Bonava AB (publ)

STO:BONAV B

Earnings Call Transcript 2019-Q3

[Louise Tjeder, Head of IR]

Good morning, everyone, and 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. So with this, I hand over the word to Joachim. Welcome up on stage.

[Joachim Hallengren, CEO & President]

Thank you very much, and good morning, all, Q3 report for Bonava. So looking at the highlights, we had a net sales on approximately the same level as to last year. However, I would like to point out that the benchmark with Q3 2018 is really, really tough when it comes to result. We were still harvesting a project from the, sort of, super-strong market, not listed in the Swedish operations. We had a profit margin that was record high, so comparison is a bit unfair. Looking at the earnings, SEK 162 million, there is -- there, we are also taking into consideration a dispute, a legal settlement that we did in Germany. That is -- or was a never-ending story. Now and unfortunately, 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 was finalized in 2005.The legal dispute started in 2008 and had dragged on forever and ever. We have switched judges. The old judge actually retired, so long had we worked with this case. And to our disadvantage, the interpretation of our legal -- of the legal dimension and our position actually changed over time. So 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 quarter 3 2014 to see such strong sales development. So pair to pair, the sales in Sweden is up with 140%. I will be back to comments regarding the market, but obviously, we can 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, and that's also up. It's up with almost 13% compared to Q3 last year. And it's totaling to SEK 22.2 billion, which is 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 back into full volume again. And 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 just to have a sort of 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. And of course, in the end, and 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. But hopefully, we -- or we are planning to bounce back during 2020, sorry. We also acquired a really good and interesting company in Oslo. We'll be back to that Urbanium AS. So 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. And now we have had a fantastic opportunity to do an acquisition, and we did revert to that also. And 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, say, started 2 really strong consumer projects in Sweden. And we -- last night, we've also confirmed that we do have the green light to start the production of 169 rental units in Lund. And I was hoping to put it in other report, but it was a few days delayed but it's there. So 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 they are not evenly distributed. It doesn't really say much. But there is a lot of activities, a lot of interest around investors. And you look -- if you look on year-to-date, you can actually see that the total sales is actually a few numbers higher than last year. So 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 so much assumption to the investor side because it's connected to the sales. And as I said before, they aren't evenly distributed. It's -- I mean Q3 was more or less on par with last year. But if you look on the aggregated numbers for year-to-date, you can see that we are trailing somewhat behind in -- when it comes to starts. And most of that is actually tied to the bottlenecks in authorities in Germany. But 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 3 years delayed due to appeals from one private individual. So it is really painful that we are dependent on so many external factors. But it's actually part of our business environment that we have to live with that, but 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 in a good and solid level. And then, as I said, SEK 22.2 billion already secured in sold units, not profit recognized, up from SEK 19.7 billion. So 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. But we are in the affordable segment. We have a very strong market position. And as of today, we do not see an effect. But 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. So that is really promising. However, price levels are pretty stable. They're down. You can see in statistics that different markets react slightly different. So if you're really into the numbers, you can see that there is a slow but steady increase. But we need to remember that's a mix of new build and second-hand market. So we are happy, and we're pretty confident that we are on a stable level. Will that stay? I don't know. It might -- I mean 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? Would the market be able to absorb that and bounce back or would that set a new level? However, we are really pleased to see that the activity is up. So 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, and with that, we mean Greater Copenhagen, is more hesitant, as is Finland. Greater Helsinki is stronger than rest of Finland, but it's still something that we need to monitor. St. Pete and the Baltics is working really, really well. St. Pete -- or Russia's interest rates around down to a record low level. For us Scandinavians, 7% is really, really high. But for a Russian citizen, that's sort of more or less unheard of. Many generations have never seen that kind of low interest rates. And of course, with oil price coming up, the confidence is growing much stronger. And you can also see, even though St. Pete-Baltics is a small business area that they're really contributing with great margins and good IRR or ROCE and, therefore, 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. So we're really well positioned for that. These are 2 well familiar growth, as 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 is also because the Swedish market is suffering from being a bit too small in scale. But 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 would like to boost the Swedish operations a bit now when things looks more stable. Looking at the right-hand side of the picture, you then -- you can see the volumes. And pretty interesting that we then have 3 segments as in units, and units is activity, right? Because then, the sales prices can be very different. So that's sort of the speed of the business. There are 3 units hovering around 20%, 25%. And then we have the big chunk in Germany. So we're walking the talk. I will focus now again starting more units in Sweden, so reclaiming the second position, but then pretty evenly distributed. I think that's a really good position to work forward from. And then I would like to introduce you to 4 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 the second phase or [ 3 ] rental apartments, and the third phase is condominiums for consumers. So this is one example of a pretty large development scheme that we work with in Greater Berlin. And then 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 [indiscernible] where we have developed a lot of projects. This is Tinnerbäcks Brunn, 52 apartments, really well received by the market, selling really well. Moving over to Finland, Postinkantaja in Helsinki. Also, really strong sales in that project. And last but certainly not least, Biskopshus, phase #1 out of 3 in Bergen, also consumer projects. So a good blend, a 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. Now I think this is a pretty fantastic history because many of you have asked me about what about acquisitions and mergers. And I said, I'm pretty reluctant because I would prefer to grow organically. Buying a business is -- can be sometimes pretty tricky. I've said that the M&A tool is in my toolbox, even though not on the top. But I also think, as I stated, as I do often that I could, by experience, recognize a golden nugget once I see one. And in this case, we were actually approached by the owner of 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 Pay, who owns this company, not talking about cash flow or EBIT. We talked about values. We talked about what was important, changing the game and history. And he was looking for a new home for his 7 or 8 employees because he wanted to retire. And he found that in us, based on our business idea, based on our values and based on who we are, and we're really proud to accept them into our family. It also gives us a reentry in a very interesting market, Oslo. They bring competent 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. So 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.

[Ann-Sofi Danielsson]

Thank you very much, Joachim. So some was about what has happened during the third quarter. And there, to start with, I take the opportunity to go through our financial objectives and see where we are. Return on capital employed, 10% to 15%. And if we exclude the settlement that we had in Germany, SEK 100 million, we are at 9.7% for the last 12 months. Equity-to-assets ratio to be above 30% is our objective. We are very close to that. And finally, our earnings per share the last 12 months, SEK 10 -- a little bit more than SEK 10 for the last 12 months. So that's where we are. It's the past the quarter absolutely when it comes to [ EBIT ].We'll try to give you some background why that is. We have a net phase 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. And 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 rubles. So we have a very low financial net now -- negative financial net low, but on a lower level than last year. And the tax, 25%, that is what you should expect from our business. So that is also what we -- that we have here in the third quarter. So it is 25%, SEK 36 million. So a net profit of SEK 27 million. So going back then, the gross profit here is lower than last year. And why is that? When we have more or less the same net sales. Well, 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. And 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. And 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. So that, all in all, has given us a lower operating margin for the Swedish business. And the other big thing here is the Nordic segment. More units recognized to consumers, somewhat less to investors. But the big thing is here that we have increased cost in the Finnish operations. That has given us -- well, it does hit the operating margin in the Nordic segment in this third quarter. So that is something to remember. One other thing to say is that actually, for the third quarter last year was exceptionally strong. We said that already back then that it was a very, very strong quarter since we recognized so many units, especially in Sweden, with very high and good margin, and that was really exceptional. So that is also something to bear in mind. If we continue the -- 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 a specific quarter? But 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-month period, which is more relevant to look upon here and also with a good and stable margin -- EBIT margin in Germany, so a good development here. Joachim pointed out here that we have struggled with the authorities of Germany, which affect this number of starts. And also, of course, that also include a number of how many units that we have sold. And you see that here that even though we have quite high number when it comes to sales and started -- sold the 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 to start, and will be able to start the projects in Germany. And 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. So 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 4 -- quarter 3, sorry, to consumers, both -- and 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 then here, unfortunately, we continued to have low margin in these operations mainly due then to the fact that we have had these costs increases in projects in Finland. So that's the main reason why we are where we are in -- 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. And then finally, then, our smallest segment, St. Petersburg-Baltics, small segment, but a very good development. We have expanded the business both -- especially in St. Petersburg, and that has also come with a good development of the margin. And the number of units that we have sold for the whole period, January to September, is on a quite decent level as well, and we have started also a good portion of new projects for the future. So all in all, 10,300 units, that is what we have in our portfolio with a very good sales rate, as Joachim pointed out. And 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 3. So have started good projects that are sold, giving us a good platform for the future. And also looking into the future, how many will have 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. And one thing to comment here is that we have more units in quarter 4 to be completed than we expected when we did the last forecast in quarter 2, but they are fewer than last year. We recognized more units in -- we have more units to be completed in quarter 4 last year than we have this year. So that is something to bear in mind when you look at this. This is for consumers and this is for investors. And the same goes for both of them. So our total assets increasing. And 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. But of course, we also have more units completed on our balance sheet. If you look 1 year ago that, that this is the brown part here on the bars, and that part has increased our total assets, mainly here than in Sweden. So 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 0, improvement from last year. And 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. So cash flow, as we have been pointed out many times here, is that we have a very strong seasonal development, our cash flow with a strong -- with a high outflow in quarter 2 and quarter 3, especially, and normally a positive incoming cash flow in the fourth quarter, and that is also the development for this year. And all this has given us a net debt of more or less exactly the same level as we had when we ended quarter 2. And I always point out that bear in mind here that we have net debt here in our tenant-owner associations housing companies due to Bonava's way of accounting for these units. So that is also something to bear in mind when you look at this. And of course, other net debt has also increased during these last 4 quarters. And the main reason for that is that we have increased our investments, especially then in Germany. So increasing operations increased capital employed that we use in our business. But if you go back from where we started, we have increased our capital employed by almost 5 billion. And the main investments that we made during these 4 years have been made in Germany, as we said so many times. And here you also have how the return on capital employed has developed during these 4 years. And 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. So by that, Joachim, do you want to summarize the quarter.

[Joachim Hallengren, CEO & President]

Thank you. You can stay here with me because this will be pretty quickly, I think, because we will have a Q&A just after. But -- 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. But 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. And 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 of regarding that and focus in Sweden is now moving over to starting more projects. We talked about the sales value, the SEK 22.2 billion, already securing sales in the ongoing portfolio, which is on a high level. We're up from 70% to 72% already sold and secured. And then we have what is actually most annoying in the business is the cost overdraft in some projects. That's really, really awful and unacceptable. And we're mitigating that with strong action. And especially in Finland, some of that in Sweden as well. And then we strengthened our position in Norway by the great acquisition of Urbanium, which we're now integrating into the business. So with that, Louise, would you do us the honor to facilitate the Q&A.

[Louise Tjeder, Head of IR]

Yes, I will. Thank you, Joachim and Ann-Sofi. Just shortly before we open up for questions, [Operator Instructions]. So with this, we open up for Q&A.

[Stefan E. Andersson, Analyst]

Stefan Andersson from SEB. A few questions. First on Finland and the Nordic division. If I'm remembering correctly, the Finnish operation has been a little bit of [ a niche ] is the separation from NCC. So -- 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?

[Joachim Hallengren, CEO & President]

You're totally right, we've been suffering in Finland. It's way too late to blame the separation. I think this is the human factor a lot, where it's -- we have fantastic projects in Finland. We have projects with almost 30% margin. And then we have a few with a lot of loss. So we have -- 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 is really -- it's really obvious where ownership belongs. And when we are introducing a lot of processes, systems and tollgates. Now these are projects. This is basically 3 projects where we lost a lot of money. They are already finalized or in the verge of being finalized that we started in 2017. Still, it's really, really annoying. And you've been following the construction industry for a long time. And I really hope that this will be a -- I mean we will not end there, where this is a never-ending story. If you ask me, if this cannot happen again? Unfortunately 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.

[Stefan E. Andersson, Analyst]

And 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?

[Joachim Hallengren, CEO & President]

That's what I would hope. That's what I've been told. But would I put my head on the block for that? No.

[Stefan E. Andersson, Analyst]

And then on Sweden, you start-up, as you say, in Sweden. And at the same time, we've seen poor development on the starts. Is there -- do you expect a rather rapid comeback or is there a risk that you need to adjust your organization in Sweden to meet the current operation?

[Joachim Hallengren, CEO & President]

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 is not only sizing sort of competency. 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. So we are working with this content. But if you follow the sort of 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. So every unit is being scrutinized all the time. Of course, we need to adapt if the market changes. But that's also a onetime or that's something we tweak with all the time.

[Stefan E. Andersson, Analyst]

And a final question. You sold some land quite a long time ago, I think [indiscernible]. And just remind us, could that come in Q4? And what kind of numbers are we talking about here?

[Joachim Hallengren, CEO & President]

We truly believe that we will see the end of the story in Q4. The zoning is now in place. So now it's a lot of regulatory things. I don't know the English term, [Foreign Language]. A lot of officials are doing the handy work there. So 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. But 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 follow us closely, really, hey, the sort of pending profit from land sales hanging over the company we do think that will be done.

[Stefan E. Andersson, Analyst]

And then do you have a profits or sales number that you could...

[Joachim Hallengren, CEO & President]

I don't think we have communicated that. But I think you all have your kind of estimates where we're at eventually.

[Louise Tjeder, Head of IR]

Now we have another question from Niclas Hoglund at Nordea.

[Niclas Hoglund]

A couple of questions, if I may. Moving over to profitability. I mean looking at the numbers, it's really scaring in Sweden. Margins are coming down to 3% if we exclude the sort of sales from land. And you've been clear of one of the reasons. But what about the sort of underlying profitability in your portfolio now in Sweden? Should we expect the sort of margins on starts to be on similar levels since prices are not moving up really? Or what's your take on Sweden?

[Joachim Hallengren, CEO & President]

That's a challenging question to answer. We said, and 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 done. That is not the same thing that we will see -- we will start project with single-digit profit margins, not at all. But there is also volume factor in this quarter when it comes to Sweden, when it comes to handed over units. And of course, we're growing the company. And that is one thing that you need to take into consideration. It's very easy to look on sort of what do we profit recognized. But our staff is working, what we should start tomorrow, next week and 2 years from now. So maybe started units and the portfolio we're working is a better assessment. Of course, I know that the stores have been down, soft in Sweden. That's something we work with very, very much. But 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 subscale as of now. And there will not be a fast recovery. I hope I'm wrong when it comes to the recovery, but better safe than sorry, 3%. I mean that's also a lot reflected on the size of the company growing and the volume of profit recognized. I think that's way too poor.

[Niclas Hoglund]

Right. And a follow-up to that. In the third quarter -- in the second quarter, margins were also down and guidance were quite soft. But then we were told that you had one more of a strategic project that was finalized with -- well, you can say that structurally lower margin. Is there any one of these sort of structural projects now being finalized or any sort of extraordinary costs related to finalization in the quarter?

[Joachim Hallengren, CEO & President]

Structure project. That's a nice way for saying a really poor performing projects. It was -- 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 all 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 the business, doing new things, you need to understand that you need to crawl before you can walk, before you can run. So yes, we have done beginners 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. And that is not just not good enough. So yes, some extra sort of project overdrafts hitting this quarter, but no strategic, if you mean, conversions or anything like that, just poorly performing approach. A few.

[Niclas Hoglund]

Moving over to Germany. I mean it's the best contributor in the quarter. But then, again, we're 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 profits margins?

[Joachim Hallengren, CEO & President]

I will try. First, I think it's 12-plus percent. 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. So of course, that volume hits us. And again, sorry, it's a mix where we hand over. I wouldn't be too worried about the German margins going forward. Still, I talked about the margins in Germany. We're improving bit by bit, point by point. So 14%, extremely good margin. I think we were landed around 13-point-something last year. So 12% means a bit weaker, but I think we should see that over a longer time, while, 14% is really, really well performing.

[Niclas Hoglund]

So you don't think we should adjust the margins in Germany for the [ investment ] of land. I mean I get it down to 10.5%, if I adjust for that gain. So I mean that's why I'm asking you. It looks...

[Joachim Hallengren, CEO & President]

That is really on the soft side. You may, if you like, I hope to surprise you. But 14% is high, and I think 10% is way too low.

[Niclas Hoglund]

Okay. Good. Then -- and my final question then on starts. I mean you recovered in Germany now, which we will have to see -- recovering in German. Then, I mean, Q4 is really when it's happening in Germany. And well, you just started what was at 750 units now and in total it was 2,900 for Germany last year for full year. So what kind of level are you aiming for? Should we expect the sort of same kind of level as we see in the third quarter also in the fourth quarter? Or should we expect the same kind of -- are we talking about down 10% for the full year or are we talking about down 50%?

[Joachim Hallengren, CEO & President]

I have to think a bit. Last year's starts, were they exceptionally high? I don't remember. They were pretty high.

[Ann-Sofi Danielsson]

They were high in the fourth quarter. Yes, they were.

[Joachim Hallengren, CEO & President]

They were high.

[Niclas Hoglund]

[indiscernible] the consumer side?

[Joachim Hallengren, CEO & President]

Yes.

[Ann-Sofi Danielsson]

So I think what we can say is that, first of all, as you have pointed out, the building permits takes longer time. So that is one thing. And also that we have the portfolio in Germany that we have not right now is rather high. And if you look at the growth that we've had in Germany for -- since we started. So 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.

[Joachim Hallengren, CEO & President]

I'm sorry for reflecting because you have to slice and dice this cube in many dimensions, right? So how many starts did we have last year, I mean, in Q4, Germany?

[Niclas Hoglund]

On the consumer side, it was around 1,000.

[Joachim Hallengren, CEO & President]

1,000.

[Niclas Hoglund]

Yes.

[Joachim Hallengren, CEO & President]

I think we will be trailing behind with somewhere between 400, 500 compared to that quarter.

[Niclas Hoglund]

Okay, still a recovery then -- versus the last time?

[Joachim Hallengren, CEO & President]

It's a recovery, especially looking to Q1. But it is pretty tough. And it's very hard to predict. Sometimes, we get the building permit in 3 weeks, sometimes, we're still trailing with one. We're into 11 months now.

[Niclas Hoglund]

And then a follow-up question on that. Previously, you're able to sort of deliver a profit recognized units in Germany. Also even started into the year up until the second quarter on the row houses side. So 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?

[Joachim Hallengren, CEO & President]

Yes, but 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. So -- and that's also, I think, why we are entering into this bottleneck situation that we're driving larger and larger scales of projects. And of course, it hits us much more. While in row houses, they're often in further out in the outskirts and where we can start getting on one building permit, and then we can start in a very, very small phases. It's very hard to build like 3 floors out of 12. So yes, the possibility is there, but the transformation of the business is that the row houses are getting a smaller volume than the multi-family.

[Louise Tjeder, Head of IR]

Thank you. So we have a question on the phone. Operator, please?

[Operator]

Our question is from Tobias Kaj of ABG Sundal Collier.

[Tobias Kaj, Research Analyst]

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 '16. However, so far, we haven't seen any in 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?

[Joachim Hallengren, CEO & President]

Yes. As you maybe have seen, we have self-started a few projects, which we started here in Stockholm and in Gothenburg, and it's well -- really -- well-received by the market. We are converting the bookings to contracts now. So 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 multi-family in Uppsala and also here in Stockholm, et cetera. So we are very sort of back-loaded when it comes to starts and sales starts in the Swedish operations. And hopefully, we will have more even and larger distribution next year, market allowing, of course.

[Tobias Kaj, Research Analyst]

But, I mean, before the slowdown on the market in Sweden, you were at plus 1,000 units per year in production starts to consumers, and now you are at 200 past 12 months. I mean should we expect a recovery to 250 or 300 for the full year next year? Or do you aim for significantly higher level?

[Joachim Hallengren, CEO & President]

I think that's a bit on the soft side. But the beauty with our strategy is that we actually can -- we have -- can work with a mix between business to consumers and business to investors. And as you saw yesterday, we started a rental project in Lund. So I think that the volume will be substantially higher, but there will be -- part of that will go into Investor days.

[Tobias Kaj, Research Analyst]

Okay. And I've 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. And given high admin -- fixed admin expenses and so on. Is it a risk that you will see losses in Sweden for next year?

[Joachim Hallengren, CEO & President]

I hope not. And again, as I've been asked before, I mean, we're working with being right, both rightsized and right [ man ] when it comes to competencies all the time in all business units. But it's important to understand that what we recognize is work already done. And the important thing for us here is also to think of the future. So most of our stuff is actually working with things that has neither started or materialized in results yet. So that's the delicate balance.

[Tobias Kaj, Research Analyst]

Okay. And then a follow-up on the question from Stefan Anderson. In the Nordics, I mean, if you can't give -- 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 I mean, you have to know a lot about what the production costs will be and what the [ 7 rate shows ] like and so on. So should we view that, that the margin for Q4 in Nordics also will be very low compared to your targets?

[Joachim Hallengren, CEO & President]

Yes. 2019 will be a lost year for the Nordic region for sure. I mean you don't easily bounce back. And when you recognize the project, you -- I mean that is based on how many units that you actually have sold. And even if you have sold them, maybe a few customers would like to take over the apartments later. So yes, 2019 lost year for Nordics, unfortunately. It's all on us.

[Louise Tjeder, Head of IR]

Okay. There is no more question. Before -- yes, there is. So operator, please?

[Operator]

We have a question from the line of Fredric Cyon of Carnegie.

[Fredric Cyon, Research Analyst]

Only one question from my side. So in the report, you're mentioning that the Swedish margin is adversely impacted by fewer units, the [ profit night ] 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?

[Joachim Hallengren, CEO & President]

Yes. Those projects are finalized. But again, I'm not sure that all the units are handed over and sold in those projects. It is not the major factor, but it's a substantial factor, unfortunately.

[Fredric Cyon, Research Analyst]

And where is that project or those projects situated?

[Joachim Hallengren, CEO & President]

In the Greater Stockholm region.

[Louise Tjeder, Head of IR]

Okay. Now there is no more question. And before we end this press conference, we would like to thank you very much for -- to you who joined us here at Lindhagensgatan, and to you who called in and listening on the web. Next interim report will be published 23rd of January. Thank you very much.