Bonava AB (publ)

Good morning, all, and welcome to Bonava's fourth quarter report for 2020. Joakim Hallengren speaking. And with me today, I have Lars Granlöf, our CFO. And later, you will also meet Karolina Ström, lead, our head of investor relations, who will moderate the Q&A session. Starting with the highlights of the fourth quarter report, we have a high demand on all our markets despite the pandemic. We also see a very interesting trend in an increased focus on homes and neighborhoods. And of course, the pandemic changed the game for working. We work to a larger extent remotely. And suddenly you need to take care of new functionality in the home that you weren't used to before. I think that we also see a spillover in do-it-yourself business, in furniture, kitchen furniture and so on. So it's a really clear trend. What that means, we don't really know yet, but it is certainly supporting Bonava's business. The macro conditions are still very favourable and stable. We have more disposable income. We see an increasing growing population. We do have migration to larger metropolitan areas. So everything is supporting the business. But the pandemic, of course, influences us a bit. I will get back to that later with an update. Looking at the numbers and focusing more on our own performance, we had a significantly higher rate of housing starts. We were up with 67%. And of course, that is the result of very hard work during the whole year. But there is also something that we have communicated earlier that we were backloaded when it came to project starts. I'm also really proud to announce that we can now call the turnaround in Finland completed. We have cleaned out all the bad projects. We went through everything very thoroughly, and I'm actually very pleased to announce that the Finnish operations is now showing positive numbers. However, and of course not on the level that we would like to see going forward, but I think it's a very important milestone indeed. We will dive into the numbers later in the presentation, but I think that a few have missed that we had an extremely strong cash flow during all the year and that Bonava has a very strong financial position indeed. And that has led to a proposal from the board to the AGM of an ordinary dividend of 3,25 kronor. And on top of that, an extra dividend of 2 kronor per share. The extra dividend should be seen in the light of the cancelled dividend last year. It was decided by the AGM to distribute, or it was proposed to the AGM to distribute 3 krona. We hold on to 1 krona of that amount, and that is, of course, due to the uncertainty that still lingers around the pandemic. If we look on the Q4 figures more in brief, the top line increased with 16%, and that, of course, was driven by more recognized units, especially in Germany and St. Petersburg. The EBIT, and now I would like to point out that this is excluding items affecting comparability in 2019, where we had a write-down in the Finnish business due to the decision to do a turnaround. So the EBIT is actually strengthened with 31%. It is boosted by the said turnaround in Finland, where we have seen improving product margins, and it's also supported by a really nice project in St. Petersburg, which we hand over with higher margins. I would like to stress that the project itself does not bring higher margins than we used to in St. Petersburg. It's in the top range, but it's pretty big. It's 210 units. And of course, that influences the margin for the whole quarter. The EBIT margin, again, excluding items affecting comparability, is increasing from 10.7 to 12. of the dividend, we do have a very solid position indeed. And the cash flow was extremely strong during 2020. An update on the COVID and the pandemic and our operations. First, I would like to state that the main priority for us here at Bonava is, of course, our co-workers and our customers and other stakeholders. All Bonava sites, as far as I know, is operational and has been so more or less during the pandemic. I know that we have had maybe a handful of stops, but they have lasted somewhere between a few days and up to one and a half to two weeks. So that is progressing well. And construction sites on all our markets are being deemed to be of utmost importance. So they are allowed to stay open, of course, respecting all the regulations and rules. However, we see some question marks and some potential impact. Especially in our largest market, Germany, it has to do with the decision process. And so the administration around zoning and other construction related permits, rules and regulations. There are two reasons for that. First, it is that the German market is one of the markets in Europe where the lockdown has been the strictest. And we are now actually into our second pretty tough, hard lockdown. And that was prolonged by the chancellor just last week. The other reason might be a bit surprising for us who lives in the Nordic countries. A part of the German society is not as digitalized as one would expect, and that goes especially for municipalities and authorities. Many civil servants still work with desktops and not laptops, and not all have access to broadband at home. So that means that whenever they switch into remote work, the productivity and the momentum goes down. But this is all just a periodization, a delay. We're still seeing building permits coming out of the system, but at a slower pace. We do not foresee that this will affect our handovers. There might be a bit more challenging to predict exactly in what quarter they will come if the delay is planned in the very last week. But it's more a question of one to two weeks delay. But for project starts, of course, it is essential that we have all the permits in place. There is also an upside, if you can use that word in a pandemic, but this is from a strict business perspective, and that is that we have been able to accelerate our digital customer journey, taking care of both the sales but also parts of the handover process. However, I would like to stress that parts of the handover process is still requiring physical presence. It's hard to, for instance, hand over keys digitally as of now. So there are some uncertainty regarding that. But we passed Q4 handovers with flying colors, but I still would like to mention that it makes things a bit more tricky to predict. I will now spend some time on two graphs that you know very well. We have actually developed them a bit to help you who follow us closely understand them a bit better. And I would like to start by addressing a question that we have had since we released our reverse profit warnings. And that was how much did you borrow from the future to be able to deliver such a growth of top line and result in the fourth quarter? And the answer is pretty blunt, more or less nothing. So this is the consumer completions. We have added two rows with data sets, the first and the one on top. Delta since Q3 might require some explanation. It solely means that in this row, you can see the changes or the redistribution of the volume that we reported as ongoing and for completion within these quarters in the third quarter. So you can, for instance, see that when it comes to the first quarter of 2021, we actually added 70 units. However, that most likely came from the second quarter where we now have 90 units less and so forth. The second set of data is the starts. So this is the start that should be added to the Q3 reported numbers, starts that we did during the fourth quarter. And here you can see that We actually were able to start 420 new units to be recognized in 2021. And in all, we started 2,365 units to be recognized from now on and later. A gentle reminder, this is stating the obvious, but looking at the fourth quarter, you can see that as very often for Bonava, we will have first quarter with very low volume. We only have 400 units to consumer to recognize in the first quarter. Moving over to Investors, here you can actually see that one project, 70 units that was in Finland, was ready earlier than we forecasted and was recognized already in the fourth quarter last year. But to compensate that, we actually succeeded to start another project on 80 units that will be handed over in Q4 2021. So the impact of the 2021 numbers for investors is unaffected. In total, we were able to start 820 units to be recognized from now on and going forward. And that does not include a project that we succeeded to sell in Sweden, in Umeå, 175 units, because that's actually conditioned by building permits and some other topics. So that's sold on the binding contract, but we're still waiting for the contract to be fulfilled. And here you can also see in Q1, we will have no units for investors to recognize. So just to give you a flavor of what we actually have started and what we're doing out there. There are two projects, but before I walk you through them, let's just look at the sold and started numbers. Let's start with consumers. We were more or less on par Q4 with last year. And I think that's actually an achievement because we had a hard lockdown in Germany the last two and a half, three weeks. And that has affected the sales in terms of building permits and start of new projects where we have pre-sales level. We also saw a handful of more units where we couldn't hand over as planned. They were delayed. The started units, I'm really proud of that number, we achieved to deliver upon what we planned to do. So we are significantly up in starts to consumers. And looking at the full year, The two biggest markets, Germany delivered approximately, well, exactly 1,501 stores to consumers. So it's substantially over 2019. And Sweden also succeeded to start a lot more consumer units than in 2019. We are now at the level which we think is a good starting point for continuous growth. So we are planning to start a bit more in both Germany and in Sweden in 2021 and grow from there. And that is based on the assumption that COVID does not play as a trick and that the market conditions are still in our favour. Looking at the investors, we sold a bit more, 820 compared to 712. And we also started that. And as I said, we also had solar project that is not yet started because it has not fulfilled the condition precedence in the contract. Looking at the projects, I'm really happy to announce or to introduce you to Kongslöken in Oslo. 127 units to consumers. That was one project in the Urbanium portfolio that we acquired in 2019. We succeeded to start some projects from that portfolio actually in Q4. And unfortunately, due to The production times, we are not able to recognize anything from that in 2021. But in 2022, you will see the Bonanvas, Oslo region and the Unvanium investment starting to yield. I would call it a smashing success, the sales start from Kongslukken. We have sold very well and been able to increase the prices a few times. So I'm really proud to see that coming into action now. Looking at investors, this is... a project in two phases in Helsinki, and it's called Citadelli, 110 plus 138 units that we started and sold to investors in U40. And to be able to facilitate you who are really interested in details, we have some news from this quarterly report. We will update you more in details on our starts on the investor website, bonava.com. And there you can follow the starts more in detail per region. So with that, I would like to hand the word over to Lars for some more numbers.

Thank you, Hakim. Hello, everyone. It's very nice to start presenting as a new CFO, start presenting the Bonava numbers with such a solid performance that we see in the fourth quarter. So if we start with the group. income statement as Joakim said we have improved net sales and we have strengthened both the operating profit and the operating margin and of course net sales is coming from more units recognized than in the prior year and I will come back to that in the coming slides give you a bit of a flavor for what has happened in the fourth quarter so Since we had this positive profit warning, we realized then that we actually delivered more net sales than was expected in the market. So I walk you through that in the next slide. If you look at gross profit, we have a gross profit margin that has increased coming from a better underlying margin. Joakim mentioned St Petersburg and also the turnaround in Finland that has improved our gross margin but we also see a positive mix in other areas but maybe I should point out as well then that as you see in the box underneath the income statement we have had this legal case from a old housing delivered in the 2000 where we had to take further provisions of 67 million SEC that is affecting margin is affecting the gross margin as well as the EBIT margin. So factoring in that, we actually have an improvement on almost two percentage point on the gross margin level. If you look at the selling and administrative expenses, it's in line with the prior year. But if you actually look into the underlying expenses, we should then consider that we actually recorded some 25 million in costs for management changes now in the fourth quarter. And with such a solid performance that we are delivering for the year, we also have an increase in short-term incentives, bonuses in, say, delta of maybe 20 million between the years. So factoring in that, we have a significant underlying reduction of cost in the quarter. I mentioned that the EBIT margin, solid 12% compared to the 10.7% and add back the 0.9% negative impact from this legal case in Germany. We are actually up on close to 13% underlying in the quarter. We have net financial items slightly higher than the prior year. But for those of you that are following us, you've seen that we have prolonged the duration of our loan portfolio to reduce the funding and refinancing risk. So with the longer duration, we also have, of course, higher interest rates. For instance, we launched this green bond successfully during the autumn. Looking at tax, we are delivering a tax rate of 27%. So it's in line with the prior year. It's in line with what we have been delivering during the year as well. And just to remind you, it's high due to that such a large proportion of our earnings are in Germany. And the German tax rate is the highest among the different countries that we are operating in. And you can see the graph also then on the right-hand side. Won't dwell back on the first half of 2020. You all know that we were all disappointed with the performance then, partly driven by the COVID, the pandemic outbreak. But We started to see an uptick in the third quarter, not at the same level as the third quarter last year, but it was moving in the right direction, but with small volumes. And now with large volumes in the fourth quarter, we are delivering a good, solid profit increase. Let me walk you through how we see what has happened in relation to what we said in the third quarter report. If we start on the left-hand side, if we then look at these graphs that Joachim showed you, as they are now in Q4, we had them in Q3, and we said that 1,600 units to consumers and 670 units to investors Those were the ones that we estimated for completion in the fourth quarter. We were delivering that. And if we then use the average sale price to calculate what kind of revenue stream we have, it's a net sale of 6.3%. But over and above that, we actually delivered 36 consumer units, mainly in Germany, and we delivered 72 investor units in Finland. So over and above what we said in the third quarter report, and that is approximately 0.3 of a billion in additional net sales. And you also know that we are selling from completed unsold that we have in the balance sheet. In the third quarter, we also had a large level of completed sold, but not recognized because we were not able to close the handovers in time for the third quarter. So those are then delivered and recognized now in the fourth quarter. In total, it's about 0.4 billion in net sales. We have also sold some land in the Nordic segment primarily, and that's 0.3 of a billion, not with very big impact on earnings, low profitability in those sales. And then, of course, you have a mix of price increases due to cost increases, etc. So say 0.2 of a billion in others. So that is explaining the difference between what you might have calculated based on the estimates that we had in the Q3 report and what we now are delivering in the fourth quarter. So then let's look at the group figures. And this is really a very good, very positive slide where you see that we have higher volumes recognized. We have higher volumes started and have higher volumes sold as an average for the group. So it's really pointing in the right direction. So let's move into the segments and starting then of course with Germany being the largest here we see that Germany has increased net sales of course driven out of more recognized units both in the consumer area and in the investor area. They have a gross profit that is slightly down 1% each point, but here we have the impact of this legal case. So with that added back, there is actually an increase of about 1% each point on the gross margin level as well as on the EBIT margin level. If you look at starts and sold units, we see an increase in started units to consumers. We had a slight downturn in terms of investors, but it's like we're saying also, it's a timing issue. We have a lot of different projects that we are discussing, and with the pandemic, some of them are moved in time, as Joakim mentioned earlier on. so the authorities the longer process is to get building permits to get starts but also for handovers when when we are due to hand over to our customers we say that we have one investor deal here recognized which is in lybic some 155 units and we also had some earlier on during the quarter The sold units are decreasing, but it goes back to the comment I had before that we see delays in the authorities and we see delays also in handovers. Maybe that is due to COVID that our customers cannot take access of their units. let's move to sweden sweden we actually have a significant decline in sales as you see we have delivered recognized units in line based again slightly higher than we did in the fourth quarter last year but as you see down in in in the box below the income statement A significant portion in the prior year of the almost 1.3 billion in net sales was coming from sale of land with high profits as well in that quarter. So factoring out that and also the small sale of land that we have this year's fourth quarter, we have a slight decline in net sales. We have a significant reduction in gross margin, but again, it's a land sale in the prior year that has driven the gross margin upwards than in 2019. So if you're factoring that out and make it apple to apple in terms of the operating margin, the EBIT margin, EBIT margin for 2020 fourth quarter is 6.2 compared to 6.8 in 2019 so a slight decrease in margin but on the full year basis we have an improved margin over the prior year when we are factoring out the sale of land. So in terms of the market, you've probably seen that just the other week there was more information out and they're saying that we have a price level increase in Sweden of about 10%. If you look at the projects that we have completed and realized, of course, we have not benefited from that in all of those projects, but it looks good. very promising going forward, in particular when you are considering that we have secured a lot of building rights, some 700 new building rights in the Stockholm area. That builds a good base for the Swedish business going forward, even though we have a slight reduction in starts and sold units now in the fourth quarter compared to the prior year. Let's move to the Nordic segment then. Here we have it the other way around. Here we have sold some land this year. That is explaining some of the increase in net sales. So factoring out that we still have an increase in net sales, but not as big as you see in the reported figures. We have a solid gross profit, not driven that much out of the sale of land. But as Joakim mentioned, we have the turnaround now completed in Finland. So we are seeing significantly better margins in our Nordic business, where we also have a significant reduction in our selling and administrative expenses. You see down here also in the box that factoring out the sale of land, the EBIT margin is some 10.3%, significantly above the 2% that we were delivering in the fourth quarter in 2019. Looking at the development in terms of starts and sold units, this is really the all-time high quarter in sold and started units so far. We see strong underlying demand for both from consumers and investors in all our free Nordic markets. And just some highlights here, we have actually concluded five investor deals during the quarter, three in Finland and two in Denmark. And we are continuing to discuss even further deals going forward. So here we really see uptick and a positive base for the business going forward. And speaking about positive base, St. Petersburg Baltics, really high volume of recognized units and a strong EBIT margin. In particular, some projects in the St. Petersburg area were delivering very good margins. You see 23% compared to 17%. Already in the prior year, of course, good margins, but even higher now. And we managed to keep the selling and administrative expenses in line with the prior year. So we have an EBIT margin of 21% compared to 11% in the prior year. And if we look then at start and sold units, in terms of started units, a significant uptick in the quarter, and that is coming in the consumer area. So it's strong market development in St. Petersburg, and we see continued recovery in the Baltics. And there are several major projects that is being started. We see a slight decline in sold units, but probably some impact also here about the COVID and taking delivery of the housing is impacting the sold units. This is the... The segment where we have seen a decline in the completed unsold, well sold from the stock in the fourth quarter. And also important to mention that we're now taking the first step into Lithuania where we have launched, started the first project in Lithuania during the quarter. so let's leave the segments and go to our balance sheet this is then the total assets and you see that we have a decline in assets which is normally with our normal with our seasonality where we are are finalizing a lot of housing projects in the fourth quarter so we are actually down below the 23 billion level and it's even down then compared to where we're in in the prior year And you see that we are up again in the equity to asset ratio, almost to 35%. So really well above the financial objective of 30% that we have. Yeah. If we move into the capital employed, of course, with assets being reduced, we have a significant reduction also in capital employed to 12.6 billion. And even though we are not in return on capital employed in line or within the 10 to 15 percent into all that we have as a financial objective, we are moving in the right direction. So we have been down during the year, but now moving in the right direction and delivering 7.9 in the quarter. Joakim mentioned strong cash flow, absolutely strong cash flow. We see for the third quarter in a row a significant positive cash flow. You see here on the right-hand side how it looked like in 2019. If I use also 2018 figures, it would look as 2019 with close to a billion in the fourth quarter, but basically negative cash flow in the first three quarters. In 2020, we had a negative cash flow in the first quarter, but then we were delivering strong cash flow now in three quarters in a row. I would say that some of that 1.9 billion of cash flow in the fourth quarter is an effect of that we have not invested in land, etc., in line with the prior year. So that is some timing differences that will come going into the next year. But as you see in the table on the left-hand side, we have a strong cash flow coming from the investment of the housing projects, finalizing them. We also have good income of advanced payments on the units in production in the quarter. So really good to see this positive development of cash flow in 2020. And of course, with such a cash flow, it goes without saying that the net debt has been coming down. So the net debt is actually less than half of what it was one year ago. So 3.3 billion in net debt, which... sets a good base for us going forward because we have of course a lot of unutilized credit facilities 4.5 billion of unutilized credit facilities by year end so we have the the base for investing in good land and also investing in new housing projects of course So rounding off my presentation, let's then look back on the financial objectives and dividend policy that we have in Bonava. Starting with the return on capital employed, of course, as I said, we are not within the 10 to 15% yet, but we are moving in the right direction with 7.9%. We are clearly above our 30% target of equity to asset ratio with 34.6%. And if you look at the dividend policy, we're saying that we are going to dividend at least 40%, more than 40% of our earnings per share per year. The earnings per share for 2020 was 6.82%. and the board of directors have proposed then to the ordinary dividend of 3.25 which is 48% of our EPS 2020 and extra dividend of two crowns and that is corresponding to 35% of the earnings per share in 2019. So by that, I end my presentation and leave it to Carolina. Nope. Back to you, Joaquin.

Actually, to me, thank you very much. I will just wrap up. So concluding the fourth quarter report, we have a really strong position financially, not least, which creates possibilities for the future. So there is a strong demand on all markets, despite of the pandemic. But the extended lockdowns in some of our markets makes it a bit more difficult to forecast, especially everything around decisions and permits coming from authorities. It will not have any significant impact on the numbers of units that we're actually finalizing this year, but it has more to do with in which quarter we can start projects with building permits pending. Good momentum in Germany. As we said, we had quite low stores in 2019. We have now recovered. We're also seeing sales in par with the sales in 2019, despite two lockdowns. So we really hope that we can leverage on this going into 2021 once the pandemic is out of the way. The turnaround in Finland is completed. We're back into black numbers, not on the level that we want to be in the future, but still very important milestone, and the turnaround is now closed. Going forward, we are focusing on housing starts. I mentioned before the two biggest units, Germany and Sweden. We think that we are on decent level, and it's also levels that we can grow from. Depending on the development of the pandemic, but also market conditions. But if the stars are right, we are able to start more units going forward. And then, as we have stated many times during this presentation, a really strong financial position, fantastic cash flow. And of course, that gives us a lot of opportunities to act in the future. But it also gave us the opportunity to present the dividend, both ordinary and extraordinary dividend to our shareholders, which we really think that they deserve. So with those concluding words, I would like to hand the word over to Caroline Astrum, our head of industry relations, to moderate the Q&A session. Please go ahead, Caroline.