Bonava AB (publ)

Good morning, everyone, and a warm welcome to Bonava's presentation of the third quarter 2020. Speaking is Louise Cheddar, Head of Investor Relations, and with me today and also presenting the quarter highlights is CEO Joakim Hallengren and CFO Ann-Sofie Danielsson. After the presentation, we will, as usual, open up for questions. And a short reminder is that you can ask your questions on the web or on the teleconference via the operator. So with this, I will hand over the word to you, Joakim.

Thank you very much. Good morning all to the Q3 presentation from us at Bonava. So a strong pickup in sold and started units is the headline for the quarter three. We have been able to hold the level of sold units at a stable level. I will be so dare to say that I actually think it's a very good level, taking into consideration the pandemic that raged across Europe, also affecting partly this quarter. Another Important thing is the consumer starts. They are higher in both Germany and Sweden, our main markets. The EBIT margins are slightly lower, but if you take away gains from sale of land, they're actually stronger. It's supported by improved gross margins in handled units in the produce in Sweden. It's also supported from the Nordics slowly, but definitely surely improving the performance with Finland in their turnaround phase. And they are delivering very well as planned. And what we're seeing this quarter is that they will hand over the last of the poor performing projects. The earnings and the margin is also supported by a lower SG&A. Moving over to year to date, early in the year when we saw the first signs of the pandemic, we decided to play a bit safe. That's an option that we have at Bonava. So we decided to focus a bit more on the investor sales. We predicted that the consumer sales would be hard to forecast and committed to a lot of uncertainty going forward and that has really paid off. So we have been able to sell and start more units to investors so far. We have a very stable and I would argue very strong and good performance in our sold units or sales to consumers. And we have an historically high sales rate of 81%. 81% of our total portfolio is now safe and sold. The EBIT margin is lower. We have talked about this in the first two quarters because it's those who are mainly affecting the EBIT margin. The Nordics with their low-performing, well-known bad projects. And Germany also had some poor-performing projects that were finalized in the second and third quarters. We already in the second quarter report communicated that the margins in Germany will improve and that's clear in these numbers and they will continue to improve in the fourth quarter and coming back to a more normal level in 2021. I think it's also fair to point out that the comparison from last year was boosted by a high volume of recognized very high margin units from our St. Petersburg operations. Key figures, starting with the third quarter, the net sales is slightly down compared to last year. And as I said, the EBIT excluding items affecting comparability is down 125 compared to 162. However, if you exclude sales of land, the EBIT is 135 compared to 131. And the net profit is substantially higher. And then we need to remember that in the third quarter last year, we had an item affecting comparability in terms of a claim, an old claim in our German business that costed us 10 million euros. Looking at the numbers year to date, the net sales is slightly up. The EBIT, excluding items affecting comparability, is 211 compared to 509. But the more fair comparison, the EBIT comparison without sales of land, lands as 221 versus 417. Net profit, 93 versus 247. Units in production is down. It's 8,962 compared to 10,301. But we have already early communicated that the planning for starts this year is really back loaded and we expect to start a lot of new units in the fourth quarter. So that difference will change a bit. We will take back some of the difference. The value of sold units, however, is not affected that much. It's only 300 million Swedish down, 21.9 billion compared to 22.2. And the sales ratio, as I said, an impressive 81%. Looking at the sold and started units, starting with sold units in the quarter to consumers. We were on par with last year, and I think that's a really strong sign from the organization and from the market, which is very well performing in all our business units. Year to date, we're only trailing behind with approximately 75 units, which I think is extremely impressive, taking into consideration the pandemic, which caused many of Bonalla's market into total lockdown for six weeks. Started units slightly behind Q3 next year, but as I said, we knew already from the beginning and the plans to start units is really backloaded this year. And year to date, we are trailing behind 180 to 190 units compared to last year, mainly affected by the pandemic and the lockdowns that delayed us. It also delayed the building permit process and other kinds of permits from authorities. But again, we will see a lot of new starts coming up now in Q4. Investors, as I said so many times, the distribution is not even. So one should not pay too much attention to an individual quarter. We sold a few units less this quarter than last year. But the more important figure is the year to date number where we sold substantially more thanks to an increased focus and a strategic decision to, during the pandemic's early phases, boost this business. This is a table that shows our latest assessment of expected completions and sales rates to consumers. I would like to highlight a few changes from the quarterly two report. We were a bit cautious in the second quarter when it comes to our ability to finalize projects with the precision that we are used to. And that gave a few more handed over units in Q3 than we expected. And of course, those units are now taking out all the Q4 numbers. So the Q4 numbers this year are lower. due to the fact that we recognize them already in Q3 this year. And as you can see on the graph, the distribution for completion next year with the exception of the first quarter, is pretty even. So we will not be that backloaded as we normally are in 2021 when it comes to consumers. We have been able to start 200 new units that are expected to be completed in 2021. And the backlog for 2022 and beyond is increased with 450 units. So we're building a strong and solid future for Bonova to be recognized in the future. Looking at the investors, there are not that many shifts. We have been able to recognize a few projects earlier, already this quarter, than we expected in Q2. Otherwise, the... And the differences between the completions 2021 and 2022 is around 80 to 90 units per year. So also here we are building a solid pipeline for the future. And I would like to add that compared to the forecast or estimation done in the second quarter, we feel that the visibility now for our projects is much better and we feel more confident in these numbers. We were a bit cautious due to the COVID situation. However, as we now see a second wave rolling out over Europe, there might be increased uncertainties going ahead. But for the time being, the markets remain strong and all our projects are up and running without any major disturbances. So with that introduction, I would like to hand the word over to our CFO, Ann-Sofie Danielsson.

Thank you very much, Joakim. And I go straight to the income statement that you have here. And I would like to start with the net sales here, where you see that we are somewhat down compared to Q3 last year. And the reason for that is that we have fewer units recognized for profit handed over to our customers during this quarter. And I will dig a little bit deeper into in what segments this is the case. I also want to point out here that we have a good gross profit on these handed over units. And I will also come back to that where in watch segments, you can see that selling and admin expenses are down, especially if you look for the whole period, 690 compared to 668. And that is As Joachim pointed out in the beginning that today that we have been cautious and looked over our costs and really taking care of all the actions that we are doing. So to reduce the selling and admin expenses as much as we can in this COVID-19 situation. So an EBIT of 125 compared to 162. But last year we also had this claim, this settlement in Germany. of 10 million euros or 100 million Swedish krona. So if you deduct that and take that into consideration, 125 compared to 62. But again, as Joakim stated out, we also have effects coming from sales of land. So if you take that in consideration, we are actually at a higher EBIT this year than last year. Also without this item affecting comparability. The third thing that I want to point out here is that we have net financial items on par with last year for the third quarter. And that needs an explanation. We have a lower net debt. I will come back to that soon and showing you where we are and the cash flow that we've had during this quarter. But net financial items, the same. And the main reason for that is that we've had some costs when we have established new financial possibilities for us. So that is the main reason why we, even though we have lower net debt, we have the same net financial items as last year. And after a tax rate of 26% for the period, we are at 72 million compared to 27 last year. Just to give an overview of the EBIT, where it comes from, which segments, and there are two things I want to point out here, and that is that we have better margins in Sweden. I will come back to that soon and show you why that is. And even though the Nordic segment still have a negative result, if you look at the gross margin coming from the Nordics, we have improvements compared to last year and also compared to the first two quarters of 2020. And the reason for that is that we now, as Joakim pointed out, see results from the actions that we took last year in Finland, and also that the development in Copenhagen is going in the right direction and also a good contribution from Norway. If we then continue, I'm looking at our different segments, starting with Germany then. And the headline here, lower gross margins in handover units. That is when you compare with last year, as you see here, EBIT margin of 8.9 compared to 12.5. But a rather small quarter. And one thing that is important to point out here is that if you compare with the first two quarters in Germany, where we've had... We had projects that we handed over with quite low margins. We are improving in Germany. And that is also, as Joakim said, what you can expect going forward that you will see. We will come back with better margins in Germany going forward to be back on the level, almost on the level that we've had previously or previous years. And 344 units handed over to consumers in this third quarter with this margin, as you see here. And one other thing also I want to point out here that you see here also in Germany that we have reduced selling and admin expenses thanks to good, that we've been cautious with what we are doing and really looking into what we need to do and what we can do. can wait with and what we can avoid. So that has given a result also on this line here, selling and admin expenses. And then what we also want to point out is that we've had a good level of started units to consumers. Starts to investors can be more stochastic. So just in this specific quarter, only 48 compared to 232 last year, but that is more stochastic. So the good thing here, the good sign here is that we have started many units to consumers, both in the quarter, but also for the whole year. And that is also what we want to point out. We see a very good demand for our products in Germany. So what you can expect also in the fourth quarter is that we will continue to start more in Germany. And you also see that when you look at the number of sold units in Germany in the quarter. And that is what we see underlying a very good demand on the market in Germany. Just to point out what we said many times, though, we still see some troubles when it comes to how the authorities are working with the building permits. We still see that we have delays there. That goes both for Bonava, but also for our peers on the German market. So that is still a bottleneck that we see. But otherwise, good demand, good possibilities to start more in Germany. sweden then a good project mix in the third quarter here so that is what you see here a good gross profit for those units that we've handed over even though there are fewer in numbers but with good margins better margins than last year since we have another project mix in in sweden that we've done we've had And also lower selling and admin expenses. So all in all, that has given us a good development in the quarter and also an improved EBIT margin if you compare to what we've had one year ago. And also in Sweden, as in Germany, we see a good interest for our products. So we have both started and sold at good levels also in Sweden, as in Germany. And again, this is also the case in Sweden, as in Germany, that we will continue to start more in Sweden since we see a good demand for for our housing units also in sweden nordic stand yes still negative however improving from the first and second quarter 2020 so finland delivers as we said and as we've planned and that gives result we've also had a good development, a more positive development in Denmark. Here, I just want to stress here or point out that we have somewhat higher selling and admin expenses. I've said that we've been cautious in all Bonava, but here we actually have increased Selling and admin expenses. And the reason for that is that we acquired the business in Oslo in the fourth quarter last year. And that gives us somewhat higher selling and admin expenses in the Nordic segment. And if we look then at sales and started units, I think it's important to say here that we have sold quite well in especially Finland and Denmark. And the very positive thing is that we have sold from stock here. So not newly started units, but actually units that were completed and been on our balance sheet. We have sold some of them and that is a very positive sign for us that we can do that. Good for the cash flow and also good for our activity in Finland and in Denmark. And we've also had good development in Norway with good sales number if we compare with how it was one year ago. Finally, then, St. Petersburg Baltics, also good development, even though maybe not that high in numbers, but we have handed over more units than last year. And we also have had slightly higher improved gross margins. And so also even though small numbers, but as positive and good development also in this segment. One thing to point out here when it comes to St. Petersburg and the Baltics, we have started in the quarter three here somewhat more units than last year and also sold some units, but that is for the quarter. But if you look at the whole period, January to September, you see that we are on a quite lower level than last year. And then I just want to point out that we will start more in St. Petersburg during the coming quarters. And since those projects are quite big, many units are started at the same time. So this can be rather stochastic, that when we start, the number of unit starters will increase. When we start the project, the number of started units will be quite high. And that is what we actually have in the pipeline, especially for St. Petersburg then. Many good projects that we will be able to start in the coming quarters. Our balance sheet then, we have total assets of 25 billion. And there are some things that I want to say here. One thing is that we have reduced, if you compare to the end of 2019 and also the previous quarters, we have reduced the value of unsold completed units, and that is positive. The other thing is, as Joakim said, we have almost 9,000 units in production. That's a value of a little bit more than 12 billion, but 81% of that is sold. So that's a very strong position, I would say. We are also very close to our financial target for the equity to assets ratio. 29.4% or target is 30%. But since we have high activities during the second and the third quarter, we normally are a little bit lower than 30%. at the end of this quarter. So this is also a very strong balance sheet and also a very strong ratio for this period. We have also been able to reduce our net debt. As I said when I talked about our financial items, we are down at 5.2 billion. We've had a good cash flow both in the quarter but also for the whole year. I will come back to that soon. But then our capital employed then and the return on that, we have had... a low EBIT, and that has affected the return on the capital employed, even though we have been able to reduce the capital employed as such. But we still, as you see here, have some things to do to increase the return on the capital employed. So that's a very important target going forward for Bonava. Good cash flow, as I said, both for the quarter, but also for the period. And maybe that is more important to talk about the period. But if I start with the quarter, 817 compared to minus 90 last year. So a very good development for the cash flow during the third quarter. And you could say that that is because you haven't invested so much in new housing projects. But if you look at the whole period, we are actually on par with last year. So that could be the case, a stochastic that we have. that we have this development during a specific quarter but we have been able to start a lot and we've also been successful in handling our working capital very strong for the whole period if you see here other changes in working capital and the main reason for that is that we've had good cash flow coming in from So all in all, a very strong cash flow, so that gives us a good position going forward. As I said, we want to start more, we will start more, and we have the financing for that. And that is also when you look at the financing, if you exclude project financing. So this is the picture. We have capabilities of 8.4 billion. We have used 4 billion of that. So we still have another 4.3 billion. billion to use going forward so all in all with this strong balance sheet the net debt situation and also the financing that we have to be used our financial position is strong going forward giving us the opportunity to start a lot of units since we see that the markets are so strong So by that, I hand over to you, Joakim, to say some final words regarding this quarter.