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Edited Transcript of BONAVb.ST earnings conference call or presentation 23-Jan-20 9:00am GMT

Q4 2019 Bonava AB (publ) Earnings Call

SOLNA Jan 25, 2020 (Thomson StreetEvents) -- Edited Transcript of Bonava AB (publ) earnings conference call or presentation Thursday, January 23, 2020 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ann-Sofi Danielsson

Bonava AB (publ) - CFO

* Joachim Hallengren

Bonava AB (publ) - CEO & President

* Louise Tjeder

Bonava AB (publ) - Head of IR

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Conference Call Participants

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* Jan Ihrfelt

Kepler Cheuvreux, Research Division - Senior Equity Analyst

* Niclas Hoglund

Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator

* Simen Mortensen

DNB Markets, Research Division - Analyst

* Stefan E. Andersson

SEB, Research Division - Analyst

* Tobias Kaj

ABG Sundal Collier Holding ASA, Research Division - Research Analyst

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Presentation

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Louise Tjeder, Bonava AB (publ) - Head of IR [1]

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Good morning, everyone, and welcome to Bonava's Year-End Report Presentation 2019. Speaking is Louise Tjeder, Head of IR and beside me and presenting also today is Joachim Hallengren, CEO; and Ann-Sofi Danielsson, CFO. Both who will present operational and financial highlights from the report.

After the presentation, we will, as usual, open up for a Q&A session, where you'll have the chance to ask your questions either via the operator on the phone or type your questions on the web.

So with this, let's begin. Please, Joachim.

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Joachim Hallengren, Bonava AB (publ) - CEO & President [2]

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Good morning all, and welcome to Bonava's Year-End Presentation. Well, let me start by saying that 2019 has been a challenging year, not just the fourth quarter and especially in relation to the Nordics segment and Finland.

We have already taken a lot of measures to improve both cost control and governance, let me be back to that.

Starting with our biggest unit, Germany. Germany is moving according to plan. We have a solid performance when it comes to profitability and margin.

We have, during the year, focused a lot on starts. The start has been slower and lower than last year. It's clearly a bottleneck within the municipalities handling, zoning permits and building permits.

We have many quarters ago, started to mitigate that by in parallel preparing and applying for multiple projects. And we see that during the second half of the year, the number of building permits and zonings are improving. So we're picking up speed. We expect to -- this trend to continue. So that means that we can start more units in 2020 in Germany. And let me again be very specific. The lower numbers in starts is in no way related to a weaker market, the market in Germany is very strong when it comes to demand for residential. It is a bottleneck.

Continuing to Sweden, our second biggest market. Really satisfying to see that the consumer market is getting back its confidence. We can also clearly state that the market is now stabilized, confirmed by -- a lot of this sits on our showings, a lot of interest around our projects, but not least, very strong sales in the consumer segment in Sweden, especially in the end of the year, and Q4 was really strong.

So if the market conditions continue, we expect to be able to leverage on that by starting more units during 2020.

And then back to Nordics. In a very late stage, multiple projects in Finland showed heavy cost over a draft. We reacted immediately at both deep and broad investigations and analysis into that. We're already taking a lot of measures, including better or enhanced processes, tollgates, governance. We also changed a few key people, both in projects and high up in the organization. We realized looking at these projects that multiple of projects were tied to a geographic region, the region of Oulu and we are, therefore, planning to close down that region.

In the beginning of January, we announced a package or activities related to a turnaround in Finland. We took a write-down of costs related to plots or real estate that we will not longer build. It was related to, for instance, design cost or planning cost and now planning to leave a specific geography or on plots that are not part of our core strategy. We decided to write that off as sunk cost.

Looking at starts of newer or projects in more recent time, we have profit margins according to our expectations when it comes to profitability. But we still have a couple of bad projects that needs to be finalized during 2020.

We have also a few of those in Denmark, measures taken but they still need to be finalized to be recognized with the soft margins. You can refer to that as some kind of debt turnover, you still have the net sales, but the margins are in a very low level. That will impact the margins in the Nordic segment in 2020.

And going back then to the starts in the future. We are confident that we'll be able to increase starts, both in Germany and in Sweden during 2020.

Highlights, starting with the fourth quarter, the net sales more or less on par. EBIT is down to SEK 693 million. That is excluding the restructuring costs of [EUR 15 million] in Finland compared to SEK 899 million last year. Part of the explanation to the lower EBIT compared to the net sales, is that we are now handing over and completing units with price adjustments, especially in the Swedish market.

Profit of land amounted to SEK 181 million compared to SEK 61 million last year. And the main bulk out of that is profits coming out from 5 land sales in the Ursvik area in Stockholm. And let me be very specific and say that that is the end of earlier sold, large pieces of land that was just waiting for zoning and closing.

Going forward, we don't have any forward-committing larger land sales, nor do we expect to have gains from land sales on this level, but on a substantially lower level, a selling land will be part of optimizing our land bank and portfolio, but it would be on a substantially lower level.

And then the net profit SEK 368 million compared to SEK 762 million. Looking at the full year, we had higher net sales, SEK 15.5 billion approximately compared to SEK 14 billion last year.

EBIT, excluding items affecting comparability, SEK 12.02 million compared to SEK 16.54 million.

And as I talked about before, the profit from land sales amounted to SEK 272 million compared to SEK 245 million. This is not a level that we will be on going forward. And with the Ursvik completed -- or the closing of the Ursvik deals in Q4, we leave that behind us.

Net profit, SEK 615 million compared to SEK 1,265 million. The EPS SEK 5.71 compared to SEK 11.74. And the Board has decided to propose a dividend of SEK 3 divided into 2 payments, spring and autumn.

Doing a more deeper dive into the sold and the started units. Starting with the quarter, we see that consumer sales were slightly down, 1,193 compared to 1,386. Investor days were substantially down. However, that is not in any way a correlation with a change in market, that has more to do with timing, when do we get building permits or zoning. And as I said many times, sales to investors are not evenly distributed during a year, they don't even reflect the calendar year. So there is nothing that keeps me sleepless at night.

Looking at the started units. We started 1,000 units compared to 1,985 last year. Majority of that is slower or lower volumes in Germany, which we are now mitigating, and we are expecting to start more, as I said, during this year. And of course, investor starts is very much correlated to the investors sales.

Unit in production due to the slow starts in Sweden and in Germany are down however, the value of the sold not recognized are still on a good level of SEK 21.1 billion, exactly the same level as last year.

And the sales ratio in the portfolio is a very strong 72%, up 4% since last year. And if any concern it is that, that number is actually a bit high. I'm afraid that we might be missing out some of the potential that are in our markets. That's, again, why we have a lot of focus on starting more units, especially in our main markets: Sweden and Germany.

Looking at the markets. Germany, solid, strong. I get a lot of questions regarding macro, automotive, and of course, there are some indicators of a bleaker macro situation for Germany. However, a large part of the German economy is now boosted by consumer consumption, and we see no effect on the demand for residentials. So even though some bleak outlooks for the macro, the residential market in Germany is still very strong. And there is a very good demand for our housing in Germany.

The market in Sweden is definitely stabilized. We can see also in measurement, the consumer confidence is back. And well, there has been comments from other players in the market that the so-called old model and then they are referring to selling an apartment only on a blueprint or a drawing before the building or a project is even started, but that should be dead. We can confirm that, that is not what we see. We have started and are about to start new projects, where we actually are doing exactly that, that we are signing agreements, contracts with customers before start based on visualization and drawings as we used to do before. I think that is also a sign, hopefully, about consumer confidence in Bonava. It also says something about Bonava's ability to start without having extremely high demands when it comes to presales to get financing.

Looking at the Nordic segment. Norway is very strong. And as you know, we acquired a company called Urbanium in Oslo in the third quarter, that's now fully integrated in Bonava. However, that region will not contribute to the result during 2020. Though the run rate will affect profitability. The portfolio in the Urbanium acquisition or the Oslo region, as we will refer to it going forward, will start to yield from 2021.

Markets are more hesitant in Denmark and Finland. There is no change in either market. Again, let me point out that the Helsinki market is relatively healthy and sound, while markets in other parts of Finland are more challenging. And St. Petersburg and Baltics are strong markets.

Investors, solid demand, our challenges are not in the [rare] end of that business, which is to sell and find investors. The challenge is to get the right-priced plots and get through the pretty complicated and slow planning, zoning and building permit process.

Sales value and number of units. We shared this many times, there's actually not very much news in this. We are confirming Germany to be the biggest market. Sweden is losing slightly and in the bottom bracket, you can see there's St. Petersburg-Baltics market, that is now actually claiming its rightful position as one of our segments. St. Pete, will be back to that also because that's one segment that has strong earnings and good profits during 2019.

We expect Sweden to reclaim part of this volume as we see more starts coming in during 2020.

A few words, small words then about cost control in Finland and planned restructuring. We plan, as I said before, to leave the Oulu or [Olubori] region. They have had a weak profitability and result development. But they also have multiple projects tied to their region that has failed to properly govern and forecast their profits and cost.

While planning to do that, we do -- as I said, we have plots or properties where we have planned and designed to start more projects. We write that down now and are preparing to sell off those plots.

We also looked at the general land bank. And saw a few plots that is not core strategy in other parts of Finland. We do these exactly the same measures with that.

We have already enhanced cost control and governance. So we feel much more confident now regarding driving the new projects than these old projects. I think it's fair also to point out that the majority of the projects that are now -- or during Q4 are showing a weak profitability was starting in 2017.

And we already announced the restructuring charge of EUR 15 million in the beginning of this month.

A few project starts. Happy to say that we are starting in Germany. Wesseling, this is a typical bread and butter German project, multi -- sorry, this is row houses and semi-detached houses, 142. A pretty significant area that has just been started.

Mannheim, which is in one of our regions down in the south. 28 apartments in the multifamily building.

Moving on to Sweden. We started the project Solkatten, which is a rental project in Lund, 169 apartments and we also started the Helsingin Kaiku first phase, 31 apartments to consumers in the quarter.

With that, I would like to hand the word over to our CFO, Ann-Sofi Danielsson.

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Ann-Sofi Danielsson, Bonava AB (publ) - CFO [3]

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Thank you, Joachim. And yes, I will dig a little bit deeper into our financial numbers for the fourth quarter and also for the full year.

And starting with the full year then. Our financial objectives and the outcome for 2019. We have the first objective, return on capital employed. Our objective is to be between 10% to 15%. And due mainly to the extraordinary items we've had during 2019, the settlement of a dispute in Germany in the third quarter of SEK 100 million. And also now in the fourth quarter, all these restructuring costs in Finland of SEK 159 million has given us a return on capital employed of 6.4%.

Equity to assets ratio then. Objective to be above 30%, and we ended the year at 32.1%. And then our dividend policy, saying that at least 40% of net profit after tax is to be distributed to our shareholders. Return -- or EPS, earnings per share was SEK 5.71 and the proposal from our board is to distribute SEK 3 per share to our shareholders. And that is 53% of our earnings per share, so above 40%. However, well, if we exclude these extraordinary [ordinary] items, the dispute in Germany and the restructuring cost in Finland, we end up with an earnings per share of 7.4 -- SEK 7.5, and that SEK 3 is 40% of that number.

So that's why we end up with this proposal from the Board.

Income statement, then, well, the headline here, a challenging year, and that is absolutely obvious when you compare 2019 with 2018. Not when it comes to net sales, though, we are well above last year for the whole year. The fourth quarter here, more or less in line with the last year. There are some differences, though. We have handed over more or less the same number of units to consumers, somewhat less to investors, but with a higher price. So all this has given us net sales more or less the same as last year.

One other thing that I want to point out here is that our selling and admin expenses, they are spot on for 2019 as in 2018, even though we have more people employed and also higher activities. So these are well in control.

And then we have these extraordinary items or items affecting comparability, which is the correct wording when it comes to accounting, SEK 159 million for the fourth quarter, SEK 259 million for the full year, Germany and Finland.

So next thing I wanted to say something about is our net financial items. Well below last year for the full year. The main reason for that is that we now have less debt in rubles, giving us a lower financial cost.

In the quarter, though, the total net debt more or less higher than last year. I will come back to that on our cash flow also for the fourth quarter. So that's why we are in line with last year when it comes to our financial net.

And then I just want to point out one thing because I normally comment upon this. And what I said before is that we -- you should expect a tax of 25% for our business, more or less, and we are a little bit higher than that for the full year, 26%. And the main reason for being a little bit higher than 25% is actually that the German business is contributing more to the total profit.

And the tax rate in Germany is higher than it is in Sweden, for instance. So that's the main reason why we have a higher tax rate for '19 now than 25%. Much higher than last year, though. And therefore, those of you who were here then and remember, that's not easy to remember, but we had an extraordinary payback tax in Germany in 2018. And that affected the tax rate quite a lot last year.

So SEK 368 million for net profit for the fourth quarter, SEK 615 million for the full year, taking everything into account. And then here is the development for the top line and also the EBIT margin. And here, we have included all these extraordinary items, Germany and Finland again. So the EBIT margin here being down to 6.1%. There also to be remembered that we have handed over more units in 2019 than previous years in Sweden, for instance, with price reductions, giving us a lower profit margin in Sweden. And also some in Denmark actually. So that is also why we have such a low EBIT margin in 2019.

So -- and then just to give you an overview of the EBIT in the different segments. And as Joachim has stated out and also what you can see here very obviously is that Germany is contributing to our EBIT on a very solid level. A good development. I will come back to that. We have had a huge growth in Germany the last -- all these years. And the other positive thing here to point out is the contribution from St. Petersburg-Baltics, almost SEK 200 million for the full year.

And then Sweden, lower EBIT, mainly due to the fact that we have recognized more units with price reductions and then the Nordic segment then, low profitability especially in Finland, giving us negative EBIT for the full year and also a low performance in the fourth quarter.

I just want to say something about other eliminations here, cost for the headquarters, somewhat higher than last year in the fourth quarter. The main reason for that is actually that here, we have the costs for the acquisition of the operations in Oslo. So that's the main reason why we are somewhat higher in the fourth quarter than we were last year.

So continuing here saying something about Germany. And again, point out that we have grown the business in Germany quite substantially during these 4 years, and we can still see a very good margin in the German business here of 13% EBIT margin for 2019.

As Joachim pointed out, we haven't started so many units in Germany as we did last year, and that has, of course, affected the number of units sold as well. The intention is to our plans are to start more in 2020, this year. So these numbers will catch up going forward.

Sweden then, here you also see that the EBIT margin here at Sweden, lower than last year, and the main reason for that is that those units that we have recognized for profit in 2019 had a lower margin due to the fact that they are price adjusted.

And also here, the number of units sold up quite a lot, especially than the half -- the second half of 2019 of the year. So the number of units sold are up quite well. And as Joachim said that this will give us an opportunity to start more units also in Sweden going forward.

So a good development on that market for '19.

Nordic, weak performance. We have said a lot about this now. And behind these overall numbers, what you have here is, of course, the Finnish operations but also a quite low performance in Denmark where the Norwegian business is performing quite good. So that's the -- when you dig deeper into this, what you have coming from these 3 countries.

But a weak performance, all in all, with a negative EBIT margin in this area. So this is where we are mostly disappointed.

And again, St. Petersburg-Baltics, a very good performance, increasing business and also quite a -- very good development when it comes to EBIT margin, as you can see here. And also, a good performance when it comes to how many units we have started and also told you, somewhat lower than last year, but still on a very good, decent level when it comes to units sold in this segment.

So 9,700 units at the end of the year, a very healthy portfolio, I would say, with a good sales rate. And here, the value of those units that we have sold, the sales value, 21 -- a little bit more than SEK 21 billion. So that's a very good and healthy portfolio going forward. So all these 9,700 units, our plans or our forecasts now or estimations, when are these to be finalized and possible to hand over to customers? We follow the same trend as we have done now for all years that most of these units for 2020, they are expected -- the consumers to be finalized and then possible to hand over in the fourth quarter. That is -- has been a trend for many years and also in 2020. Somewhat more evenly distributed when it comes to those units that we have for investors, but still somewhat more units in the fourth quarter also in 2020. So that's -- that will give you an indication of how these handovers will be distributed in 2020.

Then this is our balance sheet or our assets, almost SEK 24 billion when we ended the year. That is higher than a year ago, lower than in quarter 3, though, since we've handed over many units. But all in all, the main reason why we are -- we have more assets in billions than last year is the acquisition of the business in Oslo, since we now have more properties held for future development. And we also have somewhat more asset -- more units completed in our balance sheet also. But the main reason why we have more assets than 1 year ago is the acquisition of the Oslo business.

And the -- then, I think, go on to our cash flow. And the headline here is that we have had a very strong cash flow in 2019, and that is really true, especially when you look in the quarter here, SEK 1.4 billion coming from our operating -- from our operation, and that is higher than last year. The main reason for that is that we have been more efficient working with our working capital. But there is also more cash flow coming from the handovers of our housing projects, but we have also started more and invested more. So SEK 1.4 billion, very strong. And also, when you compare to last year, we are almost -- we are SEK 1 billion is -- we have a cash flow being SEK 1 billion higher than last year. So that is before our investing activities then. So that's really a strong cash flow from our operations.

And, well, just to remind us all that our cash flow has a very strong seasonal pattern due to the fact that we have more units to be handed over in the fourth quarter. So normally, we get -- we have more units to hand over in the fourth quarter, and that is also giving us the strongest -- a positive cash flow in the fourth quarter. That has been the case for many years and also for '19, SEK 969 million coming in, in the fourth quarter.

So that has given -- all this has given us a net debt of SEK 6.9 billion, reduced in the fourth quarter compared to quarter 3. However, higher than 1 year ago. And to make it easy, the main reason why we are higher than last year is actually, first of all, the accounting effect of IFRS 16, giving us net debt of SEK 0.3 billion.

And the other reason is that we have this acquisition in Oslo, also giving us a higher net debt all in all. So that is why we think that we can say that we have a strong, solid financial position in our business.

And finally, then just to look at our capital employed. We have increased our business 5 years in a row. So compared to 5 years ago when Bonava started, we have more -- SEK 5 billion more in capital employed. So we have invested a lot into our businesses, especially then in German, but now also in Oslo. So almost SEK 15 billion as capital employed at the end of '19, return on that, though, being 6.4% for 2019.

And by that, Joachim, to give some words about the total year of '19, what's your thoughts?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [4]

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Thank you, Ann-Sofi. Well, I think that we have consolidated. We have done market adaptations that puts us in a good position for this year, 2020. We still have Germany, our biggest unit, with a solid performance. We see signs that our tactics or activities to get more permits out of the system is working, and we plan to start substantially more units in 2020 than we did in 2019.

We also see the strong sales in Sweden as a confirmation that the market is stabilized and that the consumer confidence is back. That is also backed up with a lot of external indicators. Where we can -- we see or can confirm that the model that we work with, selling before we start project is still valid. And it's also a strength as Ann-Sofi showed or talked about our financial position that makes it possible for us to have multiple sources for financing of projects and not being dependent on having a very high sales (inaudible) before we start.

Nordic performance in general, but specifically, Finland. I am disappointed with our performance, especially when it comes to cost control. It is really unsatisfying to have projects that in late stage come up with cost overdraft.

But now we have done a thorough analysis, both in-depth and broad. We have already instigated a lot of change in activities and processes. And we also see -- or can confirm that the projects that are started recently are according to our expectations when it comes to profitability.

Norway is one of our strongest markets when it comes to profitability. And it's always good and comforting to see that integration, which is a pretty delicate part, works well, and we can really confirm that volume is fully integrated already in December into systems and processes and brand. And we're looking forward to that investment to yield in 2021.

We have a very solid financial situation or position, which gives us a lot of opportunities to be active and to maneuver going forward.

And then, again, we are expecting the starts in Germany and Sweden to pick up during this year.

So that was the conclusion from the Q4 and also from a challenging 2019. And with that, I would like to hand the word over to Louise to facilitate and moderate the Q&A session.

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Louise Tjeder, Bonava AB (publ) - Head of IR [5]

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Yes. Thank you, Joachim, and thank you, Ann-Sofi.

So we close the formal presentation, and we open up for questions. Operator, please, do we have a question?

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Questions and Answers

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Operator [1]

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The first question comes from the line of Stefan Andersson from SEB.

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Stefan E. Andersson, SEB, Research Division - Analyst [2]

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A few questions on Sweden. Well, I guess I'm more concerned than the other regions at the moment. If you look at the underlying margin, if we take out the Ursvik profit or the land bank profits. And you don't give the margins, I guess, we're talking about somewhere (inaudible), I guess. Could you try to -- is this because of price reductions that you mentioned? Is it -- or is it also relating to the scale you have currently? How should we view that margin in the light of where you see a stronger market coming up?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [3]

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You're actually answering the question yourself with your analysis. It is dual. A, we are sort of -- we are at subscale, and that has an impact. But we're also seeing projects that are finalized now with price reductions. We said already in the last quarters that we would expect to see softer margins coming out of Sweden for a while now. We have ongoing projects that were started in another market that we should still deliver units, but we also have projects that has building permits and zoning from the sort of -- how should I put it, the old days that we need to work with now.

There is no substantial price pressure down on costs yet. So we have to be smart and efficient to try to get those projects started anyway. But of course, it will be very challenging to get out the high margins that we had in the really good days out of those. So yes, you are right in your assumptions. There is scale, there is price reduction. And going forward, I don't think that we should talk about price reductions because we're not actually not reducing any prices, but we are adapting to the new market, which is down somewhere 10%.

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Stefan E. Andersson, SEB, Research Division - Analyst [4]

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Okay. And looking at the volume, I think 2017, you were just above 2,000, talk about 2 consumers back, 2,000 units in production, we're down to 800, you're talking about the substantial pickup. I mean what do you mean by substantial? Is it realistic to get back to the 2,000? I understand you won't be there in 2020. But it -- could you maybe indicate where you're aiming? And what do you mean by substantial pickup?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [5]

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I think that the numbers in production or -- is a deceptive KPI because the longer it takes to produce something, the more you have in production. So I would rather talk about starts then. Well, I think that in the old days, we might have been up to 1,200 to 1,400 in consumers, I think that would be overoptimistic. I think that we will see that in the coming 2 years. But that would be a level that, for sure, we're aiming at on a more stabilized market. And then part -- on top of that would also be consumer -- sorry, investor sales. But if we can start by doubling the starts to consumers from this year, it's a good start, and then we can build from there.

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Stefan E. Andersson, SEB, Research Division - Analyst [6]

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Okay. And then on Denmark, you're touching on a little bit of a difficult market there. Are -- to get a sense, are -- is there any risk for similar actions that we've seen in Finland, of course, maybe in a smaller scale? Or are you just talking about the soft market and not really concerned about it?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [7]

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I'm not talking about the soft market, I'm more talking about soft margins due to price adjustments in a market which is pretty challenging. We have had challenges with cost in some of our projects in Denmark, but that was a few quarters back. Of course, we need to finalize those projects also. But I would argue that the main headache is Finland, where we were in late Q3 and also in Q4, to get control of that. Denmark cost are much better under control, but the margins are weak still because some -- a few bad projects that need to be finalized. And then as you were into price adjustments.

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Operator [8]

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And the next question comes from the line of Simen Mortensen from DNB Markets.

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Simen Mortensen, DNB Markets, Research Division - Analyst [9]

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Sorry, I might have missed a few of the first question, fear they might have been asked before. But in terms of Germany, you're telling about you expect the market to bounce up and come back and then getting more starts and stuff. Historically, if you look at your figures, Q4s have typically been a much stronger figure than -- or a quarter than any of the other months. When do you expect the Germany market to come back? Do you think we will have to wait until Q4 2020? Or do you think you will be able to show us better figures earlier on?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [10]

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I think it -- I would like to set the terminology right. The market is strong, continuous. We're talking about our starts, which is related to building permits. I hope that we already in Q1 will see signs of a pickup. But historically, and the seasonality is always a very sort of back-loaded year. But hopefully, when we talk again in Q1 report, we will see that the starts are on a higher level than Q1 this year -- the Q1 2019.

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Simen Mortensen, DNB Markets, Research Division - Analyst [11]

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But you still assume the seasonality will persist in 2020? Where Q4 is a strong...

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Joachim Hallengren, Bonava AB (publ) - CEO & President [12]

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Yes. We can't expect sort of a flat distribution on starts.

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Simen Mortensen, DNB Markets, Research Division - Analyst [13]

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Okay. In terms of the Nordics, you told us about the weak projects and how they still will impact 2020 figures. Just in terms of the scale, how many are these units, which are in a weak projects with 0 revenue versus what you had in your portfolio 2019, 2018, et cetera? You're saying there are less, and they're starting to be fewer, but in terms of 2020, helping us on the way here, how much is it now versus what has historically been the last few years?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [14]

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I'm not really sure I understood the question.

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Simen Mortensen, DNB Markets, Research Division - Analyst [15]

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You said you have a few 0 margin projects in the Nordics. Like in Denmark and in -- some weak projects in Finland, I guess revenue expected to press down margins. How many -- how much of the portfolio for 2020 are those versus what you have had historically? Are they few or are they more of the low margin projects?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [16]

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The projects. It's a few -- I would say it's probably around a handful. In Denmark it's -- I mean, it's 1 or 2 maybe. And then, let's say, it's a handful in Finland. But of course, in a -- this is the challenge we have in a quarter where 2 of these or 1 of these out of 3 projects are handed over, the impact is big. While if there is 10 projects handed over, you wouldn't see very much impact at all.

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Simen Mortensen, DNB Markets, Research Division - Analyst [17]

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Okay. And also in terms of the Nordics, you had the guidance which you had for completions, which were in the 700s, if I do recall correctly, you guided you will complete in Q4 in Nordics, 770, but you just delivered 544 to consumers, which means there's a deviation of 220 units. More than what we see in the hike up in unsold or completed apartments. Can you please elaborate on this -- this huge deviation?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [18]

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It's a combination. You were onto one of the dimensions, which is that part of that -- we have not been so successful in the sales speed. So part of that has ended up in completed, unsold. The other part is a project in Finland that was delayed from Q4 to Q1.

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Simen Mortensen, DNB Markets, Research Division - Analyst [19]

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So that project has been delivered already in Q1 now, if you assume...

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Joachim Hallengren, Bonava AB (publ) - CEO & President [20]

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No, no, no, it's been postponed to Q1 2020 from Q4. So the -- we guided it to be handed over in Q4 '19. However, it was delayed and will be handed over Q1 this year instead. And then we have on top of the completed, unsold, we also have some sold but not handed over. And that is explaining the difference between the guiding we have in forecasts of Q3 and this.

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Simen Mortensen, DNB Markets, Research Division - Analyst [21]

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And also -- and my last question, in terms of the plot sales, which you said you delivered the last one with huge gains. A lot of these have been in Sweden. But saying it will be substantially lower. It might have been asked before, but what rate and what level should we expect for Sweden to have in plot gains? Is the figures we've seen in Germany, Nordics and St. Petersburg representable for what we can expect from Sweden going forward?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [22]

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Yes. I think so. We will still work with plots in the sense that we will buy larger areas. And part of that will not fit. So I think that low level is what you can expect going forward.

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Simen Mortensen, DNB Markets, Research Division - Analyst [23]

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Okay. And my last question, in terms of the dividends, you argued a lot about it being reflecting to the results for 2019. But a lot of companies also like to use the dividends as what they expect for the coming years and communicate with the market that we still have big high hopes. And here, the dividend was cut quite significantly. To what extent do you -- has the Board taken account of their expectations for 2020 into the dividend, which are now...

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Joachim Hallengren, Bonava AB (publ) - CEO & President [24]

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I have absolutely no idea. It's not my decision at all. It's their reasoning. And I didn't express that I actually knew how they were thinking, I just made sort of a kind of logical analysis based on the dividend policy. So what the Board has decided upon, I don't know their reasoning, it's their decision. And again, it's a suggestion through the shareholders' meeting.

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Operator [25]

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And the next question comes from the line of Niclas Hoglund from Nordea.

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Niclas Hoglund, Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator [26]

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A couple of questions from myself as well. If we start out with Germany. Maybe -- I mean, you're talking about a substantial pickup in starts or in converted permits. You were down to only 858 starts in 2019 versus more than 2,000 in '18. Could you elaborate a little bit on the pipeline? Is it fair to expect you to sort of recover to that level over the next coming years? Or what's the sort of pipeline?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [27]

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The benchmark 2018 is way too steep, 2,000 units. I think that should be put into context where we have the last year sold around 1,500. So the first aim for us is, when it comes to starts, to get up to that level to the sales level. Hopefully, I mean, Germany developing, starting 2,000 units will be totally in line with our own expectations, but not this year. Let's get to 1,500-ish to start with because then we are level with the expected sales.

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Niclas Hoglund, Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator [28]

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Okay. And just to follow-up on that. Do you really have a pipeline to support 1,500 level already in 2020?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [29]

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Yes.

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Niclas Hoglund, Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator [30]

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Or is it a more longer term? Okay.

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Joachim Hallengren, Bonava AB (publ) - CEO & President [31]

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The pipeline -- we have, plenty of pipeline. It is a building-permit-related question only.

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Niclas Hoglund, Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator [32]

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Right. And then a question on margins in Germany. You seemed quite happy with the sort of 13% level. But if we exclude the gains from land divestments, the underlying margin is down from 13.9% in '18 down to 12.5%. What's the sort of delta? Why are margins falling in Germany?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [33]

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Because we are growing the business and also partly because it has to do with the mix. Sometimes, we get a really good premium for our packages, the [bill to builders], sometimes we get a more sort of expected or market price. I think we can expect that the margins will -- might fluctuate, I don't know, 50 points, sometimes 70 points. 13.9% is a very strong benchmark. But going back to the business, I mean, around 13%. I think that's a good margin, still, including gains from land sales.

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Niclas Hoglund, Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator [34]

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When I look at -- a follow-up. When I look at your profit accounted units, your expectations for 2020 is sort of aiming for more than 20% increase in units. Is it fair to say that you then will get a positive operational leverage on the sort of higher cost level, which you sort of had when you started more projects in 2018? And is it fair to assume that all else equal, margins with 20% higher volumes should increase?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [35]

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I'm sorry, Niclas. But those numbers you're referring to, is that in a segment? Or is that sort of group numbers?

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Niclas Hoglund, Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator [36]

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No. Well, you do present that your profit-recognized units will increase to, what was it, 1,000 -- let me double check the number here, to 1,600 units, compared with 1,325 units in 2019 on profit-accounted wise.

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Joachim Hallengren, Bonava AB (publ) - CEO & President [37]

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So we're still in Germany, right?

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Niclas Hoglund, Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator [38]

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[So it went up.] And then Germany, consumers only.

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Joachim Hallengren, Bonava AB (publ) - CEO & President [39]

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No. I don't think we will see a sort of leverage due to the increase of scale. We're still growing the business. We're still -- there's still a lot of costs and activity going into the future. So no, I wouldn't expect that.

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Niclas Hoglund, Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator [40]

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So cost will increase with more than 20% there as well?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [41]

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Well, I don't think the margin will grow due to the increased volume anyway.

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Niclas Hoglund, Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator [42]

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Right. Okay. And then maybe a clarification on the Nordic side. You're talking about a net negative impact on when you're finalizing these weaker projects. You're aiming at -- well, you're aiming at more than 800 units to be delivered in 2020, and you're talking about a handful weaker. Is -- should we expect a couple of hundred of those units to be soft margins or dilutive? And are we talking about losses on gross margin wise?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [43]

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[I'll] talk about losses because if we turn into negative numbers in the project, that needs to be handled immediately as a loss when that's sort of -- where that forecast has changed. So it would be 0 margin. I guess that a handful plus a few, plus some kind of average project size of, I don't know, what, 60, 70 units, I think you can make a pretty good assessment.

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Niclas Hoglund, Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator [44]

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So -- but it's -- okay. Fair enough. And then cost savings. You are now closing down Oulu. What would you -- what should you expect to sort of -- again, what would be the gain or delta in 2020, 2021 from the -- from exiting Oulu in cost-wise?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [45]

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No cost gains. We will -- it's an adaptation of volume.

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Niclas Hoglund, Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator [46]

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Right. So the people will still be employed in the Oulu operations?

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Ann-Sofi Danielsson, Bonava AB (publ) - CFO [47]

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No.

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Joachim Hallengren, Bonava AB (publ) - CEO & President [48]

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No. I'm not saying that. If we carry this plan out, we will reduce volume including reducing new projects and reducing costs tied to that volume. So it wouldn't really -- because your assumption then would be that we will have all these people employed. And then they wouldn't bring anything to the table. So it's more of adjustment of volume.

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Niclas Hoglund, Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator [49]

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So could you maybe help us with what's been the sort of average contribution from Oulu over the last 2 years?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [50]

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No.

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Niclas Hoglund, Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator [51]

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Has it been positive?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [52]

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No, we have had very weak...

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Niclas Hoglund, Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator [53]

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By letting these people go, you don't expect to save cost? I don't understand it.

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Joachim Hallengren, Bonava AB (publ) - CEO & President [54]

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Okay.

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Operator [55]

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And the next question comes from the line of Jan Ihrfelt from Kepler Cheuvreux.

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Jan Ihrfelt, Kepler Cheuvreux, Research Division - Senior Equity Analyst [56]

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Okay. The first question, really, going back to the Nordic segment. You're talking about some of the projects being loss-making and you talk about debt invoicing. So are you guiding for 0 margins in the total Nordic business?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [57]

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No. I don't give any guidance at all. I try to put things in context. I'm not guiding on any margins.

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Jan Ihrfelt, Kepler Cheuvreux, Research Division - Senior Equity Analyst [58]

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Yes. But if you just could repeat that some of the projects, I don't know how -- what portion it is of the Nordics, were making losses. And you're talking about the 0 margins...

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Joachim Hallengren, Bonava AB (publ) - CEO & President [59]

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In those projects.

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Jan Ihrfelt, Kepler Cheuvreux, Research Division - Senior Equity Analyst [60]

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(inaudible) But they were loss-making.

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Joachim Hallengren, Bonava AB (publ) - CEO & President [61]

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No. I mean if we have an ongoing project that is making a loss, then that loss falls into the P&L immediately that quarter, even though it's not finalized. But going forward, until completion of that project, it will tie a 0 margin profitability. It's our accounting method.

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Jan Ihrfelt, Kepler Cheuvreux, Research Division - Senior Equity Analyst [62]

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So -- yes. And that's only part of the Nordic business?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [63]

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Yes.

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Jan Ihrfelt, Kepler Cheuvreux, Research Division - Senior Equity Analyst [64]

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Okay. And second question in regards to cost overruns. Are there spreads all over your business or are they isolated to different markets?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [65]

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The cost overruns in projects, they were specifically in Finland in the fourth quarter.

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Jan Ihrfelt, Kepler Cheuvreux, Research Division - Senior Equity Analyst [66]

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Yes. But you also have -- you mentioned here that you have plans for -- tighter cost control going forward. So I just wondered if that was caused by cost overruns in other parts of the business.

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Joachim Hallengren, Bonava AB (publ) - CEO & President [67]

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No. It was not. But I think it could be beneficial for sort of the whole group to have a tighter cost control to mitigate the risk of this happening somewhere else. So no, we will gain a better cost control and governance all over, but it was targeted to the loss-making projects in Finland.

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Jan Ihrfelt, Kepler Cheuvreux, Research Division - Senior Equity Analyst [68]

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Okay. And my third question relates to your average selling price in Sweden, which was, if I recall it, SEK 4.8 million, I think that is due to mix. And my question really regards -- the average selling price for 2020 in Sweden, is it down substantially or going to stay on these levels for 2020?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [69]

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I really don't know that. I don't have those data because it's so much depending on mix, row houses, multifamily, where projects are located. I -- sorry, I don't have that insight now.

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Operator [70]

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(Operator Instructions)

Our next question comes from the line of Tobias Kaj from ABG.

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Tobias Kaj, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [71]

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Yes. Sorry, I forgot to mute. I only have one question actually. Regarding units to investors, you have almost 1,300 units that you expect to complete 2020, but you have almost 2,300 units to complete after 2020. Should we expect all of them to be completed 2021 or some and if how many completed not until 2022?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [72]

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I'm pretty sure that some of those that are sort of beyond 2020 will be finalized in 2022.

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Tobias Kaj, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [73]

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But do you know roughly how many?

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Joachim Hallengren, Bonava AB (publ) - CEO & President [74]

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It can also depend again on getting a permit or something else. Where I sit now, I don't have that detailed information.

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Operator [75]

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And as there are no further questions, I'll hand it back to the speakers.

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Louise Tjeder, Bonava AB (publ) - Head of IR [76]

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Yes. Thank you very much. We will now end this call. Our next interim report, Q1 will be published 23rd of April. Thank you very much for calling in. Bye.