Bonava AB (publ)

My name is Anna-Falk Filund, and I am the head of investor relations here at Bonava. And with me here today, I have our CEO, Peter Wallin, and our CFO, Lars Granlöf. They will take you through the highlights of this report, and then we will end with a Q&A session at the end. And you will be able to ask your questions online and also post them. So with that short introduction, I leave the word over to you.

Thank you very much, Anna. And good morning, everyone. So very happy to have you here with us here reporting the first quarter of 2022, the first quarter in our business plan period. So let me start with just describing what we've seen in the first quarter. From a market perspective, the prices were stable and the market was robust. And we saw a good interest and demand from both private consumers as well as investors. Now, things changes as we go in and see the conflict in Ukraine. And it's an awful situation, of course, and it clouds the near-term market outlook. We, of course, see signs of cost increases of input material and strained supply of certain materials. And this is something which we have high in focus. Looking into the first quarter and the numbers, we are increasing both net sales and EBIT. So we have more units recognized with improved margins. We are increasing our gross profit to 373 million SEK, and we are improving the gross margin to 13%. You might think that it's a very small improvement to comment upon, but last year included the profit from sale of land, which this result does not. So we are noting an improved underlying performance in the business. We are increasing our building rights in attractive situations in our growth markets by 5%. And as you know, we have announced our decision to wind down the operations in St. Petersburg. I will talk more about that coming forward. And because of this decision to wind down the operation in St. Petersburg, we have slightly revised the financial targets for earnings before tax, both 2024 and 2026, what we rephrase as mid and long term. So when it comes to St. Petersburg and the operations there, let me start by saying that this is a humanitarian tragedy. And there is a lot of perspectives to take into consideration here when we are going ahead with winding down the business. We are looking into various strategic options when it comes to winding down the operations. If we look on the business that we have at hand, we have an attractive land bank and we are completing the 762 units that we have under production. All of these will be completed towards the back end of this year, 2022. The business is substantial in scope and very profitable, but not material to the group. And when I say not material to the group, I also weigh in the consideration that the return requirements in this business needs to be higher than the average level in the group. So we must have a higher profitability in St. Petersburg in order to be value creative in the long term. Now decision has been taken to wind down the operation. So that is just a side comment on how you will look at the need to look at the profitability. So what we have stated before and which I now want to repeat because it's even more important now is that we need to have the right team in place. We need to verify the cost estimates and we need to verify the sales and market conditions. It was important before and it's even more important now. So that is also why we are reducing our outlook when it comes to production starts. So we said 6,000 units before. Now, when not starting out any more projects in St. Petersburg, we are revising the target also with a cautious outlook to 4,200. We need to start projects when the conditions are the right to start the projects. So here you see some examples of projects started in the quarter. We have a project in Finland, Torrens Solina. And then you have a consumer project in Germany, Seapark Pets. And you can find all the projects that we are starting on our website. Also, on the basis of deciding not to continue the operations in St. Petersburg, we have revised the financial targets, as I said. So the 2024 target has been revised from 1.6 to 1.3 billion, and the 2026 target, earning before taxes, revised from 2.2 billion to 2.0 billion. And this is reflecting that we're not continuing the operation in St. Petersburg. It's also the fact that when you look into the bigger impact in 2024, it is of course harder for us to adjust the allocation of investments in the shorter term perspective compared to the longer term perspective. Overall, we believe that our conditions for producing the financial targets is still there very much so. So we are in a good position to perform. So with that, I would like to hand over the word to you, Lars.

Thank you, Peter. Hello, everyone. Good morning. So let's then start with this bridge that I'm normally taking you through. When we were guiding in connection with the fourth quarter, we said that we were estimating some 950 units to be completed during this first quarter. When we now had closed the quarter, we realized that we actually could close 72 units in the investor area. earlier and we were delaying some 121 units in the consumer area into the next quarter. The investor deals in Germany and the consumer deals in Finland and the Baltics. So 901 and we had a few of them unsold, 36 units, but two Added to that we also then sold of completed unsold from the past of 50 units so we actually reduced this balance even further. And finally we also completed handovers of units completed in earlier periods. So all in all, 991 units handed over during the first quarter, which is a significant increase over the 665 units that we handed over in the first quarter last year. So that is, of course, the explanation when we're looking at the income statement. The increase in our sales, that volume is going through the whole income statement all the way down. And we are improving our gross margin, but as Peter also mentioned, last year we had a sale of land that was profitable. So comparing, taking that out in the prior year, that means that we actually have improved more than the 0.1 percentage unit that we see here. Selling admin a bit higher than in the prior year but then we have to remind ourselves that last year first quarter was a very quiet quarter in terms of lockdown due to Covid etc. We have then an operating profit of 141, significant improvement over the prior year. financial net in line with the prior year, and a slightly higher tax rate, which is mainly based on that we have a higher proportion of the German business in our result this year, and that business is the one with the highest tax rate. And if you look at the graph on the right-hand side of this slide, you see the EBIT margin, earnings before tax margin, both as reported, jumping up and down with our completed contact method. And if we look at the rolling 12 months, we see that that is improving to close to 7% margin now, if we measure it rolling 12 months. So let's move over to our business units, starting with the biggest one, 48% of the total group net sales on a rolling 12-month basis. You see that we have a good quarter behind us in Germany with higher volumes, significantly higher number of recognized units and improvement in gross margins. And we also added more building rights to our portfolio. And you probably also saw that we issued a press release this morning about even further building rights in Germany. And we see that we have a slight increase in number of started units and sold units compared to the prior year. Let's move over to Sweden, second largest, 21% of our net sales. Here we have an impact of mix. In the prior year we didn't have any investor deals. This year we have investor deals, which is then reducing the average margin. And again, as I mentioned on the group figures, we also had the sale of land included in Sweden last year. So the reduction in gross margin is not that big as it seems in this slide. In accordance with plan, we didn't start any new projects in the quarter, but we have added more building rights to the portfolio. Finland, 11% of our net sales. And now you realize that we have now broken up as we reported in mid-March, that we are actually breaking up the Nordic segment in its parts. So Finland 11%. Here we also see the same pattern as we had in Sweden, i.e. we have investor deals affecting this year, new investor deals in the prior year, which have a negative mix effect on the margin. But it's a good market for further investor deals. And here we are working on stabilizing the business, as we had said earlier on. Norway, 6%, also part of the previous Nordic segment. It's a low volume quarter, even though we have more recognized units, it's a very low quarter. And unfortunately, we have one loss-making project that is adding or reducing our margin significantly in the quarter. And we also have high sales and marketing expenses, primarily due to the handover and separation from Denmark. But we also have added more sales and marketing costs and some rental costs in the quarter that we didn't have before because we are here stepping up in terms of sales and marketing. Moving over to the Baltics, 5% and a business that is more profitable than in the past, even though it's a low volume also this quarter compared to the prior year. Margin, as I said, improved, and we have also added significant number of building rights, 1,600 building rights in this segment. And we are very much looking forward to the second quarter now when we are going to deliver and hand over the first project in Lithuania, the new market since a couple of years in the Baltics. And then finally, St. Petersburg, 4% of our net sales on a rolling 12-month basis. As Peter also mentioned, it's included in our group figures, the consolidated figures. We have not made any impairment charges, etc. It's a continued good execution of our project and you see a significant improvement again in gross margin due to a very favourable mix of what we have been delivering in the quarter. 762 units is ongoing and most of them will be delivered in the fourth quarter. I come back to that in the next slide. So we will have slow second and third quarter, everything else equal and a fourth quarter with a significant proportion of completions and handovers. And as we said, there will be new starts or investments in this area due to the decision to wind down the business. We're trying to summarize how we view the exposure. Having said that, we haven't made any impairment charges, but of course there are exposures in the business given the underlying circumstances right now. The equity, as we have reported in the Q1 report, is 5.9 billion rubles, or 671 million Swedish kronor, based on the exchange rate by the end of the quarter. And this will of course increase given that we will hand over the units by the end of the year. We will increase our profit and increase our equity. At the same time, Bonava AB is of course then guaranteeing the project financing that we have with external banks in Russia. And that guarantee will also increase with increased project financing up to when we are closing the projects and delivering the units to our customers. And then it will be repaid from the advances that are with the bank in blocked accounts. In addition to that, we have some guarantees for commitments for ongoing land acquisitions, 186 million guaranteed by Bonova AB. And if we are then summarizing this as we stand right now, we have a total exposure of about 1.1 billion Swedish kronor. So let's move over to the balance sheet. We see that we have increased the total assets with about a billion, and that is primarily coming from the properties held for future development, i.e. the land bank. And you can see that in our cash flow, our cash flow is about one billion weaker than the prior year, and that is mainly coming from us then increasing our land bank. And if we look then at the financing of the business, we continue to be in a very strong financial position with a 34% equity to assets ratio down one percentage point from year end. but still on a very high level. We have increased our borrowings, our loans, to fund the acquisitions, mainly of the land bank acquisitions, but also increase in the ongoing housing projects. And speaking about the land bank, here you see the 1,600 increase from year end or 4,000 more building rights compared to how it was one year ago. And if we look at how that is broken up, 36,900 units, 22,000 of them on balance. And if we look at how it is distributed between the years when we have made agreements, we see that about 60% of them have been in agreement from 2020 up till now. We are going to utilize 46% of this land bank for starts in 2022 up to 2024. And that means that 17,200 estimated will be utilized primarily for multifamily and primarily for the consumer segment. Finally, these graphs are part of the quarterly report, as you have seen over the quarters. And here you can also see that we have the slippage of the 121 into the next quarter, the second quarter. One comment on this compared to how this graph has been looking in the previous quarters is that the starts that you see in the bottom line here, they are, of course, included in the delta line above. Earlier on, we have had them separately. So there might be a problem to compare it to previous graphs. But please contact us if you have any questions. So that's the consumer market, and this is the investor market.