Bonava AB (publ)

Good morning, everyone, and a warm welcome to Benava's half-year Report 2020 presentation. Speaking is Louise Tjedder, head of IR, and with me I have Joakim Hallengren, CEO, and Ann-Sofie Danielsson, CFO. Joakim will begin the presentation and take you through some highlights from the report, followed by Ann-Sofie, who will take you through the financials in more depth. After some concluding remarks from Joakim, we will open up for a Q&A session. So with this, I hand over the word to you, Joakim.

Thank you very much and welcome to Bonava's quarter two report 2020. Let's start with the second quarter, which, as all of you know, has been a very challenging environment to work in. But nevertheless, we succeeded to increase the number of starts in our main markets, both Germany and Sweden. And as you know, Bonova has a business model where we focus on both on the consumer and on investors. And we can shift the focus from time to time. And we did that in the beginning of the crisis. And I'm happy to see that that has given result in increased sales to investors. However, the EBIT is lower, mainly due to two reasons that we communicated earlier. First, the Nordic segment, where we have been struggling with a while with a few well-known projects with really soft margins. They are gradually being finalized, some of them in the second quarter and the last one in the third quarter. And after that, we will slowly see more normalizing project margins in the Nordic segment going forward. I would like also to highlight that the recovery or the turnaround project in Finland is going according to plan. And then Germany, where we have had problems. both projects from investors, which basically have a lower margin than the consumer projects handed over, but also consumer projects with lower margin than average in the German portfolio. Just coincidentally, they were recognized this quarter. I would like to stress, however, that this is not an indication of any softening margins in the German portfolio. It is just an anomaly that happened this quarter. So from the third quarter, we will see normalizing project margins in Germany again. Looking at the first year then, The sales were weak due to the pandemic. But if you look on the overall sales for the quarter, they were more or less on par with last year, which I think is a strength. And we also increased the sales ratio from 70 to 79%. Again, softer EBIT, and that's of course a fact that we are absolutely not satisfied with. In the comparison for the first half year, I think it's also fair to point out that in the comparable period 2019, we did have a high volume of recognized units from St. Petersburg and Baltic who affected the result then. Key figures, we increased the net sales. And as I've already said, we have a soft EBIT. I think, however, it's more fair to compare EBIT excluding land sales. And that would take away approximately 60 million from the EBIT results. So I think a better comparison is 120 million compared to 58. But still, that is an unsatisfactory result for sure. Looking at the first half year then, we have decreased the number of units in production from approximately 10,000 to high 8,000. And the absolute focus beside margins in the business is sales and starts in the project. We are planning to start a lot of units, but this year we are extraordinarily backloaded Unfortunately, so it will wait until Q4 until we see the large volume of stocks coming up. Of course, depending on a stable market situation where we can sell our products. However, the value of sold not yet recognized is still on a very high level, 20.7 billion on par with last year. And as I said, very strong sales ratio in the portfolio. Looking a bit deeper into sales and starts divided into consumers and investors, the sold units were down in the quarter. The sales were significantly down in late March and beginning of April and were gradually picking up with June, a pretty strong month, not yet on pre-COVID levels, but it's a very positive trend. We lost approximately 30% of our sales in the quarters. There were units that were better performing than others. For instance, Sweden and Germany lost around 25%. Finland only, within brackets, 15-16%. while the Baltics suffered very hard from the lockdown and lost 50% of their sales, of course, affecting the average loss of sales. I said that the other markets, the markets were picking up in June. The Baltics were suffering from the lockdown, but I think that I see signs now in July that that market is also slowly but surely recovering. However, looking at the first half year for consumers, as you can see, we only lost 70 units compared to last year. That's 4%. And I think that's a very strong result. Started units up in the quarter and slightly below first half year. But then I think it's important to take into consideration that In the benchmark 2019, we started 700 units plus in St. Petersburg and Baltics. And we only started a fraction of that this year. So more starts in our main markets and a positive trend. Investors, as I said before, investor deals is an important part of our business and business logic. And we both sold and started more units both in the quarter and in the first half year. This graph is showing our expected or forecasted completions in combination with the sales rate. And this graph is consumers. The major changes to this graph from the first quarters is sales. that we feel more confident regarding the numbers now than we did then. There is still uncertainty, of course, because I don't think that we've seen the loss of the COVID effects, but we feel more confident There has also been some delays in completions, as we have communicated earlier. So somewhat around 150 units have moved from the third quarter this year to the fourth quarter. But at the same time, we forecast that we will complete approximately 100 units more in the fourth quarter, disregarding the delayed units from Q3. 2021, there is somewhere around 650 more units to be completed than it was in the fourth quarter. So we're building stock. Moving over to investors, the major development here is that we have almost 500 units more in the second half year of 2021 to be recognized. And then a COVID-19 update. I think it's a bit too early to say that we are out of the crisis. However, I would like to say that I'm much more confident and positive now than I was three months ago. The markets have shown greater resilience to this pandemic than we feared. We have had all construction sites up and running. There has been a few disturbances, as I said, but nothing severe. Of course, with our profit recognition model, even a few days or a few weeks delay will impact the profit recognition. However, it will just be a delay and not money lost. Also some delays in handovers, but nothing material. Sales, as we talked about, has slowed down, but gradually is picking up. And the last markets to pick up is the Baltic markets. And then we at Bonava continue to work very closely to the development. Focus is, of course, to protect our employees and customers and other stakeholders. And as you well know, there has been a huge change in the way the companies operate, Bonava among them. As one of the digital leaders in our industry, we have developed a lot of new tools and way of working also in relation to our customers that has been implemented during this period. And then old school mitigation of business risk, cost-based focus and cash flow focus. And as I said, even though I feel more confident and positive regarding the future, we need to be on our toes. We need to be flexible and agile to be very close to the market, because I'm not sure that we fully have seen the impact on the general economy. Probably we have to wait until the autumn to see how that plays out. And with that, I would like to hand the word over to our CFO, Ann-Sofie Danielsson, for some financial details.

thank you very much i will dig deeper into the income statement and also the segments balance sheet and finally our debt situation and cash flow starting with the income statement then i think it's fair to say that we actually have some impacts from covet 19 here i will come back to that soon how that has impacted our income statement during the second quarter here But first of all, what you see here, our income statement, you see that we have higher net sales than last year. And the main reason for that, if you take it shortly, is that we have recognized more units to investors, especially in Germany. That's the main reason why we have higher net sales recently. The other thing I want to point out here is that we have lower selling and admin expenses. And here is the first thing to comment upon how COVID-19 has affected us. As Joakim said, we have taken a number of mitigating actions to adapt to COVID-19. And that has impacted our selling and admin expenses during the second quarter here, where you see that we have lower expenses than last year. And to make it short, what we have done is that we have, of course, stopped all traveling, all conferences, training, etc., etc. And that has impacted these costs for us. I would just like to point out here, because the obvious question here is, of course, how will this impact the rest of the year? And one thing that we can say we are not quite sure, but we are sure that the costs, the admin expenses will be lower than last year. But quarter two here has been extraordinary when it comes to how we have mitigated the COVID-19 situation. And we will, of course, increase activities during the second half of 2020. And that will give us somewhat higher costs than we've had the first half of 2020, but not as high as last year. So that is one thing I could say here. So all in all, an EBIT of 56 million compared to 182. And as Joakim stated out also, last year we had an impact coming from sales of land. And if you take that away, we can compare 58 this year with 120. So lower EBIT than last year. And I will come back to more details regarding that. Net financial items here, minus 30, lower than last year or more negative. And it is a bit confusing here because if you look at our net debt situation, I will come back to that when I talk about cash flow and our balance sheet. But we have a lower net debt than last year at the end of June. However, we have used a lot of financing resources also in 2020. So the average net debt situation for us has been more or less the same as last year. And in addition to that, we have some costs here in the second quarter due to the fact that we have raised more financing resources. I will come back to that as well. And that has come with some cost for that. And also, as you all are aware, we have somewhat higher interest rates. 2020 than 2019. So somewhat higher negative effect here coming from higher interest costs during the second quarter. One other thing before ending this slide to point out here is the tax rate. I usually comment upon that and I do that also today. 28% that is higher than last year. And the main reason for that is that we have now more EBIT coming from our German business. And the German tax rate is higher than, for instance, in Sweden. So that's the reason why we have a somewhat higher tax rate here in the second quarter of 2020. If we then dig a little bit deeper into the EBIT, here you have the different segments. And to make it short, then 56 compared to 182. And the main deviations compared to last year is, first of all, Germany. And as Joachim commented upon, we have had those units that we have recognized in Germany in the second quarter here had lower margins than last year. That is the same as I actually said in the first quarter that we've had some low margin projects in Germany that have been recognized for profit. But that is not the normal margin level in Germany. We have a more sound and efficient. The portfolio in Germany is still very sound, and the projects that we have going forward have higher margins than the ones that we have recognized for profit here in the second quarter. So that's the main reason here. The other segment that I want to point out already here is the Nordic segment. Those units that we have recognized for profit in Finland have had a lower margin than last year. And that is also what we have communicated, both when we released the first quarter, but also in the press release that we presented just a couple of weeks ago. where we stated that what you can expect from Finland is that we still have low margin projects in that segment, giving us a very low EBIT coming from Finland. And that will improve during the second half of 2020, but not to be expected already in the third quarter. We still have some low margin projects to be recognized in the third quarter as well. So, again, 56 compared to 182 if you include the profit coming from sales of land. Some more details regarding Germany. Here you have more details. And you see here that the gross profit is lower. And the main reason is, again, that we have recognized units to investors with a low margin. We also actually have had some smaller effects coming from COVID-19. due to the fact that we've had some issues with the authorities when handing over projects, giving us some extra costs in one of the projects that we have recognized for profit here in the second quarter. So there are effects, not so big, but there are some effects coming from that. So we have, as you see, more units recognized for profits in the second quarter here, 527 compared to 314. And again, then low margin projects to investors giving us this lower gross profit. Also lower selling and admin expenses, as you see here. And again, the reason is that we have had very low activities. We have mitigated to the COVID-19 situation by... by stopping all traveling, conferences, training, etc. And you can expect lower selling and admin expenses going forward also here. Maybe not as low as in the second quarter, but lower than last year. So that's the German situation. I think it's also a very strong sign for us when we look at the German market. It's a very good condition, actually. And that is also what you see here when it comes to the number of units that we have started during the second quarter. We see a very strong interest for our activities, for our projects in Germany. So even though we have somewhat lower sales for the second quarter, however, the sales has picked up during the last weeks of June. So we have been able, we see a good future on the German market. So we continue to increase the number of starts also in the second quarter. And going over then to Sweden, solid good performance. Units recognized for profit on a good level and also with good margin. If you consider that we had profit coming from sales of land, that was in Sweden last year of 55 million Swedish krona. So if you take that away, you have a very good and solid performance in the Swedish operations if you look at the EBIT level. And again, lower selling and admin expenses and also in Sweden, adaption to the COVID-19 situation also here. And Sweden and Germany, we have stated that several times now. We want to increase the number of starts on these markets where we see a good demand for our projects. And that is also what we've done in Sweden. You see here we have started all in all 318 units during the second quarter here. And that gives us all in all more units started in 2020 than last year. And we also see... A very good, solid interest for our units, for our housing units in Sweden. And also very positive for us is that we now have fewer unsold units on our balance sheet. We have been able to sell units also completed from our balance sheet, from our stock in Sweden. That's also a sign of the strong market in Sweden that we see. And one more thing to comment upon here, also showing that the market in Sweden is strong, is that after the quarter we have sold a quite big project in Västerås, 162 units to investors, and that will be included in the third quarter for Sweden. So that's a good market, giving us the possibility to start more units in Sweden. Nordic again, here you see it more in detail. We have, as we have stated out, weak margin projects have impacted the EBIT level also in the second quarter. And again, we will have a quite weak situation also in the third quarter in Finland. And you can expect that to be the situation. We still want to stress that we see a stronger performance and better forecast for the fourth quarter for this segment. So all in all, we have recognized 245 units here to investors and to consumers. None actually in Copenhagen, but in Finland and in Norway. Norway is performing well for us, but we still struggle with these low performing projects in Finland, as we have commented on earlier. Here, opposite situation, if you look at the selling and admin expenses, higher than last year. And the reason for that is actually that, if you remember, we invested into the Oslo region at the end of 2019. And that has given us somewhat higher expenses here for selling and admin activities. And so at the same time as we have decreased the costs, the expenses here in Finland and in Copenhagen, we have increased costs in Norway and Oslo due to the acquired operations there. Here, we actually see an effect also on sales. We talk a lot about that we have a strong market in Sweden and in Germany. However, in the Nordics, especially then in Finland, we see effects of COVID-19 with a more cautious market, giving us lower sales number. And that also has... made us more cautious when it comes to the number of starts that we have in this segment. One thing to point out here, however, is that we have started the first consumer project in Oslo. The operations that I talked about that we acquired last year successfully started that project, and we see a fairly good interest for that project in Oslo. And then segment St. Petersburg Baltics. And lower EBIT than last year due to the fact that we have lower margins in the projects that we have recognized. And we actually had a very strong margin in St. Petersburg last year for those units that we recognized then. So here actually... And what we can say here is also that this is also the market in the Baltics where we see the effects of COVID-19, a much more cautious market. And that has also affected sales, especially in the Baltics. Fewer sold units as you see here, 135 compared to 244 and that is mainly in the Baltics, that reduction. No started units in the quarter and The main reason for that is, of course, that we are cautious in the Baltics, but also that we have very big projects ongoing in St. Petersburg that we started last year. And we have a lot to do on those projects and also to sell them. So that means that we are, according to our own plan, more cautious when it comes to new starts here in this segment. If we then continue to look at the balance sheet, total assets, 24 billion. And if you compare to previous quarters and previous years, the split between the different assets is more or less the same as in previous quarters and in previous years. And an equity to assets ratio just above 30 percent at the end of quarter two. So a strong, strong balance sheet and good sound health of our total assets. Lower net debt, and as I said when I talked about the income statement, lower if you look at the end of the quarter than quarter one and also quarter one and the end of the year this year and also compared to last year at the same time. But that was an impact coming from a very strong cash flow in the second half of June. So if you look at the average net debt during the second quarter, it was more or less at the same level as in 2019. But a good situation. And we tie up 13.7 billion in our capital employed. And the EBIT and the profitability on that capital that we have used is 6.2%, well below our own financial objective of being between 10% to 15%. So our main objective now is to improve profitability, to be back on these levels that we were in before. in 18 previous years so that we reach our own financial objective that is the most important for us going forward. We've had a very good and strong cash flow during the second quarter, 1.1 billion coming in from our operations. And the main positive inflow is, of course, the divestments that we made during the second quarter, 3.2 billion. At the same time, we have handled our working capital in a positive way. And I think it's also important to say that we continue to invest into our business for the future. So we still have invested 3.2 billion during the second quarter. And even though we do that, we still have a strong positive cash flow during the second quarter here. And that is, of course, very important for us. So I would say to keep the costs in good line and also to keep the cash flow, to keep a very strong cash flow. That is the most important things for us to do in this COVID-19 situation. And we also have secured financing, as I said, during this second quarter. So we all in all, if you exclude the project financing, we have all in all finance capacity of 8.4 billion, whereof we haven't used 4 billion at the end of the second quarter here. So that is also very strong and positive for us going forward. And one other thing I want to point out here when it comes to financing is that we now have green financing. That means that we finance green projects such as Svanen-labeled projects in Sweden, for instance, of 0.6 billion. And this is, of course, very important for us in many aspects, both that we... that we work with our sustainability objectives but also good for our customers to know that we have projects that we can that we have used green financing for so that this is a very important area for us going forward so by that i hand over to you joaquin to summarize this second quarter