Good morning, everyone, and welcome to the Q2 report for Bonava. My name is Anna Falck Fyhrlund, and I'm the Head of Investor Relations here at Bonava. With me today, I have our CEO, Peter Wallin, and our CFO, Lars Granlöf. They will take you through the highlights of this report, and we will end with a Q&A session. Today, you will only be able to ask questions online, so you need to write your questions. You can start doing it now or throughout the presentation. With that short introduction, I leave the word over to you, Peter.
Thank you very much, Anna. Good morning, everyone. We have a very warm morning here in Stockholm, and I'm very grateful to be standing in front of you to present the second quarter results of 2022 for Bonava. Let me first share some market highlights. During the second quarter, we saw stable demand and prices across our markets. For sure, in the back end of the quarter, we're starting to see more and more signs of the sales slowing down. Consumers are more cautious, and sales times take much longer to close. At the same time, we have not seen that the cancellation rate of turning reservation agreements over to the binding agreements has increased. The investor market for the business-to-business rental units is also very active. Of course, we are preparing for the situation to get tougher.
Turning over to the cost side, we've been talking about escalation of cost in our construction. We have also seen the strained supply of certain materials causing some disturbances. I'm very happy to note that the organization has done its utmost mitigating the implications of the cost increases during the second quarter. We are also starting to see the rate of increases of costs slowing down, leveling off, and in certain materials also going to the negative territory from the peak. If we then turn over to our numbers, we are increasing both net sales and the EBIT. We have more units recognized at higher margins. We are increasing the gross profit to SEK 575 million, which corresponds to 15.2% in gross margin.
This is, of course, thanks to a lot of the improvements that we have done over the past 18 months in the company. The organization has done a tremendous job. We have a good sales rate in our ongoing production of 71%. We have also taken a proactive view on the costs, the selling and admin costs, and the indirect costs in our business. We will lower them on an annual basis by SEK 220 million from during the second half, with full year effect from January 1, 2023. Turning over to our St. Petersburg business. The market in St. Petersburg is quite strangely very good. The organization in St. Petersburg are still completing the ongoing construction of 762 units.
As we have said, we will exit Russia, and we are looking into various alternatives, one of them being the divestment of the business. This is something which we have stepped up during the second quarter. Going over to the number of units sold and started. We have started in the second quarter roughly 1,000 units, which is not far away from the number last year if we exclude St. Petersburg, where we are not starting any more projects. Sold is a mirroring effect, of course, of the started units. If we don't start as much, sold is not coming over as well. What we have been working very diligently with at Bonava now is of course instilling the right discipline when it comes to the start of projects.
Repeating myself again, we are not starting any projects if we don't have the right team in place, verify the cost estimates, and verify the sales and market status of the project. I'm very happy to note that the organization are responding very, very proactively to this. Also, we are still struggling with very long permitting times for our projects. Actually in early into the third quarter, we have received the building permit of some of the projects that could have happened already in the second quarter. We already know that we are able to start some projects in Q3 already now.
That and the fact that we have a pretty good view on the projects makes us state and renew the guidance we gave in the first quarter of 4,200 starts for the full year 2022. This is, of course, that we have the permitting in place, and that we have the right prerequisites. We will not compromise those parts, of course. We still believe in the guidance given earlier. Here are some great examples of some projects that we have started in the quarter. To the left-hand side, you see Kryddan in Linköping, Sweden, which is a very interesting regional city with a large university where you have all the services. It's a consumer start project. On the right-hand side, you see an illustration of a project which is called Merinokvartalet.
Merinokvartalet because it's an old spinning mill. It's in Bergen, Norway, and it's not far away from the well-known business school of Bergen, and very close to activities out by the waterfront. Great examples of projects started and where we have seen also good sales situations after the start. With that, I turn the word over to you, Lars.
Thank you, Peter. Good morning, everyone. We are going to get into more of the details of our figures for the second quarter. Starting as always with the bridge of the completed units. We are not far from our estimate that we gave in the first quarter, i.e., 1,200 units. We have now recognized 1,220 units. I won't go through the details. There are small differences here, as you see. Instead, let's move to the full income statement. As Peter mentioned, we have more recognized units this year than we had in the prior year, which is of course then increasing our net sales. However, there is a mix effect where we have more investor units recognized, so a slightly lower average price per unit.
We have an improved gross margin in the units that we realized despite the fact, as I said, that we have more investor units. With slightly higher SG&A expenses compared to the prior year, we are still then reporting an operating margin of 9%, almost 1.5 percentage point better than the margin in the prior year. With slightly improved financial net and slightly higher tax, we are now delivering a net profit of more than SEK 200 million compared to less than SEK 100 million in the prior year. Just to remind you of the accounting and reporting principles that we have.
If you look at the graph on the right-hand side, you see that our operating margin is jumping a bit up and down, and we are reporting based on the completed contract method. It’s good then to watch the operating margin on a rolling 12-month basis. We see here that we have improved that quarter-over-quarter the last few quarters. Let’s move from the full group over to our business units. The biggest business units is of course Germany, where we see more units recognized, but there is a mix effect here in the price that is also then affecting the whole group, of course.
With improved margins on the units that we have realized, recognized in the quarter, we are, in addition to improving our gross margin, also improving our operating margin. As you see on the right-hand side here, the starts and the sold units have come down compared to the prior year starts, partly because of the long process for building permits that still remains in Germany. Moving over to Sweden. Here we also have more units recognized with higher profitability. Even though we have a slight increase in our selling and admin expenses in the quarter, we see that we have an operating margin that has improved significantly over the prior year.
We have a lower number of starts, as you see on the right-hand side, but as Peter said, there are some deferrals here in the process of permitting, the building permits, that is affecting us. We know that there will be starts now coming in Q3 that we were planning for in Q2. Both in Germany as well as in Sweden, we are increasing our investments in building rights. Finland, it's a copy of the others. More units recognized, and increased gross margin, also increased operating margin. Here we are seeing starts in line with the prior year, and actually sold units in over and above the prior year, mainly coming from a very good investor market that remains in Finland.
We are continuing the work on stabilizing the business in Finland as we have been presenting before. Norway, more units recognized, but we are comparing ourselves to a quarter, as you see in the prior year where we only had five recognized units. 65 is not the volume that is enough for Norway, but of course, it's improving the business. We have a positive gross margin, but the gross margin has been unfortunately affected again by a loss-making project that we're talking about in the first quarter where we have been forced to take even further provisions. However, this project will be finalized now in the third quarter.
One of the projects that Peter was showing you, the Merinokvartalet, is one of the starts here, increasing the starts in Norway significantly above the prior year, as well as the sold units. The Baltics, we are also realizing more units and also at a significantly higher margin. It's also very pleasing to see that we now have recognized our first project in Lithuania, as you can see here in the picture. All three countries in the Baltic segment are actually then adding to the profitability. We have taken decisions to postpone a few starts to Q3 because of all of the prerequisite have not been there, so we think it's better that we move it into the third quarter.
The starts are then slightly lower than the prior year, as well as the number of units sold. Finally, moving over to St. Petersburg, just to highlight then that we are treating St. Petersburg the way that we have done before, i.e., they are included in our group figures. As Peter mentioned, we have a good execution. We have not handed over any of the ongoing production that will be coming mainly in the fourth quarter. There will be no new starts or investments, as we have said in the past. With the profitability that is improving but with very few recognized units in the quarter still adding to the profitability of the group.
Summarizing the exposure in St. Petersburg, on the right-hand side here, the two right-hand columns, you see, the exposures in the first quarter, both in rubles as well as in Swedish kronas. Then you have the similar figures for the second quarter in the left-hand columns here. You can see that we have significant currency effects. The exposure measured in Swedish kronas have increased from SEK 1.1 to about SEK 2.2, mainly because of currency effects. We have also added some guarantees for project financing. We are on top of the maximum of the project financing guarantees that will be. Then the project financing will be repaid in the fourth quarter when we finalizing our production. Let's move over to the total balance sheet.
There is a significant increase in total assets, more than SEK 2.5 billion. More than SEK 2 billion of that is actually just currency effects. There is a significant effect both from the prior year as well as from the first quarter this year. If we then look at the cash flow, we have a negative cash flow because we are continuing to invest in projects and in building rights. Here we also have significant currency effects, of course, in the absolute numbers. Moving over then to net debt. Net debt as a result of our investments in increasing the project portfolio as well as more land, it has increased. I would say that about SEK 200 million-SEK 300 million of the increase is also currency related.
Even though we are increasing our net debt, you see that our equity-to-asset ratio has increased with more than 1.5 percentage points compared to the prior year. There is seasonality in this, so coming down from the first quarter is very much due to the dividend paid in the second quarter. Moving over to building rights. We have a portfolio of building rights of close to 37,000, so it's basically in line with where we ended up by the end of the first quarter. However, as we showed you earlier on, we have about 1,000 starts, so of course that has reduced the building rights, and then we have added to the portfolio primarily in Germany and Sweden, as you can see here on the right-hand side.
However, our book value has increased. That is mainly then because of us converting the off-balance-sheet building rights, i.e., options and agreements that we have not had in the balance sheet before. That's the main reason for it. The 36,700 building rights, 56% of those we have acquired since the beginning of 2020. If you look at the usage, we are planning to use about almost 40% of that now for starts in 2022 to 2024. We have secured the land bank then for starts for 2022 to 2024. We are then utilizing the 14,400 mainly in the multifamily segment and mainly in the consumer segment as opposed to the investor segment.
Finally, going to the expected completions going forward. Here you see the consumer part where we then completed 30 more than we were estimated in Q1. Now we will be, we have made earlier few completions that we were planning in the fourth quarter this year will be coming in the third quarter, and the fourth quarter will have a significant reduction, some of them sliding then into the 2023. You also see the starts here in Q2 where they will be completed. The same figures then for our investor segments where we also will have more completions in Q3 than we were estimating in the prior report. With that, I leave the part over to you, Peter.
Thank you, Lars. Crystal clear is a word that comes to mind. Thank you very much. Wrapping up all of this, we are reporting in the second quarter that demand and prices is stable for modern and sustainable homes. However, we do recognize that we are heading into a much tougher market on the demand side and sales side for a time. We are progressing on improving profitability, which is clearly visible across the board in this report. One proactive measures we are taking to strengthen the company and to strengthen ourselves in front of a tougher market is the cost review, where we have identified and executed SEK 220 million in cost savings on an annual basis. We are increasing the attractive land bank.
As you saw here, Germany, our stronger markets, strongest market is being even stronger. Sweden and then the Baltics, and you do then also recognize the strategy of growing mostly in these parts of the group. We have a strong financial position, and the targets that we as management have of the company is to maintain and increase that strength. Because in a strong financial position, we can act on the opportunities that lie ahead. Finally, we are reiterating the outlook for 4,200 starts in production starts in 2022. With that, I hand over the word to you, Anna.
Yes. Thank you both for a very good presentation. As we said in the beginning, we will now start the Q&A session. Today, you need to post your questions online, and I have received a few already, so I will start with them. Fredrik Stensved at ABG have some questions, and I will try to take them one by one here. The CEO statement in the report mentions a cost saving program of SEK 220 million or 10%. A, can you please elaborate on which operational actions will lead to the savings? Does it relate to a lower amount of employees, et cetera?
Yes. It unfortunately has meant that we are reducing the number of employees. They have left us already, most of them. Some of them will leave us during the third quarter. We have taken the corresponding costs in the second quarter result. Of course, there are also other savings. We are reducing the number of initiatives. We are also reducing the scope of some functions. We are also reducing the scope of other work that we have to do within the group. Yes.
Yes. B, what does 10% relate to EBIT? What is the base and or what do you expect the total amount of SG&A to be in 2023?
Just to be clear, 2020, then, 220 relates to both the indirect costs, which is part of cost of goods sold and the gross margin, and part of it relates to SG&A.
Yes.
We have not split it. On a running basis, we should be on 5%-6% of sales when it comes to selling and admin. Then the indirect costs, that can fluctuate.
Yes. He has another question. Gross profit margin in Q2 was very strong and amounted to 15.2%. I appreciate cost increases in projects may come gradually. Given the profit recognition model you have where you recognize profits at the project completion, the current GP margin most likely relates to the start of 12-24 months ago. If we turn to current start, is it possible to say anything about the general GP margin higher or lower than 15.2%?
This is a very complex question to answer because we are active in so many products and so many markets, so I can't give you a number. What we are seeing that if we look back on 18 months ago, we started projects at much lower margins than we are prepared to do now. Also, we are very much focusing on projects where we are conducting the later stages. You could say that the margins is coming down from what they could have been, but they are still improving compared to where we are trading right now.
Yes. His last question is, in conjunction with the Q1 report, you mentioned that the target to start 4,200 units in 2022 was cautious. Given the recent macroeconomic development, do you still view this a cautious target?
It's less than cautious now, to be fair. We still believe that we can do it. We will not do it at all costs. I have already talked about the prerequisites under which we will hit it. Of course, as uncertainty grows, so does the lack of possibilities to act on it. I would say it's less cautious now, but I wouldn't say it's a super stretch.
Yes. We have Simon at DNB. The third quarter 2022 project in Norway mentioned in the text, how big losses are you expecting in the third quarter?
I would say that we are not expecting any further losses. I sincerely hope that we have taken the precautions now. Obviously, we were not there in the first quarter, so we had to take some more costs now in the second quarter. Completing and handing over the project in Q3, we are not estimating any more losses. To build on what Lars is saying, this is a loss project, which means that we have to provide the actual costing right now in this quarter. We can't wait on the recognition of the handing over of units in the third quarter.
Yes. We have Staffan at SEB. Do you reiterate the financial targets regarding EBT and sold homes that you announced in April?
Do I?
Repeat them or are we changing them?
We don't have any other targets than the ones that we have. No.
No. Then we have a question from Fredrik Hammarbäck. How much of the cost savings of SEK 220 million on an annual level is selling general and admin related in the external reporting? Which countries does it primarily relate to?
Well, I have to go back and step back to the earlier question from one of your peers. It's a mixed bag. We are lowering the cost across the base. Also, of course, because we are much more decentralized today than we used to be. We're reducing a lot of the central costs, which then predominantly is in Sweden.
Yes. That was all the questions I have here. I think we will say thank you from us and wish you all a nice summer.
Take care.