Bonava AB (publ)

Hi everyone and welcome to the presentation of Bonava's Q3 results. My name is Karolina Strömlid and I'm Head of Investor Relations here at Bonava. With me today, I have our CEO, Peter Wallin, and our CFO, Lars Granlöf. And as always, they will take you through the highlights of the quarter, and they will also comment on the outcome of the strategic review and the revised targets that was announced this morning. After the presentation, we will do a Q&A, and we will do the Q&A over phone only. So thank you for taking the time. And please, Peter, the stage is yours.

Thank you very much, Carolina, and welcome everyone. Normally we say good morning, but now when all the reports is coming, we are a little bit later in the day. But we are very much energized to talk about our report and the outcome of the strategic review. If we then start with setting the stage for the conditions, the market conditions that we have experienced during the third quarter, they are very stable on a good, robust level. We have seen price increases across our different markets, albeit at lower rates than we have seen during the spring. There is still a very strong interest and demand which reflects the prioritization for larger areas and greener areas, which we have seen during the pandemic. That is still true. Another thing that is impacting the way we are looking into the future is of course the continued lingering effects of the pandemic. We are seeing some implications in St. Petersburg, in Latvia for example, And here that this will impact some of our businesses right now. But we are still on a very high preparedness to act. And we have exercised this preparedness quite some time now during the pandemic. Switching over and talking about the results. We are posting a strong report in the third quarter with 26% increase in revenue organically, excluding FX implications. We have a significantly improved EBIT and margin, and it increases almost by more than twice, two times. And the reason for this is, of course, the increased revenues and then also strengthening the project and regional mix with an increased gross margin. We have a somewhat lower contribution from the business units, St. Petersburg and the Baltics. And this is due to the fact that one of the projects that we have completed and sold has not yet been handed over to the clients in the third quarter. This will happen now in Q4 and perhaps also drag into Q1 2022. We are looking into a demanding situation across our markets when it comes to shortages of material, increased cost of labor, subcontractors and so forth. So far we have seen quite limited implications of this because we have been able to control these increases and also offsetting these with increased prices. So that means that we'd actually strengthen the margin in our ongoing projects. And this is to be reported, as you know, when we hand over the keys, the apartments and the houses that we are developing. And we have a very strong financial position, which is a great foundation to grow from. And Lars will comment that at more detail. The starts, we are according to the plan and we have increased units recognized in the third quarter. We are maintaining our guidance when it comes to increasing the number of production starts by 5%. It's not far away from New Year's Eve, and we do not start our projects until we have the right prerequisites for starting the projects. And we are also, of course, exposed to the permitting that is needed to start the projects. But we are still maintaining our ambition of 5% increase in production starts. Let me take a few examples of what we have started in the third quarter. To the left-hand side, we are putting a picture up of our single-family houses concept in Sweden. We have started one project on the west coast of Sweden and one project in the Stockholm area during the third quarter. And perhaps you have also seen the press releases that we are continuing to increase into building rights here with the acquisition of building rights in Linköping, a very interesting university city in the middle part of Sweden. To the right-hand side, you can see Vedler Tor in Hamburg, where we have started and sold 62 investor units. And also, in total, this block is encompassing 123 units. And it's actually where a former petrol station was located. So it's really showing how we are developing and improving the societies we live in and work in. So let me switch gears a little bit and come to the strategies, the revised strategy and also the revised targets, the new targets for Bonava from 2022. When I started as a CEO, we embarked upon a quite thorough review, a fact-based review of our business. We have been looking into macro trends, we have been looking into the various markets, and we have also looked into the various business units and functions to understand how do we perform relative to the market? Where are the gaps and how can we bridge the gaps and actually succeed in exceeding the targets? And the external conclusions are that our markets are attractive. It's more how we play in each and every one of the units on the market. What is our level of expertise? How does our land bank look like? And so forth. The second part of the external conclusions is that all our markets are different. This might not sound like rocket science, but I think that it's first to recognize that this business is a local business. So that recognizing the fact that we are working in a different way, customer needs are different and our maturity in our businesses are different. Thirdly, competition is moving fast. And there is no way like today when we have to use the opportunities in our business. We can't live on past successes. We must always prove ourselves for our clients, for our customers, and of course to our shareholders. Then looking into the internal conclusions of this same review. Again, not rocket science, but well-managed land bank is crucial. And we have underinvested for quite some time. So we really need to grow our building rights portfolio. Secondly, cost and resource efficiency is key to stay competitive. So we really need to look at our building systems. Once again, it's a local business and also depending on how mature we are in the various marketplaces. Thirdly, we need to continuously sharpen our commercial offering. And that is both on how we are doing the placemaking of a new area, but it also relates on how we are doing the customer journey. And what we have been building a lot of our successes on is working more and more digitally. We need to strengthen this part and work smarter. Fourthly, we need to clarify the operating model. Since we are a local business, we need to have a good balance between the center and the local business units. We call it the decentralized integrated model. And all of this comes together because if we don't have the right concept for the right land bank, we can't work with the right offering to the market. So all of these pieces is linked together. So first setting a clear business focus, strengthening the building rights and the land bank in regions where we see the best opportunities to do so. The wind-up of the Danish business as an example where we are deploying capital to other more profitable and higher growth areas. Thirdly, we need to leverage on the local market conditions and take the opportunities that we see in the market. By having a too scripted approach to what we can and cannot do, we are missing out on what's happening in the marketplace. The second leg is that we need targets that steer the value creation in the right way. So starting with a good purpose, we create happy neighborhoods for the many. And this is, I think, a very strong, which is close to our heart at Bonava. We love developing and creating happy neighborhoods, and we will continue to do so. To guide us in the right way, we have chosen to revise our targets and put more ambitious targets. So we have six financial and non-financial targets that will guide us. I will comment these a little bit further on. And thirdly, sustainability is an integrated approach. This needs to be throughout our value chain in order for us to make a real impact for society. The third and last leg is the strategic priorities for the themes that we are working on in order to get this strategic plan into fruition. Again, strengthening the building rights portfolio and the land bank, improving our efficiency and ensuring commercial excellence. If we look on our businesses over time to start with, we have a very high variation in profitability. And if we look into our business units, We have some business units which are within the stabilized business. They need to get the basics right. And here we put the businesses in Norway and Finland. Secondly, we have ensure profitability, increase performance. And here we put the Swedish business. And thirdly, we have the growth businesses where we put Germany and the Baltic St. Petersburg businesses. And we do not see that you can take the step from stabilizing the business to growth directly. You need to take it by ensuring profitability. So a little bit like walk before you can run concept. And that means that in the midterm, we will need to move away Norway and Finland from the stabilizing part into the insure profitability part before taking the next steps to the growth part. And here you can also see directed towards one of our targets, the EBT, earnings before tax target of 2.2 billion in 2026. And we will steer the businesses and the stabilizing business units will have a more restricted growth and more restricted mandate. The insured profitability will have a little bit more mandate and the growth businesses will get the greatest mandate. So coming into the targets, EBT, earnings before tax of 2.2 billion 2026, combined with a growth target where we are aiming to reach 8,000 sold units in 2026. So with these two financial targets, you can see that it's mostly about increasing our profitability And the increased profitability is not only relating to the growth rate. So mostly into improving our margin and profitability. Then, of course, a prerequisite is to have a healthy and safe working environment. Fourthly, customer satisfaction. We live for our customers and by our customers. So we need to have happy customers. Fifth, climate action. Very strong targets when it comes to science-based targets. We're keeping those, of course. And lastly, and very, very important to make all of this change, is the employee engagement, where we need to continue to be on the top 10% of the companies within our comparison, our peer group, the benchmark. Underneath, we are still keeping the framework of an equity asset ratio of at least 30% or above in equity assets. And when it comes to the dividend policy, we are maintaining the level of at least 40% of net income. We have added over a business cycle to reflect the fact that we, of course, aim to give a consistently increased dividends to the shareholders, but we need to be able to flex from year to year to reflect the investment opportunities that we see in our business. Because with increased investments, that is the way forward to increase value for shareholders. With that, Lars, I hand over the word to you. Thank you, Peter.

Hello, good morning. I would like to start to go through the sort of reconciliation of the units recognized that I normally do, basing on what we were saying in the Q2 report. And you see that there is a difference compared to where we're estimating. It's relating to our customer segment. You see that our investor segment is in line with what we were expecting at that point in time. So, out of the expectations that we had closing Q2, 65 of those consumer units were not completed in our third quarter that were delayed, and 16 out of the completed were not sold by the end of the quarter. However, we managed to once again reduce the portfolio of completed unsold from prior periods, and 79 units we managed to do in Q3. But out of what we were guiding in Q2 for completions, some 200 units relating to the St. Petersburg Baltic segment were completed but were not handed over. And as Peter was saying, this will be happening now in fourth quarter and also rolling into the first quarter next year. So there are some 200 units that we were lacking in terms of handover. And I think that is explaining most of the difference or all of the difference compared to the market expectations that we have seen. So with the units, let's then move over to our income statement. And we have recognized more units compared to the prior year, as you've seen. And the main increase is coming in the investor segment. So we have increased our net sales to 3.6 billion. And with a good profitability coming from a good project and market mix, even though we have a higher proportion of investor units in that, that normally comes with a slightly lower margin than the consumer units. So with an increase both in absolute terms and in percentage terms in the gross margin, with our selling and admin expenses in line with the prior year, we are leveraging, of course, this and having operating income and EBIT that is more than double the prior year. And in terms of margin, it's double the prior year. And if we look then at the financial net, slightly higher than the prior year, but it's like in the previous quarter that we have added a component where we are paying for an option in Germany that is the reason for the increase over the prior year. And our tax percent is slightly lower than in the prior year, which is based on the mix that we are seeing in the business. So let's move over to the segment, starting with Germany. And here you can see that we have a higher recognition of units and that is coming from the investor area, not from the consumer area. And despite the fact that we have a higher part of investor units, we have an increased gross margin, increased profitability in the German segment. with slightly higher selling and admin expenses in the quarter than we saw in the previous quarter. Still, we are delivering an improvement in our operating income in Germany. And if you look at sales and sold units and the starts, we see the market, as Peter was describing, most of our market or all our markets have a high demand and stable sales development. Also, we have increased prices in some markets, a bit plateauing, but at a very high level. So we see a good market in Germany. We see good interest from here from the investor community. You saw that we have this project in Hamburg that Peter showed you earlier on. Starts were lower than the prior year, but they were in line with what we were planning for this period. And normally we are also then talking about this process of getting the building permits, which is an obstacle for us in the process. It's still there. It's still on the same level. Nothing has happened. It has not worsened, but it has not been improving either. And a bit of a heads up now for Q4 in terms of Germany is, of course, that now we are moving into the strongest quarter of the year for us. Moving over to Sweden, also here we see a higher volume of recognized units, again, coming from the investor area. And despite that, also in Sweden, we see a higher gross margin than in the prior year. With reduced administrative expenses, we see a significant increase, almost twice as high as we've seen in the prior period in terms of the EBIT margin. Moving over to sold units and start units, also here a strong demand and a sales development. And here we see that the prices are a bit plateauing, slowing down in the rate of increase in Sweden, but at the high level, as I said earlier on. The sold units have increased, mainly been driven out of the investor segment. There is a high interest for our investor deals, and not only by Swedish investors, it's also from the international segment that we can see a high interest in our business here. And in terms of looking forward into the fourth quarter, we are seeing a high proportion of investor units that will be recognized also in the fourth quarter. However, in that quarter, that will have a slightly different negative impact on our gross margin compared to how it was in previous quarter the nordic segment then you see that here we have a very low volume of recognized units it's basically driven out of finland you know that we have decided to wind down our business in denmark so that is a slow business and also right now we have a few recognized units in norway So with a low volume, we still have improved our gross margin slightly, but the volume is not enough to be able to leverage on the selling and administrative expenses that are slightly higher than in the prior year, mainly due to the buildup of Norway as a separate business unit. So here we are in a negative margin as in the prior year, even though we have reduced the negative margins slightly. And if we're then looking at the situation in terms of Solon started units, also here strong demand with increased prices, but we have a limited supply of units, products to sell to the marketing, particularly in Norway. The investor segment is also very interested here. We have Solon started one project in Helsinki. And going forward, we are, of course, focusing on handovers and starts really driving in particular the Norwegian business going forward. And finally, I'm moving over to St. Petersburg Baltics. We have been spoiled, you can say, with very high levels of recognized units in this. Now we are in the quarter. We have had the quarter with slightly lower recognized units. And you saw that from my reconciliation, you can say, the bridge of units that we have recognized, that we actually had some 200 units that we have not been able to recognize that would be coming in coming quarters that is is the main reason for us dropping slightly here still a profitable business even though the margins could be higher if we would have been able to recognize these 200 units And looking at the market, we have continuously high demand and price increase. And we have a strong sales development in all of our markets in this segment. I won't comment on this project again, but as Peter said and I said, we have some 200 plus units that will be recognized now in Q4 and Q2. And our starts, even though we would like them to be higher, they are in line with what we are estimating. So moving from segments now over to some slides about our balance sheet and starting with the distribution of assets and equity asset ratio. Normally, third quarter is the weakest quarter in terms of the equity asset ratio. We have been Trailing 30% or around 30% in a number of years. Now we are almost on a 32% level. So that is really underlying a good, solid, strong position. So if we then look at our portfolio of building rights, we have, as you see here, increased the number of building rights significantly, quarter by quarter now during this year. And if we are breaking down the 35,400, we see now that Germany is gradually catching up. We are increasing that portfolio. Sweden is also increasing. We have a drop in the Nordic segment, mainly because, of course, that we are winding down in Denmark. So we are not building any new land bank and we have divested the land bank. Now, 1st of October is not reflected in these figures. It will be reflected in the Q4 figures. And we have a significant increase in our Baltics and St. Petersburg building rights portfolio. In terms of capital employed and return on capital employed, with the target of 10% to 15%, we are now for the second quarter in a row within that range, now on 11.5% in return on capital employed. And that is driven out of now a continuous relatively low capital employed and the increased profitability on top of that is, of course, building a better return over time. And going from that over to our cash flow, we have a balanced cash flow. We have investments in ongoing projects that are financed through handovers. And in comparison to the prior year, we have in this quarter slightly less of advances coming from customers that we normally are seeing coming in. And moving from that over down to what's the situation in terms of net debt is on the same level, same low level that we had in the prior quarter and that we have had now for quite some time. So we really have the power for future growth and future profitable growth in the financing of our activities. Just going through these two graphs that you know that they are very vital part of our Q3 report and for estimating what we are completing in the coming quarters. And you see that there is an increase in consumer area up to 1,260 units to be recognized in the fourth quarter in our estimate. and also in the in the investor area 890 units so all in all 2150 units is our estimate then for completion in the fourth quarter so with that i hand over again to you peter thank you very much large clear presentation thank you very much so rounding up uh this part of the presentation