Bonava AB (publ)

Hello and good morning. I am Susanne Winkel, and you are welcome to the presentation of Bonava's report for the first quarter of 2023. With me here today, I have our president and CEO, Peter Wallin, and our CFO, Lars Granlöf. And with that, let's get started with the presentation. Peter.

Thank you very much Susanna and good morning to you all from sunny and chilly Stockholm. So let's go with the first quarter then. Taking a few market highlights first. We have as expected a low business activity of sold and started units in the first quarter.

even though the activity from a business volume point of view is low, the activity levels so we are seeing still challenging market conditions of course but We are seeing actually an improving activity in some of the regions in our portfolio. On the cost side we as we have indicated before and we start to speak more and more the cost inflation is starting to abate

the costs are going down on certain material inputs, and the energy prices are lower. So this is good for us in the long run. Dipping our toes into the first quarter results, the volumes, as we have said, is low. And as we've indicated in the release that we sent out last week, we have seen some postponements of handovers of projects. They are not gone. They are just postponed into the second quarter. And that, of course, leads to

that the business volume and such in the quarter from being already expected to be low is even lower. We can also note that the project margin is in the handovers improved. and that means that the machinery is working and all the actions that we have been busy working on is Even though the cost savings are going according to the plan, we've talked about and again going to remind ourselves that we have talked about the full year impact of round four million in reduced costs of indirect and selling an admin from Jan 1st 2021 full year impact. Of course, you can't see the full year impact in this first quarter. And when the business volume

a little bit. Then, of course, it underabsorbs the costs on both the indirect, which impacts the gross margin, and on the selling and admin, which impacts the EBIT margin. And then you have also seen that indebtedness has risen. Lars will talk to a large extent to this. And this is predominantly due to the fact that we have entered into conditioned acquisition of building rights in the past. And those conditions have now been fulfilled. And that's why we have executed the investments into the building rights.

If you look into the first quarter, a lot of the building rights that it's referred to is in Germany and especially in the Berlin area so that is a source of growth and a source So profitability for Navas, this will be good for the long run. I'd like to, as I always do, talk about two of the projects that we've started in the quarter. To the left-hand side. In Umeå, a busy university city. in the north of Sweden and here is the last phase in a multi-phase project where we have sold out completely and that's why we feel actually quite at ease starting this project with a very good proven team and a proven market, sub market in Umeå.

And this is going to be completed back end of 24. So we are preparing for the market then. So that's why we've started this project. The other project then is a project in Berlin, Wohnen am Ritterslag. This is single-family housing in a neighborhood which consists in a total of 300 houses. But we are doing and executing this project in smaller phases, step by step.

And this is a very very good model both to handle risks and also handle the market in a good way Why don't you take this... ...to more detail. Okay. Thank you, Peter. Good morning everyone. Yes, I will... ...always give you a bit of the details. This is... It's not news to you. We released last week that we were not going to complete as many units as we were estimating when we released the Q4 report. estimating 940 in total and you see here that the investor deals we have actually then completed estimating at the end of q4 but in

The consumer area, we have delays of 118 units, primarily in Germany and in the Baltics. So out of the 612 consumer units that we actually then completed, we then have about 170 unsold. But we have also been able to sell out of the balance that we had by the year end. the net increase in completed unsold is 127. so all in all almost 700 units handed over and as the base them for for the result and the sales and 486 of those are then consuming units so going over

to the income statement then based on those number of units which are about 150 units less than the first quarter loss last year we have a turnover net sales of about 2.4 billion and as Peter mentioned with low volumes we are not absorbing all the costs all the indirect costs which is affecting our gross margin being a low 10.2 before, which is even lower than the prior year. And we have also then hundreds adoption in selling and admin expenses. We have underlying improvements both in indirect costs and in selling. admin expenses but some of it is hitting the income statement here that means that we are just around 40 million level on EBIT, which is about half of last year. And coming down to the financial net financial

Net is of course significantly lower or higher expense than we have had in the prior year and this is relating to increased net debt but also increased interest rates and also the base rates of course in those credit facilities that has been renegotiated. If we then go down to the net result, we have a net loss of 39 million in the continuing operations. And then you have the operations to be discontinued. As you know, it's St. Petersburg that we reclassified in 2022 to discontinue operations.

And we took the significant write-down in the fourth quarter of 2020. 2022, which is part of the 2022 We move over to our business units then, starting with Germany. Germany being the biggest one, above 50% of our business. Here we have the delays that we talked about earlier on that is affecting the number of units handed over and thereby the net sales being significantly lower than the prior year and here We also have the absorption cost that is then affecting the gross margin as well as the EB margin. Moving to Sweden. 18% of our business. Here we have... lower number units handed over but at the higher margin which is visible of course here

So the mix is much better than the prior year. We have a control of cost to a very good extent in this project, of course. And as Peter mentioned, we have a start of 69 units then in Umeå up north in Sweden, which is the stars that you can see here. Finland, 12% of our business. We have more handovers in Finland, which is increasing our net sales. But the margin has been hit by a couple of legacy projects.

Legacy projects, these are old contracts where we have to start them. We knew that we had to start at very low margins in order for us not to run into problems having penalties to be paid. And these have then been completed and included in the profitability form. for the first quarter in Finland and the group. We have the 75 units here in the Solina. project one face one third of the face of the project that we announced in march percent also here we have more units it over, increasing sales, improving our gross margin significantly compared to the prior year. But we haven't got any starts in the quarter as such. Sales is coming primarily from complete

unsold since prior periods.

The Baltics then, finally. We have more handovers than the prior years. We are increasing sales. We are on a stable level in terms of gross margin at the high level. We see good sales activity in Riga, which is the best market out of the Baltic states. And we're estimating that the first built-to-manage project that we have now will be completed in the third quarter this year.

A few words about St. Pete's then. The sales process that was stopped has restarted, so that is ongoing. We are reporting, as I said, business as... ...discontinued, which means that we continue also to... to offset any profits that is coming. Building new net asset value, keeping the net asset value From an operations point of view we have handed over 81 units in the first quarter and we are estimating that the last ones will be completed in the third quarter and just to reiterate we have a land bank but there will not be any new projects or for any investments in new land in St. Pete. So moving over from the business over to the balance sheet. You see that the balance sheet has been growing.

We are north of 26 billion in total assets, which is 1.7 billion higher than the prior year. 1.4 of those are just currency changes. But if you look into each line, we of course then see that the housing, the land bank has been increasing due to the payments that we have made and then converted conditional agreements over to on-balance sheet building rights.

The cash flow then, we have a negative cash flow, even though not as negative as the first quarter in the prior year, but on a net basis, this is It's all related to payments for earlier committed land. As Peter was mentioning, the main part of this is in Berlin. which is a growing market which is a very positive thing that we are investing in plots that are are in very good places for us. I'm moving over from cache to net. of course with a negative cash flow we see a net debt that has been increasing up to 7.8 billion 6.2 of that is coming based on the central facilities. We also have, of course, the net debt coming from product financing in tenant owners. associations and housing companies in Sweden and Finland. As you see here in the slide, there are two cabinets.

The equity to asset ratio and interest cover ratio, we are on the right level. We are significantly over and above what the limits are in the loan agreements. The facilities looks like this. So we have some facilities that are maturing now in 2023. We have the bond that is maturing in March 24. And we have the revolving credit facility that is maturing in early 25.

And then, of course, we have the number of other bilateral facilities as well. 1.1 billion... unutilized and we have 2 billion unutilized project financing as well building rights we are on the same level basically as we were one year ago but significantly higher book value because of the comparison over to the balance you see in the quarter We have converted more than 1,100 building rights over to unbalanced. We have been paying for them. And if you look at 32,800 building rights that we have, about 50% of those we have bought during 2021 and up till now. Out of the 32,000 1,800 we estimate to start about 11,500 in 23 to 25.

And you see here that if we divide them in multifamily and single family, it's mainly multifamily with more than 75%. And if you look at the consumer versus the investor, it's almost 80% consumer. But we are, of course, continuously looking into whether it's better to convert it to a B2B deal versus a B2C deal, which is possible in a number of cases.

So With that, Peter, hand over back to you.

Wow. Fantastic. Thank you so much, Lars. Really good and great. so trying to wrap up what we talked about here there is of course need to click the bottom first this is of course a challenging market that we're in that's not a surprise for us and it is not a surprise for you. We are working as hard as we can and I think this is one of the most most important activities we can do in the current market. Taking a look on the results, we are seeing good project margins in hand with a few exceptions that Lars has commented upon But the trend is good. The machinery is working. However, the cost absorption is very low.

very low in the first quarter with the low business volume. Despite the fact that we are tracking and trailing getting the savings that we have indicated before, we need to continuously review our cost levels because the cost levels need to be in sync with the business volumes over a longer period of time. Short term, it's very hard to impact the cost levels in an isolated quarter like this. But we are looking in the longer term and we need to peg the cost levels to the business volumes we see longer term. We are prepared to start projects.

We are... when the right conditions are in place. And this, I think, is one of the most important part of building creating a business volume into 24 to 25. And then sales and strengthening balance it on top of the agenda. I commented initially on that activity it was a word that said the activity is slow but the activity level in the company is very high and we know how to operate in the current conditions. And with that... Susanna, over to you. Thank you, Peter. And thank you, Lars. We will now be taking questions. And to ask your questions, you can either type it in the... web conference, or you can press stop five if you're in the teleconference. Let's hear if we have any questions.

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All right. I have a question here which has been asked by both Stefan Andersson and by Ideal Capital.

How do you view the company's debt and liquidity position in a scenario where with a challenging market condition over several years. Yes. Yes. We have increased our indebtedness as can be seen from the figures very much due to land acquisitions over the last one and a half year. But land in very favorable places, as an average, I would say. We are working diligently with activities to improve our cash flow we are among other things very careful in in starting new projects if we cannot see that it's generating at least a balanced, neutral cash flow positive catch so So that is the number one priority for us.

And building on that also into the question is we are very much aware of the current situation in the company and in the marketplace. And that is why we wanted to highlight the focus areas of sales and strengthening the balance sheet.

Right. Then maybe a question for you, Peter. Simon Mortensen is asking, how are you working on pricing of units in today's market?

That's a very good question because I think that the current market, if I'm going to compare that to hunting, the good market... ...fish with net and catch a lot of fish. So we need to be very careful. good on making the prices in the local market and being very active chasing and this is very important the digital marketing platforms that we have and the way we are working with this is a very good way of making sure that we can track the leads and catch the leads hence we have many arrows in both but I think it's it's a very important market to test where you can meet customers so certain objects you

tests with certain prices you can't put everything out but you take small piece by piece in order to see when you get traction in the market so that that's very important

Very good. Several people have been asking how is the strategic review of Norway going? Could you say anything about that?

Well, what I can say is that it's going on continuously with all the alternatives that we have mentioned before, looking at sales of the whole business, looking at sales of part of the business and assets, and also looking on to merging it with other businesses in Bonava in order to increase the effectiveness.

And I know that the time flies, but we are working very hard with this. topic in order to make sure that we can create the best value proposition All right. We have David. Flemish from Nordea asking, can you say anything about this? DNA level going forward, is it reasonable to extract the Q1 level in all geographies? Would you expect it to decrease further in, for example, Sweden? Going back to my earlier statement. We need to look at the business volume. and we need to look on a full year basis. What happens is we get the chunk where the S&A comes more or less one-fourth each quarter.

The business volume is what it is in the quarter. Hence, the cost absorption issue that we have talked about here appears. So what we've also indicated, I think, on the capital markets day is we can't afford selling an admin level which exceeds 6% of sales over time. So I think with those two components, understanding the business volume also means the sizing of this max 6% necessary. So that is why I say we will need to continuously review the cost levels. We are not happy with the way we are trailing right now, and we need to do more.

Right, and also the next question from David also relating to margins. He's wondering if we have any more legacy projects that we want to make him more aware of. I think it's very... It's very hard. I'm not aware of any larger... legacy products but then coming back to the earlier question of sales and the current market conditions of course Of course, we can have a situation where we need to take from the margins we did expect previously. on the project in order to execute sales it's time to get cash flow whether those are legal product or actually an impact of the market. It's more of the latter than the first.

So that's the mixed question.

Okay. Now a question perhaps to Lars. How do you intend to refinance the 2024 bond?

Yes, we are starting that process, looking into what we can do. And most likely it will be split in at least two different parts. And we'll see how we handle that compared to the other financing, other credit facilities that we have. But we have started the process.

Very good. I have one more question from David. What would you say is the difference The biggest challenge in increasing volumes in Germany is the demand for construction costs or building permits. Very good question. I think it's a little mixed for both right now. But building permits is still... it's still a hump for us to get past. So the demands side is starting to look up as we've indicated in some of the regions predominantly Berlin which is the biggest region So we are ready to start project, but we need a building permit. That's for sure. Will we be giving any targets for housing starts for this year? No.

And I think understanding the context of the market and how fluid the situation is right now, that would be a very high risk game of issuing a number.

Awesome. We also have Keevan Srivampur from SEB Equities asking, what is your view on the risk of unsold completions increasing due to low activity?

Very good question. And I think this is one of the cues coming back to the questions of cash flow and liquidity situation. Because what happens is that you strand capital in completed unsold. We have a huge focus on that notion.

And sometimes we could be more cool than in other cases. have a huge rack of activities in order to target the completed dumps sold or the risk of increasing completed and solved. And if I interpreted you correctly, before this relates both to other types of instances, as well as testing pricing levels to find the market. Correct. All the activities, nothing else. sort of out of the question very good i believe that was our last question for the