Hello, and welcome to DNB Carnegie's Micro Cap Day. My name is Mathias Carlson, and I am an equity analyst at DNB Carnegie. I will be moderating our next company presentation, which is Bonava, one of Europe's leading residential developers. With that, I am very pleased to hand over to Bonava's Deputy CEO and CFO, Jon Johnsson. Thank you, Mathias, and welcome everyone. I will hold this presentation, but please interrupt me and please ask any questions you have on the residential developer market, because then it becomes more interactive than just me going through a presentation. Also, I do not know how much you know about Bonava, so it will be a little bit tutorial in the beginning, but then we will deep dive into our strategic assets and how we think that it will develop in the next coming years. What you see in front of you is a project called Klockaren in Uppsala. You can guess maybe the target group. My wife said, "Okay, who wants to live that close to a neighbor? What if they have a party in the pool? Will there be a noise?" Yes, students is the target here. Rest assured. But 50% sales rate, the reservation rate, even before we put the shovel in the ground. So there is a big interest in this type of project, and Sweden is one of the markets which is actually returning finally for us. A little bit of background first. So what is Bonava? We have 100 year of legacy in different names. Ten years as a carve-out from NCC. We were part of NCC up until 2016. Then by its own name, Bonava, after that. We operate in six countries, 22 city locations, which is perhaps even more important. Those are the dots in the market over there. Why I say they are the most important is because it is only if you become local in the city markets and become top three, when you really get the profit, the value generation, and the network, and the land bank you need in order to make sustainable profit over time. I think now we are still at the bottom, around SEK 8 billion, SEK 8.6 billion in the last 12 months. When we have a high cycle, that number should be between 15 and 20. So just put it in perspective. We have right now an EBIT margin of 7.6%, and that should of course, be higher once we get the volumes up. The number of building rights, 24,400, which you can use as a proxy, about SEK 4 million per unit we have as an average sales price across our markets. Then you get an idea of the full turnover of that land bank. Currently, we have sold and started units a little bit in the balance of 2,300 -2,700. We also target both single-family and multi-family in Sweden and Germany, and we have selling directly to consumers, meaning they buy their apartment or house, and we also sell to investor who then explore this as a rental house. We use both these business types. What have we done? We have been through some very tough times in the last couple of years, mainly because of the cyclical business in Sweden and Finland in particular. Sweden was our biggest market, and then the market went down. We also had a very strong market in Russia. We had operations in Norway and Denmark. But what first was done was exiting the Danish operation. Why? Because we were in the middle of central Copenhagen, and we needed to invest a lot in cash in land bank there, so we needed to focus capital. The second thing which happened is that our successful business in St. Petersburg were kind of obsolete overnight when Russia invaded Ukraine. So we had to move out of Russia. Managed to do so in a divestment of the Norwegian and St. Petersburg business and get the cash from that transaction. We had to make an overhaul of the organization to cut SEK 1.1 billion in costs. We are now 900 employees. We used to be 2,000 and more. That resulted in this yearly cost saving. We managed to reduce the net debt from SEK 8 billion to SEK 3 billion-SEK 4 billion. Last but not least, in July was the last piece of that puzzle. It's a lot of puzzles to kind of reconstruct the company, and that was a refinancing. So now we have normalized financing with sufficient liquidity and normal terms and good interest rates, which we also didn't have in this tough period. A lot of tough decisions, even before I joined. I joined one and a half year ago, but they have given results. So we now have an optimized organization. We have a land bank with a lot of future potential, and we have the markets we want to be in with a good forward-looking view. What you see here is another successful example. This is not for the young audience. This is for senior living, actually, outside Sigtuna. Also, again, a successful project with a high sales rate. So what about the market situation? As I mentioned, we operate in six different markets, and Germany has been the locomotive. It's still our engine. It was as much as 75% during these tough years. I mentioned that Sweden used to be bigger and is now quickly coming again. So Sweden is, in percentage-wise, growing by far the fastest. We have Finland still a bit hesitant. Baltics states have been a good business for us across the tough years. But it's so small still with Riga, Vilnius, and Tallinn in population that it doesn't really give the scale effect we need. But very profitable and very good markets for us still. Then we have Germany, and it's so easy to say that Germany is one country, but as a matter of fact, it's very much different situation. I mentioned in the coffee break here that I am happy that we do not construct houses, homes in Wolfsburg, for instance. That would have been very tough for us right now. Berlin, Cologne, and Düsseldorf, where we are very strong in, are successful markets and continue to grow and continue to want the types of homes we are building. Saxony, a little bit question mark also in the upcoming elections in the eastern part of Germany is going to impact. We have Hamburg and Frankfurt and Stuttgart, very promising, but also a little bit lower consumer confidence still. Germany has, throughout these years, kept us alive, been the profit engine. But we see a further potential also in Germany, which we hope will come once the geopolitical situation and energy situation has settled a little bit. Again, you may have heard us talk about this before, but Germany is a very special housing market. You tend to buy a home once or twice in your life. Listen to that, all the Swedes in here. Once or twice per life buying a home. When you do that, you go in with a lot of own equity, so you only borrow for a small portion. That smaller portion, you look at the 20, 25 year interest rates, so not the short term interest rate. So totally different consumer behavior in the German market. That is why it has been stable and less volatile like Sweden and Finland. This is one of the projects in Riga we have where we are number one in Riga. What has been important during this year? We talk a lot about controlled growth, me and the CEO, and what we mean with that is that you can only start if the circumstances in that city region allows it. So we want a high sales rate. We have 59% now sales rate excluding reservations. In Germany and Sweden, that is well above 60. So it is 65%. In the Baltics, it is more 35% - 40% because you still want to see that the house is built before you buy anything in the Baltic countries. Otherwise, they do not trust the developer. We have a completed unsold ratio. There are inventory, which has come down dramatically and will continue down. We have sold out all the apartments without big discounts. We want to come up with a start between 3,500 - 4,000 because that is our optimal level, and you get the scale effect on our overhead. Project margins above 17%. Again, super important. Value of land bank should be correct. Then equity to asset ratio and net project asset value times net debt in control. All this keeps us in order, meaning that we only start where the market is there, but when we start, we can guarantee profitable and controlled projects. All the prices and costs reflects the daily situation and not any happy calculations as some residential developers tend to do. Why do we believe that we will then grow? Because we have the building rights necessary for us to grow in a number of years. If you look at the middle pie chart here, you have 26, 27. You have 27% of these 24,400. That takes us within the range needed to get the scale volume. You see the levels we were in start back in 2021. We are rapidly now growing towards the 3,500 - 4,000 start. We believe that we will be very close by year-end to this one. In the beginning of next year, we will definitely be above that range. That is our own prediction, and that has also given our guidance to the market. We have a good geographical split. We need to replenish in Germany and the Baltics because that's where we have consumed in the last couple of years. We also work with on and off balance sheet because in this industry, in particular, if you have been a part of NCC or Skanska or Peab, you buy land when it's cheap, and then you sit on that land for 10, 15, 20 years. That's a little bit the sickness of the industry, I could say, because then when you develop it, you think, "Oh, it's a fantastic profit." But then you forget that it has been in your balance sheet for so many years. I exaggerate a little bit, but what we work much more with is option in the land bank, which gives this flexibility that we can turn around the capital much faster than typical residential developers have. Yes, you have to compromise a certain amount on the margin, but then you have to gain that in the value generation instead. It cannot be an option to just sit on land in the balance sheet forever and ever. Because then we can of course not give out dividend to you as shareholders. So that needs to change that behavior, and we need to have a faster turnover of capital. Cash flow. I think you asked me to talk about this, Mathias. What can you expect? So when we are building up the start, we need working capital for another two, maybe three quarters. Then we have reached the desired level and can start generating positive cash flow again. That's why also this refinancing was important to secure the liquidity over this period of time. But of course, this needs to be a cash positive business and already in Q2 2027, this will be positive again from a cash generation, and that's how we predict. So we need working capital right now for the ongoing projects, where you haven't raised the project financing fast enough. Of course, project financing is a tool. But once that is reached, there will be a positive cash generation from Bonava. To summarize then, I think that the refinancing, again, to repeat super important lower interest rates, health check. We have the liquidity, and we are allowed to give dividends once the cash generation allows it. We have an increased volume in ongoing production, and we see a totally different market situation than just a year or two years ago, in particular in Sweden. We work with strategically prioritized areas, which is the combination between direct to consumers and investor deals. We also see aging population, so we need more flexible home structures where you can switch from lot of space and to smaller spaces and have that flexible planning when you do the homes. We see that work in practice in the projects with the sales rate we have right now. That is a super speedy presentation, and the reason for that is that I would love to hear your questions and concerns and worries about the market and why Bonava is interesting. Thank you, Jon. Let us open up for Q&A. Do we have any question from the audience? I will come with the mic here. I was just wondering on the slide with the, I think it was revenues from Finland. It seemed like quite a drop. Is it just purely due to interest rates or? Was it a Finland specific slide? I can comment Finland in the Yes. The Finnish market. What can I say? When I started in Bonava, they always said, "Okay, Finland is six months after Sweden." That was like the rule of thumb in terms of market situation. I think it is going to be longer than that. I think it is going to be a year and a half. The reason for that is unemployment in Finland. There is a lot of focus now on defense in Finland and a lot of worries about, "Will I keep my job and the industry in business?" We have a strategy of only starting very selective projects where we have a higher reservation rate. But it means that we start a very low amount in terms of units. Helsinki, Tampere, and Turku, Åbo, and Tammerfors are the only locations we operate in with a smaller team. But with a team which is cash and cost neutral until the market really turns. I don't believe that Finland will be a net contributor with a lot of profit or cash in the next year or two, I would say. It's going to take time for Finland. That's probably the market of all where it's still a very difficult situation. But we don't invest new capital in land there. We work a lot with this optionality, and that's important note as well. Because otherwise, if I would prioritize, would I buy new land in Germany or in Finland? I would definitely buy it in Germany, in Berlin, for instance, where we can, again, circulate the capital faster. Okay. I hope that answers. Yeah. Do we have any more questions from the audience? Okay. Well, I've prepared a couple or a few. Shoot. In your presentation, you described 2027 and 2028. Yeah As a move from controlled to accelerated growth. Yes. What needs to be then in place for Bonava to make that transition? Because we are not out of 2026 yet. No, exactly. I think that we have done a lot of what was needed internally. I mentioned we have cut costs, we have more flexible costs, we have the financing, we have also systems and processes and building rights to enable those starts. So that is done. Check. Of course, we need to fine tune depending on the local market needs, prices, and costs. If there is inflation in cost, then that needs to be embedded and so on. But I think it's a lot depending on the external market. What I mean with that is that it would be so easy to start on speculation. We believe that the market will come. We see early signs of it. Then you start, and then you need to discount the prices, and then you're in an infinity loop with a lot of inventory. That happens to a lot of residential developers. But that's why we don't want to start those projects. We want to be certain. So it's more like a market climate which needs to be there for us to really accelerate, to be honest. We are ready internally, for sure. Yep. Now, if we then turn towards the rolling 12 EBIT margin. You had, what, 7.6% in Q2? Yep. And you have been guiding for 8%-9% for the full year. Yep. So what are the main building blocks that is needed to move into that range confidently. It is a volume, right? It is a volume. It is a unit. If we go back to, sorry, this one. This is the key graph, really. Now I deviate a little bit from the camera here. I am sorry, Kenny. We need that range in order to be above 10%. Then you can argue, should you peg the company for a lower volume? Yes, but then we cannot get the scale effects because we really believe that the market will come. We have been well above that level in the past, so we are still geared for the range between 3,500 - 4,000. I think that already after Q3, we will be slightly above 3,000, to give you an indication. We are on the move. How fast can we get there, then? That is the question. Yeah. Because you pointed out in the Q2 report that Germany is a little bit hesitant. Yes. Due to the Middle East conflict. Yeah. Sweden is a little bit of an easy pick. It is above expectations, yes. Yeah. Yeah. So- Because we thought it would take longer time, but Stockholm and Gothenburg is already delivering, and Uppsala, and then the rest will. Germany is your engine. 70% of sales comes from Germany now. Sweden, if you look at the land bank, for example, you got 34% Sweden and 29% Germany. So if I am just thinking, Sweden could become as big as Germany. Yeah. Yeah. That means that obviously there is a leverage in the business from the Swedish market. There is, and of course, a lot of those building rights were bought before the cycle. What we have worked with a lot is because many of them were further in the distance as well, big projects. We have worked a lot with JV structure, with other residential developers on exchanging building rights in order to start what can be started now, and then share both the risk and the opportunity. For instance, we are working with OBOS, the residential developer from Norway now, both in Nacka and Gothenburg, where we are starting projects straight away and then sharing building rights in the Swedish market, because otherwise it would be still in the distance, but we need building rights now when the market is coming. Yeah. Let us stick to the land bank, because you revalue that once every year in Q3, basically. Yes. It is up for valuation now, revaluation. You mentioned that the project margin in the land bank today is 18%. Yeah. How confident are you then that this level can be sustained, if volumes start to increase, and what would that imply for the group margins over time? Nobody, it's always a classical question, when do you buy land and when do you start to develop it? I think our biggest upside is to be early in bigger development projects, because where we get the scale benefits are, and then we can have infills on those territories. So it secures a margin. But one thing which is critical is the proximity to public transport, that you can get quick access to the labor market in each city region. In particular in Germany, that is super important. It's about having excellence in the land bank, is a short answer, but of course, that's more complex than that. You need the connections, you need capital, you need the right moment, et cetera. Yeah. You have a large overvalue in the land bank. Correct. Which means then indirectly that you should see decent return on equity when you start to utilize the land bank. Absolutely. You call 3,500 - 400 annual starts the sweet spot. What should Bonava then look like financially once you are operating at that level sustainably? I think it is SEK 15 billion-SEK 16 billion in turnover, with an upside also on that one. Then SEK 1.5 billion-SEK 1.6 billion in EBIT, meaning above 10%. Then, of course, we need to realize our return on equity target then of 15%, and be able to give out dividends of 40% of the profit generated. I think those are our financial targets. Unfortunately, it has been some tough years, but now we are getting ready to meet those targets. You showed here in your presentation that you have more than 4,000 selected units ready for production in 2027. Yes. That means that basically, if the market is there, you will be able to deliver 4,000. Yes. We are ready. We are standing there with a shovel. Yeah. You are still confident with your guidance for the full year, I guess? Yes. Yeah. Okay. Cool. Germany is currently softer than Sweden and the Baltics to some extent. How does that then affect where you allocate starts and capital over the next 12 - 18 months? Again, I think that we should try to separate Germany from Germany, meaning that where in Berlin, Düsseldorf, and Cologne, we just need to continue to invest because that is where we consume. I am much more hesitant in investing more in, for instance, Saxony or areas where we do not have the same position. We are going to need to continue to invest also in Germany in this situation, but not in Germany as a whole, but in some city regions. Yeah. In Sweden, we have plenty, but we need to change over time. So we need more with an early development. That is why we exchange land plots now with other residential developers. Mm. You also showed here that growth is absorbing a lot of working capital. How should investors think about the peak in the working capital and net debt, and when should the cash conversion begin to improve? Q4 is a big handover quarter for us. That's going to be a positive cash flow. If you look historically, Bonava has always been good in Q4. That's going to continue. But Q1, Q2 next year, after that, it would be stable on a positive note because we still have some bigger projects which we need to use part of the capital to fund the building up still with good sales rates. So the risk is low, but we need the capital until mid 2027, and then the cash will reduce net debt. Mm. One of the big happenings this year was the refinancing, the bond issue of SEK 1.5 billion. Yes. You've said obviously that the refinance should lower financing costs by around 1 percentage point. How should investors think about the earnings benefit once the new structure is fully reflected, so to speak? We talk about SEK 100 million more in profit from lower interest on the same debt level. It's a big, of course, kicker in the profit generation. Despite that you have increased your bond, you actually also negotiated that you can start to pay dividends. Yes. From? Well, technically from this year. Yeah. From this year. Yeah. Yes. But we need to, of course, generate the cash. So with the dividend restriction removed, how do you think about the capital allocation between growth, debt reduction, and dividend? I think we haven't given out dividend for so long. That's definitely something we're going to prioritize. This land bank, we already have a lot of future potential in. We may need to sell and buy. But the net sum of the land bank, I don't see a huge need in replenishing that one. It's more going to in and out. Then there's a lot of other ideas of how that capital can be used. But dividend is absolutely a priority for us now. Mm. Okay. You mentioned also that B2B and B2M managed properties are becoming more and more important. What is the trade-off then between margin capital efficiency and risk compared to traditional consumer products? Yes. It is a broad question. Why I say so is because it differs for each of the markets we operate in. I would say that in Sweden, on a consumer business, we have 16%, 17%, 18%. But on an investor deal, it is about 10%. On the other hand, that is forward funding. So the IRR is, of course, still attractive, and you get a lot of volume. So we see, again, the balance between the two as the most important. If you are only depending on B2C consumer business, then you really need a quick sales rate on those ones. The other can give scale faster. Typically, if you buy a large area in Germany, which we have done mainly outside Berlin, but in many other areas as well, you can start to build both at the same time. Without cannibalizing because it is two different target groups. One wants to own their apartment, and one want to rent. So it is a quicker also utilization of the land bank. So what is optimal volume? I would say 70/30. 70 consumer, 30 investor. Okay. Do we have a last question from the audience? One second here. If I understand you correctly, you were quite positive on the Swedish market, and I worry about the Stockholm market in particular. When did you see that picking up? I would say it's only a couple of months. There was a lot of buzz, a lot of talk about it in the beginning of the year. "Oh, Sweden is coming. Sweden is returning. The households have more disposable income," all these indicators. But it took some time before you really got the effect. As usual, it starts with central Stockholm. Once that is overcrowded, I have a son who's looking for apartment, it's impossible right now in central Stockholm. Then you get the spillover effect in the neighboring municipalities, and the wheel is starting because then people need to sell, and then more objects come. I would say April, May. Okay. Would you say the moving chains have started to work that, for example, older people can sell their villas? Yes. Before they had to wait for the financing. Exactly. Has that changed now, then? I would say so. At least in our signals. Okay. With that question, we conclude this presentation. Jon, thank you very much for a short and sweet presentation and an interesting discussion. Thank you. Thank you for listening.