Everyone, and very welcome to the presentation of Bonava's second quarter 2025. My name is Anna Falck Fyhrlund, and I am Head of Investor Relations here at Bonava. I am sitting here in a warm and sunny Stockholm, together with our President and CEO, Peter Wallin, and our Deputy CEO and CFO, Jon Johnsson. They will take you through the highlights of this report, and after their presentation, we will open up for questions. You can ask them through the phone conference, and you will press star five, or you can type your questions online. You can already now start to type your questions, and I will read them out after the presentation. With that short introduction, I will leave the word over to you, Peter.
Thank you very much, Anna, and great to have you back again from maternity leave. Starting with the market highlights, there is no question that we're living in a world with a turbulent global environment at the moment. Our markets are stable, supported by a lower base interest rate, higher disposable income, and a pent-up demand for housing. We do note a higher interest from customers. I would also like to say that given the circumstances in the market, it does take longer to convert from a booking or reservation to a binding sales contract, and that is especially true for the Swedish market. We are also noting, as we commented upon in the first quarter, that we are seeing an increasing interest in the investor segment, our B2B deals. We have an interesting pipeline to work from.
One might ask yourself, we are seeing a lot of improvements in underlying macro, et cetera. Why doesn't it pick up quicker and broader? The reason for it is the general uncertainty in the marketplace. Also, as we are seeing, the general increase in spending from governments is increasing the long-term interest rate somewhat. Turning into the Bonava figures for the second quarter, we are increasing the number of starts, exactly according to our plan, and we are maintaining a good sales rate. We are increasing the number of starts to 584 homes during the second quarter. We are maintaining a good sales rate in the ongoing production of 60%. This is down from the first quarter, but it's according to plan, I would say, when we do increase the number of consumer products where we are starting more or less along 30% as a default rate.
We are in a very early stage on the ramp-up of our business from a very low level, and this has an implication with our conservative and prudent way of reporting when we build up net sales and margins. This is something that Jon will come into more in detail. We are improving, despite this, our operating margin to 4.3%, and we are also maintaining a very solid financial position. We have started a number of very interesting and attractive projects in the quarter, starting off on the left-hand side with Seminariet in the university town of Uppsala, where we started the second and last phase of Seminariet, attracting very good and strong interests.
The same is true for Evalda Valtera in Riga, and then turning to Aachen on the very west part of Germany, we started a project of 139 units, which is a mix of regular consumer products and also student housing. Last but not least, which is also the picture you saw on the first slide, the Green Wave in Vilnius, Lithuania. We have really come up in a good level now in Vilnius, and Green Wave marks the first phase in a multiple number of phases in a very interesting and attractive location in Vilnius. Just as we started the third quarter, we were also able to start the development of Fredman, 120 homes in a very nice location in the south of the inner city of Stockholm. This is also a very eco-friendly housing. That has also attracted a very strong interest by our customers.
We are off to a good start in the third quarter. With that, I hand over to you, Jon.
Thank you, Peter. As you mentioned, Q2 further solidifies our view on stable, profitable growth to come in the second half of this year. I think the number of units in ongoing production continues to grow compared to last year with 21% period end. This, together with the higher sales rate, which is a prerequisite for us to start new projects, ensures this controlled growth in net sales for coming periods. The B2C sales is a dominant business model for us right now, year to date, but recently there is also an increased interest in B2B and the investor business, as also Peter alluded to. As communicated in the last quarter, we have further reduced our inventory of completed unsold in the period. A majority of the units relate to the Baltic markets, where, to remind you, to purchase a unit before it's completed is very rare.
We are overall on healthy levels, but expect to reduce it even further in the second half of the year in order to release cash as long as we do not compromise our margins. The net reduction in the period was 41 units, but the reduction of inventory older than three months was 101. If we take a look at the segment performance, we continue to strengthen our margins, both the operating gross margin driven by good projects and the operating EBIT margin. Cost levels are kept lower than last year in absolute value. The net sales is down compared to last year as a result of a conservative percentage-of-completion accounting method, which delays the impact in the projects until they have reached above 70% in completion, something we mentioned in the capital markets day.
Last year we had a lot of projects with a higher completion rate, although they were less in the number of units. When the growth in net sales now comes in the second half of the year, as we mature the bulk in the current project portfolio, this will further strengthen the margins in line with our guidance of 5% to 6% in operating EBIT margin for the full year. Next to the picture of our new project in Germersheim in Germany, we see here an overview of the market performances. Germany and the Baltics continue to be the core in Bonava's business, and although we can see a lot of progress and positive signs in Sweden and Finland, it will take time until the end of the year and a bit into 2026 before these markets have fully recovered.
If we take a look at Germany specifically, we see strengthened project gross margins in combination with lower cost after restructuring last year, resulting in an operating EBIT margin of above 10%. There is an increased number of starts of 58% in the quarter, and we have invested in new building rights in the fast-growing regions like, for example, Berlin. In Sweden, we have started, and we are starting a lot of new great projects. As we require higher sales and reservation rates before we are starting to secure the controlled growth, the financial performance will take a little bit longer time. Project margins continue to improve, and activity levels are very high, which gives confidence for the future. The market in Finland is also gradually improving, but as we have communicated earlier, also they are behind Sweden in the recovery.
We will start selected projects in the second half of 2025, sufficient to maintain the business with good margins, and we see early interest from the customer in these micro-locations in Finland. In the Baltic states, Riga and Vilnius grow strong, while Tallinn, very much like Sweden and Finland, is recovering slower. Margins continue to improve, and outlook is promising in the growing regions of nations, and this is something we do expect to continue. In our building rights portfolio, not so much has changed in distribution between the markets since previous periods, but we further strengthen our portfolio in the growing markets in Germany and the Baltic states. The projects ready to start are on sufficient level to support our growth short term, but we plan for new investments to continue both on and off balance to support future growth.
The total number of building rights needs to be well balanced for short, mid, and long-term needs. The trend for interest cost and net financial item is continuing to decrease, with relatively low net debt and falling rates. The EBITDA generation from completed contracts supported the operating cash flow a lot, and that is then the IFRS measurement, completed contracts. That was even stronger in the quarter than the percentage-of-completion. As we now start more projects and increase activity level, we do expect the working capital to grow further in the coming periods, which then requires project financing, where we are in dialogue with a lot of banks for the coming projects. Here is an overview of the development of net debt, and as you can see, we remain low at 3.1% as the last two quarters.
As mentioned, we do expect the project financing part to grow in the coming periods to support our also rapidly growing business, so it reflects that growth. We have noticed increased activity among many of our partner banks, and we will start funding projects in Germany locally and not through central debt, which will further support the interest cost development and give us much better flexibility. The available liquidity as per quarter end was sufficient at SEK 1.3 billion. Last but not least, we are also well above our set ranges for our financial framework. The equity-to-asset ratio is 43%, and the net project asset value over net debt is 1.5x . This creates the solid foundation we're talking about as growth now will start to come. Over to you, Peter.
Thank you very much, Jon. Very crisp and to the point. Wrapping up, we are taking further steps now to meet the financial targets and our strategic targets as a group. We are noting an increasing portfolio of ongoing projects with a good sales rate, and this will contribute to sales growth in the second half of 2025 over the first half of 2025 and beyond. We are improving profitability and maintaining financial strength, and when we talk about the controlled growth that we are in now, that is doing this in a very balanced way. It is very important for us as a group. We are well positioned to meet the guidance that we also issued in the first quarter of an EBIT margin of 5% to 6% for 2025 and at least 10% for the full year 2026. With that, Anna, we are already through the gates.
Yes, thank you both for a very good presentation, and now we will open up for questions. If you participate in the phone conference, you can press star five to ask a question, and if you wish to withdraw your question, you simply press star five again. As mentioned in the beginning, you can also type your questions online, and I will read them. I can start with a question to you, Jon. We talked about our POC accounting policy, and you talked about it at the capital markets day. Could you again remind us about the risk factor and how we account for land?
Exactly. It's the sales rate times the completion rate times the forecast of the project, which then gives the POC result, both net sales and the result. We are very focused on looking at the completion rate in order to add the factor. If the completion rate is below 70%, we have a 0.8 factor, which we multiply both the sales and the result with, which is a very conservative way of doing it. Another factor which maybe distinguishes us from other players on the market is that we do not count for land in the completion rate. Land is excluded in the completion rate, which creates a natural delay maybe in the worked-up result in that way.
If we then compare this quarter with last year, it is very visible that the projects last year in Q2 were in the end of the production cycle, while now we are very much in the beginning because we had a bulk of projects started in Q4 2024.
Yes, thank you. Very clear. Simon Dreyer at Perestroika has a question. Following the joint venture agreement with Kynningsrud in Södra centrum, Bonava indicates ambitions for more such partnership going forward. Could you elaborate on whether joint venture structures will play a more central role in your strategy and in which market you see the greatest potential for this approach?
It's a very good question from Simon, and I would say it depends on the market and the situation. The joint venture, a successful joint venture for us, is not only to share an existing project. That is also to add new projects and new opportunities into the mix. The example that the question raises is exactly that. That will also add further business opportunities for us, apart from the fact that we're also sharing in on the risks and opportunities in the current project that we have divested into this joint venture. We have done several of those joint ventures in Sweden over the past year, a year and a half, and we will continue to do so. We are also looking into these kinds of arrangements in other markets. Again, I come back to the fact that this is not only a way to deconsolidate an asset.
It is to strengthen the business case as such.
Yes, and no questions on the phone conference, so I will do another. If we talk about the starts and project pipeline, can we say anything about the autumn? Do we see investor projects, or what can we say there?
We do expect to be able to close some contracts with investor projects. It's always hard to say when and if that arises because sometimes it's also linked to external conditions being fulfilled in terms of permitting and zoning, et cetera. We have said that as a business, we are set up for 3,500 to 4,000 units production starts per year, and we are right now at 2,400. We are sort of gradually increasing that, also coming back to this controlled growth rate. We will gradually step up. We have also stated before, and we can reiterate that we will not be within that range during 2025, but we are aiming to be in that range in 2026.
Yes, another one from my side. Let's see if anyone has any other questions. If we're talking about sales, have we seen anything in the quarter? Did we have more sales in the beginning or in the late of the quarter, or can we say anything about the different markets?
I would say that it's very hard to say because it depends on what you have as a potential start of projects, i.e., what do you have to sell? We can note that we have a much lower stock of completed unsold, and then you can easily say how much you sell and so forth. Given that we do not have so much completed for sale, it's very hard for us to see. I would say, as we have stated in the report, the interest remains at a good level. The closing from reservation to a binding sales contract takes somewhat longer time, and we believe that to be linked to the turbulence in the marketplace. Our customers need more information, need more time to discuss and dwell on an important step like this. I don't think it's very strange that we are seeing this kind of implication.
Yes, nothing on the phone and nothing online. I think we will wrap this up then, and thank you all for listening, and we wish you all a nice summer.