Bonava AB (publ)

STO:BONAV B

Earnings Call Transcript 2019-Q1

[Louise Tjeder, Head of IR]

Good morning, everyone, and welcome to Bonava's First Quarter Interim Report Presentation 2019. Welcome to you who joined us here at Lindhagensgatan at Bonava's head office, and also, of course, welcome to you who joined us via the webcast. My name is Louise Tjeder, I'm new Head of IR since a week ago, and I will be your moderator at the end of this hour when we open up for questions.Presenting today is Bonava's CEO, Joachim Hallengren; and Bonava's CFO, Ann-Sofi Danielsson. Joachim will begin and take you through the highlights of the quarter, followed by Ann-Sofi who will present the financials in more depth. After the presentation, we will open up for a Q&A session, where you will have the opportunity to ask your questions to Joachim and Ann-Sofi.And with this short introduction, I will hand over the word to Joachim, CEO of Bonava.

[Joachim Hallengren, CEO & President]

Thank you very much, Louise. Good morning all. Welcome to this webcast. And for those of you who follow us on the web, it's a fantastic spring day here in Stockholm. So over to the first quarter result of 2019. So headline, stable growth. We used the term mixed markets, I will be back to that because it's not only a sunshine everywhere. But in brief, it's a good quarter. But let me sort of rewind the tape a bit and start with a crash course of Bonava's sort of seasonality. The first quarter in Bonava is always a small quarter due to seasonal effects. We also are one of the few players in the market that uses completed contract as a recognition method. And that means that to be able to recognize a profit, we need to finalize a home but also to sell it and hand it over to the owner. That means that there is rather substantial changes between the quarters because it's 100% correlated to how many units that we actually have completed. In contrast to many other -- of our competitors, we use the percentage of completion method which gives the much sort of smoother ride. We are very satisfied, and we are determined that this is the right way to present things because we bring up the result when everything is settled and closed in the books. But it gives some amplitudes in between the quarters. Back to the quarter. As I said, it's a strong quarter. We increased the sales. We increased the starts. The net sales is up, the EBIT is up and the EBIT margin is up. I think it's fair to point out that if you compare this quarter with the quarter last year, there is no impact of land sales. We said it before, land sales is part of the business, but it's infrequent. So when you look on margin and -- but also when you look on the result, we need to take into consideration that we had support from land sales, and of course, margin in land sales is much better than in the normal business. We're growing Germany. We will be back to that. This is also the first quarter when we use the new segments. So we have a segment called St. Petersburg-Baltics. It's new, but it's also new in the sense that we have reported the Baltic units before, but they were part of maybe not that super sexy part of the P&L which was other and eliminations. So for the first time, Baltics now steps into the headlight together with St. Petersburg. And it's really satisfying to see. It's a small unit, but they are really well performing. And you can also see in the results that the St. Petersburg-Baltics segment is performing very well in this quarter. So looking at the markets. Let's remind ourselves that the underlying demand is very strong in all markets. There is a substantial demand for housing wherever we operate. However, from time to time, there might be other factors that gives us headwind or tailwind, but the underlying demand is there. There is a substantial lack of dwellings. The German market is very strong, continuously very strong. There is a demand for approximately 400,000 units in the coming 10 years in Germany. And it's with great pride that we can confirm that we -- for the seventh consecutive year, now has been confirmed as the most active developer in Germany. However, there are 2 dimensions that we need to keep an eye on when it comes to the German market, and it is actually phenomenons that always pops up when the market is hot. One is the demand of resources. It's both to employ white and blue collars, but also for subcontractors. The other is that it's a prolonged time for authorities to handle zoning and building permits. And that is catching our attention now, especially in the metropolitan cities, the largest cities, as for example, Berlin, Frankfurt. Also, in combination that we have -- growing the business also acquired land for bigger projects. There is ways to mitigate this. We need to ramp up the planning and to plan a broader portfolio of projects. That can be fixed in sort of mid-term. But short term, I think, this will affect the business, the momentum a bit. It's nothing uncommon, but it has sort of stepped into the market pretty drastically in the last few quarters. Moving over to Sweden. Sweden is a challenging market. Still, you might argue that I'm pessimistic, yes, but I rather be sort of wrong than right in this case. We have sold more units in Sweden. We have doubled the sales in Sweden, but still, I think, it's fair to point out that in a normal market, we would probably sell even the double amount or maybe the triple amount. So we are far from a sort of normal market situation. It is a bit tricky to really understand where the market is meeting -- the buyers and sellers are meeting. We are tweaking prices all the time, sometimes we tweak upwards, sometimes we tweak downwards. We've seen examples where we have tweaked the market price downwards, 8%, and then the speed picks up. In other cases, we tweaked 2% and then the speed picked up. We launched a single-family product here outside Stockholm a few weeks ago. We more or less sold out in 1 week's time without tweaking anything. So the market is there, but it's not normalized. The bit tricky still to understand where are sort of the market price in different market. This will take some time still. Cautious market in Finland and in Denmark, slightly different reasons in Denmark. We're still looking at the effect of financial and tax implications that came from the political decisions. The market -- the sales being slowed down a bit, a bit more supply through the market. While in Finland, it's more the fact that it's been a pretty massive outflow or supply on the market in combination with a softer outlook for the Finnish economy. Greater Helsinki is still working pretty well, but rest of Finland is struggling a bit. We're keeping an eye on that closely. And then St. Petersburg-Baltics, strong demand. We can see challenges looking like -- the challenges we have in Germany especially in Estonia, partly in St. Petersburg, resources, permits taking a bit longer time. Again, this is normal in a market that is working very well or which is hot, and it's things that we can mitigate but it will take some time. Investors, but we can basically sell anything we can put on the market. The challenge is getting our hands on land that is priced right, getting building permits and getting zoning done. You've seen this before, but now it's with the new segments. Germany, as you know, confirmed to be the biggest part of Bonava's operations since last year, and the growth is made that way -- on your left-hand side, you see the value, the sales value. And on the right-hand side, you see the number of units or volume. And then you can see substantially -- that there are substantial differences, for instance, that units in Sweden have a substantially larger value. So even though that there are lower number of units is still a lot of value. While looking at St. Petersburg-Baltics, for instance, you could see that the value of those apartments are less, or the market price are less. So there we have a bigger volume in relation to value. But we're showing this because we want to loop back to the strategy where we said that Germany will grow. And it's really obvious within brackets, you have the numbers from the same quarter last year, that we're walking the talk. So Germany is up in sales value with 8%, up to 46% of the sales value is now in the German operations compared to 44% of the units. Why Sweden is slowing down? Two reasons, of course, we have boosted the sales in Germany with the growth, but also some headwind when it comes to the Swedish market where the volumes is going down. And then you can see, so we have the 2 big ones and then we have the Nordic segment which is consisting of Denmark, Norway and Finland, around 20%. And then we have the St. Petersburg-Baltics segment around 8% of the value. When you have headwind in the market, you could -- you could curse the factors or you could actually try to do something about the things that you can work with yourself. We think it's a fantastic opportunity. I heard it once and I use it frequently as a quote, "Never waste a good crisis." I think this is a perfect opportunity to even -- to tweak more and to focus even more on changing the game as Bonava is very much about. And this is 4 bullets of work streams that we are working very intensively with all over Bonava. The first thing is industrialization. And I think it's so important because obviously we are in an industry which is not that efficient. One way of getting it more efficient is to do more things off-site. So whatever we can manufacture in a factory, then we can assemble it at site, is better for quality, time consumption but also of cost. Our Swedish single-family house business is a good example of that. We manufacture many of the parts in factory. They are shipped to the construction sites where they are assembled. Coming with that, you can work with modularization. I think this is very important because people confuse a module or modularization with standardization. If we will make all clickers look like that, we would have standardized clickers. Probably a clicker is a too big part to call a module, but it's produced out of module. So it's -- if you perceive modules as LEGO bricks, you can combine them in many merry different solutions and for many different things. So when we talk about modularization, we are not talking about better to ones than that Bonava house that always looks the same. That's a product. That's standardization. But Bonava building -- consistent of built out of modules like prefabricated bathrooms or superstructures, prefabricated shops that you can combine in many different ways. That's the way -- the path that we were walking on. It's important from 2 dimensions to work with us because you have an external perspective, where we have stakeholders like city architects and citizens that wants to have a shifting and a good experience when it comes to design. But we also have interior design factors or customer-facing attributes that you, as customers belonging to different kind of offerings or segments, will like and have expectations to look different. But more or less, if installations and superstructural frame is 60% of the production cost, it's not visible to anyone. So of course, by working with modularization -- with modules and the modularization there can save a lot of time and effort. Digitalization, one of the most important tools to drive efficiency. We have no -- all the technical or and digital tools within production and design, up and running. We still have to learn how to use them efficiently. You have to crawl first before you start to walk to run. But I can see that what we talked about 3 years ago is now slowly but surely starting to materialize. We have now been able to man more or less all the positions in our design departments in the countries, and we are now insourcing more and more of the design, working with state-of-the-art digital tools. But we are still in the beginning or the beginning. We will for sure make mistakes, but we are slowly but surely moving in the right direction. The three first bullets combined can -- there we can increase the efficiency even more by bundling volumes. We are actually a really big player. We have more than 10,200 units in production. We started more than 6,000 units last year. We can bundle that volume, work much more with streamlining the solutions. We are a very interested customer for any global player in the material market. So 4 key bullets that taking most of my time and focus now in the effort and wish to make Bonava even more efficient. Two examples of projects started in this quarter. The first is -- one example of this is Swedish single-family in Ältadalen, partly at Rönnen. 13, not a big project. There is one unit that is still not sold, but is reserved. So boom, things are moving on the market if you hit the right level. No question about that. This is also the example that I have regarding industrialization and prefabrication. And then a typical Baltic bread-and-butter projects, Starku Street in Riga, Latvia. We do a lot of these projects. And Riga, it's also there the city where we have decided to outsource or outsource -- where I say insourcing and building a center of excellence when it comes to all-digital development. So we have a very strong center of excellence in Riga. And for example, using the new digital tools when we design -- architecturally design projects like these, we now save 50% of the working hours by working in new manners.With that, I know you're dying for some crisp hard numbers. I would like to introduce Ann-Sofi Danielsson, our fantastic CFO.

[Ann-Sofi Danielsson]

Thank you very much. And I will start with just taking the opportunity to say some words that we have started a new year, the first quarter of 2019. And we have some news in our interim report. And when you have already stated, Joachim, that we present our business units in a somewhat different way. We have reorganized our segments, so that we have 4 segments now. And the reason for that is that we want to give you the more relevant numbers and the more relevant insights of where we are big and what is important. So I will come back to that. The other thing that is new for Bonava but also for many other companies listed all over the globe, I would say, is that we have a new accounting -- international accounting principles to follow, IFRS 16, regarding leasing agreements. And that has impacted Bonava also but not that much. I will come back to that. And thirdly, for those who follow us and really know what we are doing and digging deeply into the numbers, we have added some icing at least, very important information regarding where we stand when it comes to how many, the value of the units that we are working with and also some other new information in the interim report. And I will come back to that when I'm through with the numbers. So new year and somewhat, well, new and more detailed information and I hope that, that will help you when you follow Bonava. But I start with doing the same thing as I've done many times now. This is not new. I'll start with that going through where we are when it comes to our financial objectives and also dividend policy. And return on capital employed, how profitable we are. We have an objective to be around 10 -- be between 10% to 15%, and 13.2%. So very good level for the last 12 months. Equity-to-assets ratio, objective to be above 30% and we are at 33.1% at the end of March. And then finally, then just to look at where we stand, when you look at our dividend policy, and the policy says that we want to distribute at least 40% to our shareholders as dividend. And here just to reconcile on that, that we have an earnings per share for the last 12 months of 12.77 -- SEK 12.65 and 40% of that should be distributed if we had ended the year at the end of March here. We continue to grow, as Joachim stated. And you see it here very, very clearly when you look at our net sales for the last 12 months, we are up by more than SEK 1.2 billion. So SEK 15.2 billion for the last 12 months on a rolling 12-month basis then. And also with a very decent and good level of EBIT margin, 11.7%, very close to 12. And we think that, that is really good level. Much higher in 2017. And for those who know us and know what we have done in the past, 2017, we had a really strong profit coming from sales of land in Sweden, which impacted the EBIT margin quite a lot. And I will actually come back to sales of land within short. Here, our income statement for the first quarter of this year and last year and also the last 12 months compared to the whole year of 2018. And to start with, increased net sales, SEK 2.8 billion compared to SEK 1.6 billion. And then if we just dig a little bit deeper into this, why is this? Well, the reason is this, that we have recognized so many more units, especially then in St. Petersburg-Baltics. And you see that here very clearly, this is for consumers only. I will soon come back to how many units we have recognized to investors. But up a quite substantially in this first quarter of this year compared to last year. And together with them, we have recognized 231 units to investors, none last year sold. These 2 reasons.These are the 2 reasons why we have substantially higher net sales in 2019 than last year. And again, I'll take the opportunity, and I will come back to that again. But as you be -- just be aware of that, net sales for us with our cautious revenue recognition method, it is that -- that's the time when we have completed and handed over the house or the home to the final customer. Then we recognize net sales. So these are the units that we have handed over to our customers in quarter 1. Selling and admin expenses, that is something that we follow very thoroughly, and we are very cautious with our money, and they are in line with last year. If you take into consideration that we have grown the business and also that we actually have more IT costs now. We have more depreciation on our IT tools that we are using in the business. All in all, in line with last year. So EBIT here, SEK 165 million compared to SEK 43 million. And just to give an overview of where this EBIT comes from divided between our different segments then, where you see here is that Germany strongly -- strong performance in 2019, many units handed over, and also here Nordic and St. Petersburg, especially then with a very strong EBIT. Thanks to the many units that we have handed over. Sweden, finally then, good EBIT in 2019. If you take into consideration that last year, we sold land. We have no sales of land in the EBIT result in 2019, while last year, we had SEK 61 million coming from sales of land in Sweden. So that's -- that is also something to bear in mind here. Here, financial net. Actually, that is an item in our P&L that has decreased for some time now. And the main and more or less only reason for that is that, thanks to the good development at St. Petersburg, we are reducing our debt in rubles. We have had a good cash flow from that business since we've had this positive development, and that's also the reason why we have now lower financial costs. Ruble financing is expensive, and we have reduced the debt that we've had in rubles. So that's the main reason why you see this development. And then I just want to comment upon our tax rate. 25% now in quarter 1, and that is actually the tax rate that you would expect in our business. We have quite a lot of profit coming from -- taxable profit coming from Germany, where the tax rate is higher than it is in Sweden, for instance. So 25% is a more normal tax rate than we've had last year where -- when it was only 16%. That was -- that low tax rate was a result from the fact that we sold land without tax and also that we had a tax coming back in this German business, which gave us a really low tax rate last year. That is not something that you should expect going further. So SEK 100 million as net profit compared to last year. So a good development in the first quarter. And then starting -- looking at our segments and I start then with Germany. Since we -- one of the new step we've done in the reporting is that we start to present Germany as #1 since the business there is the biggest one in our operations now, as Joachim stated. And here, you see that there's a very good development in Germany. We continue to grow. We also keep our good EBIT margin in the German business. So a good development. Sweden then, net sales as last year, somewhat lower EBIT margin and the main reason for that is actually that we had profit coming from sales of land. Nordic, that is Denmark, Norway and Finland, where we have -- if you look at the EBIT margin here, recovering profitability. Last year and also actually in 2017, we've had some -- we have a very low operation in Finland and low operation couldn't cover for the fixed cost that we've had in that business. So we had rather -- actually negative result in the Finnish business. So that is recovering in the last 12 months. And finally then, St. Petersburg-Baltics growth, higher net sales and also a very good development of the EBIT margin. And just to comment upon that, the EBIT margin actually should be higher in the -- especially in the Russian business, where we had a higher risk and also higher interest cost -- interest rate. So that is something that we see that the Russian business normally gives us a higher EBIT margin to cover for this. We have 10,212 units in production at the end of March. Sales rate, 66%. And one of the new information that we gave out in the interim report, for those who are very deep into the details in that, is that the value of those units that we have -- of those 66 units that we have sold in this portfolio, the value of that is SEK 20.2 billion. And I think that is something that you can relate to as order backlog that is sales that we will recognize for profit going further when these units are finalized and handed over to our customers. So that is something that I think is very relevant to comment upon on very important number. Here is also something that we normally -- we have always presented to you. That's our forecast or our estimation how this portfolio -- when do we expect that portfolio of units that we have in production, when are they forecasted to be finalized and handed over to the customers if they are sold. What we've done now in this [ first to fourth ] quarter that we done a split. That first here you see the units that we have for consumers. When are they to be completed, and if sold, handed over to our customers. So here, you have for consumers. And if you go back just 1 quarter, what has happened during this quarter is that we actually have skewed this development somewhat, and we now have more units to be completed in quarter 4 '19 that we forecasted in December. And here, you have the same bars for investors. So that you see how many units do we have for -- to be handed over to investors, where are they, in what segment and when do we expect them to be finalized and handed over to our investors. And the difference here is actually that these units, they are all sold, 100% sold. So when they are completed and handed over, then they will be recognized for net sales and for profits. We increased our business. That means that we also have more assets. If you compare here, year-end is not that relevant. It's more relevant to look where we were 1 year ago. And so we have increased our assets in total. And the main reason for that is, of course, that we have more units in production now, and we also have somewhat more completed units in 2019 that we had 1 year ago. All this has given us this cash flow. Negative cash flow in the first quarter, somewhat more negative than last year. And there are many things here to be explained. And if you look at -- the important thing here, how much have we divested, how much cash flow have we received from our customers. You see that we have -- you can see here, SEK 2.3 billion compared to SEK 1.3 billion. So more than last year, we have invested somewhat more than last year. But all in all, how's the divestments and the investments in housing projects has given us -- have given us a somewhat more stronger -- somewhat better cash flow than last year. So the main reason why we are at this position with somewhat more negative cash flow than last year is this row, other changes in working capital. And the main reason for that is that we have lower prepayments from our customers in 2019 than last year. And all this again has given us this net debt situation, SEK 7 billion. And here you see one of the effects from the implementation of the new accounting principle for leases. Our net debt SEK 7 billion where of SEK 0.4 billion is actually a consequence of the new accounting principle regarding leases. So that is something -- no cash flow, no other effect. But we have increased our assets and we have increased our net debt by the same total, SEK 0.4 billion. Otherwise, what is important here, again, I always stress this is that we -- with our cautious revenue recognition and the way that we include the Swedish tenant-owner associations and the housing companies in Finland in our consolidated number, that means that we also add on SEK 4.9 billion as net debt in our total net debt situation. So that is also something important when you look at Bonava and compare us with others. And I think it's really good -- strong here. We have increased our capital employed. We are almost at SEK 15 billion, but we still have a good return on capital employed even though we have invested so much in our business and tie up more capital. The return on that capital that we use is still well within our objectives. Just to give you -- to mention this, the lease -- the new accounting principle, no significant impact on Bonava. And you have here all the impacts of that. No impact at all on the P&L. Net debt increases by SEK 400 million and also the capital employed. The return on capital employed is not affected at all, 13.2% without or including these leasing agreements that we now have in our balance sheet. And just to remind you, since this has been on the agenda for many of the housing developers in Sweden, that we interpret the IFRS 15 revenue recognition in different ways, if you compare -- if you look at Bonava and our peers. And I take the opportunity to say that Bonava, we continue to be very cautious. That means that we recognize sales and profit from -- when the unit is finalized and handed over to our customers, completed contract method. And that one other -- one consequence of that is also that we typically, we increase our debt and our capital employed in quarter 1, 2 and 3. And typically, we hand over and reduce our debt, reduce our capital employed in the fourth quarter. So that is also important to remember. Yes. That was what I wanted to say. Some news in the reporting, but also a good quarter all in all. Joachim, to summarize this.

[Joachim Hallengren, CEO & President]

Yes. Thank you. To wrap this part of the presentation up, a short summary then. We have a solid position. We are growing the company. There are mixed opportunities on the markets, but there is a good underlying demand. Good quarter, seasonally small as always, but strong earnings, strong net sales, better sales, better starts and also there is a lot of interest for our investors out there. And again, as Ann-Sofi pointed out, Bonava has a really, really strong financial position. And we can take advantage of that if opportunities materialize on any market. So with that said, Louise, I think, we can open up for a Q&A session.

[Louise Tjeder, Head of IR]

Yes. Thank you very much, Joachim and Ann-Sofi. [Operator Instructions] So with this, we open up for Q&A. Anyone? No? It seems no questions yet. So I will start with my questions. You talked about price adjustments in Sweden. Could you elaborate a little bit more on that? How should we think about that?

[Joachim Hallengren, CEO & President]

I think that we are in a situation now where the fog is lifting a bit. I think it's important to understand that we are talking about regions or even micro regions or micro locations where it will still vary. I think it will take a while. We have seen a large supply in many micro markets. We have parts of Uppsala, Örebro, [ Växjö, Ystad ] and maybe also South in parts of Nacka, where many developers has opened up large area. And of course, large proportion of that volume is coming out now. So it's might not be very easy to understand sort of where would buyers and sellers meet. There might be variations over time. But I'm a bit more optimistic now than I was. And I don't think that anybody should be scared from -- for price adjustments. I mean that's part of the game. Sometimes we increase prices, sometimes we decrease prices. But again, this will take some time for the Swedish market to regain its momentum. But the underlying demand is that we're still lacking 75,000 to 80,000 apartments per year until we sort of have a balance and especially in the bigger cities around Sweden. But the important thing here is that price level has to match the buyers, the sort of capacity or financial strength. And that's why we have decided to work within the affordable -- [ or approach ] the affordable segment.

[Louise Tjeder, Head of IR]

Thank you. Okay. If we talk about Germany, our biggest market now. You also talk about a little bit of lead time when it comes to building permits. Could you explain that a little bit more? Do we need to be concerned?

[Joachim Hallengren, CEO & President]

Concerned is a very strong word. I don't think we should be. It's a phenomenon that we repeatedly see in any market that is sort of where the volume goes up. It has to do with the number of resources that is available in municipalities or in authorities. And unfortunately for those stakeholders, 2 things happen at the same time. The demand for their services is increasing, but the demand of their employees is also increasing on the markets. So it has shown over time that municipalities and authorities have some challenges to compete when it comes to offerings, to their employees in comparison with the private sector. So it can be vacancies but it's also a larger volume to handle. It will take care of itself over time. We can mitigate it partly by preparing or planning more projects. So we have a larger portfolio to work on but it will take some time. And especially when we're growing in Germany, we see bottlenecks, as I said, around Berlin. And also in the combination of that, we are doing larger developments or larger projects, of course, authorities want to be even a bit more thorough in that. For instance, the [indiscernible] area is 1,000 units. It's in the same plan. Of course, I do understand that the authorities in Berlin really want to be on top of that and make it really, really fantastic. So yes, we see it. We can mitigate it. We will lose some momentum initially. But it's sort of -- it's normal business. So one should be concerned, but one should be aware.

[Louise Tjeder, Head of IR]

Thank you. Okay. We now have the questions on the phone. Operator, please, can we have the first question?

[Operator]

And the first question is from Niclas Hoglund from Nordea.

[Niclas Hoglund]

Niclas Hoglund here from Nordea. Firstly, I want to sort of thank you for better transparency on the value of the sold units and the recognized investor units. Is there any possibility to get the sort of last 4 quarters in order to sort of use the data in appropriate way?

[Ann-Sofi Danielsson]

We can look deeper into that and come back to you, Niclas, and also to all the rest who need that information. So let us continue that discussion. And we will do our very utmost to help you to understand our business. So we do whatever we can.

[Niclas Hoglund]

And maybe a question on that data. What's your conclusion? As looking at the data right now, is it to sort of confirm the average selling prices in the volume, in the portfolio sold? Or what are you sort of seeing any trends that we should sort of use?

[Ann-Sofi Danielsson]

Yes. What we want -- maybe I didn't say that clearly, but we think that we have a very strong portfolio. 10,200 units in production, 66% sold and with a value of more than SEK 20 billion to us. That's a very solid, strong portfolio if I put it like that.

[Niclas Hoglund]

All right. Okay. Moving over then to Sweden. You said that you were -- should talk more about gain on land sales, but I only heard that you had none. You previously talked about around SEK 100 million for the full year. And of course, in this environment, the land sales should offer a less value, although you had done sales, which will have sort of the effect on your earnings here. Should we -- what's the guidance now? Is SEK 100 million for the full year basis too high? Or how should we look at it?

[Joachim Hallengren, CEO & President]

Actually, Niclas, I think, that we have guided around SEK 200 million as sort of a normal level, but you're...

[Ann-Sofi Danielsson]

For the whole Bonava.

[Joachim Hallengren, CEO & President]

For the whole Bonava. But you're onto something very important because there are 2 things happening in a softer environment like, where -- I mean, most of them -- lands that has been in Sweden due to fact that we have restructured the portfolio. But one thing which we are onto is the margin. Of course, there must be adjustment on -- also on land. But the other one is the question where there is transaction market at all. So I think what we should expect over time that the speed will slow down and the markets will erode a bit.

[Niclas Hoglund]

And the pending transactions, I mean, that is sort of conditional upon zoning and building rights, which you have already sold. Is that also on a materially lower level? And we will not see any catch-up from this 0 in the first quarter?

[Joachim Hallengren, CEO & President]

Well, obviously it didn't materialize now. And you're right, it's sold. I think it's almost 2 years ago that we sold it. And the condition precedent is that we get zoning in place. In this case, we're talking about the specific land sales in [indiscernible] and here in -- outside Stockholm.

[Ann-Sofi Danielsson]

Yes, yes.

[Niclas Hoglund]

Okay. So you're sort of talking about at around 0 then for the full year given these conditions or are you expecting a rebound in the gains?

[Joachim Hallengren, CEO & President]

I wish I had a crystal ball to look into that. For sure, we've been hoping for 2 years now that we would have that plan. I will not rule it out. I still -- I'm still optimistic even though that sort of the speed forward is slow. So I'm sorry, I can't give you any guidance, but we -- right, I don't think -- I think it's too early to sort of write it off that it would actually materialize this year.

[Niclas Hoglund]

And a follow-up on Sweden. You're talking that you're becoming a little bit more positive, saying the fog is lifting maybe, but at the same time you're starting 13 units and 287 on the rolling 12-month basis. Could you shed some light of what is wrong in your portfolio right now in Sweden?

[Joachim Hallengren, CEO & President]

I don't think anything is wrong in our portfolio. But we're -- it's sort of the same dimensions. We're struggling with getting the building permits. We're struggling with zoning. But I think it's also fair to say that we have, I mean, we have had or has -- we have projects that were designed for another market. We need to redesign them. Unfortunately, that triggers that the process starts all over again. So a new building permit for instance. But I would not be fair if I didn't mention that we are -- I mean we are struggling with production cost still. I don't really get my arms around this. I would expect the construction cost would go down. But it looks like a lot of the resources within the construction industry is heading into infrastructure instead. So we are seeing a pressure downwards on materials, but we have not so far seen any pressure downwards on construction cost from the contractors. However, we have a number of projects now out for tendering. So I mean the feeling I have now might change. But that is still a struggle. There is -- it's a lot to do for the construction companies in the markets where we operate.

[Niclas Hoglund]

And -- yes. Can I take one question on Germany?

[Louise Tjeder, Head of IR]

Yes. One more question.

[Niclas Hoglund]

Yes. One more for now. If you look at the sort of the delays on zoning and planning, you previously talked about 5% to 10% growth in the portfolio. You've been ahead of that. Should we expect the sort of starts to actually decline over the next coming year? Or how severe are these delays?

[Joachim Hallengren, CEO & President]

So when you said 5% to 10%, I said that about Germany, right? And my problem is that nobody believes me because we've been overachieving at that. But I stick to that. I think it's realistic over time. I think we will see some short-term effects when it comes to starting. It's too early to say. Let's get back to this in second quarter and see the result. But I'm getting signals now that it used to take 3 months, now it's looking like it takes longer. And of course, if we move into larger projects, the impact is bigger because it sort of -- it's less number of projects, but the larger volume. So let's touch base on that again in Q2.

[Louise Tjeder, Head of IR]

Yes. Thank you. So operator, can we have the next question, please?

[Operator]

And the next question is from Tobias Kaj from ABG.

[Tobias Kaj, Research Analyst]

Yes. My first question is regarding the chart that you show regarding number of expected completed units in coming quarters. It seems -- if I see that it's a bit fewer units for Q2 compared to what you communicated in Q4 but for the full year, it's around 100 units more. Can you explain why it has increased for the full year '19? And also whether it's possible that it can continue to increase? Or if this is the deferred number that we can expect to attain?

[Ann-Sofi Danielsson]

Well, as close as we get to year-end, the numbers are more -- well, the completions will be more fixed, so to speak. Because we can't start anything that can be delivered before year-end. And what I'm trying to say is that actually we have more units in quarter 4. We have skewed also in 2019, so that more units will be finalized in quarter 4. That is what we have seen when we have reforecasted our portfolio here in the first quarter. And the other reason is that we have the -- we have started some more units that we will have -- that will be finalized in quarter 4. So that's the main 2 reasons. And then I think we also had some delays from quarter 4 last year that were not handed over in quarter 4, but in quarter 1, and that will impact the whole portfolio that we have going forward.

[Tobias Kaj, Research Analyst]

But I would add to that, that to expect any more units coming into 2019, I would exclude...

[Ann-Sofi Danielsson]

No, no. That's what I mean. That's not possible because we won't be able to hand them over. We don't -- we won't be able to start it now and finalize them before quarter 4 this year.

[Tobias Kaj, Research Analyst]

Okay. And then a question regarding this other changes in working capital. You mentioned it's less prepayments. Is that because the selling rate in Germany, for example, is down from 72% to 62% in 1 year? Or is it also related to the payment scheme for individual contracts has been changed?

[Ann-Sofi Danielsson]

I would say, it's more stochastic development that you can have that. It's 1 quarter less prepayments, that has happened before. Also, and that will -- it will happen again that the prepayments coming from customers, both from investors but also from private consumers can differ a lot between 1 quarter to another. So there is no underlying trend. The reason, it is a stochastic development that we -- I know we've had more negative development in the first quarter here.

[Tobias Kaj, Research Analyst]

Okay. And the decline in selling rate change in Germany, for example, is that something that you'll see as a problem for ability to start more? Or is it still at such a satisfying level that you can, for instance, start more than you sell in coming quarters as well, if you get the permission in place?

[Joachim Hallengren, CEO & President]

I think it's fantastic news actually. Because when we were so high, I'm more concerned that we don't -- that we're not able to put enough on the market to sort of -- to absorb the demand. So it's still a very strong number, 62% is good. I don't think we should be there somewhere. Otherwise, I think we have too little on such a very strong market.

[Tobias Kaj, Research Analyst]

Okay. And one final, maybe detailed question regarding the tax rate. Should we expect 25% tax, even if you have land gains or [indiscernible]...

[Ann-Sofi Danielsson]

No. If we -- that could be reduced, but further -- it could happen that actually -- you're absolutely right. If there are land sales then if we are able to -- say, in Sweden, then the tax rate will go down. But for the normal underlying business, 24 -- 25% is the normal tax rate in our business.

[Louise Tjeder, Head of IR]

Okay. We have another question. Please, operator.

[Operator]

Next question is from Fredric Cyon from Carnegie.

[Fredric Cyon, Research Analyst]

Two questions from my side, starting off with the capital employed for the Swedish regions. It's basically flat year-over-year, at the same time, production has been cut quite significantly, and the number of building rights is pretty close to what it was a year ago. With the -- expect the level is partly explained by completed projects. Could you elaborate on the delta in completed projects on the capital employed?

[Ann-Sofi Danielsson]

Yes. You're absolutely right. The main reason for the increase in Sweden is that we have more units unsold completed on the balance sheet. So that's the main reason why we tie up more capital there.

[Fredric Cyon, Research Analyst]

And I guess that effect is, of course, not captured in the bars where you show completion. So if you're successful in selling those completed projects, that would be a boost to those bars, right?

[Ann-Sofi Danielsson]

Yes, yes, yes.

[Fredric Cyon, Research Analyst]

And then my final question on the margin in Sweden, it shouldn't come as a major surprise that it's declining. And could you give us some color on price adjustments on the units that you profit-recognized in the first quarter? Does that have any effects on the margin in the quarter in isolation?

[Joachim Hallengren, CEO & President]

I don't know the specific answer there. But the biggest deviation when it comes to margin in Sweden is actually that we didn't have any land sales compared to last year, which we had SEK 52 million, I think, in Sweden in land sales, right?

[Ann-Sofi Danielsson]

The effect on the margin, I will say -- now when it comes to price reductions, we've had some, but not in -- that is depending on what you compare with. But the margin on the units that we have recognized the profit in Sweden is still very good.

[Louise Tjeder, Head of IR]

Thank you. It seems there are no more questions today. So that concludes it. And thank you all for listening in and look forward to next release which is the 16th of July, hence quarter 2 interim report, 16th of July. Have a very nice day.