in quarter four. But now it is sold in Lund. But we have also sold... more units to consumers in 2020 than last year. And we have also sold our stock from our balance sheet in Sweden. That means that we have reduced the number of unsold units also in Sweden. And then the Nordics then. We said already in quarter four that we will have rather low performing units to recognize in 2020, and that is what you see here. So no negative surprises, but low performing projects that have impacted the impact both in Copenhagen and in Finland. We did restructure in Finland, as you may remember, where we had this effect of 159 million that we set up for this reorganization and the close down of some regions in Finland. Finland is developing according to that plan that we set up then, but we still have some low-performing projects ongoing in Finland. in Finland and then we also have some in Copenhagen and that is something that we expect to continue to be in quarter two and quarter three as well. One thing I also want to point out here is that we have somewhat higher selling and admin expenses here in the Nordics. And the reason for that is that we acquired operations in Oslo in quarter four last year. And the Oslo operations... Well, we have ongoing projects there, but we will not be able to recognize those for profit in 2020, probably not. And that means that we will have some somewhat higher selling and admin expenses in the Nordic segment without having the top line coming from the Oslo business. So that is something to consider. that I want to remind about, that will be an effect of that acquisition. But also in the Nordics, we saw improved sales in the first quarter, and also here we have sold from our stock and from our balance sheet, and by that reduced the number of unsold units on our balance sheet. So a good sales development also there. In the Nordics, and we also see that the peak supply that we saw last year, especially in Finland and also in Copenhagen, that high level has begun to come down to more decent levels. So that is also something that we have seen on that part of the market. St. Petersburg Baltics here, yeah, here you see last year we recognized 519 units, this year 167. And, of course, that impacts top line net sales lower, and it also impacts EBIT. What we can also say is that the projects that we recognized for profit in St. Petersburg last year gave us... a very good margin. So it was an exceptional first quarter of 2019. Many units handed over and also with high EBIT margin. Now we have fewer units and also to a more normalized, stable margin level. So here again, Worthwhile to comment upon that also here we estimated more units to be completed in quarter one than we actually did. And the reason is that we have one project in Riga, Maskeva, that is somewhat delayed. It will be completed and recognized in April instead. And also here we have sold units from our stock. We have recognized units from our stock and reduced the number of units unsold in our balance sheet. So that's why we have recognized 167 units, although we have completed only 116. And we have also... Sold and started fewer units. We have started some in the Baltics, but we still have a rather big portfolio to work with, especially in St. Petersburg, with a very strong sales rate also. So that's the reason why we are on a lower level than last year, but still on a very good level, taking our portfolio into consideration. So that leads us to this balance sheet, or this is the balance sheet that we have, the assets that we have when we ended the quarter one here. We have increased total assets. And what have we done? Well, we have invested into land or properties held for future development in Germany, Sweden and in Norway. One other thing that I want to comment up in here is that we have an equity to assets ratio when we ended the quarter of almost 30%. We have an objective to be around 30%. So to be very close to that is, well, that's a very solid financial position when you look at our balance sheet. And all this has given us this cash flow, negative outflow, which I will soon show you or comment upon that or just repeat that. But we have a negative outflow of cash in the first quarter. However, this year, 200 minus instead of a little bit more than 1 billion. And the main reason for this improvement is that we have a positive outflow a very strong positive inflow from how we have worked with our working capital. We have more interest-free financing and also high advance payments from our customers, so 1.7 billion here in change of working capital. And this is actually maybe the number one task for us now in this world that we are in now to protect our cash flow, to be cautious with our debt situation. So just to remind you here that being this low in quarter one, that is good. We normally have an outflow of cash flow quarter one to quarter three. and an inflow in the fourth quarter. I just want to add to what Joakim said about the effects of COVID-19. If handovers are delayed from quarter four to next year, that will also, at least in some parts of our business, affect the cash flow as well, since in some countries... the final installment is paid when you lay your hands on your new housing unit. So that means that the cash flow comes from our customers when the unit is handed over. So if that is delayed, that will, of course, impact also the cash flow in the fourth quarter. So net debt stable, 7.1 billion. And I just want to repeat here that Bonava includes all debt. We have nothing outside our balance sheet. We include net debt in tenant owner association housing companies, 2.4 billion. That is the project financing that we have. And that financing... is there for us as long as the project is ongoing. So it's very important to bear that in mind when we look at us, and especially in these circumstances that we are in now. We have everything in our balance sheet, we have everything in our net debt that we present here, so that's really important to bear in mind. when you look at the financial position of Bonava. And I also take the opportunity just to share with you our facilities that we have at the moment. And in quarter one, we had financing facilities of 8.1 billion. We used 5.5, which means that we still have 2.6 billion assets. to utilize going forward. And that is together with the project financing of 2.4 billion. That's a very solid financing position for us. In addition to this, what we have achieved during this first quarter is that we have a green financing framework established and we are very glad for this because this is something that we can use for financing going forward and it's also actually good for our brand that we have projects, we have housing units that are of so high eco-label standards so that we can use this financing from framework to finance these projects as well. So that's very important for us and this is a framework that is validated through a assist analytics which we also think is very positive for for us and for our business finally then i have commented upon our equity to assets ratio the objective that we have here so uh finally just to see where we are with the other financial objective and return on capital employed to be between 10 to 15 percent and with the capital employed ending quarter one of a little bit more than 15 billion due to the fact that we've had that we had EBIT, not giving us the EBIT that we've had. We are below that target at the end of quarter one here, 7%. So we have a way to go here going forward. Of course, we don't change our objective is still to have a return on capital employed to be between 10% to to 15%. That is our financial objective also going forward. Important to remember. So by concluding these financial objectives, cash flow, some words about the segments and also the development of our income statement during the quarter, I hand over to you Joakim to summarize this first quarter.