This is the presentation of Bonava's full year report for 2022. The presentation will be held by Peter Wallin, our CEO, and Lars Granlöf, our CFO. My name is Susanna Winkiel. I am acting head of investor relations. After the presentation, there will be a Q&A session. You can either type your questions in the webcast or dial in to ask them in the teleconference. Now, over to you, Peter.
Thank you very much, Susanna. Good morning, everyone. Since this is the first time I see you digitally, I say also happy new year. We are presenting now the 12-month report of Bonava, and I would like to start with the market highlights. 2022 started off with very strong markets. It was a considerable slowdown in the Q3 as we reported about. Now when we close the Q4, we can see that the market has not changed that dramatically compared to the situation in the Q3. Our sales is continuing overall at a slower pace compared to the beginning of the year. It's notable that our markets in the Baltics and Germany are least impacted. If we look on Sweden, our home turf, because we're broadcasting this from Stockholm, this is the most impacted market.
If we take an overall view on the price level, it remains largely stable year-over-year. Of course, there are certain downturns compared to the peaks. This is also, of course, that we are adapting the supply in the market to the demand in the market. If we look on the cost component, the cost of building our homes, we can see that the increase level is continuing to level off. We are still not seeing a general decrease in costs, but this is to be expected throughout 2023. Another component of course, is the material prices have come down quite considerably from the peak, but the energy prices is sort of maintaining the production cost. This is something which I think that our business have been very good on handling overall if we look on our portfolio.
Let's go into the performance in the Q4. The Q4 for Bonava means the highest quarter in terms of activity over the year. Over the quarter, we handed over 1,744 units, and those are recognized to the revenue. The underlying gross margin was stable in 13.5%, which is still a considerable uptick compared to 2 years ago. This is of course because of us having ramped up the risk management within the company. Especially around how we are analyzing and addressing the starts of projects. When talking about the results, talking about the risk levels, we also changed the leadership in some of our businesses over the course of 2022.
When we have discussed and analyzed results, we have decided to take further write-downs of earlier capitalized development costs and also providing for identified risks in the Q4 when completing this overhaul of the Swedish operation. This is impacting Sweden by SEK 118 million in gross profit in the quarter and Germany by SEK 67 million. Looking into which laws will come into much more detail, we still have a solid equity to asset ratio of 31.2%. Of course, the comparison compared to last year, the big impact there is the write-down of the operation in St. Petersburg, the net asset value that we recorded. That is also then impacted the equity to asset ratio.
We are very selective in, on starts on investments, and we are very selective in order to be responsible for maintaining our stability over the course of the business when markets are very volatile. The write-down of the net asset value, as I talked about St. Pete, is reported and recorded as our business from operation that are to be discontinued. If take a look on the production starts and sold, we can see that we started 534 units in the Q4, thus not reaching fully the 3,000 that we dictated in the Q3 report. This is very much due to internal decisions that we have not met the 3 starts criteria that we have been very clear about, and to a smaller reason for not getting the building permit.
We have sold more than we have started, there is still a continued interest in homes. Let me give you a few examples of projects started in the quarter. On the left-hand side, you see the Parkstadt Quartier in Leipzig in Germany, where we started 94 units for investors, showing that the investor market is there and working. That is also something which we are looking into, namely converting B2C products to B2B products. On the right-hand side, you find the last phase of the development where we've been over the course of many years in Stockholm. This is the very last part of that phase. We have used an illustration here of the beautiful wintertime, and it actually looks that if you look outside the windows here from the office.
What you could see if it wasn't snow on the roof is also the solar panels that is used on these houses, and that has attracted quite some interest from the consumers and customers of this project. We alluded to in the Q3 result that we were going to review the financial targets. In 2021 when we presented the revised strategy for Bonava, we introduced earnings before tax targets in 2024 and 2026 in absolute terms. Those were very much underpinned by our growth, our growth in terms of volume and capital and so forth. Given the turbulence in the marketplace and volatility right now, it is not responsible to grow the business. It's responsible to make sure that we maintain and remain stable from a financial point of view.
That is why we have adapted the financial targets to be looking at the operating margin instead. I think quite a few of our peers is using the same metric. We want to be at least 10% in operating margin from the full year 2026 and forward. Why 2026? Well, since we are using the completed-contract method of recognizing revenue, those projects that we will record in 2026 needs to be started in 2024 and early 2025. That is why there is the natural one and a half year lag because that is how long time on average it takes to build and sell our homes. We have also introduced a new target when it comes to the net gearing, and that is to look at the recorded net debt and compare that to reported equity.
That should not exceed one time. That is also to show a certain volume part of EBIT percentage. That is also showing how we need to maneuver and address the volumes of the business over the course of the business cycles. With this, I also think that we demonstrate that we do aim to increase our value add considerably going forward. With that, Lars, I hand over to you.
Thank you, Peter. Good morning, everyone. I'll then take you through the more of the detailed figures. As always, starting with this one, the bridge of units recognized. As we estimated in our Q3 report, we said 1,840 units should be completed during the Q4. We almost reached that. 14 units less that were not completed. Of the completed units, 85 units remain unsold at the end of the quarter. We have sold some from previously unsold. We have also a change in balance of the sold completed but not recognized. That meant that we came out shy of the estimate with about 96 units down.
Going into the income statement, with those 1,744 units, we reached net sales of about SEK 6.2 billion. Not that far from the SEK 6.4 billion in the prior year, even though we recognized 400 units less. This is driven out of a better average price on a total. Also driven slightly about of currency translation differences, of course, with the Swedish weak currency. If you look at the gross margin, the reported gross margin is lower, significantly lower than the prior year. As Peter mentioned, we have taken further provisions on write-downs in Sweden. We've also taken provisions in Germany. If we are factoring them out, we are on par with the gross margin that we're reporting in the prior year.
Selling admin expenses basically in line with the prior year. Also, if you look at operating margin, factoring out these further write-downs and provisions, we are on par with the prior year. Our financial net goes without saying that it has increased with the increase in net debt, as well as increase in interest rates. Slightly lower tax rate also in this Q4 with some adjustments of positive tax effects coming in the quarter. We post a net income from continuing operations of SEK 211 million compared to close to SEK 500 million in the prior year. From the operations to be discontinued, i.e., the St. Petersburg business, we have close to SEK 900 million negative.
Of course, the write-down that we took of the net asset value that Peter mentioned is the main portion of that. As you see in the graph here, we are trending down on rolling 12 months in terms of gross margin. Of course, both in the Q3 and also now in Q4, we have taken charges affecting the gross margin. If we are factoring that out, we would have seen a trend that is flat to slightly improving. Let's move into the business units, starting with the biggest one, Germany, recognizing slightly less units than in the prior year, but both with higher average price and also currency effect here, we have a higher net sales than in the prior year.
A reduction in the gross margin in Germany is partly due to the provisions for warranties and also the mixed effect, of course, of the recognized projects in the period as such. As Peter mentioned, we are looking for the investor market, and here we have actually then managed to close both sell and start 2 investor deals of 154 units in the period. Moving to Sweden, here we have fewer recognized units than the prior year, hence the lower net sales.
We have a gross margin that is negative with the charges that we have taken, but factoring them out also on the Swedish segment, we would have recorded a gross margin on par with the prior year, and same goes for the operating margin. The slightly higher selling administrative expenses is mainly due to that based on a lower volume, that we were planning for, we have not been able to capitalize expenses, to the extent that we were planning for and to the extent that we were having in the prior year. You see that this is a very low quarter, both in terms of starts as well as sold units.
Moving to Finland, increase in the number of units, increasing net sales, improving the gross margin. We start to see now the stabilizing activities that we have put in to stabilize the Finnish business. We have a slowdown in sales to consumers. We have then made 2 investor deals, both started and sold in the quarter of 220 units, which is the main contributor then to the starts and sold units as you see here. Norway, less units recognized than in the prior year, partly due to, partly composed of completed and sold from previous period. We have an improved gross margin in the Norwegian business.
We have selling and admin expenses higher than the prior year, same reasons that I just mentioned, for the Swedish business. As you see, also very low volume quarter for Norway, no starts and only 50 units sold. Moving to Baltics. Even though they have fewer units recognized, they have improved the margin significantly over above the prior year. If you look at the full year, it's actually record operating profit in absolute terms in the Baltics in this year, 2022. They are selling, they are starting units. It's a bit worrying in the 3 markets that we are in. It's an ongoing business. It is not that slowdown that we've seen in for instance, Sweden.
Let's move over to Saint Petersburg, an update on the sales process. You've seen that we have now when we issued a press release about the write-down of assets in Saint Petersburg, we have now seen that the G-Group that we had a deal with, they didn't get the approvals from local authorities to go through with that deal. It has been canceled, but the sales process has been restarted. Since we are uncertain on the amount that we are going to be able to sell the business for, as well as when in time, we took the decision to make a write-down of the net asset value for the Saint Petersburg business to 0 in the group.
This is of course a non-cash flow item. As I mentioned earlier on, it's reported as part of the operations to be discontinued. Underlying the ongoing operations in Saint Petersburg is running according to plan. We have handed over 91 units in the Q4. There are slight delays, not on our part, but for technical reasons, for bureaucratic reasons. The completion certificates have not been achieved before the end of the quarter, and we hope that that will now happen in the beginning of the year 2023. Just to reiterate, we will not start any new projects in Saint Petersburg. Moving to the balance sheet. You see that the balance sheet has been growing almost EUR 2 billion compared to how it was by the end of 2021.
one and a half billion of that is actually currency effect, the translation effect. Here you see also that we have a write-down of the assets in Saint Petersburg. If you look at the comparison to the end of Q3, the reduction is of course mainly that we have handed over a number of units, reducing that balance. Looking at cash flow, slightly negative.
Normally the Q4 is a positive quarter from a cash flow perspective, but due to that we have less starts, we have not achieved the advances that we normally achieve, and we also have less investor deals, normally forward funded, where the cash is coming in by the end of the quarter, and hence a slight reduction, or a slight negative cash flow in the quarter. Looking at the equity to asset ratio, which is the main covenant in our funding, we have a covenant of 25%, and here you see that we are still over and above our own target of 30%, 31.2% in equity to asset ratio even though we took the write-down of Saint Petersburg.
If we wouldn't have done that, we would have been on a 33.5% level. Speaking about funding, credit facilities, we were then successful in amend and extend our revolving credit facility of SEK 3 billion just before year end. That is now extended into 2025. We have on centrally credit facilities of SEK 7.2 billion. SEK 2.1 billion of those are unutilized. In addition, we also have project financing facilities of SEK 1.9 billion, with SEK 0.4 billion of those unutilized by the end of the year. If you move into the land bank, the land bank has increased compared to Q3 and definitely compared to how it was one year ago.
In the quarter, the main increase was coming from the land acquisitions in the Stockholm area that we have announced, which is adding 550 units to our land bank. The book value of the land bank is now about SEK 10 billion. If you look at the total number of building rights, 32,700, 20,000 of those are on balance and 12,700 off balance. There has been an increase of on-balance converting conditional agreements and options to on-balance building rights. You see that 32,700, out of that, about approximately 60%, has been acquired in 2020 up to 2022. We are estimating that about 40% of those will be utilized, for starts in 2023 to 2025.
That means 13,200 units will be started, based on that, in 2023, 2025. 87% in multifamily and 30% in single family. As it stands right now, 82% in business to consumer and 18% in the investor deals. We are looking into potential conversions from the consumer, the B2C over to B2B. Rounding off then with how we view handovers, completions going forward. This is the B2C curve. You see 730 units we are estimating in Q1 to be completed. 30 less than we were estimating early on. They have been pushed a bit further into Q2, Q3.
If we then look at similar slide for the investors, we have 210 in Q1, same as we saw in the Q3 report. You can see that the sales rate for the investor deals are 100% except for in those quarters where we're estimating to complete our build to manage projects in the Baltics and in Sweden. With that, Peter.
Thank you, Lars. I will try to wrap this up. It's been an eventful quarter. I understand there is a lot of things to take in when looking at the report and looking at everything that we have been talking about. Just to try to recap this, we have a quarter which a very high activity quarter for us. 1,744 units recognized and handed over to happy customers. We are continuing to work, and we are showing an improvement of the underlying gross margin year-over-year. Then we have taken measures to reduce risk and cost for legacy and warranty issues.
I do understand the surprise for us doing this, but changing leadership in one of the larger business units, it has taken some time to complete both a complete review of the business as such and also the need to adapt the organization after the way we're going to work in the future. I'm very much convinced that the new leadership in Sweden have identified the right way for Bonava in Sweden. We have also launched the revised financial targets. As you've also picked up, as you know from the strategy, we have divided our business units in 3 different pockets. We have the right to operate and the right to grow needs to be handed over to the units who can grow.
2 of the units that need to show stability has been Finland and Norway. As you saw from the numbers, both units are improving their performance, especially Finland is improving the performance. Against the backdrop of the investment need in the land bank and also the low volumes concurrently in the Norwegian business, we are undertaking a strategic review of the business, where we're looking at different options going forward. The main focus for us is to maintain financial stability. Thus, we need to be selective on starts and investments, and we need to safeguard that we have the right prerequisite to be there when the market is normalizing. The long-term need for sustainable housing in our core market is really strong. We are there for the long run. Thank you for this. Susanna?
Thank you, Peter, and thank you, Lars. Now it is time for our questions and answer session. The first question is from Simen Mortensen at DNB. He wonders, the cut of dividends, how should we look at this versus the new financial target, net debt that will not exceed 1 times of visible shareholders' equity?
Shall you start?
I think that, in these times, challenging times, it's very important that we are safeguarding our balance sheet. We have a strong balance sheet, but it's also important to see too that we have the capacity, if there are opportunities arising. I think that has been very much about the reasoning from the board and the recommendation.
It's also very important. It's a good question, Simen. I think with relations to the financial targets and the net gearing specifically, we have quite a headroom compared to that. It is also the current volatility in the market that we need sort of take height for and, as Lars says, the opportunity. So it's a balance of the 2. Of course, one should also be reminded that we took SEK 900 million out of the equity through the write down of St. Pete. So again, this is to build us stronger, making us able to actually deploy the very attractive land bank that we have of close to 33,000 units.
Yes. Thank you. We have one more question from Ronny Blankenberg, who wants to know, will you suspend the dividend or alter the dividend policy to reduce the time to the financial stability targets?
The dividend policy speaks about 40% of net profit to be dividended over a business cycle. Actually we are... If you monitoring in the 0 that the board is proposing to the AGM, is we are actually somewhat below 40% over a few years. So this, we do not need to amend the dividend policy against the proposal from the board.
Very good. Let us see if there are any questions from the teleconference.
If you wish to ask a question, please dial star 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from Erik Granström from Carnegie. Please go ahead.
Thank you very much. Good morning. I had some questions as well, starting off perhaps with, what you were talking about in terms of, development costs. It seems like you mentioned that you see a slowdown in the increase of construction costs, but at the same time you're talking about material costs coming down, whereas energy costs are basically flat. Could you elaborate a little bit of what you mean about a slowing increase, but still an increase, but then a decrease in terms of material costs?
Yeah. There is derivatives in all directions, negative and positive. I understand the confusion, Eric. For example, if you look at a concrete slabs, we have the steel in the slabs have gone down in terms of price. The energy consumption that needs to be driven in order to produce the concrete has gone up. There you have all the balance on that is really creating a leveling off impact at a high level.
Okay. Thank you. No, that's clear enough. Then you're talking about converting into investor properties from consumer properties. Are you looking into this in all markets? Is this a strategy that's more specific to a specific region?
I think that there are a number of business units where this is more of a, of a modus operandi, a way of working, and that is specifically the Finnish and German businesses. Here you can, you have a working market in both the rental part and in the consumer part, so you can sort of flip back and forth. You don't have that big differences in terms of the layouts and the finishes and so forth between the 2 products. You can easily convert and go between. When I say easily, it takes a bit of negotiation. I don't want to undermine the work that is behind it, but it's feasible in a much simpler way.
It is also applicable to some Swedish examples, but of reasons known because you have certain limitations of how the rents are set and so forth. You might have a bigger challenge there.
Okay. Perfect. Thanks. Regarding in the report you state, You talked about the basically the SEK 370 million in savings as of first of January 2024. I was just wondering, do you expect that to entail any additional cost as well, or have those been taken in order to achieve these kind of savings?
Those costs have been taken in the SEK 56 that was provided in the Q4, and also the cost that was taken in the Q2.
Okay. Okay, good. A question regarding Norway. You're talking about the review in Norway, but perhaps you could help us understand the sort of the strategic logic behind this because it's a strategic review, which means I don't think it has anything to do with sort of a market outlook, because that's usually something that's more short-term. Could you explain a little bit why you're looking into Norway now specifically, versus, for example, a year and a half ago?
Very good. Thank you very much. Thank you for giving the opportunity to clarify because I understand that I was not as clear as I intended to be. No, we have not changed our view, our overall positive view on the Norwegian market. The Norwegian market, if we look into the developments over the course of 2022, the Norwegian market is one of the more stable markets in terms of price development and demand. The market conditions are there. If I step back to the strategic review that we did and also on how we displayed the various business units and the license to operate, where we put Finland and Norway in get the basics right.
I think Norway has taken quite a few steps on get the basics right, and we are now in a sort of a fork in the road in where we need to grow in order to come up to a sustainable level for the business. Given where we see the best track record of performing and that investment need, namely Germany, Baltics, and also now Sweden, I would say, well, then we need to prioritize. It's under that part that we are looking at Norway. It's not only to look in the divestment part, we are also looking into how we can work together over the business units, because as you know, the chunk of the operational cost of managing a business is quite high as a start cost, and that impacts sort of how you can operate and how you can operate efficiently.
Okay, thank you. Then my final question was, it's a bit of a sort of technical one for Q4 specifically. Could you break down the financial costs a little bit in terms on a group level versus what we saw in Q3, just so that we understand a little bit the change Q on Q? I assume that the business that basically Russia is stripped out of that.
Absolutely, Erik. That's absolutely right. That's reported as part of the discontinued operations of course. Yeah, we see a gradual increase. We haven't got a dramatic increase in net debt over the Q4 compared to the Q3, but we start to see the increase in underlying interest rates, of course. That's the major reason for the increase. Including in the financial net, we have fees for facilities, et cetera, but that's a smaller portion. The increase is coming from the rise in interest rates.
Thank you very much. That was very clear. Those were my questions.
All right. I have a question from Fredrik Stensved at ABG Sundal Collier. Says that there is usually a seasonality effect in the equity ratio, where Q4 is higher than e.g. Q2, Q3. However, you have a lot of completions upcoming in the next 18 months. Can you give any comment on how you think that the equity ratio will be going forward into 2023?
Yeah, we are not giving any forecast, of course, but if it's start with Q4, it's like I'm saying that with the write down in St. Pete's, that is having a 2.3% impact. Everything else equal would be on 33.5%, which is a bit shy of what we have normally seen in Q4. What has also impacted are of course the currency effects with the increase of assets as having the equity not increasing at the same rate. Going forward, we are of course estimating to hand over based on what you're seeing in the report and to realize profitability on that. We will see an increasing equity as we go.
Our assets, as we will be more careful with starts going forward, I don't think that we will see the increase of the ongoing production to the same extent that we saw, for instance, in 2022. Not, i.e., everything else equal, not growing the asset base in the same way. We are not going to acquire land to the same extent as we did in 2022. The unknown is of course how currencies will move our balance sheet going forward.
As an add-on.
Yeah
For me, that effect, is sort of the equity and the, and the assets are moving in the same direction on the FX component.
Yeah.
If I can build upon what you're stating.
Please
... one thing you need to bear in mind is the fact that when we are acquiring land in different models. Sometimes we do negotiate a smaller part being paid up front and a bigger part paid when receiving the zoning plan and so forth in order to balance the risks we are taking in the zoning process, both in terms of how much building rights we can get and also in terms of time. During 2023, we expect to pay some of those lands and keep them on balance. They are very attractive pieces of land and building rights, so it's the absolute right way to do. That you need to build up.
We will not be very active on buying new, but we have commitments to buy land which will be then seen through the cash flow and balance sheet also, just to add to that.
Very good. Thank you. I have one more question from Simen Mortensen, who wants to know how have Bonava been adjusting selling prices the last months, given the drop in used home prices in several of your markets?
I, we have not dropped the sales price significantly. I would say we have moved them very little, as I was alluded to in the start commenting the market. What happens is you do withdraw a number of projects from the sell list, so the supply reduces. The other thing you do, you're looking at it other kinds of measures in order to improve the offering. If, if we continue to look back into the single family housing project I was talking about in Stockholm with the solar panels added, in the project as a selling point, that increased interest. There are various ways other than just adjusting the sales price.
Very good. I believe that was our last question. Once again, I would like to thank you, Peter. Thank you, Lars, and thank you for listening.