Good morning, everyone, very welcome to Bonava's Q3 report presentation 2019. My name is Louise Tjeder, I'm Head of Investor Relations. This morning you will listen to the CEO of Bonava, Joachim Hallengren, and CFO Ann-Sofi Danielsson. Joachim will begin the presentation, take you through the highlights from the report, followed by Ann-Sofi, who will take you through the development for the group and the segments, both financial and operational. After some concluding remarks from Joachim, we will open up for a Q&A session. With this, I hand over the word to Joachim. Welcome up on stage.
Thank you very much, good morning all. Q3 report for Bonava. Looking at the highlights, we had a net sales on approximately the same level as last year. However, I would like to point out that the benchmark with Q3 2018 is really tough when it comes to result. We were still harvesting projects from the super strong market, not least in the Swedish operations. We had a profit margin that was record high. Comparison is a bit unfair. Looking at the earnings, 162. There we are also taking into consideration a dispute, a legal settlement that we did in Germany. That was a never-ending story. Now, fortunately, it's ended. I'm sorry that it costed us approximately EUR 10 million. It has its birth in a project that was finalized by us, who were then a construction company, and it was finalized in 2005.
The legal dispute started in 2008, had dragged on forever and ever. We have switched judges. The old judge actually retired, so long have we worked with this case. To our disadvantage, the interpretation of the legal dimension and our position actually changed over time. I'm glad it's out of our books. I'm sorry that it costed us some money. This will not happen again. Again, Bonava is only a developer in all regions and should not work with any construction business whatsoever. However, looking at the more leading indicators, I'm really pleased to see a lot of activity in the quarter, not least in the sales area. We have really strong sales, not least in Sweden. I think we have to go back to Q3 2014 to see such strong sales development. Pair to pair, the sales in Sweden is up with 140%.
I will be back to comments regarding the market, obviously we confirm that the market is stabilized and that the consumer confidence is somewhat back. Also strong sales in the Nordics and in Germany. We also display the total value of all sold, but not yet profit-recognized units, that's also up. It's up with almost 13% compared to Q3 last year, it's totaling to SEK 22.2 billion. It's a substantial sum that is already secured in our ongoing portfolio when it comes to sold units. Starting units is also starting to catch up, especially from first half of the year. However, I will already now underline that we will not be able to catch the 2018 level in Germany as we have flagged, because the authorities are still a bottleneck when it comes to handling, especially of building permits, but also of zoning.
We believe that it will take somewhat into 2020 before we will be back into full volume again. It's due to the fact that we're actually starting mitigations a few quarters back. We are sending in more building permits. We're pushing the planning of projects. Yes, to have a redundancy or a buffer in project, because it's very hard to foresee which projects move quickly through the system and which do not. Of course, in the end, I'm talking about Germany now especially, it will affect our sales because a lot of the sales is done by the fact that we actually can launch a project and start it on the market because it's first then that we can tell the customers, clients when they can move in, and of course that's essential. Hopefully we are planning to bounce back during 2020.
We also acquired a really good and interesting company in Oslo. I will be back to that, Urbanium AS. We are reentering the Oslo region. Remember that we were once there. We actually decided to leave, not due to the fact that we didn't believe in the market situation, but actually we doubted our own ability to deliver in that market. Now we have had a fantastic opportunity to do an acquisition, and we did. I will be back to that also. I would also like to stress that when you work with long-term processes, it can sometimes be really frustrating that we work with quarterly reports because just today, somewhat delayed, we can report that we have sales started to really strong consumer projects in Sweden.
Last night, we will also confirm that we do have the green light to start the production of 169 rental units in Lund. I was hoping to put it in another report, but it was a few days delayed, but it's there. A lot of activity going for building the future profitability and volume of the company. Looking then a bit closer to sold and started. As I said, consumer sales are up, investor sales are also up. However, you know me, investor sales there are not evenly distributed. It doesn't really say much, but there is a lot of activities, a lot of interest around investors. If you look on year to date, you can actually see that the total sales is actually a few numbers higher than last year. It's a good activity in the front end of the business.
Looking at started units, there we see that we are trailing slightly behind last year's. Don't put too much attention to the investor side because it's connected to the sales, and as I said before, they aren't evenly distributed. Q3 was more or less on par with last year, if you look on the aggregated numbers for year to date, you can see that we are trailing somewhat behind when it comes to start. Most of that is actually tied to the bottlenecks in authorities in Germany. Of course, we're suffering when it comes to starts all over the place. We were really happy to start a consumer project in Umeå that was more than three years delayed due to appeals from one private individual. It is really painful that we are dependent on so many external factors.
It's actually part of our business environment, and we have to live with that. That gives unpredictability. Units on production, more or less the same level. However, we have been able to increase the sales ratio 2% up, which is also a very clear indication that the activities are on a good and solid level. As I said, SEK 22.2 billion already secured in sold units, not profit recognized, up from SEK 19.7. Leading indicators looking really, really strong and promising for the future. This is the market, how we see it. There is a strong demand in Germany still. I'm aware that there are signals coming in when it comes to the German economy in general and the automotive industry more specifically. However, there is also indications coming in that the growth will bounce back next year. We see that, we recognize that.
However, we can see no impact in our business up to date. We monitor that very closely. We are in the affordable segment. We have a very strong market position. As of today, we do not see an effect. Of course, no business is an island, so we need to keep track to see how that develops. Swedish market, really strong sales. As I said, I think that the consumer confidence is back. You dare to buy a new apartment. You dare to make an assessment of the value of the current home that you have. We see it both in the numbers of people showing up at our showings, but we also see it in the conversion ratio. That is really promising. However, price levels are pretty stable. They're down. You can see in statistics that different markets react slightly different.
If you're really into the numbers, you can see that there is a slow but steady increase. We need to remember that's a mix of new built and secondhand market. We are happy, and we're pretty confident that we are on a stable level. Will that stay? I don't know. There might be external factors that can change that. It might also be sort of internal factors. What if a major player comes into liquidity issues and start pushing out a lot of units on a lower level? Will the market be able to absorb that and bounce back, or will that set a new level? However, we are really pleased to see that activity is up. Focus in Sweden now is to start more units. Norway is stable, goes both for Bergen and for Oslo. I would even say it's strong.
Denmark, with that we mean Greater Copenhagen, is more hesitant, as is Finland. Greater Helsinki is stronger than rest of Finland, it's still something that we need to monitor. St. Pete and the Baltics is working really, really well. St. Pete, Russia's interest rates are around down to a record low level. For us Scandinavians, 7% is really, really high. For a Russian citizen, that's sort of more or less unheard of. Many generations have never seen that kind of low interest rate. Of course, with oil price coming up, the confidence is growing much stronger. You can also see, even though St. Pete, Baltics is a small business area, that they are really contributing with great margins, good IRR or ROCE in their province. I'm really proud of this business.
Investors, there's so much money out there that need to be invested, and a lot of that goes into real estate. We're really well-positioned for that. These are two well familiar graphs. It underlines our strategy. You can see that as of now, Germany is almost 50% of our sales value and is on behalf of the Swedish operations. I would stress that it's not only growth in Germany that does that. It's also because the Swedish market is suffering from being a bit too small in scale. I wouldn't say that we're looking at a 50% market share for Germany, but Germany should be the biggest market, and we keep growing that. However, we'd like to boost the Swedish operations a bit now when things looks more stable. Looking at the right-hand side of the picture, then you can see the volumes.
Pretty interesting that we then have three segments, as in units. Units is activity, right? Then the sales prices can be very different. That's sort of the speed of the business. The three units are hovering around 20%, 25%, and then we have the big chunk in Germany. We're walking the talk. Our focus now, again, starting more units in Sweden, so reclaiming the second position. They're pretty evenly distributed. I think that's a really good position to work forward from. I would like to introduce you to four really good projects that we have started. The first one is a rental project in the outskirts of Berlin, Märkische Allee, 232 apartments. This is the first of 3 phases, so we're working with a second phase also, rental apartments. The third phase is condominiums for consumers.
This is one example of a pretty large development scheme that we work with in greater Berlin. One of the starts that we had in the quarter was in Linköping. One of our strong markets here in Sweden in a development area called Södra Ekkällan, where we have developed a lot of projects. This is Tennax-bron, 52 apartments, really well received by the market. Selling really well. Moving over to Finland, Postinkuja in Helsinki. Also really strong sales in that project. Last, but certainly not least, Biskopshus. Phase number 1 out of 3 in Bergen, also a consumer project. A good blend and mix of what we're about. Rental apartments, and then also consumer markets in all our segments. I will finalize my presentation with a few words regarding an activity that we're really proud about, and it's the acquisition of Urbanium AS.
Oslo-based developer that we acquired during the quarter. The competition authority approved the acquisition the 16th of October, and we are consolidating the operations in the Bonava operations from the 1st of November. I think this is a pretty fantastic history because many of you have asked me about what about acquisitions and mergers? I said, "I'm pretty reluctant because I would prefer to grow organically." Buying a business can be sometimes pretty tricky. I've said that the M&A tool is in my toolbox, even though not on the top. I also think, as I stated, as I do often, that I could by experience recognize a golden nugget once I see one. In this case, we were actually approached by the owner off market saying, "I've read up on Bonava. I really love your business idea.
I love your values, working with affordable." I spent hours with Espen Moe, who owns this company, not talking about cash flow or EBIT. We talked about values. We talked about what was important, changing the game in history. He was looking for a new home for his seven or eight employees because he wanted to retire. He found that in us based on our business idea, based on our values, and based on who we are. We're really proud to accept them into our family. It also gives us a re-entry in a very interesting market, Oslo. They bring competence, skill, and dedicated personnel, and they bring 1,000 building rights, whereof we have started 50 and are expecting to ramp up more. We just need to do it in the Bonava context.
There will be a lot of positive things coming out of Norway in general, but Oslo specifically with this acquisition. I'm really proud and happy to welcome them into the Bonava family. A lot of activity in the quarters, a lot of things in the front end. Leading indicators are looking really strong. With that, I would like to hand over to Ann-Sofi to talk more about the numbers.
Thank you very much, Joachim. Some words about what has happened during the third quarter. To start with, I take the opportunity to go through our financial objectives and see where we are. Return on capital employed, 10%-15%. If we exclude the settlement that we've had in Germany of SEK 100 million, we are at 9.7% for the last 12 months. Equities to assets ratio to be above 30% is our objective. We are very close to that. Finally, our earnings per share the last 12 months, a little bit more than SEK 10 for the last 12 months. That's where we are. It's a tougher quarter, absolutely, when it comes to EBT. I will try to give you some background why that is. We have a net sales more or less at the same level as last year.
We have selling and administrative expenses same as last year. We have this SEK 100 million that is the cost for the settlement in Germany that we have talked about. If you see here also that we have a positive development when it comes to our net financial items. We continue to reduce our debt in RUB. We have a very low financial net now, negative financial net, but on a lower level than last year. The tax, 25%, that is what you should expect from our business. That is also what we have here in the third quarter. 25% on SEK 36 million. A net profit of SEK 27 million. Going back, the gross profit here is lower than last year. Why is that when we have more or less the same net sales?
If you look at this, I think that that could help us to see where we are. We have recognized 870 units to consumers this quarter, 284 to investors. More to consumers, less to investors. If we dig a little bit deeper into this, Sweden here, for instance, fewer to consumers than last year. If you dig deeper into the Swedish numbers, you can see that the operating margin is lower than last year. The reason for that is that we have reduced prices on those units that we have recognized, giving us a lower operating margin. We have also increased costs in the Swedish business. That, all in all, has given us a lower operating margin for the Swedish business. The other big thing here is the Nordic segment. More units recognized to consumers, somewhat less to investors.
The big thing is here that we have increased cost in the Finnish operations. That has hit the operating margin in the Nordic segment in this third quarter. That is something to remember. One other thing to say is that actually, the third quarter last year was exceptionally strong. We said that already back then, that it was a very strong quarter since we recognized so many units, especially in Sweden, with very high and good margin, and that was really exceptional. That is also something to bear in mind. If we continue then and dig a little bit deeper into the segment, starting with Germany here. One quarter could be a little bit tough to look upon because it depends on how many units we have recognized, where they are, and what are the margins on those specific units that we recognized in that specific quarter.
If we look here at the German business, where we invest so much, we continue to grow the business. If you look at the rolling 12 months period, which is more relevant to look upon here, and also with a good and stable EBIT margin in Germany. A good development here. Joachim pointed out here that we have struggles with the authorities in Germany, which affect the number of starts and that also include the number of how many units that we have sold. You see that here, that even though we have quite high number once it comes to sales and sold and started units in Germany, especially the started units are lower than last year due to the fact that it takes longer time to get the building permits and be able to start the projects in Germany.
Sweden then, reduced somewhat lower net sales 12 months, lower margins due to the fact that we now recognize more units with reduced prices and also some cost increases. The margin is down in the Swedish operations here. But as Joachim pointed out, really good leading indicators for the future since we have sold so many units now in quarter three to consumers. That is also for the whole year, actually, for the whole period, January to September. Very high sales in Sweden, giving us a good platform for the future. Nordic. Here, unfortunately, we continue to have a low margin in these operations, mainly due then to the fact that we have had these cost increases in projects in Finland. That's the main reason why we are where we are when it comes to EBIT margin in the Nordic operations. Strong sales to consumers.
That is also what you can see here on this slide, that we have sold well to consumers, both in the quarter and also for the whole period, January to September. Finally, our smallest segment, St. Petersburg Baltics. A small segment, but a very good development. We have expanded the business especially in St. Petersburg, and that has also come with a good development of the margin. The number of units that we have sold for the whole period, January to September, is on a quite decent level as well. We have started also a good portion of new projects for the future. All in all, 10,300 units. That is what we have in our portfolio with a very good sales rate, as Joachim pointed out.
Just to show you here the development of the value of the units that we have in our portfolio that are sold, not yet recognized for profit, more than SEK 22 billion at the end of quarter three. We have started good projects that are sold, giving us a good platform for the future. Also looking into the future, how these 10,300 units, when are they expected to be completed, and then able to recognize for profit if they are sold. Here you have the forecast, the estimation from us, when we expect them to be completed and possible to hand over. One thing to comment here is that we have more units in quarter four to be completed than we expected when we did the last forecast in quarter two. They are fewer than last year.
We had more units to be completed in quarter four last year than we have this year. That is something to bear in mind when you look at this. This is for consumers, and this is for investors. The same goes for both of them. Our total assets increasing. The main reason is that we have increased the number of units that we have in production, the dark green part of these bars that you have here. Of course, we also have more units completed on our balance sheet. If you look one year ago, that is the brown part here of the bars. That part has increased our total assets, mainly here than in Sweden. That's also something to bear in mind when you look at this.
We have a cash flow in the third quarter here, more or less of zero improvement from last year. The main reason for that is that we have a more positive development when it comes to development of our working capital. More cash flow coming in from that part of our assets. Cash flow, as we have pointed out many times here, is that we have a very strong seasonal development of our cash flow with a high outflow in quarter two and quarter three especially, and normally a positive incoming cash flow in the fourth quarter. That is also the development for this year. All this has given us a net debt of more or less exactly the same level as we had when we ended quarter two.
I always point out that bear in mind here that we have net debt here in our tenant-owner association housing companies due to Bonava's way of accounting for these units. That is also something to bear in mind when you look at this. Of course, other net debt has also increased during these last four quarters. The main reason for that is that we have increased our investments, especially than in Germany. Increasing operations, increased capital employed that we use in our business. If you go back from where we started, we have increased our capital employed by almost SEK 5 billion. The main investments that we made during these four years have been made in Germany, as we've said so many times. Here you also have how the return on capital employed has developed during these four years.
2017 was an exceptional year for Bonava. One thing was that we sold land in Sweden, giving us a very good profit, a one-off in our result for that year. By that, Joachim, do you want to summarize the quarter?
Thank you. You can stay here with me because this will be pretty quick, I think. Thank you. We will have a Q&A just after that.
Yes.
Again, just to wrap up the quarter, a lot of activity in the quarter, a lot of forward-looking activity with leading indicators moving definitely the right way. Good momentum in Germany. We are stepping up the number of stores compared to the first half of the year. As I said, we will not reach last year's numbers, but we have a plan to mitigate that. We hope to be back on track in 2020. It's not related to the market situation, it's related to the bottlenecks in authorities. Strong sales development, especially in Sweden. We're really proud regarding that, and focus in Sweden is now on moving over to starting more projects. We talked about the sales value, the SEK 22.2 billion already secure in sales in the ongoing portfolio, which is on a high level. We're up from 70%-72% already sold and secured.
We have what is actually most annoying in the business is the cost overdraft in some projects. That's really awful and unacceptable, and we are mitigating that with strong action, and that is especially in Finland, some of that in Sweden as well. We strengthen our position in Norway by the great acquisition of Urbanium, which we are now integrating into the business. With that, Louise, would you do us the honor to facilitate the Q&A session?
Yes, I will. Thank you, Joachim and Ann-Sofi. Just shortly before we open up for questions, if you want to ask a question here on the floor, just signal to us, and you will get the mic. You can also ask your questions on the phone via the operator, and also type your questions on the web. With this, we open up for Q&A.
Stefan Andersson, SEB. A few questions. First on Finland and the Nordic division. If I don't remember incorrectly, the Finnish operation has been a little bit of an issue since the separation from NCC, and it seems to be escalating a little bit in this quarter. Could you maybe elaborate on what the problem is and what you're doing to actually fix this?
Yeah. You're totally right. We have been suffering in Finland. It's way too late to blame the separation. I think this is the human factor a lot. We have fantastic projects in Finland. We have projects with almost 30% margin, then we have a few with a lot of loss. In those projects, we have not had enough cost control or governance leadership. It's just to admit that. We're trying to mitigate that now. We are changing a lot of people from site management to top level. We are restructuring the organization to make it clearer that the responsibility and the organization, it's really obvious where ownership belongs. We are introducing a lot of processes, systems, and toll gates. Now, these are projects. These are basically three projects that we lost a lot of money. They are already finalized or in the verge of being finalized.
They were started in 2017. Still, it's really annoying. You've been following the construction industry for a long time, and I really hope that this, I mean, we will not end there, where this is a never-ending story. If you ask me if this cannot happen again, unfortunately, I have to say, I don't know. I hope not, and we're taking all the measures we can to seek to stop this. We can't blame anybody else but ourselves in this case.
You have lots of completions now coming in the fourth quarter, and what you're saying is that all these problem projects are done and handed over by this quarter or Q4?
That's what I would hope. That's what I've been told. Would I put my head on the block for that? No.
On Sweden, you staff up, as you say, in Sweden, and at the same time, we're seeing poor development on the starts. Do you expect a rapid comeback, or is there a risk that you need to adjust your organization in Sweden to meet the current operation?
I don't believe in quick recoveries. I have said that many times. I mean, it often takes much longer time for a market to cool down and also to bounce back. When it comes to the organization and sizing in different units, that is a question we work with every day, more or less. We always try to be optimized, but it's not only sizing, it's also competencies. What you have to remember is that when we were spun off at Bonava, we have a very clear idea and a strategy that we will include some new competencies, which is design and production. We are working with this content, but if you follow the numbers of full-time employees, you might not see that they are going down, but they are actually. We are redistributing from front end to rear end and so on.
Every unit is being scrutinized all the time. Of course, we need to adapt if the market changes, but that's not a one-timer. That's something we tweak with all the time.
The final question, you sold some land quite a long time ago.
Yes
I think Ursvik.
Yeah.
Just remind us, could that come in Q4? What kind of numbers are we talking about here?
We truly believe that we will see the end of the story in Q4. The zoning is now in place. Now it's a lot of regulatory things. I don't know the English term, "lantmäteriförrättning." A lot of officials are doing all the handy work there. I hope we will be done in Q4. I can't promise that. We are lined up to hand over to the sellers. The sellers are big corporations. Of course, they will honor the agreement, I cannot promise you that that will not be delayed for things outside our control. The good thing with this is that would be the end of the story, which you who follow us closely really hate, the pending profit from land sales hanging over the company. With Ursvik, that will be done.
Do you have profits or a sales number that you could?
I don't think we have communicated that right now.
Okay.
I think you all have your kind of estimates where we are eventually. Okay.
SEB. We have another question from Niklas Höglund at Nordea.
Good morning. A couple of questions, if I may then. Moving on to profitability. I mean, looking at the numbers, it's really scary in Sweden. Margins are coming down to 3% if we exclude the sales from land. You've been clear of one of the reasons, what about the underlying profitability in your portfolio now in Sweden? Should we expect the margins on starts to be on similar levels since prices are not moving up, really? What's your take on Sweden?
That's a challenging question to answer. We said, I really support that statement, that we will see a lower profit level going forward in Sweden for a time now. As you correctly addressed, the market is down. The construction costs are not down. That is not the same thing that we will start projects with single-digit profit margins. Not at all. There is also a volume factor in this quarter when it comes to Sweden, when it comes to handed over units. Of course, we're growing the company. That is one thing that you need to take into consideration. It's very easy to look and say, "What do we profit recognize?" Our staff is working what we should start tomorrow, next week, and two years from now. Maybe started units and the portfolio we're working is a better assessment.
Of course, I know that the starts have been down, soft in Sweden. That's something we work with very much. Yes, we will see a lower margin in Sweden for a while forward. As Stefan pointed out, we need to boost the starts. We are sub-scale as of now. There will not be a fast recovery. I hope I'm wrong when it comes to recovery, but better safe than sorry. 3%, that's also a lot reflected on the size of the company growing and the volume of profits recognized. I think that's way too poor.
Right. A follow-up on that. In the second quarter, margins were also down, and earnings were quite soft. We were told that you had one more of a strategic project that was finalized with a, you can say, structurally lower margin. Is there any one of these structural projects now being finalized, or any sort of extraordinary costs related to finalization in the quarter?
Structural project, that's a nice way for saying a really poor performing project. Actually, it was a consumer project that was turned into an investor project, and on top of that, poorly managed. Yes, there are some extraordinary costs in the sense of project overdraft that also hit this quarter from projects started long time ago. I think it's very important to confess that when you try to convert a business, doing new things, you need to understand that you need to crawl before you can walk, before you can run. Yes, we have done beginner's mistakes, but there is also, as I pointed out in Finland, and partly of the other project losses, we have not been on top of our game. That is just not good enough.
Yes, some extra project overdrafts hitting this quarter, but no strategic, if you mean conversions or anything like that. Just poorly performing projects. A few.
Moving over to Germany, it's the best contributor in the quarter. We are also seeing that margins are coming down compared with last year.
Could you help us a little bit on mix or costs, or what is taking down profit margins?
I will try. I think it's 12+%, so it's really a strong margin still. What we're seeing, there were a few more consumer handed over, a lot less investors handed over. Normally, investor deals have lower margin than consumer deals. Last year, the investor deals were on the same level as consumer deals. Of course, that volume hits us. Again, sorry, it's a mix where we hand over. I wouldn't be too worried about the German margins going forward. I talked about the margins in Germany. We are improving bit by bit, point by point. 14% is extremely good margin. I think we were around 13 point something last year. 12 is a bit weaker, but I think we should see that over longer time, while 14 is really well performed.
You don't think we should adjust the margins in Germany for the investment of land? I get it down to 10.5% if I adjust for that gain. That's why I'm asking.
That is really on the soft side.
Yeah.
You may, if you like. I hope to surprise you then. 14 is high, and I think 10 is way too low.
Okay. Good. My final question then on starts. You recovered in Germany now, which we're happy to see.
We're ring.
We're recovering in Germany. Q4 is really when it's happening in Germany.
Yeah.
You started, what was it? 750 units now, and in total it was 2,900 for Germany last year for the full year. What kind of level are you aiming for? Should we expect the same kind of level as we see in the third quarter also in the fourth quarter? Are we talking about down 10% for the full year, or are we talking about down 50%?
I have to think a bit. Last year's starts, were they exceptionally high? I don't remember. They were pretty high.
They were high in the fourth quarter. Yes, they were.
They were high.
There's 1,000 consumers, I think.
Yeah.
I think what we can say is that, first of all, as you have pointed out, the building permits takes longer time. That is one thing. Also that we have the portfolio in Germany that we have right now is rather high. If you look at the growth that we've had in Germany since we started. That's why what you can say is that. The last year was exceptionally high, and it takes longer time for us to get the permits, and we are also ourselves on a very high level when it comes to the whole portfolio.
Yeah, I'm sorry for reflecting because I have to slice and dice this cube in many dimensions, right? How many stores did we have last year in Q4 Germany?
On consumer side, it was around 1,000.
1,000.
Yeah.
Yeah. I think we will be trailing behind with somewhere between 400 and 500 compared to that quarter.
Right. Okay, still a recovery then versus the first half.
It is a recovery, especially looking to Q1. It is pretty tough, and it is very hard to predict. Sometimes we get the building permit in three weeks. We are still trading with one. We are into 11 months now.
A follow-up question on that now. Previously, you're able to sort of deliver, well, profit-recognized units in Germany. Well, also units started into the year up until the second quarter on the row houses side.
Yes.
Would we expect that some of the starts that you're now aiming for in the fourth quarter will actually be able to deliver already in 2020?
Yes, the proportion of row houses is getting smaller and smaller as we grow the business. It is very challenging to grow the business with these small projects. That's also, I think, why we are entering into this bottleneck situation, that we're driving larger and larger scales of projects. Of course, it hits much more. While in row houses, they're often further out in the outskirts, and where we can start, we can get one building permit, and then we can start them in very, very small phases. It's very hard to build three floors out of 12. Yes, the possibility is there, but the transformation of the business is that row houses are getting a smaller volume than the multifamily.
Right. Thank you.
Thank you.
Thank you. We have a question on the phone. Operator, please.
Our question is from Tobias Kaj of ABG Sundal Collier. Please go ahead.
Yes. Thank you. I would like to follow up regarding the development in Sweden. As you mentioned, you have seen a pickup in activity in terms of units sold, and I think this was the strongest quarter since Q4 2016. However, so far we haven't seen any starts. You do indicate that you have some potential starts for Q4, but can you also give some indication what you plan for next year, and how do you view the market for starts in Sweden?
Yeah. As you maybe have seen, we have sales started a few projects. We sales started here in Stockholm and in Gothenburg, and it's really well-received by the market. We are converting the bookings to contracts now. We hope to start them really, really soon. We also have more sales starts planned during Q4. We hope that 2020, we will be able to ramp that up even more, but it's all dependent on the market situation. Of course, we will soon see the sales start of multifamily in Uppsala and also here in Stockholm, in Sätra. We are very sort of backloaded when it comes to starts and sales starts in the Swedish operations, and hopefully, we will have a more even and larger distribution next year. Market allowing, of course.
Before the slowdown on the market in Sweden, you were at plus 1,000 units per year in production starts for consumers, and now you are at 200 past 12 months. Should we expect a recovery to 250 or 300 for the full year next year, or do you aim for significantly higher levels?
I think that's a bit on the soft side. The beauty with our strategy is that we actually can work with a mix between business consumer and business to investors. As you saw yesterday, we started a rental project in Lund. I think that the volume will be substantially higher, but part of that will go into investor deals.
Okay. As touched upon before, your profitability has declined quite a lot in Sweden. However, the number of units profit recognized have hardly declined. We have that drop ahead of us. Given high fixed admin expenses and so on, is it a risk that you will see losses in Sweden for next year?
I hope not. Again, as I've been asked before, we're working with being both right-sized and right- manned when it comes to competencies all the time in all business units. It's important to understand that what we recognize is work already done, and the important thing for us here is also to take care of the future. Most of our staff is actually working with things that has neither started or materialized in results yet. That is a delicate balance.
Okay. A follow-up on the question from Stefan Andersson. In the Nordics, if you don't want to give a view on the profitability for the margins in Q4, isn't that more or less like saying that the profitability will be very low in Q4 as well, given that you have to know a lot about what the production cost will be and what the selling rate is like and so on. Should we view that as that the margin for Q4 in Nordics also will be very low compared to your targets?
Yes. 2019 will be a lost year for the Nordic region for sure. You don't easily bounce back. When you recognize a project, that is based on how many units that you actually have sold. Even if you have sold them, maybe a few customers would like to take over the apartments later. Yes, 2019 lost year for Nordics, unfortunately. It's all on us.
Okay. Thank you for taking my questions.
Okay. There is no more question. Yes, there is. Operator, please.
We have a question from the line of Fredric Cyon of Carnegie. Please go ahead.
Only one question from my side. In the report, you're mentioning that the Swedish margin is adversely impacted by fewer units recognized in the third quarter, but also increased costs in a couple of projects. Are those projects completed, and is that a major factor behind the margin that you're reporting in the third quarter?
Yes, those projects are finalized, again, I'm not sure that all the units are handed over and sold in those projects. It is not a major factor, it's a substantial factor, unfortunately.
Where is that project or those projects situated?
In the greater Stockholm region.
Okay. Thank you.
Okay. Now there is no more question, and before we end this press conference, we would like to thank you very much to you who joined us here at Lindhagensgatan, and to you who called in and listened in on the web. Next interim report will be published 23rd of January. Thank you very much.