Bonava AB (publ)

STO:BONAV B

Earnings Call Transcript 2018-Q3

[Sofia Rudbeck, Senior Vice President of Marketing & Sales]

Good morning, and very welcome to Bonava's third quarter report presentation. Very welcome, everyone who's with us here at Lindhagensgatan, our office here in Stockholm. And of course, equally, welcome to all of you watching us through the Webcast. We have an hour ahead of us. My name is Sofia Rudbeck, and I will be your moderator during this hour. We have an agenda divided in two parts. The first part, there will be a presentation of the report done by our CEO Joachim Hallengren and our CFO Ann-Sofi Danielsson.The next part, we will open up for questions and a Q&A session. And I'll come back to those practicalities when we get there. And with that said, let's get started. So I would like to welcome Joachim Hallengren, our CEO of Bonava, up on stage.

[Joachim Hallengren, CEO & President]

Thank you very much, Sofia. Good morning, all. This is the Q3 report for Bonava. Overall, I'm really proud of the results. I think it's a strong quarter across the board. Looking at some of the areas starting with the numbers of starts, we are up with 20% compared to last year, which leads to an all-time high number of units in production. Not least important is that the quality of the portfolio when it comes to sales ratio is up also, really strong 70% sales ratio. And that is very important for the future, building for the future, being able to start new units.Net sales in this individual quarter is up and, of course, also result. We're looking at a net sales of almost SEK3.4 billion and EBIT of SEK406 million compared to SEK218 million. And if I can draw your attention to the part of land sales, you can also see that the contribution from land sales is about half of what it was one year ago.And again, very important for us at Bonava, the core of the strategy is to grow the business in Germany. And we can see continuing growth. Bonava's German operations now represent 40% of the business. If we look on rolling 12 net sales, that would be 38%, 39%. So we had the milestone last quarter with the handing over the leading position in Bonava from Sweden to Germany. And that is really well proven here.Of course, the numbers, the percentages might shift from quarter to quarter, but Sweden will not short, mid, or long term pass Germany again. So super strong backbone in the German operations. And of course, we are on 8 of the 11 biggest markets or cities in Germany. We reach over 30 million people there with a much more stable and development. It feels really, really good. And that also gives us a lot of opportunities, not least on the Swedish market.So looking at sold units, it is more or less in par with last year, both to consumers and investors, though the market in Sweden is very cautious and challenging. So I think that's a really strong number.The sales in Sweden specifically are not that impressive. It's 80 units. It's about half of what we sold one year ago, but the benchmark was pretty tough because that quarter was quite good. It was the beginning of the slowdown. Still, it's a number that can be improved.I perceive that it was a bit more activity on the market. This is not sustained by any data, but that was the gut feeling we had. We had a sales rate of somewhere around 40 Q1 and Q2. This is sort of -- this is double the amount, but still I don't think I need to spend that much more time sort of describing the Swedish situation. I think everybody's very aware of that.But what is important is that we tend to sort of be drawn towards the Swedish market situation in each and every presentation or wherever we go. And so let's just remind you that Bonava is 71% outside of Sweden.Looking at housing starts, that's really important going forward, building the future, building future profits. It's up with 20%. A lot of starts coming out of Germany, but also the solid business or good business in St. Petersburg.If we talk a bit more about the markets, of course, Germany is really strong. Finland and especially greater Helsinki and Norway -- Norway for Bonava is Bergen -- St. Petersburg, good markets. We have good sales speed and a good demand, while the operations in Denmark, which is Greater Copenhagen, is sold. And again, Sweden, cautious market.I do not have any facts or data, so this is sort of gut feeling, but it feels like the price expectations between seller and buyer started sort of to meet at a level somewhere between 8%, 10%, 12% from the top. Again, I think you should add for now. Who knows if it will move upwards or downwards?So I think that it's fair to say that, most likely, price expectations are where they are. Still, we only sell 80 units. And I would argue that a lot of consumers have challenges getting financing. We have a lot of political initiatives sort of stapled on top of each other, not least regarding amortization and debt quota. But we also have the bank financing, where it's perceived that the banks have pretty cautious sort of income and cost-risk calculations to approve financing for private consumers.On top of that, many banks also would like to secure that the equity that the private person should put -- be put in into the future purchase should be verified and sometimes even by selling the current asset, which is a real big challenge, when you should enter into a business like 16, 18, 20 months ahead of time. So it's looking more and less like a catch 22. Again, this is gut feeling, not necessarily true, but that's the picture that we have.Investor side is, if we start in Sweden, totally opposite. It's really, really strong, a lot of institutions and other actors out there eager to buy more rental projects. And you could say that across geographies where we actually work with investors that we can more or less sell anything we put on the market at really, really good prices.And this is also part of Bonava's strategy that we can mitigate weak consumer sales by ramping up investor sales. That was a remedy we used in Finland when Finland was in recession and consumer sales were down. We were somewhere around 50/50 or even 60/40 for a while, selling to investors versus consumers. So that's possible.However, I think it's important to state that, over time, we said that one-third is a good balance for us to go into the consumer -- sorry, investor business because, if we will move further into investor business, then we would be a much more sort of leaner company. And we think that the mix is pretty perfect. And you can see now, for instance, then in Sweden that a cautious consumer market does not necessarily mean that there is 100% correlation with the investor market.Stating the obvious, but we always show this. This is the ongoing portfolio divided into two graphs. One is the sales value, and the other one is the number of units. And it's really clear here that Germany -- and this is now the snapshot, 39% -- or the closing balance. 39% of the operations is in Germany, while Sweden is at 33%, still a very important market, of course. And you can see the correlation between number of units and value that the Swedish units are very valuable -- sorry, or expensive, if you like, right, while there is a more balanced 35% versus 39% unit numbers and volume -- sorry, value in Germany.But still, the numbers might individually shift, but you would have to get used to -- and that's sort of the wanted position also, the dark -- the forest green Germany being the biggest part, the backbone of the business. Otherwise, very stable mix between the different geographies or markets.And to finalize this part of the presentation, I would just walk you through some of the projects that we have started in the quarter, starting with two projects in Germany. So we have the Wesseling project. This is a very typical German single-family, semi-detached row house project, sizes between 70 and 150 units. We do not start everything at the same time. We are so skilled and experienced in our platform, so we can start like 5 units or 10 units at the time in sequence according to the sales speed. This is outside Cologne.And then we can move to Duisburg, which is in the Rhine-Ruhr area, one of the most densely populated areas in Germany, but also in Europe, where we have this Zum Wassergraben project, which is a pretty typical multifamily building, rather on the sort of small end, 50 units. But I think these two examples are really good examples if I use the expression bread and butter in the German operations, both in the affordable segment.And then of course, the financial strength and the muscles of Bonava gives us also opportunity to start projects in markets which are more cautious. So Maertas Bersa is in Sollentuna centrum, just north of the city center of Stockholm, very well received on the market, 104 units.I know that, if you sort of isolate Sweden and look at the sales ratio in the Swedish portfolio, it's 43%. Now we measure that on portfolio with some more sort of portfolio theory setup with Bonava so we can mitigate a very high sales ratio, 70%, with taking active business decisions where we have a weaker sales ratio in other, if we think it makes sense. And this was one very good example.I think it's also very fair to point out with the strength of Bonava, we are not dependent on bank financing for each and every project. We can start projects with equity. We can start projects with commercial paper. So we have other sources of financing, which makes it possible to be contrarian if we like to do that. While others can be stuck for different kind of reasons, Bonava is one of the companies who can actually act. So really interesting and good project, well received by the market Maertas Bersa.And last and certainly not least, Magnifika in the [ Magnifigolski ] area in St. Petersburg, this is one really good example of an affordable or lifetime segment, as we call it in St. Petersburg, 104 units, really high sales speed, very good cash flow, also started in the quarter. And as you see, this is one of the big development schemes we have in St. Petersburg. It's over 2,000 units, which is now coming into play. So this is the third phase that we start in this area, and being in the affordable segment also means that we can have a very high sales speed.With that, I would like to hand over the word to our CFO, Ann-Sofi Danielsson.

[Ann-Sofi Danielsson]

Thank you, Joachim. I will walk you through this third quarter 2019, starting with this, the outcome of our financial objects, where we are towards them. Starting with return on capital employed, our objective is to be between 10% to 15%, and we are at 12.4% for the last 12 months.And equity-to-assets ratio above 30%, and since we have these seasonal variations, quarter 2 and quarter 3 are very active quarters, where we tie up a lot of capital into our ongoing projects. So we have a somewhat lower equity-to-assets ratio due to seasonal variations here in quarter 2 and quarter 3, so 28.1% at the end of quarter 3.And then our dividend policy, 40% of earnings per share after tax, and we are at SEK10.70 if you look back 12 months from quarter 3.So a very good quarter all in all, high net sales SEK3.4 billion compared to SEK2.1 billion last year. So we are up quite a lot here. And the reasons for that are here. One is that we have more units recognized to consumers, especially in Germany, and also those that we have recognized in Sweden of rather good value. So that's one part of the explanation. The other one is that we have more units recognized to investors, both in Sweden and in Germany and also in Finland in this third quarter. So that is the main explanation of the high net sales here in quarter 3.EBIT here SEK406 million compared to SEK218 million, and as Joachim stated out, we -- last year, we had profit coming from sales of land of SEK65 million, only SEK30 million or SEK30 million coming from that kind of business in this third quarter. So if you deduct that, you see that it's a really strong quarter 3 2018 with a good EBIT margin as well.And just to dig a bit deeper here into where does this come from, well, we had a very good EBIT in Sweden in the third quarter due to these units that we have recognized now in the third quarter. Germany also a very strong quarter with many units recognized and also a good margin on those units.I also want to point out here that we have said for a couple of quarters now that we have been not so happy with our Finnish operations. And we have said that Finland will be back on black figures. And that is what we see here now in the third quarter here, so a good development also in the Finnish organization of Bonava. So SEK406 million compared to SEK218 million, a really good EBIT level in the third quarter.So some other things to comment here is -- I usually do that on net financial items. They are down to SEK35 million, minus SEK35 million compared to minus SEK51 million. And we continue to reduce our debt in rubles, where we have the highest interest rate. So that's one reason. The other reason is actually that we done a reclassification of guaranteed costs in Germany, moving them from the financial net up to gross profit. And that is around SEK7 million, SEK8 million in this third quarter. So that's also one reason why we have a somewhat improved financial net. Tax, 22%, normal for our business. So we end here the third quarter with SEK289 million as net profit.So just some words then about our business units. Well, we have reduced EBIT margin in Sweden. However, we think that to be close to 20% in that business on a rolling 12-month basis is really strong. Lower net sales in Sweden, but that is also what we -- what you saw here when we looked at our project portfolio, why that is.At the same time then as Germany continues to grow, to be our biggest market when it comes to net sales, almost SEK5.7 billion here with a good EBIT margin. And I continue to stress that we say that to be above 12% in the business that we have in Germany is really world class. So we are happy with the development in Germany giving us both high net sales but also a decent and good EBIT margin.Finland then, here, you see the development that we have talked about for some time now that we are up to black numbers, even though the margin is not that strong. But we are happy to see that the development goes in the direction that we want it to be.Denmark, Norway, same, very stable the level, both when it comes to net sales and also when it comes to margin in that business.We have somewhat lower net sales in St. Petersburg and also somewhat lower EBIT margin. However, we see it as a stable development also in our Russian operations.Units in production, here, you have also the division between consumers and investors. We are increasing the total level, and we are also increasing the part to investors. And we have very -- we think that our project portfolio is very, very solid, 10,300 units, with a sales ratio of 70%. And I think it's very easy to forget it's good to have this historical development when you look at this that this is really good, 70%, if you look back here to quarter 2 one year ago, 65%. So this is really a strong portfolio all in all. And that is what we have stressed now many times. But we really think so.We have many units to be completed in 2000 -- in the last quarter here. We have more units to be completed now going forward than we had one quarter ago. And that -- the simple reason for that is, of course, that we have started more units.I think it's relevant here to remind you that this is the forecast. And that can be that we -- units can be moved from one quarter to another when it comes to completions due to, well, a number of reasons. We can be delayed, or it can also be something that will go faster so that this is just an estimation when we expect our units to be completed.And for those of you who are really into numbers, you will see that -- you see here that one quarter ago, we had more units to be completed here in quarter 4 2018. That's what we said when we talked about quarter 2. So we have fewer now. And the reason for that is that we have some delays in Finland. Those units will be completed in quarter 1 2019. So that is just an example of what can happen between one quarter to another since this is estimations and forecasts.Our assets are up to almost SEK24 billion. That's a lot of assets, of course. And the reason why we grow, why we have more assets now is, of course, first of all, we have more properties held for future development, land. Most of that increase is done in Germany, where we are growing. We have more housing units in production. So the light green part of our total assets here and the dark green part is the main reasons why we have more assets in our balance sheet now.And all in all, if you take this in all, we -- our cash flow coming out from this result and also how our assets have developed during this third quarter, so we had a good result. And so the cash flow from our business is good, SEK423 million here. We have also had a lot of cash coming in from the sales of our housing projects.And what we have done is that we have continued to invest into new housing projects. We have more starts. We have more units into production. And we have also bought more land. And that's why -- the reason why we end up with a negative cash flow before financing in this third quarter. So we used the cash that we have received mainly into new investments in Germany.So development, our net debt always interesting to see also. And here again, the seasonal variation here, the seasonal development that we have in our business is very clear, where we tie up more debt in quarter 2 and quarter 3. That is also the case in 2018. So we are at SEK6.2 billion, where SEK4.3 billion our debt is tied up -- is in our Swedish tenant-owner associations and the Finnish housing companies, where -- so that's project financing, or that is also something to -- I always remind you about that, but that Bonava, since we have -- are very cautious revenue recognition, what comes with that is that we also include the debt in our projects. So that's a difference when you compare Bonava with our competitors, so I just remind you about that, so SEK6.2 billion.And to summarize this then is that we now have almost SEK14 billion tied up as capital employed at the end of quarter 3. We have more land. We have more ongoing production. But still, we are well in line with our own financial objectives, since we have a good development of our result, so 12.4% return on SEK13.6 billion -- SEK13.7 billion on -- as capital employed.So by that, I hand over to you, Joachim, to summarize this quarter.

[Joachim Hallengren, CEO & President]

Again, I think this is a strong quarter across the board. I think there are many really strong indicators that we are moving in the right direction. Sales more or less in par with last year, both consumers and investors, though we have a challenging situation with the cautious market in Sweden. We succeeded to increase the starts, which for me is a strong signal of the sort of the capacity and the strength of the company, building future business.Many units in production on top of that with a very strong sales rate. 70% of our portfolio is already sold. The quarter itself, strong net sales, strong profit, strong margin, and then again, walking the talk, following the strategy. It might seem boring, but it's actually very efficient, growing the German operation. It's now manifesting in the numbers.So I close the presentation here, invite Sofia to head the Q&A.

[Sofia Rudbeck, Senior Vice President of Marketing & Sales]

Thank you very much, Ann-Sofi and Joachim. We will soon open up for the Q&A. I'll just go through a few of the practicalities beforehand. So if you have any questions, please state always your name and the company you represent before. You can post your questions through the Webcast or the phone conference or, of course, here in the room. So just notify me. There are microphones here that -- so that everyone can hear your question. So with that said, any questions to Joachim and Ann-Sofi? And here, we have a question.

[Jan Ihrfelt, Senior Equity Analyst]

Jan Ihrfelt, Kepler Cheuvreux. Actually, I have three questions. I'll put it one by one. First one is regarding the 2,900 units that will be delivered in the fourth quarter. How much of that is already sold?

[Ann-Sofi Danielsson]

You had that on the graph. You see that we -- that the graph -- I forgot to tell you that, that the graph that you -- the line that you had there, so I don't remember exactly how much is sold. But you see that. I think it's something 75%, 80% at least is sold.

[Jan Ihrfelt, Senior Equity Analyst]

Okay. And the second and third question really regards the Swedish market, as it represents nearly two-thirds of your operating profit so far this year. And the question is really -- we see an oversupply on the market. And how do you look upon the market? Are there many desperate smaller players? And when will -- do you think that the oversupply situation subside?

[Joachim Hallengren, CEO & President]

Well, I guess, for the desperate player, the last person they want to tell is me, the main competitor. But I -- and I guess people working in the finance sector will meet them before I do. But I have said like this, again, a gut feeling rather than data, I've been surprised that a slowdown in sales in combination with softening prices has not been shown if you operate your business with POC. It's evident that that is like two-thirds of all that formula is based upon. We see price adjustments. We have done a pretty thorough study over Stockholm. We still looked at more AN than AT competing projects. And more or less all of them had done price adjustments. They are to my knowledge that -- not yet that much sort of pain in the system, so people are getting desperate to get out of land acquisitions or projects. But then my visibility might be very restricted for certain reasons. We have seen a lot of -- I don't know the English term [ my town business ], which is sort of options given by the municipalities that has been returned. That is more and more frequent. However, there is sort of very hard to do any business on that because that was normally a bidding competition. So to win, you had to pay the highest price. For sure, there will be opportunities. Regarding the oversupply, I agree with that conclusion. There is an oversupply. And you have to remember it's because the cycles are pretty long, especially in the Nordic countries, when it can take 18, 20, 22, 24 months before you finalize a project after building start. I think we will see a lot of oversupply Q1, Q2 -- sorry, Q1 '19; potentially also a bit into Q2. This is not scientifically based. I know that there is a -- [ specifically ] speaking, I've just given sort of a forecast saying that they predict pressure downwards in the start with 20,000 units from the top. That might be slightly on the optimistic side because we have seen that it was not the major players who took market share. It was the smaller players. And they're pretty digital. They can do, or they can't do. So potentially, there is a lot of stuff out there, and that means that a majority of the players cannot start anything new, which means that the absorption should be there. But also, if you have the stamina to start, might be a fantastic opportunity. However, the SEK10,000 question would be, when will this be over, right? And I think we can already conclude that the Lehman effect on the Swedish market was very short and bounced back really quickly. We are not looking at that scenario. We are looking at a longer scenario, which is good for us with the stamina that we have. So I predict Q4, Q1, potentially also Q2, especially stock-on levels, really an oversupply situation. I might be wrong. I'm not basing this on facts. But I've said for a long time that I think this will take longer than anybody thinks.

[Jan Ihrfelt, Senior Equity Analyst]

And the third question regards the investor market in Sweden. And what kind of yields are you selling your projects on? And has this changed anything due to rising interest rates?

[Joachim Hallengren, CEO & President]

We are selling our -- at the best-ever yields. And no, it has not changed. I know there is a sort of a discussion. And if you look at the valuation of commercial real estate companies, they're looking -- interest rates are coming up. Valuations should come up. We haven't seen that yet. There is a lot of liquidity out in the market, so -- and a lot of buyers. So we are trading at top yields for the moment.

[Sofia Rudbeck, Senior Vice President of Marketing & Sales]

Okay. Thank you very much. We have a question through the phone conference. So I'll open up for the phone conference.

[Operator]

The first question is from Niclas Hoeglund, Nordea.

[Niclas Hoglund]

Niclas Hoeglund. A couple of questions from my side as well, if I may. Firstly, well, coming back to the Swedish operations, your sold units rebounded from a very weak first half, although you only started one project. We just heard you being a little bit cautious also going into the next year, despite the very low starts we've seen in the market. How should we look at Bonava's opportunities here to start over the next 12 months in Stockholm? Will you stay at the project per quarter, or when will you start being optimistic?

[Joachim Hallengren, CEO & President]

That's -- if I could answer that, it would be fantastic. I think that we have to be very project specific. And as you know, you follow us for a long time, it might not only be the customer demand who is the main driver to start. It might also be that we are sort of restricted by bottlenecks. Normally, that would be building permits. But with what I just said, anyone who would expect us to flood the market with new projects would be disappointed, of course. I can't say whether we will start one or two projects. But we are cautious. But we have the ability to act really quickly if we feel we have a business opportunity. But it's very project individual sort of estimates.

[Niclas Hoglund]

And a follow-up on that note. You've sold a lot of land successfully. And when you look at your underlying profitability and the backlog, would you say that you cannot afford to sort of start projects if you don't -- you need a better cushion in prices, i.e. you don't have the right projects at the moment, or is it only related to a slower market and then a slower demand situation?

[Joachim Hallengren, CEO & President]

So basically, you ask me if I have too much expensive land in Sweden. Is that correct?

[Niclas Hoglund]

Right.

[Joachim Hallengren, CEO & President]

Yes, okay. No, I don't think so. I think what we have, we're putting -- we have put a lot -- a lot. We have some new projects to start. I think that they're correctly priced. We get really positive sort of feedback from the market. But it's stuck in the process of getting financing and a more cautious approach. So we are not suffering. We were actually contrarian. We sold when land was expensive. And we are now looking for an opportunity to refill the land bank with cheaper land prices. So we are not stuck in that position.

[Niclas Hoglund]

Okay. And if I may move over to the German operations, you have a very strong margin again in the third quarter. And you talk about world class 12% margin outlook. But is it fair to sort of expect that margin should have the same seasonality as you normally have in Germany, driven by good operational leverage for the fourth quarter?

[Ann-Sofi Danielsson]

I'm not quite sure if I follow you. What is that -- the margin in Germany, or it depends upon when do we recognize the units for profit, in what quarter. We have a fixed organization that, if we can't recognize enough units, then of course, the margin will be somewhat lower. And the opposite, if we have many units to recognize in one quarter, the margin can be very good in that quarter. So if that is the answer to your question. So there is a seasonality, of course, since also Germany is affected by the fact that we start almost always in the same quarter, and we deliver the units mainly in the fourth quarter also in Germany, even though we try to change that, but it seems rather tough to do that. If that's the answer to your question, if I answered your --

[Niclas Hoglund]

No, my question was just related to -- since you're talking about the 12% margin, but you're already there on a -- or above on a rolling 12-month basis. You have the sort of strongest quarter ahead. So I was just wondering if that was an outlook statement on margin or just a cautious statement.

[Ann-Sofi Danielsson]

No, we still think that above 12% is world class. And this is -- the margin there, you have there, it's on a rolling 12 months. So you have the fourth quarter last year included in those 12.9%. So if you compare it on a rolling 12-month basis and also on a calendar year, it's almost the same.

[Joachim Hallengren, CEO & President]

And Niclas, I think it's also fair to point out that 12%, we perceive that as world class. Maybe we should add over a business cycle. And of course, we are a very ambitious company, and we're not satisfied with only 12% when it's a really strong market. But what we said is that above 12% is more tweaking than leaping, right? So we wouldn't mind getting up to 13% eventually and so on. But 12% is really, really good. I think that's an important statement.

[Niclas Hoglund]

And also on Germany, last question then, you have very good starts. Is it something we should be aware of on average selling price in Germany, the mix coming down to more affordable units, or could you -- do you follow the sort of general German market, where we see continued or healthy price improvements, or is there any structural changes in your backlog?

[Joachim Hallengren, CEO & President]

No, not really, but I think it's fair to sort of -- to point out that the price increase of condominiums in Germany is also, of course, followed by an increasing demand from land sellers when it comes to price. So I think we can predict pretty stable development, no major shifts.

[Sofia Rudbeck, Senior Vice President of Marketing & Sales]

Thank you very much. And we have another question coming in from the phone conference.

[Operator]

The next question is from Fredric Cyon, Carnegie.

[Fredric Cyon, Research Analyst]

I'm not sure if that's me, Fredric Cyon at Carnegie. So a few questions from my side as well. I'm sure you would like to spend more time on the non-Swedish part, but I have a few on Sweden as well. If you look at started units, under 27 units during the first 3 quarters, that's more than an 80% reduction versus last year. And of course, the market is difficult, but that's more than a lot of your peers have reported. Is it so that the building rights that you have in the balance sheet is not really suitable for starts, or is this just about the market?

[Joachim Hallengren, CEO & President]

That's sort of more or less what Niclas asked I think. No, it's about the market. It's a very cautious market. Building rights are getting more and more sort of in line with what we want to do. So that's not the problem. The problem is that the consumers have a hard time getting financing and are hesitating. And we have to respect that.

[Fredric Cyon, Research Analyst]

And you mentioned outlook for rentals remains very strong. Of course, you started a few projects here in the first 3 quarters. But it seems to me that there should be plenty of opportunities to do more. What's your ambition in terms of production, let's say, within a year?

[Joachim Hallengren, CEO & President]

We're stuck in Sweden I presume.

[Fredric Cyon, Research Analyst]

We are.

[Joachim Hallengren, CEO & President]

Yes, okay. Well, if we could do maybe 400 to 500 over time, I think that would be good. Unfortunately, these investor deals, they sort of -- they come in lumps. They're not evenly distributed, right? So it's, A, you need to get your hands on cheap land. I think it's fair to call it cheap because the business model as such demands for low costs. And then you have to get the permits in place. Getting the investor, that's the easy part. So that is a scenario I would like to see. When that can materialize I cannot say.

[Fredric Cyon, Research Analyst]

But is it a necessity to have it presold, given the demand situation? Can't you build on speculation?

[Joachim Hallengren, CEO & President]

We can. But again, the investor is not the challenge, right? So just to get there, I don't really care whether we start before we sold or not. I prefer to start -- I talk about the Swedish market now, which is really hot for investors. The tricky thing, getting your hands on land, getting all the permits. Then it's a walk in the park.

[Fredric Cyon, Research Analyst]

And then my final question, Ann-Sofi, you mentioned estimated completions, that there were some Finnish projects that were delayed. But when I look at the shot, it looks like the number of estimated completions also for Q1, Q2 was lower than anticipated for the second quarter. What was the reason for that?

[Ann-Sofi Danielsson]

Yes, yes, it can be delays due to a number of reasons. So first of all, that we see that our process is slower or that something has happened. So for -- in St. Petersburg, for instance, it has to do -- a lot to do with the permits that we need to hand them over to the final customer. So there can be a number of reasons. So why I pointed out quarter 4 was just because we are so close to that quarter. So that was the reason why I mentioned just quarter 4. But it can happen for many reasons. And that's also why we say that this is a forecast and an estimation and not fixed numbers.

[Sofia Rudbeck, Senior Vice President of Marketing & Sales]

Thank you very much. And we have another question through the phone conference.

[Operator]

The next question is from Tobias Kaj, ABG.

[Tobias Kaj, Research Analyst]

Tobias Kaj from ABG. Several of my questions have been kind of asked already before. But regarding completed units in incoming quarters, with the 2,900, you look like you ended from 5,700 for the full year. And based on the forecast, you're looking for some 5,200 for next year in delivered units. Is that the figure that still can increase with starts in Q4, or is that roughly what we should expect?

[Joachim Hallengren, CEO & President]

It can increase, but then it has to be within the row house, single family, or [ similar ] touched business. Then we have shorter cycles down to 6 months. When it comes to multifamily, the window for 2019 profit recognition is already closed.

[Tobias Kaj, Research Analyst]

Okay. And in terms of Germany, and you have seen a strong growth in production starts year to date, how big are the economical scales in that region? Should we expect higher margins when volumes are increasing as well?

[Joachim Hallengren, CEO & President]

You could wish for that. I'm not sure that that will actually happen. It's really stiff competition when it comes to resources in Germany, as it is in any market where there is really an attractive market. So I think we should predict pretty stable development.

[Tobias Kaj, Research Analyst]

Okay. And final question regarding Finland, where you have increased the number of recognized units quite significantly, both to consumers and to investors, but the margin or the EBIT is still at very low level, even though it was positive in Q3. What should we expect for 2019? Will recognized units continue to increase? And what kind of margin should we expect for next year?

[Joachim Hallengren, CEO & President]

I leave the number of units to Ann-Sofi. But regarding the margin, I think we've said for a long time that we have had challenges. I think this is the first important milestone when it comes to Finland. But it's not yet sustainable. So but I'm hoping for better margins than this, of course, over time.

[Ann-Sofi Danielsson]

And units to be recognized in the future will increase. As we have said many times, one of the reasons why we had a negative EBIT and very low numbers in Finland has been that we had too few units to recognize in 2000 and -- both in the end of 2016 and also 2017. And we chose -- we have chosen to keep our organization in Finland. So even though we had very few units to recognize, we kept the fixed costs. So that's why -- one of the main reasons why we had -- we've had a negative EBIT in the past. So going further on, we will have more units to recognize in Finland.

[Joachim Hallengren, CEO & President]

And we said also long term that we see no reason for any country to have significantly a lower margin than the others. So but that's sort of a midterm goal for Finland.

[Tobias Kaj, Research Analyst]

But based on the pipeline for next year, do you think you will reach satisfying margin already 2019 in Finland?

[Joachim Hallengren, CEO & President]

I have to pause on that because I'm really unsure. But for the moment, I think it's important that we get a sustainable sort of positive profit development. If we would be there already 2019 I think is a bit early to say. You can hope, but I can't promise.

[Sofia Rudbeck, Senior Vice President of Marketing & Sales]

Thank you very much. And we have another question through the phone conference.

[Operator]

The next question is from Stefan Andersson.

[Stefan E. Andersson, Analyst]

Hi. Thank you. Just a small detail maybe just -- maybe you already covered it. But when I look at the started units for consumers in Sweden, you seem to have 127 -- sorry, 127 started for January-September, and you say it's 104 in the quarter. You had 89 started for the first half. To me, the difference is 38. So I'm just wondering, is it 38 started or 104 started in the quarter?

[Joachim Hallengren, CEO & President]

104 started in the quarter. I can confirm that.

[Stefan E. Andersson, Analyst]

So the 127 for the 9 months is wrong then.

[Ann-Sofi Danielsson]

No, it's not wrong. There's a -- no, it's not wrong. It's a reallocation.

[Joachim Hallengren, CEO & President]

Okay. Yes, it is a project that was started in another category that now have been moved as ongoing to -- in this case to investors, right, from consumers to investors.

[Sofia Rudbeck, Senior Vice President of Marketing & Sales]

Okay. Thank you. Did you have any further questions? Okay. Anyone here in the room that has a question that you would like to ask? No? And I think we've taken all the questions through the phone conference. Is that correct? Yes, and there are no further questions here. So then I would leave the opportunity to Joachim to give any closing remarks to this quarter.

[Joachim Hallengren, CEO & President]

Thank you, Sofia. Again, I stand before you really proud. I think this was a really good quarter all over. I think there is some solid also indications that we are moving according to the path that we have predicted and wanted, following the strategy, being a bit boring. But boring can also be very efficient and, in the end, very profitable. So with that, thank you very much for attending. And see you again at the Q4 report. Thank you.

[Sofia Rudbeck, Senior Vice President of Marketing & Sales]

Thank you very much. And hope to see you all soon again. Thank you.