Bonava AB (publ)

Good morning and warm welcome to Bonava's presentation of the second quarter 2021. Speaking is Carolina Strömlid, Head of Investor Relations. And with me today, I have our CEO Peter Wallin and CFO Lars Granlöf. We will follow the usual procedure and start with a presentation of the highlights and financial results, followed by a Q&A session where you're able to ask questions if you participate in the telephone conference. I would also like to mention that the presentation is recorded and an on-demand version will be available on our website. With this, I hand over the word to Peter Wallin.

Good morning, everyone, and very welcome to our conference here. And I would like to start with giving you a view of the market conditions. The very good fundamentals and strong market is continuing. So we are seeing a very high demand and possibility to increase prices across all of our markets. We are seeing a tendency in some markets that the growth rate of prices has abated somewhat, but are still at a very good level. Another thing we are seeing is also during the pandemic, the trend to prioritize the housing situation, moving to larger housing and also with the possibilities to go out in green areas has continued to strengthen. And this is something which benefits the happy neighborhoods that we are providing. The fundamentals in terms of macro and with low interest rates, low unemployment and a good growth in the economy and also a very strong positive sentiment for companies and households is continuing. So this underpins the new production and starts. And we see this both on the short term and on the long term for the housing market. Turning into the profitability, the net sales decreased by 4% due to the lower recognized volume of investor units compared to last year. If we look on the number of units, you can see that they dropped by the whole 21%. So that means that we have a higher price per unit. Also the fact that we are selling more consumer units with good margins. We significantly strengthened the EBITDA margin. And this is also due to the fact that we have more consumer units recognized and also were able to increase prices and also contain cost. So that meant that the gross margin strengthened in all segments. In the second quarter, as announced in May when we announced the decision to wind down the business in Denmark and Copenhagen, we took 117 million SEK as an items effect and comparability relating to the wind down. So, of course, the comparison with Q2 last year, which was fully impacted by the pandemic, is a little bit skewed. But I think that this report clearly indicates a step in the right direction. Looking into the sales development, we have increased the number of starts. We have also increased the number of sold units, and those two are linked together, as you can see. And if you look to the rolling 12-month level, they are both overshooting last full year. Also, comparing to last year, we had a very skewed fourth quarter with a lot of starts into the fourth quarter. So it was a quite low start in 2020. Another point I would like to make is if you look on the recognized unit, you can see that the number was quite below last year, but the consumer part was much stronger. And this again is coming back to the stronger impact on the P&L. And Lars will comment much more details of this. The outlook that we have and the guidance we're giving is still at the 5% mark if we adjust for the close down of Denmark that we announced after the Q1. So this should be based on the base of close to 5,400 units 2020, excluding the Danish units. I would also like to present two of the projects we started in the second quarter. If we start on the left-hand side, we started a project in the Imanta district, which is very close to the airport and also close to the city centre. And it's also very close to green areas, as we talked about. And it's actually A-rated in energy efficiency. Turning to the right-hand side, we started up a project in Umeå in the University City in the northern part of Sweden, where it's also very high on the agenda in terms of sustainability. And in this area, we are developing and are looking into developing more units as time goes by. Then turning into the external factors that we have playing around. If we start with the pandemic, the health and with staff, customers and projects is the key priority for us. And of course, we are keeping a very strong eye on the development of the spreading of this Delta virus as we are seeing. So far, we have very limited disturbances on our operations from the pandemic and also the implication that this has given on the supply chain. Looking a little bit closer to the supply chain, we are seeing a lot of cost increases, of course, and this is offset by the very strong growth in sales prices, which means we can start projects with sufficient margins. And of course, if we experience shortages of material and resource, this may impact margins and handovers and starts timing wise. But this is something so far which have been able to manage. We are focused on optimizing the purchase and flows to our projects. And as a company which overstretches a large number of markets, we have the ability to drive larger volumes and also tackle shortages in the group. So this is something which we are doing as efficiently as we can. I would also like to point out that the situation with production of cement in Sweden, which has has rised on the alert side, is something that would have an impact on our Swedish operations. So this is of course a very big impact for Swedish construction industry and Swedish economy as a whole if this situation is not resolved. From a Bonava Group point of view, it's a very limited impact because it's only the Swedish operation that would be impacted if this crisis should come into fruition. Then I would also like to comment the floods that we have seen and experienced in Germany. The footage we have seen in the media is very disturbing and alarming. And our heart and thoughts go out to the people that have been impacted by the flooding. I can happily report that we have not heard any of our employees being involved or hurt in any of the floods. And the closest projects we have to the flooded areas are in Cologne, in the western part of Germany, 15 kilometers from the flooding. And some project has been impacted by heavy rain, but not any flooding. has not gone through any major disturbances. As a company, of course, we are caring for the local communities and we are looking into how we can support the local communities when the flooding has subsided. Then I would also like to point out and come to the project starts. This is the engine of our business and we are committed and fully focused on increasing the number of homes to the market in a demand situation which far outstretches that of supply. And we need to make sure that we have the production and everything in control before we start a project. This comes to both the project, the pricing and also the costs. And we are not starting any project just to report a high number of starts. We are only doing it when we can secure the basics. We have increased the number of starts in a period, and I'm very pleased to see the work that the operation has done on that part. Secondly, I would like to comment that we are committed and fully focused on increasing profitability. The strategic review that we announced in the first quarter is ongoing. We announced the first step, exit the Danish operations, And this is going according to plan. I'm also very happy to report that we have started a structured process of selling the land bank. This is done with a large interest in our assets. And we were hoping to conclude this during the second half. The outcome of the strategic review will be communicated during the fourth quarter. Thirdly, the sustainable business part is very important to us. And under the second quarter, we expanded the green financing, which enables us to finance long term the sustainable housing that we are providing to society. Also, and perhaps most importantly in our type of business, it is securing an attractive portfolio of building rights. And this is something which we are looking towards increasing with the sustainability and profitability as key focus in most of our markets. With that, I would like to hand over the word to Lars Granlöf, our CFO.

Thank you, Peter. Good morning, everyone. I think we start, as we have done the last few quarters, with the build-up of net sales. As reported in our Q1 report, we were estimating completions of about 830 units, 140 of them in the investor area and 690 in the consumer area for the second quarter. We have hit the 140 in the investor area, and here you see that out of the 830 or 690 B2C, the customer area, 21 units were, for different reasons, postponed in terms of completions later on. Out of the 809 that we completed then, 38 remained unsold by the end of the quarter. But on the other hand, we continue to decrease completed unsold from previous periods, and this time with 121. So a significant further reduction of these units in the balance sheet. And in addition to that, as we were reporting and mentioning in the first quarter, we had a number of units that were sold completed, but for various reasons not recognized because we have not finalized all the registrations, etc. So 151 of those were completed and added to net sales for the second quarter. So looking at the quarter and the figures here to date, again, Peter mentioned that last year, the second quarter was the first quarter where the pandemic really hit the business, not only in Bonava, but the whole society. So it was not a very strong quarter, as we know. But if we look at net sales, we had more units recognized in the prior year, but this year with much more profitability. We had a mix of projects where we were handing over and recognizing a number of not very profitable projects. In addition to that, of course, we had a mix of very much of investor projects, typically at lower margins than the consumer projects at that point in time. So that means that our gross margin for the second quarter is almost doubled than the gross margin in a prior year, almost 14% compared to just above 7% in second quarter last year. And if we add then the selling and administrative expenses, slightly higher than last year. Last year, of course, then everything was locked down, closed down. And this year we have some more spending, but not significantly higher, which you can also see on the year-to-date figures where we are practically spot on on the level as we had in the prior year. So with that, we are delivering an EBIT of 257 million before these items affecting compatibility. I come back to that. With that margin, we have increased our EBIT margin with 6 percentage units up to 7.6% in this quarter. But as Peter mentioned, and as we have reported by the end of May, we have decided to close down, wind down our business in Denmark. And we have taken a charge down here in the second quarter of 117 million. So after that, EBIT is 140 million, still significantly above what we were recording and reporting in the prior year. If we look at net financial items, they have increased, and we have been presenting that before. We have prolonged, we have longer financing now to reduce the financing risk, and that is, of course, increasing the interest rate. But it is also outlined in the report that we have an ownership by NCC in Germany that where we have an option to buy that ownership. And we are paying about 3 million Swedish per quarter for that. And that has been added to the net financials. And then you see that our tax percent is low compared to what it used to be. And part of that is, of course, coming from the tax credit that the items affecting comparability is creating. so let's move into the segments and as you saw in the heading in in the prior slide we have improved margins in all the segments and we see that in in the coming slides and if we start then with with germany we have a mix that has improved project and region mix compared to the prior year And as you see here in the diagram in the graph on the right-hand side, we had a significant portion, 60% of what was recognized last year was coming from the investor segment at the lower margin. So a big improvement compared to the prior year. We also see that our selling and administrative expenses is slightly higher in the quarter, but better than the prior year to date figures. So we are delivering close to 13% EBIT margin compared to less than 4% EBIT margin in the prior year in Germany. And then looking at sold and started units, we see in Germany, as Peter also explained, that all our markets, we have a strong demand and a very good sales development. And it goes, of course, for Germany as well. We have still prices on high levels. They are increasing, but the pace of increase is slightly lower than we have seen in the past. We have been selling, of course, on the consumer side, so far less on the investor side in Germany. And we have started twice as many units in the consumer area in Germany than we did in the prior year. Going to Sweden, here we see more handovers to customers, as you can see from the diagram here, at less investor deals than in the prior year. And we see improved margin from the mix and from the projects that we have handed over in the period in the quarter. Selling and administrative expenses in line with the prior year means that we then have increased our EBIT margin to above 9% in the quarter compared to 6.6% in the prior year. And looking at the market, I would say that it's a carbon copy of the German situation. Strong demand, very good sales development. Also here we see high price levels and the pace of the increase is coming down slightly now compared to what we have seen in the past. And you see that sales is good in the consumer area, but we have not sold anything in the investor area. But we'll come back to that in the bullet further down here. So we have not added that in the quarter. But in terms of starts, we have increased the number of starts, and that is coming from the consumer area. there is a high interest in the investor areas as well. We have then concluded two deals in the second quarter in Umeå, the project that Peter showed you, and also in Solentuna suburbs to Stockholm. And after the end of the quarter, we also concluded one in Västerås. The Nordic segment, they have a quarter with very low volumes, as you can see in terms of recognized units. Only 122 units recognized in the quarter. No investor deals just on the consumer side. And that, of course, then brings a low net sales figure. But with less of investor deals handed over in the quarter, we can see an improved gross margin even though still on a low level. We are building some selling and administrative expenses here. And this is mainly due to that now when we are winding down Denmark, we are... than dressing Norway as a standalone market not being assisted and serviced by Denmark. So we are building that organization as an investment for the future. EBIT still on the negative side, even though it has reduced the negative amount. And then we're coming to the 117 million in items affecting comparability, as we were talking about earlier on, is the winding down of Denmark. And it's relating to warranties, it's relating to staff, and it's relating to the remaining organization that we see here. Thank you. Nevertheless, also here we see strong demand and sales development with increased prices in all of our markets. You see that we are strong in terms of sales on the consumer side, a bit weaker on the investor side compared to the prior year. But we have closed and sold and started one in Finland in the period. And we are starting more consumer units, 100 units more in total. But if you're just looking at the consumer units, 150 more than we had in the prior year. And here, as in the other business units, we are adding land acquisitions in Finland, in particular in Tampere and in the capital area. And then to our fourth segment, St. Petersburg Baltics. It's good, yet another very good quarter in terms of recognized units increasing again over the prior year, adding net sales with good profitability, almost 90% gross margin in the quarter, up more than 1% each point compared to the prior year. Selling and administrative expenses in line with the prior year. And that is, of course, then bringing the EBIT margin 13.6%, which is almost three percentage points above the prior year. High demand and price increases we can see in all of our markets, St. Petersburg and the three Baltic countries. We see strong sales development, as you see here, more than 500 consumer units sold compared to 135 in the prior year. And in particular, we see a contribution from Latvia in this period. We also see increased starts. In the prior year, we didn't start anything at all in this business unit. Now we started 266 units in the second quarter. We have also made a land acquisition of about 1,000 building rights in Vilnius, Lithuania, which is our newly added market in the Baltics that we started up just a year ago. If we move from our business unit, our segments, and move over to the balance sheet, we continue to see a strong, very strong financial position. If you're looking at our equity to assets ratio, we are above the 31% level. And you know that our target is above 30%. So building on that, And talking about the building rights, which is of course a very significant part of our balance sheet. Here you can see the development from end of last year, where we had almost 32,000 units, has now increased to almost 34,000 units over this first half of the year. Despite the fact that Germany right now is decreasing the figures due to that they are starting a lot of projects and units and then are utilizing. But we're looking for opportunities to add more building rights in Germany, of course, going forward. Sweden, a slight increase. We have a slight drop in the Nordic area, but we continue to look for more there. And a very strong increase in the Baltics and St. Petersburg. Looking at the return on capital employed, our capital employed is still at a rather low level, about 12.5 billion. So with a good profitability and a low capital employed, we have actually now reached the 10% level, which is the lower level, of course, of our range that we are targeting in terms of financial objectives. And moving over to cash flow, yet another quarter of strong cash flow, despite the fact that we are continuously investing for the future in investing in new housing projects. And that will, of course, continue going forward because that is what is building our future business. But we still managed to deliver a strong cash flow. And we have the capacity, in addition to a strong cash flow generation, we have the financing capacity from our facilities. By the end of this quarter, we have 3.6 billion Swedish kronor in unutilized credit facilities. And we are still on a low level in terms of net debt, despite the fact that we have been growing our housing project balance quite significantly. And also I would like to mention that Peter pointed out that we have actually increased our green bond alone by tap issue in the quarter. And we have also refinanced other green facilities within the green financing framework. Moving over to the graphs that we have in our report, updated now for yet another period, and here we have also included Q2 and the delta that I showed you in the early picture. We see a gradual movement of slight delays i would say moving to the to the next quarter and this is of course a situation where we are a bit uncertain about the building rights building permits etc in particular in germany but we are of course working hard in order to to hand over and complete our projects as soon as possible And in the consumer area, we have added, as you see here, 1,100 units in the quarter, adding to completions going forward. And if we're looking at the investor area, we can see that we actually have moved one project earlier that we now think that we will be completing already in Q3 instead of later on. And here we have added some 240 units compared to where we were in the previous report. So that's the end of my presentation. So I hand the word over back to you, Peter.