Good morning, everybody, and welcome to your home for the next couple of hours. We're so happy to see investors, analysts, the media, financial institutions, and members of the board with us here today. Again, a warm welcome. The feeling of coming home, that's what Bonava is all about. Let your shoulders down and enjoy. I'm Susanna Winkiel, Bonava's Group Head of Treasury, and I will be your guide through today's program. First, we have a couple of practical notes. If there's an emergency, there's a hot starter in the reception area. If the fire alarm goes off, the exit is where you came in. There is one behind us and one at the far end of the office. The assembly point is at the intersection of Ulriksborgsgatan and Lindhagensgatan. We have a great program for you today.
We will see where we are as a group. We'll do a deep dive into our business units. There is time for a break for coffee or tea. After that, we'll see Bonava's customer journey. Finally, we have financial guidance, and then wrap up with some concluding remarks. There will be several opportunities for you to ask questions. If you are with us online, you can type, and we'll read your questions as we go along. If you're in the audience, you can raise your hand and wait for a microphone. These are our speakers for today. With that, let's get started. Our first speaker has led Bonava for four years. Those have been four years with a pandemic, with soaring inflation, with war and unrest in Europe and other parts of the world.
Now, as the housing industry is starting to show strong signs of recovery, it is my pleasure to welcome our President and CEO, ladies and gentlemen, Peter Wallin.
Thank you. What an introduction. Thank you very much, Sanna, and warmly welcome here to Bonava today, both here in person and on the web as well. I have been looking forward to this day because actually we will share where we are as a company. I think that we have a lot of great stories to tell. I hope that you're going to find it interesting as well. Just starting off, just reminding us what we are today. When we are present in six different countries, we have seen a reduction in net sales expectedly. We are within 20 regions, and a lot of things are happening within those regions, which you will hear about shortly. We have sharpened, so we are 900 employees now, 900 very capable and competent Bonava employees. You will see some of them today.
I'm not sure I will count myself as competent as for others to say. We have strengthened our financial position. Strengthened it, of course, by the support by our shareholders with the new issue of shares that we did in the beginning of last year, but also by very strong operations within Bonava. Bonava today, we have a very strong position in selected growth markets. We have also changed the operating model, and this is extremely central for us that we have been working towards a decentralized business model. It also means that we have transferred the mandate out to the regions, and we have also lowered the costs. We have also made sure that we have a more scalable model, making the increases in volumes that we expect filter down through the P&L.
What will support this growth that we expect over the next coming years is a very attractive land bank, a land bank that we have worked and cared for and managed over the past couple of years. As I said, we have a much more stable financial position today. We have done a lot of different things to strengthen our balance sheet. We are pegged up for a substantial value creation as a company. The last Capital Markets Day we hosted in Berlin, November 2022, feels like ages ago, and we have been quite busy since. Some of the promises we made in conjunction with this Capital Markets Day were relating to strengthening our investment process. It was increasing the quality in the production estimates. We had a past of costs sort of surprising at the end of the projects.
We said that we will strengthen the balance sheet. We started very selected projects in the very tough markets that we've seen. That also made it possible then to work with improving the cash flow. Out of the SEK 5 billion in net debt reduction, SEK 4 billion has been created within Bonava, and SEK 1 billion is thanks to the shareholder support. When we talk about growing, we don't necessarily talk about adding new markets. We have a fantastic footprint with strong demand in our markets. This makes it possible because we are in a fragmented industry, and we are in a position in the market right now where some of the competition has been sort of reduced since the interest rate has come up. This is also an opportunity to grow our foothold in markets that are growing. The decentralized operating model.
I will mention that quite a few times, so don't get bored with me, but I think it's a very crucial point of changing and tweaking the culture in how we operate and also be laser-focused on profitability. We have a little timeline just adding some of the points here. Over the past couple of years, we have reduced the number of footprints that we have, the business units. Since the Capital Markets Day in Berlin, we exited the business in St. Petersburg. We have also exited the Norwegian business. This is to funnel those funds to the market that we are in today. We are very happy to have the footprint that we have. By also sharpening the cost base, we are now pegged for the turnaround in the market that we see.
If we talk about some of the most important parts of the macro markets, I don't know about you, but each morning I start the phones and you have news every day. If we also look in retrospect, the level of unemployment is quite low. Even though it's expected to increase somewhat, it's still on a very low level in our markets. The other part is real wages. They are increasing right now. Disposable income for our buyers is something that is, of course, benefiting the residential market. That takes care of the demand side. What about the supply side? This is a sticky industry. It takes a long time to sort of start and turn the volume around, one and a half year in general for completing a project.
That also means that we are already in a pent-up demand situation in our core markets. This pent-up demand, where demand outstrips supply, is actually increasing right now. With the footprints that we have in the three markets you see displayed behind me in Germany, Sweden, and Finland, we have a very robust situation. What about Baltics? Why do you not have something of the Baltics? As you will hear Mikael, the Business Unit President of Baltics, state shortly, here we have a different market approach. We have a complete new demand to really rejuvenate and create sustainable new homes. This is a very central part of our model and how to understand Bonava, where we are now and where we are heading. The driving factor for us is, of course, first sales.
That is why we will have a section today talking about the customer journey because it is central. When we have enough sales, we can start the projects. The production start itself is the real engine on how we are going to drive profitability and business volume. On the left-hand side, you see the bars here representing the various markets. At the very end, you have 3,500-4,000, which is how we are pegged up as a business right now. We are looking into a level which is far below where we have been operating in the current footprint and is also far below where we ended when the market was really hot. We have been really looking for a gradual pickup here. We had a pickup in starts 2024 to a little bit more than 2,000.
We expect to increase this year, and we aim to get into the range for the full year 2026. This will help us achieve our financial targets, which Jon will speak about later on. I think this is a very important slide, and we will talk a lot about this. Of course, we will not start projects if we do not have control over our three main criteria: sales, costs, and the right team. If you look into our land bank of 25,900 building rights, if you look into that, we do evaluation once a year in conjunction with the third quarter. We are looking into not increasing sales prices and not increasing construction costs and at the book values that we have in the land bank. The average project margin was 18%, 18% then.
With that, that's a main driver for us to say that we can state that we will achieve our targets going forward. Again, John will show a lot of examples on how to reach this. What we are doing now, we are ending the consolidation phase. We are going into a controlled growth phase. The controlled growth phase is we only start when it adds profitability. The setup is different today than it has been in the past. We have a lower debt indebtedness, and we have updated our operating model being more decentralized organization. Also, we have learned from the past. Profitability is really a key driver. We have a land bank that will support this controlled growth as it is. If you look into the net sales of the land bank, it's roughly SEK 60 billion.
Eighteen percent in average gross margin, SEK 60 billion in revenue lines, you can understand that that supports a profitable growth. That is the status of Bonava today. Me and my colleagues will do everything to explain it and try to hone in on what will drive this going forward.
Thank you, Peter, for that overview of Bonava's progress and great market potential.
Thank you.
Now I would like to introduce somebody who may still be a bit new to you, Bonava's CFO and Deputy CEO, John Johnson. He joined Bonava at the start of this year and brings extensive experience within both finance and strategy. Those of you who have already met John know that he is very action-oriented. More surprising maybe is that he also has the analytical skills of a chess grandmaster. Ladies and gentlemen, please welcome Jon Johnson.
Thank you, Sanna, and great to see you all. I think Peter talked about controlled growth and how can you achieve controlled growth in a project business like Bonava. I think that the completed contract method is, of course, good when you want to see what has been built one and a half years ago. In order to constantly track performance and have the controlled growth measured, then we need something else. That is why we now introduce a percentage of completion. I think there has been an external push from analysts, from owners, from investors that we should switch to this because it is easier to benchmark us versus our peers and versus competition. There has also been for many years an internal pull because the organization in Bonava wants to have some better measure to track the performance in the projects, and we are doing projects.
There is both an external push and an internal pull, which is the reason why we have then implemented it. I think if you summarize the rationale, you can do it in three ways. Better match with the value creation, we see what we are building, and a smoother financial reporting. We avoid the big peaks, which we have historically had, and higher transparency and better predictability over time. That is a summary of the rationale. I think many of you already know what percentage of completion is and completed contracts. Maybe we will have an exam before you leave that you truly understand what is the difference or maybe not. For me, it is essential, this picture.
Think of that we are constructing a building and we put a big tarpaulin on top of it, and we do not see what we have built until one and a half years later. That is a completed contract method. No one really knows the performance of the project until we reveal it. For percentage of completion, you do a sneak peek, a little bit here and there to see that are we tracking according to what we said? Is the forecast accurate? Is the cost levels okay? Price levels, have we rebased them? We avoid the negative and nasty surprises along the way. I think that is one of the main arguments. As you know, I mean, there is a prerequisite if we follow IFRS that we will continue to also disclose completed contracts on group level.
This is for the segment reporting, and this is for how we are tracking the daily business internally as well. It provides us with much better tools in order to monitor that one. If we dig into the formula, again, this is not something new, and I promise I'm not going to rehearse you afterwards, but it's really the sales rate times the completion rate times the forecast. Here it's important to keep these updated all the time in order to have a good monitoring of the project. The sales rate is, of course, sold square meters divided by total square meters. We have the completion rate, which is accrued cost versus the total cost of the project. That gives them the total project revenue and the total project cost.
What I have to point out is that we exclude land cost in the completion rate because otherwise you tend to dope the completion rate, and it looks as the project has progressed more than it actually has. What differentiates us from maybe some of our peers is that we also apply a risk factor. No need to take notes. We will follow up with all of you what this means. In essence, it means that we are a bit conservative until we have reached 70% of the completion rate so that we are not over-delivering and over-promising. Once we pass that, the risk factor becomes 1.0 instead of the 0.8, as you see here. That means that we have this controlled growth.
We look on what we have built all the time, and when the completion rate is about 70%, we feel confident this is a profit we're going to deliver. This enables a controlled growth, which Peter talked so warmly about, and something that Bonava needs. I promise you these are the only examples I'm going to provide. We are going to, of course, offer follow-up sessions in the coming days, and we have an info pack also on our website. If you look at the base case to the left first, we have 100 in this example case in revenues or net sales. We have minus 18 cost, and that gives a gross profit of 20. In the completed contract method, we would disclose everything one and a half years later, roughly. In the percentage of completion, it's gradually spread out.
You can see a little bump there coming after Q4, when in this case we have reached the 70% completion, and that is when we take out the risk factor. In the next scenario, which is the middle one, we just simulate how it would look like if the sales price was changed in Q4. You see immediately that it has a direct impact then on the performance in Q4 and onwards because the sales price is adjusted. In the last case to the far right, we just simulate how it would look like if the cost is down. The cost is down has two impacts. One is, of course, that it gives an impact on the quarter where we realize that one, but also it increases the completion rate immediately because it is a higher percentage. You also have that effect on that curve.
This is how we have chosen to treat it. We believe that it's a conservative approach and a risk-mitigated approach in this volatile business. It's something also we discussed in length with our auditors and with our external auditors, PwC, and have agreed to do. What does this mean then for the financials? Again, we will provide the info pack, and you see the completed contracts 2023, 2024 in this case. Those are the numbers you also will read in the annual report and in our, of course, year-end report as well. What you then see is the PwC numbers for 2024. We have done the full proforma for 2024. We have to point out it's not that big difference now in this situation where Bonava is, with the number of starts.
Yes, there is a change, in particular on the net sales and gross margin, which are the ones impacted. The sales and administration expenses are the same in both calculation methods. That gives them a slightly better operating EBIT margin than compared to completed contracts in 2024. When there is a downturn and where there's an upturn, the real changes occur. Meanwhile, it's quite similar to completed contracts. It's just that when we report and when we talk about the projects, we can refer to actual performance rather than something which happened one and a half years ago. Of course, we need to be able to bridge these ones when we do the external reporting and when we talk. No doubt about that one. Worth to point out is also that we are not changing balance sheet and cash flow.
We believe that the financial position is more accurate in the way we have treated it. It is a clean balance sheet and clean cash flow. What we are changing is the performance of the company in the P&L. We will come back and answer all those questions as well, which pops up in your heads. I see some over there in the audience. We will, of course, follow up on all questions you may have on these ones. I think that is it.
Thank you, John, for that insightful presentation. A reminder that an info pack is available online, and we will now be taking questions. If you're online, you can start typing. If you have questions from the audience, raise your hand, wait for a microphone, and then please state your name and company. First, I have one for you, John. Could you just recap for me? What are the main differences to how our peers report percentage of completion, or is it all the same?
It is a lot of similarities, but of course, the difference is the risk factor, which we apply until after 70% completion. We apply the full effect, but until then, we only have 0.8. The second one is that we do not change the balance sheet and cash flow. Those are the essentials, right? Of course, we should also mention that we do not put the land into the completion rate as well because we think that that dopes the completion rate.
Our net debt will stay the same as it was before?
Yes.
Very good.
Great.
I think we have a question over here.
Shoot.
Thank you. This is Simon Mortensen from DNB Markets. One of your new financial targets is dividend, or kind of the same situation, but it refers to the P&L, which you're now going to have both under IFRS and in segment reporting. To what figure or what kind of accounting system is the dividend referring?
I would say that, but it's the cliffhanger because you will see here in a couple of hours or one hour in the financial guidance. We'll come back to that. I had promised to.
A very good question.
If I say it now, then you're going to leave, right? Because then you have received everything you came for.
Just also, will you still report completed contract on divisional levels or no?
No, not on the segment level. On the group level, definitely, absolutely. On segment level, we will switch to PwC then because that's how we internally will measure i.
Yeah, thank you.
Very good questions. Somebody else? Question up front here.
Jan Hebel-Keppler, two questions. The first one relates to what you mentioned here about the balance sheet. Even in the percentage of completion, you include the debt and the tenant associations or?
Yeah.
That's right. Okay.
Correct.
Okay.
W I havee believe that's a more prudent and conservative way.
Yeah, okay. You also mentioned here that you have 18% margin in the current building right portfolio, so to say. You have to add the administration costs and so on, I suppose. What percentage are you targeting there as percentage of sales?
Let me come back to that also a little bit later, but I guess you can do the math yourself that if we're going to reach over 10%, which we announced on the, then we can backward calculate what it needs to be.
Right.
I will come back to that in the financial guidance, definitely, and elaborate more.
Thank you. We have another question up front here.
Thank you. This is Frederik Stenset from ABG. I also have a question on the 18% margin in your building rights portfolio. Is that per the Q3 2024 valuations or the book values?
It is t he valuation, yes.
Eighteen percent per the valuations, and then you have surplus values, meaning.
Exactly.
On book values, margins are higher?
Yeah.
Perfect. Secondly, Peter, you mentioned you aim to reach 3,500 starts in 2026 and growth in 2025. Can you be any more specific on 2025 than just growing versus last year?
I would love to, but we will see. We had 2,000 starts in 2024, and we will see an increase over that number. I cannot give you more exact than that right now, but we will be in the range 2026 if we can start projects with the three criteria. Of course, we see the opportunities to grow quite a bit now. The controlled part of growing is the most important part because otherwise we will not be able to hit the project margins that you asked about either. Those are essential for us. That is also why I said we are laser-focused to make the margins. If you ask me what would you prioritize, hitting the volume or hitting the margin, I would answer the margin. You, of course, know that they are also volume dependent.
Right. We have one more question from Jan.
Yes. Just a follow-up from the last question here. The 3,500-4,000 starts you're aiming at 2026. Should that be seen as a run rate you will be achieving that year, or will it be a full year figure?
It's a full year figure for the full year 2026.
Okay. Thanks.
Right. A lot of questions on financial guidance. We look forward to that session later on. With that, thank you, Jon, and thank you, Peter. Now we will do a deep dive into our business units. We will hear from our teams in Germany, Finland, Sweden, and the Baltics. They will take us through their operations, their market conditions, and their growth potential. First out is Sabine Helterhoff, Business Unit President, Germany. Welcome on stage.
Thank you very much, Sana. I am happy to be here today again to present Bonava Germany. I am also happy that I have my Head of Operations, Rico Kallies, here today with me, as well as Sophie Jensen, our Head of Sales, talking a bit later about the customer journey. Germany, business fundamentals. We are delivering to two segments and two products in our markets. We are operating in five organizational regions, which covers around nine markets. In Germany, we have a favorable payment model. What does it mean? That means that we are allowed to receive installments according to our building progress, starting with 30% when we start production, 28% when we have done the framework, and so on. With that, considering a certain pre-sales level and a constant sales speed, we can finance the whole construction by our customer payments.
That is a really huge advantage and, of course, very good for our cash balance in Germany. When it comes to the market, we see that the market is rising slowly, but it is rising, and we are really happy about seeing that. In 2022, I was talking about actions we need to do in a very, very challenging market. Today, I want to give you an update on what we have done. We have taken significant actions in those four areas. When it comes to footprint and organization, we have reduced the number of organizational regions from eight to five while keeping our nine markets. We have put the full responsibility for the projects, including the production, into our regions.
We have reorganized the whole organization in Germany, combined with a huge reduction of employees from 1,000 to 500, just to adapt our organizational size to the new business volume. What we also have done is adapting all our processes and responsibilities to the new organizational setup. We also started working and thinking in a new way, more agile, more efficient. We have adapted our land bank to our current market situation, and we have also adapted our market offering, meaning we have lowered the standard. We have condensed the volume of purchase prices in order to meet our customers' financing capabilities. We have done all that to get a more efficient, a more modern, and more agile organization with an upgraded offering. While doing that, we had also, of course, a huge focus on our operational business.
What you can see here is that sales and start picked up, especially in the last quarter last year. We also have managed to keep the number of units for sale on a constant level since 2021. We have also now reached a constant, lower level of ongoing production in our projects. What we are now focusing on further is sales starts and also new investments. Peter was talking about the land bank, and you had many questions about this 18%. Of course, we in Germany also contribute with our 7,600 building rights to these 18% gross project margin opportunities. Our current land bank secures business for the next two to three years with around 80% or 70% of our units starting until 2028. What we also see is really growth potential in three of our regions.
That is North Rhine-Westphalia and Rhein-Main-Neckar, where we have 11 million inhabitants in each of those regions. We also see a huge potential for Berlin, our largest region at the moment, to have a further slow growth and especially improve the margins. That, of course, also results in a need for further investments. Some examples about projects which we are planning to start really soon during the next two to three quarters. All of those projects have project margins between 15%-20%. The first one is a part of a huge investment in Langen, where we acquired 500 units, where we entered the market already in 2012 as the first player. Our competitors were following us there over the years, and now we are starting 87 units with a great potential also there. We have a project in Heiligenhaus in North Rhine-Westphalia.
That is a typical German row house platform project where we follow the sales speed and the sales process with our production and our whole operations in the project. The third one is Sicilien Carré in Berlin, a plot we acquired in 2021, 272 units. We have sold already 128 subsidized flats to an investor. When acquiring that plot, we knew that we need to be very flexible when it comes to our offering. We are now offering at the moment to investors subsidized rental flats or freely financed rental flats. We are also preparing B2C sales. We will be ready end of quarter two. We need to take a decision whether to go B2B or B2C. We will see. At the moment, we are collecting the offers of the B2B customers, and we are very happy that we get one.
The last project is Hoppegarten. The picture does not show the project. It shows the current building, and we acquired the plot around that. That is a project of 60 B2C units, condominiums, and semi-detached houses, which we acquired end of 2024, including a building permit. That makes us really fast bringing those projects to the market. The plan is to bring it on the market at quarter two and to start production in quarter three. When it comes to Germany, I think there are two main questions to be answered. The first question is, how can you sell in a very challenging market in Germany? When you have the outside view on Germany, you see the messages about recession. The automotive industry is struggling. Political insecureness with a government which is not set, which will take time.
Also, the role of Germany in Europe is not clear yet. Our opinion on that is our government had a goal of 400,000 newly built a year. We as an industry have never reached that goal for 15 years now. There is a gap increased of 700,000-800,000 units, both rental flats and owner-occupied flats. We think we have the key residential fundamentals and drivers already in place. We have a high need and high demand and an undersupply at the moment. We have inhabitant growth with immigration. We have a huge shortage of rental flats with increased rents. No vacancies in Germany. What we also see is that the household incomes increase. At the moment, the interest rates are on a relatively stable level. They were grown a bit by 50 basis points, but we really expect that it will be relatively stable.
All this results in that we have really good residential fundamentals and drivers. What you see here on the map is our footprint. The heat map shows in red and yellow where the largest gap between the need and demand and the delivery is. We are operating in all these markets with in total 30 million inhabitants. You can see on the white dots our brand awareness. That is also really important for us that our brand is recognized in Germany. We are number one in Berlin. We are number two in Hamburg. We are number four in Düsseldorf. We are among the top 10 or top 8 in all our markets in a very fragmented market with huge competition in all our markets. We are number two in housing developers all over Germany.
Now answering the question, when seeing what have we delivered last year, we have sold 1,384 units. We have 2,000 units in production. We have those 400,000 or 700,000, 800,000. Yes, we can sell if we have the right product at the right location to the right price, which meets customer abilities to buy. The second question is, how can we buy plots? How can we invest into plots? You have seen that 30% of our portfolio of the whole company is located in Germany. I was talking about the investment need, especially in our three growth regions. What also was really important for us is that we have continued to be visible at the market during the crisis. We have continued to build. We have finished our project. That is recognized in the market.
We are recognized with a strong brand being present on the market. We are recognized as a reliable partner for the authorities. We are recognized as having a long-term plan in Germany. We also see that we have really good people in the regions with a good network finding the right plots. With that, we get really good access to the plot market, which was not existing over the last three years. We get offers now, which we got years ago with good payment conditions, good prices. That was the reason for us to start buying again end of 2024. We bought three plots with around 250 units end of 2024. We will continue doing that. Covering all this, we think that it is good to be a bit early on the market, start early to buy.
That is an experience from the past. The competitors will follow. When we look back, we have really good projects in Berlin, Blockdammweg, Ahrensfelde, Schulzendorf, and in Düsseldorf, Paulsmüller, where we have bought the plots between 2012 and 2016. Those are the projects where we, despite rising costs and despite a challenging sales market, have stable sales speed and really good margins. Summarizing Bonava Germany, we have gone through the deepest point. We are on the way to pick up. We have done what was necessary to do in order to be prepared for further growth, both in volume, but also in profitability. Now is the right time to invest in new plots. The market is there.
Thank you, Sabine, for that. Thank you. We have heard about Germany, where there are in many markets no vacancies in spite of household income growing. Now we will turn to Finland with Business Unit President Riku Patokoski.
Good morning, everyone. Yeah, let's move to Finland, the happiest nation in the world. Eight years in a row, may I say. It has been quite a roller coaster for the past few years. Very volatile market, shifting demand, poor demand. We have been struggling. There's no question about it. We do see clear signs of spring market improvement. For me, what defines a good company in these kinds of circumstances is not how you perform when the wind is behind your back and everything around you is good. It is how you perform with headwinds. Today, I'm really proud to say that Bonava Finland has not only stayed the course during the storm, but we are coming out stronger, leaner, and more focused than ever before.
My message to you today is not just about recovery from the downturn. I want to tell you how we have built the foundation for Finland to long-term grow and increase our profitability because we have the market, and it is slowly but surely turning in our favor. We are offering multifamily homes, both for consumers and investors alike. We are well positioned in the three biggest urban areas in Finland: Helsinki, Tampere, and Turku. Cities that are growing and where people are getting older, and urbanization is still a strong trend in Finland. Our customer payment model is stacked according to the construction period of the project, both in the B2C and B2B. In B2B, the payment terms are negotiated case by case, but cash flow is typically positive throughout the project. With consumer customers, the incoming cash flow has two components.
It's project-specific financing in terms of a bank loan, and the second part is customer advances. The business update doesn't really look pretty. We are in a record low level in our production numbers. There have been significant obstacles in starting new projects. Main bottlenecks have been, first of all, poor demand. The second point is the availability of local financing for our projects. As I said, we are seeing early signs of spring, more leads, more people visiting our showings, but it still takes a long time to convert those leads into sales. We have also been able to start first projects after a long break during Q3 and Q4. Those are also positive signs. In terms of our land bank, it does support our business plan, definitely. We have streamlined the land bank to strengthen our financial stability, but also capital efficiency.
We see a clear need for new investments because this is a buyer's market in terms of land, just like Sabine described from Germany. We see great opportunities going bravely to new investments in the kind of prime locations where we can trust that there is demand in the long term. One Finland-specific feature is private equity funds that provide possibilities to sale and lease back model for our plots. That is one way in most of our new investments to strengthen capital efficiency. Looking into our roller coaster journey, we started our business turnaround four years ago with an updated strategy. In February 2022, the war in Ukraine interrupted our turnaround with significant cost inflation, rapidly rising interest rates, and soon plummeting customer demand. What can you do? We did not just stand still and wait for better times.
We actually continued with our turnaround and adopting our operations to changing market conditions. What we did was continue implementing the strategy that strengthens local accountability, just like Peter said. We restructured heavily our organization in several phases so that we can perform locally better. We also have worked very heavily on improving our project governance and forecasting accuracy. Lastly, we have, of course, been forced to adjust our cost level because of the lower business volume. All this has been the work to lay the foundation for future profitability and growth. We are definitely there, positioned for a good future. A few facts to back it up. We have seen that in our ongoing production, project margins are still improving. We have seen that our EBIT has been above budget three years in a row.
We have seen that our number of unsold completed units, despite the poor demand, we managed to reduce the stock over 50% in a year. The most important fact is that because of the work we have done with the organization, we now have a winning team in place with the right competencies going forward. As said, the market is poor at the moment. Our view is that recovery will take time. It is slow. The thing that we have to keep in mind also in Finland is the long-term demand. Just earlier this year, there was a survey published stating that the long-term demand for new residential in Finland annually is around 37,000 units a year for the following few decades.
When we compare that to the nationwide number of starts for the last few years, which are well below 20,000 units, it tells you the pent-up demand is quite big going forward. That creates the conditions for prices to increase. The most optimistic estimations for price increases in Finland are already 3% this year alone. That is quite significant. A few examples, again, back it up. When I talk about project performance, investment case Citadelli is in Helsinki, consisting of 571 residential units, six very well-performing B2B projects. It is generating EUR 130 million of net sales and profit from the project around EUR 24 million, which equals 18.5%. A few cases that we are working hard to start during this year, B2C cases in different parts of Finland.
As a conclusion, we have proven that even in the toughest times, with right decisions made, a very committed team, and a clear strategy, we can deliver solid underlying performance from our projects. I have full trust in our team and in our ability to deliver not only according to expectations, but exceed those expectations years ahead. Becau se we have proven that we have the ability to improve our performance year over year. Thank you very much.
Thank you for that, Riku. We saw that the world's happiest nation is standing strong. Not only that, we saw several projects that have delivered higher gross margins upon completion than was actually originally budgeted. Now we will turn to Michael Björklund, Business Unit President for both Sweden and the Baltics. Welcome.
Thank you, everyone. Very nice to be here, both physically for those in the room and on the web. And Sanna, I realized that when you stand up here, it means that the time is about to run out. I will manage time. Spring has arrived, I say, to Sweden. If spring signs are in Finland, then spring has arrived. I say that because we have sold out our stock. We have a lot more customers on our web, and customers are coming to our events. That is absolutely fantastic. Without our customers, we cannot start more projects. If I then, I also want to recognize this first picture, which is Seminarien Parken, our absolutely fantastic investment and ongoing project in the center of Uppsala.
We have a model of that here for those in the coffee break who can look at that, as well as also a model of Fredman in south of Stockholm, which we will start later this year. I will share today some of the basic business fundamentals, but I will also try to give you a feeling of four examples of investments that we are ongoing and starting very soon. Business fundamentals, we operate geographically in all of the major cities except for in the south. This covers the purchasing power of the majority of the Swedish household looking for a new home. We operate in single-family houses and multifamily houses. We operate in the investor market, the rental market. We operate in the housing association market, condominiums, and we operate also in the ownership. The payment plans actually resemble the Finnish market in many ways.
Thank you, Riku, for giving guidance on that, with the added component of the ownership part, which is predominantly for BU Sweden in the single-family homes. In that part, we collect around 10% down payment and then 90% in the end. A good thing with the single-family houses is that we turn around that business from start of production to end in usually 12 months or even less. I also want to say a few words on the demand, what Peter mentioned as the pent-up demand. I think all of you, or most of you at least, who come from Sweden, you follow the lack of supply and the different form of statistics of lack of housing from the authority Boverket.
From my point of view, thinking about how this translates into business, it is also equally important to understand what drives the conversion of this demand. I mean, all of this, let's say, lack of homes is not from people who do not have a roof over their head. Everyone has that in Sweden. It is more from the life we live, from the fact that we commute too far to work. We are not able to have enough space at home to work. We sit in our villas when we get older and do not have a better offer centrally with a smaller size to downsize, or we have children working or being at home too long. It is really about the purpose of Bonava, about creating happy homes and neighborhoods.
I have taken myself to the statement that it's not what people say they want, it's what they actually buy that matters. If we go further on to business update, uniquely low volume in Sweden right now. I have been part of Bonava the whole way, even before in Densicy. I remember in 2016, we had more than 1,000 units sold. We had over 2,000 units in production. We know what that is like. We know that that is the market that is capable of in Sweden. This situation we have right now is absolutely not normal. What is really good, and I'm really proud that we are actually developing now offerings, and we will come out during 2025 with 16 projects for sale start. We are actually going to promote our business, listen to customers, convert that into sales and starts.
That is across all our markets. That also constitutes more than 800 units itself. We have a land bank that supports this for the next couple of years. We have the organization, same as Riku was saying, we have spent a lot of work and also Sabine about adapting our organization. We had at the peak 250 people. We are today 90 people. That is what we believe is enough to actually get back to the volumes of 1,500 units in production over time. Moving on from the market fundamentals to four examples, I have mentioned Seminarien Parken. What is really good here is to see that we are progressing with the sales according to our plan. We sold in the first phase today 35 out of 66, so that is over half the first phase.
We keep our costs, we keep our margins, which June was obviously talking so much about that we can show the progression over time. We also have here an opportunity to test a new way of working with a possibility to lower the monthly fee by allowing the customer to pay more insights, more basically more money in the beginning and get a lower monthly fee. We will see how this works out later on because that decision for the customer comes at the time they're moving in. Very interesting to follow. Moving onwards to Gothenburg. This is a large new area, a new investment, Söderänggården. We have in the first part of this, we have created a joint venture with Åbos, which is another leading developer.
That was good both because we are able to offer the customers something more there through them and their unique offering of buy half first and buy the rest later. Also because we can benchmark ourselves, the way we think, the way we operate, the way we work. From our understanding, this joint venture works really well right now in the beginning. Very exciting about that. As we state here also, there is more land bank in this investment, so a lot more volume to come. Moving over to Stockholm, Stockholm area. This is a fantastic investment that we are aiming to start sales now in May and come out and start production later this year called Fredman. It is in Hägersten south of Stockholm, a very, very popular area, high demand. Other competitors are selling really well in the same area. Super excited about this.
Moving to another part of Stockholm, Järfälla. Here we have single-family house business. Many of you, I think, know that Bonava has been one of the most active and largest developers of single-family houses over the last 10 years. Very successful. We are ongoing now with a second phase. It started that faster than we thought after having sold out the first phase really fast. We now have also the opportunity to work with the margins, to improve the margins. One of the benefits in single-family houses is that as the area develops, you often have the chance to increase the margin phase on phase. In this area, and this is the final slide, we also have a lot of attention to sustainability. Of course, to start off, it is a wooden structure, which is by itself providing a very low carbon footprint.
We are also doing many, many other things to make this really sustainable. One little feature is interesting. We are giving the choice for the customers to have a battery connected to the solar panel so they can even up the use and actually lower their cost to optimize the energy cost. Finally, one more thing. We are going to take one house here and test new ways of working and new technology with the ambition to make it one of Sweden's most sustainable houses, single-family houses. That we will launch later this year and more to come. That is super exciting. Thank you very much. Oops.
Thank you for that, Mikael. A reminder that there is a model of Seminariet and Fredman in the office so you can get a look and feel for these projects. Now, Mikael will continue with a presentation of the Baltics. Go ahead.
Thank you. Have to bear with me a few more minutes. I wanted to start this part with the fact that I came to NCC in 2010 with these markets as responsibility. I started from a commercial development. I have traveled to these markets for 15 years. I have seen them progress and grow. I have seen also how proud these nations are, how they are developing steadily, successfully with hard work. I really think this is a fantastic part of new Europe. Some of the basics, just to let you understand our business. Here we are focusing the majority of multifamily homes B2C. There is an emerging B2B investor market. I will come back to that in a couple of slides in the end, which is really, really interesting.
Business model is the same or similar to the Swedish ownership, meaning that you collect 10% in the beginning and 90% in the end. The same is also in the way that we are producing faster. We are producing multifamily buildings roughly in 15 months, which is really good. A couple of words still on what these markets are. Maybe it's interesting to know that Tallinn, the capital of Estonia, is the closest capital to Stockholm. It takes you 45 minutes, takes you a shorter distance than going to Gothenburg. It doesn't take much to go to Riga and Vilnius as well by flight. We see the same banks in these markets in many ways, Swedbank and SEB, very active. We are focusing on the capital cities. They are large if we count in the greater areas, which we do.
By population, these are really large markets. We are the number one since many, many years in Riga. We became the number one by sales volume in Tallinn and therefore also Estonia last year. We are emerging as one of the leaders in Lithuania, Vilnius. We have the Country Manager, Remigius Plateras, saying a few words later and also available here today during the coffee break. He used to be the CEO of the largest broker. He knows everything. Take the chance to talk to him. Drivers for growth, Peter was mentioning. If we take Riga, 85% of the total stock is more than 35 years of age. 85% is more than 35 years of age. If you combine that with a very active and good offering for bank financing from the banks, this is a huge driver for growth.
We sold in a pretty tough market, one would say, last year also in the Baltics, 511 units. That's quite a lot. That was so much less than what we did in 2021 when we sold 921 units. Huge potential. Business update. We did not go down, as many of you have seen in our reports, in volume in the same way as we did in Sweden and Finland. We have kept a good basic volume in production, good profitability. We have proven over many, many years that we drive a profitable business in this margin. Land bank, many words have been said on land bank. We have a really good land bank in the Baltics. I would add even more focus on the organization. We have an amazing organization. We're super engaged, super, let's say, proud of the company.
Some of these factors mentioned here on the slide may not be known to you, but these are really, really high numbers. I'm super happy. That is a big, big factor when you drive volume of production. Few examples of some of the big areas that we have to be developed in the pipeline and partly also developed. I will give one example from each market. Starting off with Riga, we have our biggest business in Riga. Huge investment called the Valde Valtera. It has more than 700 units. We just started last year with a first phase, 42 units. We have also here our laboratory for life cycle analysis, state of the art, where we are better than the universities as calculating carbon footprint through the life cycle. Very interesting to follow that. We move on to Tallinn, capital of Estonia.
Here we have a big area where we have built a lot and we have phases ongoing and more to come. Over 400 units left. We also here have the location for B2B deals that we have sold forward funded, plus also that we have in our own asset management. Finally, example of Vilnius, the capital of Lithuania, which is the largest country in these markets. Super exciting new investment again, more than 700 units to come. We have sales started, the first 59 units, 15 contracts signed. We are waiting for the building permit. Hope to kick that off during next month in production already to go. This is a great location and a great offering. Final few slides I will dedicate to the rental market. We believe this is a really, truly emerging, interesting opportunity for Bonava. It is not just an idea.
We actually operate two premises here, which you will see some facts on. Simply put, this market is today managed by private individuals. It does not exist a proper professional offering on the market in general, even though a number of transactions have happened. If we look at the potential, if we would play with the idea that these markets behave in the same way as, let's say, old Europe, having 40-50% of housing by rental versus ownership, at least there is a need for 165,000 units. These are the figures given by a number of brokers. Bonava internally, I would say more 250,000, but huge, huge numbers. Great potential for the future. Final slide. We are not just talking about an idea. We're talking about two real projects, one in each Riga and Tallinn, filled up to 95% with tenants who we Bonava manage.
We are leasing out. We are managing both in building and we are managing the operation of the property. We know how they feel and they are really, really happy. Adding on top of that, we have a pipeline of a number of ready-to-go new starts, which we are now currently seeking an investor or investors for, currently prospect out in the market. As a summary, Bonava Baltics is already going. It is already moving. It is a question of taking even further step of growth. Thank you very much.
Thank you for those valuable insights, Mikael. We heard that there is great potential for many more sustainable homes in the Baltics. Now we will open up for questions to all of our Business Unit Presidents. If you will please come back on stage, Rico and Sabine. If you are following us online, do start typing your questions.
If you are with us in the audience, you may raise your hand. First, I would like to ask you, what is your main priority for this year, Michael?
Starts, especially Sweden.
Starts. What about you, Rico?
I would say we do everything in our power to create market and conditions to start new projects.
Starting projects.
Yes.
For Germany, Sabine?
Germany does not have any other plan. Also starts, of course.
Starts, starts, starts. Do you agree with that, Peter? Our CEO is nodding and giving a big thumbs up. Okay, our priorities are clear. I think we had a question from the audience down here.
Thank you, Simen, from DNB again. You had previously announced a strategic evaluation of the Finnish operations. Can you give any update on that last thing and where does that all statement stand in the current business plan?
Shall I start and you continue?
Peter, you can join us up here so we see you.
It is very clear that we do see good business potential. That's what I described in my presentation. There is a clear potential for us to perform in the long run. I also want to be very transparent that the market at the moment does not support our business in Finland. However, this kind of question is something that management always needs to evaluate and consider regarding every market that we are in. It is not just specifically for this moment. It applies to every time, every market area. As Rico has demonstrated, we have done a lot of steps. We've touched every inch of the Finnish operations in order to hone in and get more efficiency. The strategic review you need to do of all the businesses over time.
When we launched that idea of a strategic review of Finland, we did it at the back end of 2023. If we just fast forward what has happened since then, we have had growth in Germany, in the Baltics, and we are seeing the spring coming here in Sweden, as you say. We are seeing signs in Finland. When is the right time to leave a market? It is when it is going down and when it is going up. We are very happy with the footprint that we have right now.
Still not looking at active divestment of the operations, if I understand correctly?
No.
Thank you.
Thank you for that. Yeah, one more question?
Following up on the turn of the market, both perhaps to Sabine and to the Finnish market, we have both a bit challenging markets. Interest rates are low, not expected to go any lower. What is the main thing needed for the market to recover in your view? Do we need to see improvement in the labor markets, digitalization in Germany, typically regulations getting more things on the market? What is the main thing that has to improve in the markets?
What has improved?
What needs to improve?
Yeah, I guess you know that our government has a large list of what needs to be improved in Germany that goes with reduced bureaucracy, faster processes to get master plans and building permits, more easy product opportunities, not so high expectations or high regulations on the products. Of course, also some supporting programs for our customers. A lot could be done. What we think the most important is because we are focusing on what can we influence.
What can we do to grow, to improve our business? I have elaborated what we have done. For us, the best would be a more long-term stable view on the housing business from the new government and really improved speed in building permits and master plan processes. That we get projects ready to start because at the moment with our starts, we are heavily dependent on really getting the building permits in place at the right time.
Potential in decrease in bureaucracy.
Yeah.
Anything to add?
I could build on that. I would say consumer confidence is something that we do need to back our business up. As we all know, that is dependent on several different factors.
We have also proven that we have ability to create the market with choosing specific, most potential projects that we see are sellable in this new market situation.
I can add a real big focus is how do you create a really and communicate a strong offer in the early stages, like two years from moving in? How do we make sure that the customer gets a great offer who signs up in the beginning? It's not the same thing to sell two years before construction is completed. The customer should really get a benefit and a better offer. They feel trust and comfort in taking this decision ahead of time. Later on, we will hear about our brand and the customer journey. You will see really how we work with that.
How we do that. Right.
One more, if I may, goes into the Baltic rental operations also. The Baltics have had falling population growth for negative population growth for 20 years. Why do you want to grow in those markets in terms of having more rental operations?
First of all, we do not operate in the whole country. We operate in the capital regions. You can always look at the statistics a bit in different ways, but I would say that urbanization generally works here as well as the rest of the world. Riga, Tallinn, and Vilnius, I believe, have generally a not stagnating population. Always the question about Riga, but that has other dynamics. That is not the real, let's say, thinking here.
The thinking is that there is simply a lack of a large amount of the population living in those old homes that either cannot or do not want to mortgage. There is a huge volume existing today who we think should benefit from a new modern home.
Modern and more energy efficient.
It is also floor plans. I mean, again, 85% is 35 years and older. I mean, the bathrooms are not the same. The kitchens are not the same. Many things, balconies are not the same. There is plenty of value added to a modern home.
Things that have changed in priority since the 1970s and 1980s.
Yeah. Yeah.
Thank you. Thank you. We have a question in the back.
Robert, Carnegie. Just a question on, you are ramping up starts, and this is perhaps more related to Finland then. How strict will you be on project margins during this ramp-up phase?
Very good question.
I would say very strict. We need to have all prerequisites in place before we start. As Peter also mentioned, we need to have the customer, we need to have the team, and we do need to know our cost.
Maybe could we repeat the margins that we foresee in the projects to start this year?
Yes, they were in the range of 18%-22%. Those are projects that are in the pipeline without investment decision yet, but what we are preparing. That is what I was referring to, carefully choosing the most potential projects that support our business plan. That also goes not just for the demand, but also for profitability. That is something that we will not sacrifice. Thank you.
Thank you. We have a question in the front here.
Thanks. This is Fredrik again from ABG. I have two questions. First one for Sabine in Germany. The sort of plot market that you were talking about, are you going for land plots with building rights or without building rights or both? Or ready building permits?
When I was talking about the balanced building right portfolio, I was talking about exactly both. We need to have a good mix between projects where we develop the building right through a whole master plan procedure and ensure that we pay when the master plan is in place. On the other hand, as you have seen this example, also mix it up with projects ready to the market to be fast on the market.
Because also of that problem, what I described, that we are really dependent on getting or receiving the building permits in time.
It is a mix of getting the timing right, but also creating a lot of value with the plots that do not have a detailed plan.
It is both.
Perfect. Thank you. One for Michael. When you sort of started your presentation concluding that spring is here, you also said we have sold out the stock. What does that mean? If we go back a few months, there were quite a lot of unsold apartments in Sweden.
Yeah. We have only stock except for projects with single digit units here and there t oday left in Umeå. That is selling steadily. That is from a project start we took with zero pre-sales rate going back in time. Looking backwards, you can argue that starting with no sales to begin with was perhaps not the best decision. That is not the way we operate. The market looked very different then.
In the ongoing production and in the finalized projects, you are completely sold out except Umeå?
Yeah.
Thank you.
That is a discussion internally whether that is even good or not. Obviously we have little to sell. I think it's good. Some showrooms and some, let's say, connection with the market with a ready product, some of it is not bad.
All right. Thank you for that. We have the next question from Jan.
Okay. Jan Inhrfelt, a question for Mikael. You mentioned 16 possible starts in Sweden. How many of these are rental apartments?
None. It's sale starts. Production start, some of them will take until the next year. It is all consumers. We believe it will all come out to the market.
Why do you not start rental apartments? Is the market there or is it something else?
The market for rental is actually also arrived spring time for. There are opportunities during 2025 for us to actually start rental as well. They are selective. We do not have a land bank which is focused on rental and, let's say, ready to start in general. We have a number of those examples. Rental market fundamentals are actually working today. Obviously, you cannot have much of land price in the calculation, but that is normal also for rental.
All right. Thank you. With that, we would like to thank our Business Unit Presidents. It is now time for a short break.
After the break, we will go into customer journey and also financial guidance. Please be back at 10:45. Thank you. Now, please take your seats as we will begin in two minutes. Welcome back. I hope you've had a good break. Maybe some of you in the audience have recently bought a new home. In that case, you surely remember what strong emotions come with that. Anna Wenner, Our Senior Vice President, Anna, will together with her team take us through our customer journey. First, we will see some clips on what it is like to buy a home from Bonava. Stage.
Come on. Hello, everyone. I will speak about our customer journey and our brand, and I will not do it alone. I have some dear colleagues from some of the business units, and they will soon join me here and give you some flavor of reality as well. Bonava, we have chosen to use a one-brand strategy, which means that the Bonava brand is what we use in all our markets and in connection with our customers and when we do the land acquisition and all our stakeholders. That is what we do. Of course, the brand is super important to us, and we have put a lot of effort into building the brand since many years. Of course, we do it every day. Every day we create the brand. We put building bricks to the Bonava brand together. We have also explored the customer journey and have looked into the different phases of the customer journey.
We have done that with a lot of data and customer insights from the different markets. When doing that, we realized that it is very—it is the same. It is very similar. The customer journey, the highs and lows in the customer journey, is very similar in all our markets in the different situations. That, together with the brand, the customer journey is our backbone, meaning that we work on that together as a group. We develop it together, and we use the synergies as a group when doing that. The basis for the brand is what we call the House of Happiness. You heard the Business Unit President talking about creating the happy neighborhoods. The elements of the House of Happiness and what it points out is focusing on the home itself. How do we make customers satisfied? We focus on the home.
We focus on the neighborhood and the customer experience. When doing that, we create the happy neighborhoods. That is the guiding tool for us in everything we do. Of course, not only in the nice pictures that you have seen, but also in the daily work when meeting the customer, the marketing material, in any contact with the customers. We are trying to create that one brand experience, but of course with a lot of focus on the local customer, the local customer needs, and the local customer insights. That is what we do. We have done a lot of work. Even we had heard about the recent years, how much hard work it has been. Even so, we have put a lot of effort into further develop the brand and the customer journey, which also means that we are very much ready to scale up.
Let's dig a little bit deeper into the customer journey. As Sanna said, I think you all recognize, many of you in here, you have bought homes, probably a few, and sold homes as well. This you recognize when you look at it, the different phases of the customer journey. It all starts with the explore phase when you dream about your home and you start to investigate and look into the details. You do the research. When you're ready, you move into the prepare phase when you have decided. You sign the contract. You worry quite a lot about the financing, and you go to the banks and you personalize your home. Of course, we support that as well with our add-on sales, trying to find the best kitchen for you and so on.
You dream and you wait and you organize before the day has come when you get the key to your new home. You are ready for the live phase. There are ups and downs in that as well. You get the key, but then you need to settle in in your new neighborhood and the new happy neighborhood that you are moving into. You will hear soon more about what we actually do from my colleagues here soon in the different phases. What we also do, as I said, as this is the backbone for us, we have also translated and captured the customer journey into a digital customer journey.
That is something that we develop together, and we are very proud of that because it means that we collect the demands from the business units, we work on it together, and we create that interface and the tools that you need from a digital point of view in the customer journey. The capabilities we keep here, we have them in Stockholm. We work on it here to make it very efficient. As you know, these capabilities are also quite difficult to find. We have the best resources to continue to develop. We do the tweaks all the time. Sometimes we take bigger steps, of course, on that journey. That is what we do. The beauty of it is that we also adapt and use it locally to fit every customer in the local market.
Of course, that also makes us ready for using AI tools, for example, which we have started to use in some sense. That is what it looks like. Now you will get the opportunity to listen a little bit more on the different phases. We will start with the explore phase. I would like to invite Fredrik Wickström on the stage, who's the Head of Sales and Marketing for Bonava in Sweden.
Thank you, Anna. Thank you. So happy to see you all and be here to talk to you about the first phase in the customer journey, the phase that we call explore. Here it is about building the awareness of Bonava as a company and also our project. Not only awareness, also, of course, desire.
We also need to create a feeling of safety for people, potential buyers, to be ready to sign up for a new home a few years ahead. Here we have a great benefit of our strong brand, and that's, of course, very helpful in this phase. To be successful, we need to work in a very structured way, yet to be flexible in order to meet customer demands and customer expectations and also behaviors from customers. Of course, the market situation. When we start a new project, we always aim to have at least one or two clear target groups. Then we develop a concept and an offering that we think will fit them and are attractive to them. As an example, in Seminarien Parken that we talked about earlier, the typical customer is a couple living in a villa. They are 55 years or older.
They have no kids living at home anymore, and they're looking for an easier life to live in the future. Why not in an apartment in Seminarien Parken? When we come to the communication, we have an omnichannel strategy, but with a very high focus on digital channels. Every day we're monitoring the progress and the status in the sales funnel, all steps, and are ready to take action if necessary. Where do we act and when do we act? It depends where in the funnel we need to. For instance, if we need more visits to our web, to our projects, then we may need to adjust the communication. It's a very good thing that we are so digital because that's a media that we can adapt and change quickly.
When we have a sales start, we talked a lot about sales start today. We invite potential customers to an on-site sales event where we present all aspects of a project for potential customers. We talk about floor planning, energy solutions, financial solutions, project timeframe, everything that is important for the customers to know. Of course, we take the opportunity to also talk about why this will be such a great area to live in in the future. These are often very well-visited events and appreciated by the attendance. Also for us, it's important because we need to know a bit more every time about what customers expect in that specific project. Also important to know is that we normally don't release all units at once at the same time. We have several sales releases.
The benefit of doing that is that we can see which units are most popular and also which ones to prioritize for the coming phases. It also gives us the opportunity to adapt some of the offering or sometimes even the actual product. We said that we have a lot of sales start already on Sunday in Linköping. We will start a new project in Ekkällan. The week after, we will meet potential customers in this very room for the third phase of Fjällhusen in Järfälla. To sum up, this first phase in the customer journey is much about digital communication in combination with the personal interaction and meeting with customers. With that said, I will leave over to my colleague Sophie Jensen from Germany to talk about the next phase.
Thank you, Fredrik. I'm happy to be here. My name is Sophie Jensen, and I'm the Head of Sales in Germany. As you heard from our BU presidents already, there are challenging times in terms of politics and economy globally and nationally. Trust is the big challenge. There is hope that rising income and economic expectations turn German consumers' uncertainty. This is exactly why we have taken these difficult times as an opportunity to learn what customers really need. It's product quality, reliability, security, and visibility. We show our customers that we are still here, that we are continuing to build, and that our projects are running. Why is that so important? How many times do you think Germans buy a new home? Once in a lifetime, Germans buy an own home. It is our footprint that sets us apart and makes us a strong brand.
Our knowledge helps us now and when the market turns again. We have undergone a major change. The time of the seller market is over for now. In the buyer's market, we are focusing more on customer orientation. That means fast, personal, and reliable. Fast means making contact quickly. Personal, not just sending documents, but holding on consultations and finding the perfect unit. In the past, we have been in the office with our customers. Today, we are 90% on the site. Reliable, available all the times. How do we achieve this? We make our sales reps fit with training, emotional selling, building customer confidence. We make sure to close the deal. However, adapting to customer needs also means adapting to a different target group. Germany is becoming more international. In our project, Ahrensfelde Obstwiesen and Parkstadt Karlshorst, we see the Indian community.
We are not only adapting technology by Google Ads in English, for example, but also in terms of culture. For example, the belief in Feng Shui states that aligning the front door to the east brings prosperity and health into harmony. We had a similar experience in our project, Wurlathaler Fenster, with the Vietnamese community. As we also see that the younger customers in general ask for berry-free units, they look also into the future. With this knowledge, we can identify the perfect unit for the customer, even if we have to change the front door. We create the quality of sales with the help and strength of the brand. It is not just about the quality of sales. It is about the quality of what we sell, the quality of the product. This is what customers identify and associate with the brand Bonava.
Here too, we know what customers want: a home that's more than just four walls, a home where people feel comfortable and secure, that retains its value in the long term. All in all, we stand out because we are a strong brand, and our goal is long-term trust in Bonava. Now I will hand over the word to my colleague Remigijus from Lithuania.
Great. I worked for this company for six years, and I'm very proud to stand before you today as a part of Bonava, the leading residential developer in Baltics. Our journey in Riga, Vilnius, and Tallinn has been nothing short of remarkable. 2024 has been a testament to our success. We have sold 511 homes in three Baltic capitals last year. In Riga, more than every fifth unit sold was developed by Bonava, solidifying our number one position in the market.
In Tallinn, we are also number one developer with the highest sales volumes. Over the past six years, we have left a strong footprint in Vilnius, and our growth journey continues. Before moving, we arrange housing school events typically one to two months prior to handover. This gathering allows us to meet each other, setting the foundation for a connected and social neighborhood. During this event, we guide our customers what to expect, how to operate a new home, details of the acquisition and warranty process. This initiative is our way of managing customer expectations by fostering strong relations right from the beginning. A home is a significant commitment, and our customer service standard ensures that our clients feel supported through the entire journey. According to this standard, we maintain consistent communication about construction progress, current timelines, and future plans.
Our team is not only committed and dedicated. Our team is fully engaged by always asking open-ended questions to our customers, listening attentively, and addressing concerns transparently and confidently. We never shy away from difficult topics. Our goal is to ensure customer satisfaction. Before final agreement and key handover, we take one more crucial step: a pre-inspection. This reassures our customers that we have fulfilled our obligations by allowing them to see their home firsthand. This extra level of transparency strengthens our relations and leaves no room for doubt. At Bonava, we also have a zero-defect policy. That means we, as professionals, never hand over a home if we recognize even minor defects. In the residential real estate market, it could be tempting to finalize sales with pending minor fixes, but we refuse to take such a step.
A home should be perfect upon handover, and anything less is a potential for disappointment. We simply do not compromise on quality. With all that said, we stand out in the market. Our dedication to excellence has led to high customer satisfaction rates. Our customers are not just happy; they are delighted, and the positive experience drives word-of-mouth recommendations. We are not just building homes. We are shaping the future of living in Baltics. Thank you.
Thank you, dear team. We work on a daily basis together in the commercial council, coming up with ideas that we can implement together. Hopefully, you got some good examples from the markets and also the understanding of the balance of the synergies, using the strengths together with having the ear to the ground and listening to the customers in each of the markets all the time.
I think this combination also makes us ready to scale up so we can utilize the spring feelings fully in all the markets. We are ready. Thank you.
Thank you. Thank you, Anna, Fredrik, Sophie, and Remi. I know that I would certainly feel very safe buying a home with the support of this team. Now we will shift back to financial outlook as Jon Johnsson returns to give us financial guidance on 2025 and the years after that. John, please go ahead.
Thank you. I'm back. Now, Simen, it's time for the questions you all have, right? Why did I wait until now to have this financial guidance? It's not just to keep you hanging there. It is really because we have tried to tell you a story of what builds up the financial guidance.
Peter talked about controlled growth and the cost reduction program and everything we have done in the last couple of difficult years. The BU President also talked about the market and that we are ready to start. We heard the customer journey, our shift to PUC as a method. All this builds up to what I'm now going to show you. We sent a press release already this morning. Some of you may have read it already. What we say basically is that we stick to the same financial targets and financing frameworks, which we have communicated before. The difference is that we switch, and now to answer your question, Simen, we switch the income statement targets, including the EBIT and the return and the dividends to the PUC model.
We stick with the balance sheet items on the financial frameworks and the balance sheet items on the frame. To repeat, what we say is that we're going to reach an operating EBIT above 10% in 2026. We should maintain a return on equity of at least 15% over time and that we should distribute 40% of net profit over time. We also have the financial framework to keep us sound in all this with an equity-to-asset ratio of above 30% and a net project asset value, which is above the net debt excluding leasing. All these are the same targets as before, but now from an income statement point of view, switch to PUC. Recapping a little bit on what we have tried to preach the whole morning, that is really that the profitability level is depending on volumes.
We believe that we have done the internal homework in reducing the cost and rebasing the structure, having profitable projects in our land bank ready for development. What remains is that the volume should return in the different markets. Mikael talked about the spring, and as you can see, spring in Sweden, it is sometimes sunny, and the next time it may snow. It will be a little bit of a bumpy road until we get there, but we are confident, given the demand which we now see on all the markets, that we will have this controlled growth and gradually take us there. We have 6,200 units right now ready for production in 2025-2026. How that is going to play out depends really on the demand, on the sales rates, which we are talking about. We cannot just start producing.
We need the sales rate and the markets to return accordingly. Otherwise, we would probably reach it faster because we are ready, as you heard the BU presidents. A gradual and controlled growth, and that then leads us to that we think that 2026 is the year when we have sufficient volume and market demands built up over time then. You can see that we had like the 2,000 units produced in 2024, and the year prior, it was 1,300. That trend we do expect to continue. Exactly when we will not give you guidance on, but we believe that 2026, as mentioned, is when we reach the more optimal level, and 2025 will be a bump on the road towards that. Let me just spend a little bit of time on the financial framework and how we look at it.
I mentioned that we have had a couple of tough years in Bonava, and you who have covered us and all the banks and shareholders, you have seen this from the outside point of view. I think in order to be agile as a property development company, you really need to have the building rights matching equity and the net project assets matching external debt. With the financial framework we have in place, we also need to give security to the lenders and to, of course, the shareholders that we do not build more than we can handle and where the demand is not there. That is why we have this financial framework to keep us sound and to keep us healthy in the financial model. We need the net project assets still to be higher than external debt to have that risk profile set.
As you can see, and we also said in Q4, we were on 1.6x in 2024. We also need this equity-to-asset ratio so that we have sufficient profitability embedded in the land bank and in the equity to tell our story towards the shareholders. That is why it needs to be above 30% also. It was 42% in Q4. We will continue to safeguard that we deliver on this financial framework, and that is also why we keep it. The second one, and this is an interesting one. We did not only reduce costs, but we have also reduced net debt significantly. This was a prerequisite because we were having a net debt as high as SEK 8 billion going into 2023. From SEK 8 billion- SEK 3 billion, this is also something we communicated in Q4.
A tremendous job has been done in order to reduce that net debt. We were not on a healthy level back then in the early 2023 when the market hit. We have done, again, a good work in reducing that one. You can also see that on the interest rate because that illustrates the risk profile our partner banks have put upon us, rightfully so, because we were in a lot of problems, you could say, back then with that high debt and with the very low volumes. We believe that it was the right level to be there, but we also believe that we are now slowly regaining the confidence, which will take us to a refinancing this year or next year, depending on the process. As you probably heard of, we did the new green bond, which was the first step out.
We're now working actively with project financing, in particular in Germany, which will create also a foundation there with the debt closer to the active assets. That's super important for us as a company. That will eventually take us in renegotiation also of the big corporate debt which we have. We don't believe that the absolute debt level should increase that much in the year or two. We do believe that we can lower the financial cost already in 2025 and definitely 2026. You heard in particular Sabine, but I think that goes for all the business units. We see two things in terms of investments. One is that we have a need to replenish building rights in regions which have been successful. In Germany, we have a number of cases like that. In the Baltics, similar, like we talked about Riga and so on.
We really need to add new building rights where we have consumed a lot of building rights in the last period of time. There is also a brilliant opportunity to actually acquire plots, which also Sabine alluded to. Now is the timing to actually get attractive prices with controlled investments. We won't do this headless and just run out and do investments, but we need to consider this in the next two years when it's attractive prices and where we have the need. All this builds up to what I'm now going to show. Again, recapping where we ended PUC 2024 with a 4% operating EBIT margin. We said that we would keep the 10% 2026 above 26, and that leads us to the 2025. What can we expect from 2025?
You who follow us, you also know that we had a lot of start of units and sales of units in the later part in Q4 last year. We will see that continue, but it takes time to develop the profit levels which we need, and it takes time to have all these units in production. We need to get the volume kickback of the cost savings we have done. That is why we guide on above 10% still on 2026, and that 2025 will be on the move towards that items. We would not have financial targets if we did not say anything about dividends and return on equity, but it is depending on so many different items. We talk about the refinancing and the financial cost.
We talk about the comeback on the Swedish and Finnish market, how fast can we achieve that one, and a number of other things like gross profit in the projects which we have support for. We believe that we will, of course, come back to that, but somewhere in 2027-2028 when we have first secured the financial framework and then done the investments we need, that is like the horizon we see when the conditions are good in order to reach these ones. I think that concludes what I'm about to say.
Thank you, John. We will now be opening up for the last Q&A with both CFO and CEO. If you're listening online, you have a box beneath where you see me where you can type your questions, so don't be shy. We will also be taking further questions from the audience.
First, I'd just like to check in with you, Jon. Will we be giving any more guidance on bottom line or other detailed numbers at this point?
No, we won't.
No, this is it. All right, then that's clear. All right, I believe we have a question over here from Simen again.
Thank you. In accounting in residential development, there is always the possibility to include interest rate costs as part of goods sold, being capitalized, being part of that, impacting EBIT margins. And last year, you had more than SEK 500 million in interest rate costs. How is that coped with the current targets? What is the correlation you expect going forward between financing costs and the EBIT margin, and how are these being seen together?
Okay, former CFO and the current CFO. If I start with this, this is something which we are looking into, and as Jon has alluded to, with more project-near financing, it makes sense to put the financing cost into the project cost. We need to look into that. Also, if I might correct you, Simon, you are right with SEK 500 million, but it is both guaranteed- costs and financing- costs. That is, to have a real take on the cost wherever it is in the P&L, to take it down, that is the major target for us now.
If I just build on that, I have been in this position now for three months, but it is definitely something on my mind. We need to take the total cost down in financial cost for the projects, but we also need a good measure of how to govern the projects also from a capital point of view. That would be one option. Let us come back to exactly how.
Given the run rates from last year, is that what we're supposed to think about us sitting on the outside as in the guidance?
It will be a reduction versus 2024, but it will be slower because we still have the same financing, you could say.
Thank you.
Right, that's a good point from you, Peter, that our net financial items actually include guaranteed cost, which is sometimes different in different companies. We have another question over here.
Okay, one SEB. First of all, you have this gross margin target for new projects at 18%, but what can be said about the ongoing production or the completed production? What's the project margin there?
Right, so what is the project margin in ongoing production?
We had in last year, as Stuart has alluded to, close to 12% in the reported gross margin. In the CEO letter, that not only the CEO is writing, we stated that we have a higher margin in the current ongoing portfolio than the ones we had reported. It is on the rise up, but it is also very much impacted by the tougher market we are coming from. Completing low margin projects and selling out the stock, as Michael has been talking about, will also relieve the pressure on the margins.
I also think that the margins that each of the Business Unit President has sort of talked about now give you an idea of how the uptake will be. It is volume dependent also on covering costs, indirect production costs. That is why we have sort of pegged the guidance the way we have do ne. This 80% component, as you have alluded to when it comes to the percentage of completion, also makes a more subdued impact in 2025 when we are early in the project completion compared to 2026.
How m any units in ongoing production do you need to reach this 10% EBIT margin?
I mean, we talked about it, so we need to start 3,500-4,000, but that is if you then calculate that our projects are typically one and a half year, so we need up towards 5,000.
Yeah, between 5,000 and 6,000.
Also a question on the net debt. It has come down quite a lot, which is due to reduced inventories and also due to fewer starts. If you want to increase starts, how do you expect this net debt to evolve in the coming years?
It will grow as we grow with volumes, but our idea, the whole concept is that we will not put ourselves in the position we were back in the day. We believe that, again, the debt needs to be closely linked to the projects we are running. It will somewhat increase 2025, but not dramatically, and then over time grow with the projects.
Also another question, the financials. Do we have any guidance on the ICR?
No.
Okay. No. Adding to that, we also saw from Sabine's presentation in Germany that in Germany, customers actually pay down payments when we start the projects, which means that not all projects need to increase our net debt. It's important. We have another question up front here.
Thank you. This is Fredrik again from ABG. I wanted to go back to Simon's question on interest costs. If we sort of exclude whether or not it's capitalized or not and just look at the actual underlying cost, how much lower sort of will it, how much cheaper is it when you get financing closer to the project than on group level?
This is a question to the banks and not me. No, but on a serious note, I think that there are gains, I don't know, I can't give you an exact number, but it's definitely lower spread in project financing. We need to deliver on the promise of those with the sales rates, correct sales rates in the projects in order to get that reduction, right? We need to provide the confidence to the lenders in those specific projects, and then we are able to reduce the spread. I talked about the risk profile, and that is really what we need to work with. We need to show that we sell what we have.
That is potential both in the project financing costs, but also on the central financing costs?
Exactly, yeah. Perfect.
A second question on SG&A. You talked about sort of the under-absorption of costs, and when volumes go up, you can move part of that to cost of goods sold, while at the same time you sort of ramp up volumes. That would sort of imply a higher SG&A just if we exclude the accounting. How do we match these two? How should we think about SG&A going forward?
I can start, and then you can fill in. I think that the key is really, and the message we're trying to convey is that there has been this big cost reduction program which was needed, and that puts us in the position we are now. The big benefits we have still is when we are growing the volumes without growing the number of resources in the same way, to have less fixed costs going forward and be more agile to the business cycles. Because the only thing we know is that this business is going to continue to move in cycles, and we cannot tie up too much cost, which makes us unprepared for the swings.
For me, it's really about productivity and efficiency rather than more cost reduction.
We have achieved roughly SEK 1 billion, which equates to both the visible S&A, as you saw from Jon's picture, but also the indirect production costs. The swing impact is quite important here as the volume bigs up, and that is also what makes us hit the return on equity targets later on. We had a question on the project margin. The project margin we expect to get up. In addition to that, the under-absorption of indirect production costs will be reduced as we increase the volume. Thereby, you will increase the gross margins. The selling and admin, we will work with efficiencies. We don't expect that to increase on the back of a higher volume.
Percentages will be better also there in relation to turnover.
Very good. Thank you for that. We have a next question here from Jan.
Jan Ihrfelt here. J ust to follow up there, could we expect maybe 5%-6% of about the administration cost compared to sales? Is that a reasonable figure?
I would prefer less, but I think around 5% is a normal level compared to net sales over a long period of time. As John said, if you then take the 10%, then the gross margin needs to be at least 15% in order to meet the operating margin target.
Okay, thanks.
Thank you. With that, to wrap up today's great discussions, I will now hand over to CEO Peter for some closing remarks. Go ahead.
Thank you very much, Sanna. I promise you, not a lot of slides between me and the lunch for you. First and foremost, I would like to thank you, all of the Bonnavians that have been part and making sure that we could host this fantastic Capital Markets. Thanks a lot to each and everyone, whether I can see you or not, but thanks a lot. If we just start with the map, you heard our Business Unit President's answer, we want to start new projects. This answer is where we are in the various markets. If we go to Germany and the Baltics, we are already on a decent level, and we intend to increase from this decent level. Mr. Spring, Michael is saying that we will start a lot of projects. Coming from a uniquely low level, that's a spike up in terms of arrow.
In Finland, you can see the L-shaped is the beginning of the spring and the preparedness of the organization. Selected project starts in the beginning and then gradually as the market improves. All in all, this will produce an increase, a controlled increase of starts. Having seen all the Bonnavians here, I'm immensely proud to be leading this team, and I'm immensely proud by all the actions that this team has taken over very challenging times. That puts us in a situation where we have de-risked Bonava to a great deal. We have a strong market and strong positions where we are. You have heard the testament to that from our business unit presidents. Further honed in, of course, by the way we are working with sales.
We have a much more efficient operating model, and I can't put enough emphasis on how important it is to have a strong decentralized business. We have a very attractive land bank where it will support our growth for the coming three to four years, and we have a stable financial position. Guess what? As Anna said, we are ready to go. Thanks a lot.
Thank you, Peter. I would also like to thank all of you for joining us today. Thank you for sharing your questions. If you have any unanswered questions at this point, our team is available for one-on-ones in the coming days. We look forward to tuning in the next time on May 9, when we will be presenting our Q1 report. If you are following us from home or from online offices, we wish you a great rest of your day. Here in this office, we will now be serving lunch. Once again, thank you.