Bonava AB (publ)

Good morning everyone and a very warm welcome to the outcome report for the third quarter for Bonava. Improved profitability, increased sold number of units and updated outlook are a few topics in this report and to take you through it we have our CEO Peter Wallin and our CFO Jon Jonsson here with me to take you through it. After their presentation, we will open up for a Q&A, and you can already now start to type your questions. And with that, I leave the word over to you, Peter.

Thank you very much, Anna, and good morning, everyone. In front of you, you have a really interesting project called Norrboda in Upplandsbro, north of Stockholm. It's 500 apartments that we are building as rental apartments, B2B as we call them in Bonava. And this is a perfect kind of business for Bonava. It gives us a good stream of income, it gives us cash flow and it also gives us a very secure basis for earnings years to come. And if we then dive into the report, and I think Anna summarized the content of the report quite good. But if we then start to frame the market conditions, and as everybody knows now, the market conditions are quite hard to understand sometimes. So we still see a very positive development in the Baltic and Swedish markets. And I would especially like to point out the activity in the investor segment and hence having Norrboda on the front page of the presentation. When we turn to Germany, we have spoken in previous quarterly reports that the German market is very dependent upon the long-term interest rates. And the long-term interest rates have moved up significantly over the years and especially so in the third quarter. And we have noted that that has had a subdued impact on the German market. So we are seeing that the consumer sales takes longer time to close and investor deals is also being pushed out a little bit in time. All in all, this has impacted the growth prospects over the coming quarter for us. And I will come back to that shortly. Another impact of the current market situation is that we are also seeing overall a stable construction cost market. We are seeing an increase from energy, but we're seeing a decrease from other materials. So overall, a quite stable impact, although at the higher level. We all remember the escalation and costs that we have seen really taking off during the COVID years. But it's rather flat now, and that gives us also a very good prerequisite for starting projects when we know the cost side. Going into the profitability and the headlines of the report, we are increasing the EBIT by 15% at constant FX to 168 million SEC. And this gives an EBIT margin of 7.6% in the quarter and 7.8% on the rolling 12-month basis. So that's pretty good, I would say. We are growing the top line by around 3%, and we are still seeing improved product margins. And if we were to grow quicker, in other words, if the German market hadn't stopped a little bit during the third quarter, The top line would have been higher and so would the margin be because then we also cover our costs in a better way. Jon will get into the details here. And because of the German market and the development there, we have revised our outlook for the full year. So we are pointing towards an EBIT margin of around 7%, and this is excluding any restructuring costs that we might incur during the fourth quarter. And net sales to grow around 10% for the full year. So this is compared to the 8-9% in margin and 20-25% in top line growth. Again, Jun will come into the details here. And starting off with Norrboda, we also have some other projects I would like to point to. In Finland, we started a project in Turku. a consumer project which have attracted a good development in sales. And this is, I think, even if we point towards a difficult Finnish market as on constant, the Finnish market has actually been revised upwards and we are seeing an interest for infill projects where there is an established demand. Turning then to the on the right hand side's top level, we started our first project in Gothenburg in Explora in a joint venture with the Norwegian company Oboz. And we see good opportunities to continue to develop this area together with Oboz. Then, going into the bottom, a very strong market for us is Düsseldorf, where we started yet another consumer product in our product Polshöfe. It's a fantastic development of this area, very strong demand. And last but not least, I'm talking about a very successful and strong market like the Baltics and Latvia. In Riga, we started yet another phase, phase five in Evalda Valtera. So all in all, this provides a good basis from the high level of starts that we saw in the third quarter. So with that, Ljung.

Thank you, Peter. And good morning, everyone. Let's start with this picture, which I usually show. And as Peter mentioned, Q3 was very strong in starch and sold. And with this latest development, we are actually leading the number of starch and sold in the last 12 months among all residential developers. And you see that trend. And of course, Norboda is part of it, but you can also see that the investor market is still a relatively small share. So it's consumer The B2C sales and started units, which have improved a lot the last couple of years. We are now on a very high level of ongoing production with a leading sales rate of 64%, excluding reservation, that is. So it's very strong numbers. This is, of course, super good for us. But the next proof point will be the cash conversion. And already next quarter in Q4, many of the starts we had in 24 and 25 will be handed over. And there we start to see also the effects on the cash flow. And that is the next proof point, as mentioned. But strong numbers in starts, strong numbers in sold, and the sales rate continues up. If we look at the P&L, as Peter mentioned, there is a year-on-year growth which continues up, improved margins, less cost. So all the trends also on margins continue the growth pattern which we have talked about all the time. So improvements across the board. But of course, we see a future which changes constantly. And also there, we need to adapt the cost base and the margins and allocate capital and cost where we see the market growth. And that's exactly what we aim to do in the next couple of quarters. If we look at the performance in the segments, we still see a quite different view. So when Sweden and Finland and Baltics are now delivering higher than last year, we see a little bit more flat development in Germany and a little bit down in the margins. but overall we continue to grow and that is a little bit the strength of Bonava to be present in many geographies with the different market situations. So remember in the last couple of years Germany has been a very strong solid contributor and will continue to be so but we also see the position as a growth engine to be taken over by Sweden with a faster recovery in number of sold and started projects from another low level but still with a rapid growth and improvements. So 7.6% in EBIT margin in the quarter and 7.8% as Peter mentioned on the rolling 12 months. So gradually improving. If we deep dive into the different markets, we first have Germany out here, and net sales are, from a volume point of view, very similar to last year, just slightly below. We see that margins are dropping because of these structural changes and that we, in some markets, struggle with the long-term interest rates and the prices correlated to this one. That's why we are now taking the measures with this cost reductions in Germany to defend the margin and keep it stable. Sweden, on the other hand, have a completely opposite development, right? So we see a growth here, which is continuing upwards, very strong signals, in particular in the Stockholm area, but spreading out across Sweden with an operating margin, which truly reflects that turnaround. And a very strong sales rate. I think it's a market-leading sales rate as well, excluding reservation with 75%. Finland, there is no rapid growth to be seen near term. On the other hand, we have a model here which is suitable for the relatively low volumes we have. And as you can see, we still are able to deliver what we promised cost and cash neutral development for the Finnish markets waiting for the market to turn. And we started a consumer project, which Peter talked about, in Turku, a great project. And that's exactly what we need to do in Finland, to start very selectively on projects which still are viable in this type of market. And the unsold completed are on an extremely low level in Finland, so we don't have an issue or a risk in that sense. If we go to the Baltics, We see a trend continuing up in this quarter. We were supported additionally with revaluation and fair value adjustments of our investment properties, but it was a one-time effect. But even excluding that one, we have very strong margins and continue to grow the market, in particular driven by Riga and Vilnius with strong margins and high reservation and sales rates. If we then look at the building rights portfolio, and this is where it becomes truly interesting from an investor perspective, I would say, because what we are now doing is that we are shifting from traditional on-balance building rights to more options and more conditional agreements. And this is necessary in this market, the new normal in the market with interest rates and different market situations every day. So you need to have the flexibility in the starch and the sold units. And that's why we are then shifting gradually more and more to off-balance and conditional agreements. We also need to have the potential start periods very well aligned with our capacity and the markets we operate in. So we are constantly ready to reach our target volume, but we need a little bit market support in the sense that the market should turn and the consumer confidence should be higher. And this was particularly important now for Germany, where it's still some uncertainty on energy prices and on the long term interest rates. And then the split between the four different regions is becoming more and more also flexible in the sense that previously when Sweden was a little bit suppressed markets, we had too many building rights there in relation to Germany, which was very strong. Now we see a little bit change dynamics in there, and we have also worked a lot with moving projects closer in time in Sweden. So I would say that we are... gradually moving to a much better building rights portfolio than we had before. And this was further confirmed with the annual external market valuation of our land bank, which remains solid on the same levels as previous year. We know needs for impairments or changes in value on that one. So stronger and stronger building rights portfolio in the right locations with higher flexibility. That is what we are striving for here. to be able to turn this into cash for you as investors. IF WE LOOK AT THE NET FINANCIAL ITEMS, ALSO HERE, OF COURSE, EBIT HAS GROWN. NET FINANCIAL ITEMS WERE IN THE QUARTER A LITTLE BIT HIGHER IN TOTAL WE HAVE FOR THE REFINANCING 67 MILLION SEK IN ONE-TIME ITEMS, BUT 29 OF THOSE WERE TAKEN IN THE THIRD QUARTER, AND THAT INCREASES THE NET FINANCIAL ITEMS. BUT WE LONG-TERM SEE A central debt decreasing for the interest rate to 5.83% compared to 6.86%. Of course, this is also related to the net debt, and I will come back to net debt and how we see that development. But improved net profit in the quarter compared to last year, and we see this continue as, of course, a natural consequence of the better result and margin in the other financial metrics. Net debt is increasing. I talked about that one. And this is also what I have said in the last quarter that we are building up projects. And you will see that even more clearly when I talk about the balance sheet in a second. But the net debt specifically is now on 4.8% on a peak level because we have grown the number of projects. Remember the first slide with ongoing projects were growing so fast. And that is, of course, to a large extent, financed through external debt. We see that project financing is percentage-wise what is growing the fastest, but we also use central funds to fund certain projects in Germany. We still have a large number of handovers in Q4, which will reduce net debt as planned and as communicated before in Q4, when Q4 is always the quarter where we have a lot of handovers and we release the cash. So that is the next proof point, as I mentioned. If we look at the cash flow, this further emphasizes what I just said, that it's a change in working capital which has impacted the cash flow, and that is a build-up of the ongoing project portfolio we talked so much about, while the profitability is, of course, increasing, and that cash conversion will materialize now when we have reached a higher stable production volume. And here you see the balance sheet and the orange bar in the left graph here is really what truly matters. It is the project assets which have increased a lot. And that is what I'm talking about. That is projects with strong margin, high sales rate and very low risk and that will be converted down into cash while our properties held for future development gradually decreases because we move to these optional and off-balance building rights so we create more flexibility and the last part is to convert it to cash and with that I hand over to you again Peter thank you