Bonava AB (publ)

STO:BONAV B

Earnings Call Transcript 2020-Q3

[Louise Tjeder, Head of Investor Relations]

Good morning, everyone, and a warm welcome to Bonava's presentation of the third quarter 2020. Speaking is Louise Tjeder, Head of Investor Relations; and with me today and also presenting the quarter highlights is CEO, Joachim Hallengren; and CFO, Ann-Sofi Danielsson. After the presentation, we will, as usual, open up for questions and a short reminder is that you can ask your questions on the web or on the teleconference via the operator. So with this, I will hand over the word to you, Joachim.

[Joachim Hallengren, CEO & President]

Thank you very much. Good morning all to the Q3 presentation from us at Bonava. So a strong pickup in sold and started units is the first headline for the quarter 3. We have been able to hold the level of sold units at a stable level. I will be so dare to say that I actually think it's a very good level, taking into consideration the pandemic that raged across Europe, also affecting partly this quarter. Another important thing is the consumer starts. They are higher in both Germany and Sweden, our main markets. The EBIT margins are slightly lower, but if you take away gains from sale of land, they're actually stronger. It's supported by improved gross margins in handed units in the projects in Sweden. It's also supporting -- supported from the Nordics slowly but definitely surely improving the performance with Finland in their turnaround phase, and they are delivering very well as planned. And what we're seeing this quarter is that they will hand over the last of the poor-performing projects. The earnings and the margin is also supported by a lower SG&A.Moving over to year-to-date. Early in the year when we saw the first signs of the pandemic, we decided to play a bit safe. That's an option that we have at Bonava. So we decided to focus a bit more on the investor sales. We predicted that the consumer sales would be hard to forecast and committed to a lot of uncertainty going forward, and that has really paid off. So we have been able to sell and start more units to investors so far. We have a very stable, and I would argue, a very strong and good performance in our sold units or sales to consumers. And we have a historically high sales rate of 81%. 81% of our total portfolio is now safe and sold. The EBIT margin is lower. We have talked about this in the first 2 quarters, because it's those who are mainly affecting the EBIT margin, the Nordics with their low performing, well-known bad projects, and Germany also had some poor-performing projects that were finalized in the second and third quarters. We already, in the second quarter report, communicated that the margins in Germany will improve. And that's clear in these numbers, and they will continue to improve in the fourth quarter and coming back to more normal level in 2021. I think it's also fair to point out that the comparison from last year was boosted by a high volume of recognized very high-margin units from our St. Petersburg operations. Key figures. Starting with the third quarter, the net sales is slightly down compared to last year. And as I said, the EBIT, excluding items affecting comparability, is down SEK 125 million compared to SEK 162 million. However, if you exclude sales of land, the EBIT is SEK 135 million compared to SEK 131 million. And the net profit is substantially higher. And then we need to remember that in the third quarter last year, we had an item affecting comparability in terms of a claim, an old claim in our German business that costed us EUR 10 million. Looking at the numbers year-to-date, the net sales is slightly up. The EBIT, excluding items affecting comparability is SEK 211 million compared to SEK 509 million. But a more fair comparison, the one -- the EBIT comparison without sales of land, lands us at SEK 221 million versus SEK 417 million. Net profit, SEK 93 million versus SEK 247 million. Units in production is down. It's 8,962 compared to 10,301. But we have already early communicated that the planning for starts this year is really back loaded, and we expect to start a lot of new units in the fourth quarter, so that difference will change a bit. We will take back some of the difference. The value of sold units, however, is not affected that much. It's only SEK 300 million, down SEK 21.9 billion compared to SEK 22.2 billion. And the sales ratio, as I said, an impressive 81%. Looking at the sold and started units, starting with sold units in the quarter to consumers. We were on par with last year. And I think that's a really strong sign from the organization and from the market, which is very well-performing in all our business units. Year-to-date, we are only trailing behind with approximately 75 units, which I think is extremely impressive, taking into consideration the pandemic, which caused many of Bonava's market into total lockdown for 6 weeks. Started units slightly behind Q3 next year. But as I said, we knew already from the beginning, and the plans to started units is really back-loaded this year. And year-to-date, we are trailing behind 180 to 190 units compared to last year, mainly affected by the pandemic and the lockdowns that delayed us. It also delayed the building permit process and other kinds of permits from authorities. But again, we will see a lot of new starts coming up now in Q4. Investors, as I said so many times, the distribution is not even, so one should not pay too much attention to an individual quarter. We have sold a few units in less this quarter than last year. But the more important figure is the year-to-date number, where we sold substantially more, thanks to an increased focus and a strategic decision to -- during the pandemic's early phases boost this business. This is a table that shows our latest expected assessment of expected completions and sales rate to consumers. I would like to highlight a few changes from the quarterly 2 report. We were a bit cautious in the second quarter when it comes to our ability to finalize projects with the precision that we are used to and that gave a few more handed over units in Q3 than we expected. And of course, those units are now taking out of the Q4 numbers. So the Q4 numbers this year are lower due to the fact that we recognized them already in Q3 this year. And as you can see on the graph, the distribution for completion next year, with the exception of the first quarter is pretty even. So we will not be that back-loaded as we are -- we normally are in 2021 when it comes to consumers. We have been able to start 200 new units that will be -- that are expected to be completed in 2021 and the backlog for 2022 and beyond is increased with 450 units. So we're building a strong and solid future for Bonava to be recognized in the future. Looking at the investors, there are not that many shifts. We have been able to recognize a few projects earlier already this quarter than we expected in Q2. Otherwise, the differences between the completions 2021 and 2022 is around 80 to 90 units per year. So also here, we are building a solid pipeline for the future. And I would like to add that compared to the forecast or estimation done in the second quarter, we feel that the visibility now for our projects is much better. And we feel more confident in these numbers. We were a bit cautious due to the COVID situation. However, as we now see as a second wave rolling out over Europe, there might be increased uncertainties going ahead. But for time being, the markets remain strong, and all our projects are up and running without any major disturbances. So with that introduction, I would like to hand the word over to our CFO, Ann-Sofi Danielsson.

[Ann-Sofi Danielsson]

Thank you very much, Joachim, and I go straight to the income statement that you have here. And I would like to start with the net sales here where you see that we are somewhat down compared to quarter 3 last year. And the reason for that is that we have fewer units recognized for profit handed over to our customers during this quarter. And I will dig a little bit deeper into -- in what segments this is the case. I also want to point out here that we have a good gross profit on these handed-over units. And I will also come back to that where in what segments you can see that. Selling and admin expenses are down, especially if you look for the whole period, SEK 619 million compared to SEK 668 million. And that is, as Joachim pointed out in the beginning that, today that we have been cautious and looked over our costs and really taking care of all the actions that we are doing so to reduce the selling and admin expenses as much as we can in this COVID-19 situation. So an EBIT of SEK 125 million compared to SEK 162 million. But last year, we also had this claim, the settlement in Germany of EUR 10 million or SEK 100 million. So if you deduct that and take that into consideration, SEK 125 million compared to SEK 62 million. But again, as Joachim stated out, we also have effects coming from sales of land. So if you take that in consideration, we are actually at a higher EBIT this year than last year, also without this item affecting comparability. The third thing that I want to point out here is that we have net financial items on par with last year for the third quarter, and that needs some explanation. We have lower net debt. I will come back to that soon and showing you where we are and the cash flow that we've had during this quarter. But net financial items, the same. And the reason -- main reason for that is that we've had some costs when we have established new financial possibilities for us. So that is the main reason why we -- even though we have lower net debt, we are at -- we have the same net financial items as last year. And after a tax rate of 26% for the period, we are at SEK 72 million compared to SEK 27 million last year. Just to give an overview of the EBIT, where it comes from, where -- which segments, and there are 2 things I want to point out here, and that is that we have higher -- better margins in Sweden, I will come back to that soon and show you why that is. And even though the Nordics segment still have a negative result. If you look at the gross margin coming from the Nordics, we have improvements compared to last year and also compared to the first 2 quarters of 2020. And the reason for that is that we now, as Joachim pointed out, see results from the actions that we took last year in Finland and also that the development in Copenhagen is going in the right direction and also a good contribution from Norway. If we then continue looking at our different segments, starting with Germany then. And the headline here, lower gross margins and handed-over units. That is when you compare with last year, as you see here. EBIT margin of 8.9% compared to 12.5%. But as more -- a rather small quarter, and the one thing that is important to point out here is that if you compare with the first 2 quarters in Germany, where we've had -- we had the projects that we handed over with quite low margins. We are improving in Germany. And that is also, as Joachim said, what you can expect going forward that you will see -- we will come back with better margins in Germany going forward to be back on the level -- almost on the level that we've had previously or previous years. And the 344 units handed over to consumers in this third quarter with this margin, as you see here. And one other thing also I want to point out here that you see here also in Germany that we have reduced selling and admin expenses, thanks to good -- that we've been cautious with what we are doing and really looking into what we need to do and what we can wait with and what we can avoid. So that has given a result also on this line here, selling and admin expenses. And then what we also want to point out is that we've had a good level of started units to consumers. Starts to investors can be more stochastic. So just in this specific quarter, only 48 compared to 232 last year, but that is more stochastic. So the good thing here, the good sign here is that we have started many units to consumers, both in the quarter but also for the whole year. And that is also what we want to point out. We see a very good demand for our products in Germany. So what you can expect also in the fourth quarter is that we will continue to start more in Germany. So -- and also -- and you also see that when you look at the sold -- the number of sold units in Germany in the quarter, and that is what we see underlying a very good demand for -- on the market in Germany. Just to point out what we said many times, though, we still see some troubles when it comes to how the authorities are working with the building permits. We still see that we have delays there that goes both for Bonava but also for our peers on the German market. So that is still a bottleneck that we see. But otherwise, good demand, good possibilities to start more in Germany. Sweden then, a good project mix in third quarter here. So that is what you see here, a good gross profit for those units that we've handed over, even though they are fewer in numbers, but with good margins, better margins than last year since we have another project mix in Sweden than we've had last year. And also, lower selling and admin expenses. So all in all, that has given us a good development in the quarter and also an improved EBIT margin if you compare it to what we've had 1 year ago. And also in Sweden, as in Germany, we see a good interest for our products. So we have both started and sold at good levels also in Sweden as in Germany. And again, this is also the case in Sweden, as in Germany that we will continue to start more in Sweden since we see a good demand for our housing units also in Sweden. Nordics then. Yes, still negative, however, improving from the first and second quarter 2020. So Finland delivers as we said and as we've planned that gives a result. We've also had a good development, a good -- more positive development in Denmark. Here, I just want to stress here or point out that we have somewhat higher selling and admin expenses. I've said that we've been cautious in all Bonava. But here, we actually have increased selling and admin expenses. And the reason for that is that we acquired the business in Oslo in the fourth quarter last year, and that gives us somewhat higher selling and admin expenses in the Nordics segment. And if we look then at the sales and start, started units, I think it's good -- it's important to say here that we have sold quite well in especially Finland and Denmark. And the very positive thing is that we have sold from stock, so not newly started units, but actually started units that were completed and been on our balance sheet. We have sold some of them, and that is a very positive sign for us that we can do that. Good for the cash flow and also good for our activity in Finland and in Denmark. And we've also had a good development in Norway with good sales number if we compare with how it was 1 year ago. Finally, then, St. Petersburg-Baltics, also good development, even though maybe not that high in numbers, but we have handed over more units than last year, and we also have had a slightly higher improved gross margins. And so also even though small numbers but a positive and good development also in this segment. One thing to point out here when it comes to St. Petersburg and the Baltics, we have started in the quarter 3 here somewhat more units than last year and also sold some units, but that is for the quarter. But if you look at the whole period, January to September, you see that we are on a quite lower level than last year. And then I just want to point out that we will start more in St. Petersburg during the coming quarters. And since those projects are quite big, many units are starting at the same time. So this can be rather stochastic that when we start the number of unit started will -- when we start the project, a number of started units will be quite high. And that is what we actually have in the pipeline, especially for St. Petersburg then, many good projects that we will be able to start the coming quarters. Our balance sheet then. We have total assets of SEK 25 billion. And there are some things that I want to say here. One thing is that we have reduced -- if you compare to the end of 2019 and also the previous quarters, we have reduced the value of unsold completed units, and that is a positive. The other thing is, as Joachim said, we have almost 9,000 units in production. That's the value of a little bit more than SEK 12 billion, but 81% of that is sold. So that's a very strong position, I would say. We are also very close to our financial target of -- for the equity to assets ratio, 29.4%. Our target is 30%. But since we have high activities during the second and the third quarter, we normally are a little bit lower than 30% at the end of this quarter. So this is also a very strong balance sheet and also a very strong ratio for this period. We have also been able to reduce our net debt. As I said when I talked about our financial items, we are down at SEK 5.2 billion. We've had good cash flow both in the quarter but also for the whole year. I will come back to that soon. But then our capital employed then and the return on that. We have had a low EBIT, and that will -- that has affected the return on the capital employed, even though we are -- we have been able to reduce the capital employed as such. But we still, as you see here, have some things to do to increase the return on the capital employed. So that's a very important target going forward for Bonava. Good cash flow, as I said, both for the quarter, but also for the period, and maybe that is more important to talk about the period. But if I start with the quarter, SEK 817 million compared to minus SEK 90 million last year, so a very good development for the cash flow during third quarter. And you could say that, that is because you haven't invested so much in new housing projects. But if you look at the whole period, we are actually on par with last year. So that could be the case, as stochastic that we have this development during a specific quarter. But we have been able to start a lot. And we've also been successful in handling our working capital, very strong for the whole period, if you see our other changes in working capital. And the main reason for that is that we've had good cash flow coming in from prepayments from our customers. So all in all, a very strong cash flow. So that gives us a good position going forward. As I said, we want to start more, we will start more, and we have the financing for that. And that is also when you look at the financing, if you exclude project financing, so this is the picture. We have capabilities of SEK 8.4 billion. We have used SEK 4 billion out of that. So we still have another SEK 4.3 billion to use going forward. So all in all, with this strong balance sheet, the net debt situation and also the financing that we have to be used. Our financial position is strong going forward, giving us the opportunity to start a lot of units since we see that the markets are so strong. So by that, I hand over to you, Joachim, to say some final words regarding this quarter.

[Joachim Hallengren, CEO & President]

Thank you, Ann-Sofi. I think that even this is a quarter with a low volume and small numbers in terms of profit and earnings, I think there are some really important signals here to guide us for the future. Pickup in sold units from a low level spring and early summer, the sales is really strong. And we're performing really well, taking the -- taking into consideration the COVID situation. There is a good level of starts in Germany and Sweden. The gross margins in Germany is improving. As we said and communicated earlier, they will continue to improve and be more normalized next year. I'm really proud of the hard work in Finland with the turnaround. It's going according to plan. And this quarter, we will see the last of the projects going out of our balance sheet. More started units to be expected going forward. If I should be a bit more specific, we will start at least in line with what we did last year. We have earlier given guidance when it comes to the consumer starts in Germany in a range between 1,200 to 1,300. I confirm that going forward. And then as Ann-Sofi also so well put it, we have a very strong financial situation with a strong cash flow. We have a debt situation, which is on a really favorable level, which gives us at Bonava very good opportunities for future business. So with that said, I would like to hand the word over to Louise Tjeder to moderate the Q&A. Thank you.

[Louise Tjeder, Head of Investor Relations]

Thank you. Thank you, Joachim, and thank you, Ann-Sofi. We will now open up for questions. So please, operator?

[Operator]

[Operator Instructions] We have the first question from Fredric Cyon from Carnegie.

[Fredric Cyon, Research Analyst]

A few questions from my side. So thanks for specifying the started units for Q4 i.e. that you aim to have at least the same number of units that you had in the fourth quarter of 2019. Going into 2021, you had -- at the peak, you had almost 3,000 units started in Germany. We're quite far from that level, and you acknowledged that this problem was still with planning processes. When can we expect a substantial improvement in started units and closing into those to that level?

[Joachim Hallengren, CEO & President]

I think that we have to divide that a bit, because I foresee that we will have a challenge keeping up the volumes to investors in Germany. It's not even wanted for us. The competition for land is pretty tough in Germany, which means that if we would keep that volume, we will lose margins because those developing projects for consumers can pay much more. And of course, we will also see a bigger impact of social housing, which is demanded by the authorities. When it comes to consumers, these starts will continue to grow. But there are bottlenecks, we still struggle with building permits. And as I said a few times, unfortunately, the digitalization in German authorities is not on the level that we are used to here in the Nordics. So as soon as there is a lockdown or as soon as there is mobile work, the pace goes down. So the volume is picking up for consumers. '21, we will see one step in. But somewhere there in 2022, hopefully, we will have stable volumes into consumers again.

[Fredric Cyon, Research Analyst]

And then moving over to gross margins, they have been improving in Germany and Sweden, but I think they're still far from the level you would aim for going into Q4 considering the mix. Is there anything you want to highlight?

[Ann-Sofi Danielsson]

Yes. What I can say, what we said, yes, when we have more units to recognize, the margin will be up, and that goes especially for Germany, where we've had fairly -- well, especially in the first 2 quarters, 2020, a fairly low level when it comes to both gross margin but also EBIT margin. And you -- what you can expect is that the margin there will go up, both due to the fact that we have more units to recognize, but also another mix when it comes to what projects we recognize for profit. So you can expect the German margins to come up. And Sweden is not that much the same as strong as Germany. But you will see improvement also there. So that is what we can say about the margins in Sweden and in Germany.

[Fredric Cyon, Research Analyst]

And then my final question on SG&A costs. I understand a few of the reasons for them being in decline. Should we expect this kind of level to be the new normal? Or do you think this is a temporary nature that the costs are declining?

[Ann-Sofi Danielsson]

Some of it is, of course, of temporary status since -- for instance, we haven't started so many initiatives within the administration. Well, it could be anything. But I think -- I also think that -- and I think that it goes not only for Bonava but for many businesses that this is an opportunity to look over what you are doing and what cost you will have going forward. So I think some of it will remain on a fairly low level. For instance, travel costs. And since -- I wouldn't say that, that is -- that has been high cost for Bonava in the past, but still, we have operations in 8 countries, and it means that we travel quite -- we have traveled a bit. And thanks to COVID-19, we have been able to use more digitalized ways of working. So of course, that will affect this kind of cost going further. It's not the big thing here. But I believe -- my perception is that some of it will be cost savings forever. But of course, we need to start up new initiatives also so that we can invest into the future. So that's my overall answer. So you will -- you can expect somewhat lower but maybe not as low as it has been during the last 6 months.

[Operator]

So the next question is from Jan Ihrfelt from Kepler Cheuvreux.

[Jan Ihrfelt, Senior Equity Analyst]

My first question really regards German and the margins in Germany. You were talking about the normalized margin. Could you please quantify that?

[Joachim Hallengren, CEO & President]

Around 12% for 2021. We will not reach that, Jan, in 2020. But that is what we have communicated earlier as a normalized...

[Jan Ihrfelt, Senior Equity Analyst]

No, no. My question was really regarding next year, so okay.

[Joachim Hallengren, CEO & President]

Yes.

[Jan Ihrfelt, Senior Equity Analyst]

Great. And also a question on margins. When can we expect double-digit margins in the Swedish business?

[Joachim Hallengren, CEO & President]

That will not happen next year. It will happen in 2022. It's very much volume driven, as you know.

[Jan Ihrfelt, Senior Equity Analyst]

Yes, of course. Yes. And what kind of starts are you heading for next year in Sweden? Could you give any rough figure there?

[Joachim Hallengren, CEO & President]

Well, what we said that we want to climb over 500, 600 units to consumer starts. This year, we are a bit skewed to investors. So we would like to see that at least and then taking it up to 800 and eventually 1,000, 1,200 units in consumers. How fast that will go is very much dependent on zoning, especially in Sweden. As you know, it's a very complicated and long-term process.

[Jan Ihrfelt, Senior Equity Analyst]

And this 1,000 units is a 3-year plan or what horizon?

[Joachim Hallengren, CEO & President]

Yes, yes, 2.5- to 3-year plan. I think that's pretty fair.

[Louise Tjeder, Head of Investor Relations]

Thank you, Jan. We will take some questions on the web here. And the first question is Simen Mortensen. How did land sales impact EBIT in Q3?

[Ann-Sofi Danielsson]

As I think you can see that if you look at what numbers we are talking about, we had a small loss in Germany of around SEK 1 million that impacted the EBIT in Germany and also for the whole group. So that was the total effect of sales of land in quarter 3.

[Louise Tjeder, Head of Investor Relations]

Yes. And we have another question from Simen, who asks about the -- if we can elaborate on the split on unsold units 467. And what we can say there and what is said in the report as well is that this is mainly related to St. Petersburg and Baltics, if you compare year-on-year?

[Ann-Sofi Danielsson]

Yes. That's correct. And as I said, we have many -- the units in St. Petersburg and in the Baltics, they are small. So the value is not that high. So if you look at it all in all, I would say that it's of low values in those countries. Many units, but low value. And as I said, what we have been successfully been doing during the third quarter is to sell out some of the more expensive or of higher value units that we've had in Finland and in Denmark. So that has been the positive thing during the third quarter. But otherwise, when it comes to -- if you look at the numbers, we have more -- our number of units of unsold, they are most frequent in St. Petersburg and the Baltics, where the value per unit is fairly low.

[Operator]

The next question comes from Mr. David Flemmich of Nordea.

[David Eriksson Flemmich, Analyst]

I have a follow-up question on the margins in Germany. You mentioned, Joachim, 12% for 2021, and I guess that was the EBIT margin. But can you elaborate a bit on the split between the consumer segment and investor segment in terms of the gross margins?

[Joachim Hallengren, CEO & President]

Yes. Yes, I can do that. And it's not 12.0, it's 12-ish, but that's sort of a normal level that we've been talking about sort of going forward in Germany, not the 13.8%, which was really, really good. We would -- I think that we are expecting to see gross margin. With that, I mean, I do mean project margin, right? So project margins somewhere around 18% to 20% going forward. The B2B, the investor margin should hopefully be somewhere around 15%. Some projects will be slightly lower, some will be slightly higher, and that is, I would argue, after many years in the real estate sector, that's a really, really good reward for our B2B project, where we have earlier indicated a span between 10% to 15%, so somewhere in that range. 18%, 19% on consumer, somewhere around 15% to investors in Germany.

[David Eriksson Flemmich, Analyst]

Yes. And you mentioned that you don't expect to see the same volumes in the Investors segment in Germany going forward, but the 15% margin seems like a very good reward, as you mentioned, compared with 18% to 20% in the consumer segment. Why don't you want to increase the volume in the Investors segment then?

[Joachim Hallengren, CEO & President]

Because my forecast is based on what -- on land that we have already acquired and projects that are in production. We will see a push sort of downwards on that if we would go out and buy land on this market. That's why it's not competitive anymore, but that will be finalized in '23, '24. So you will see those starts. Long term, there will be a pressure on margins if we try to keep a high volume in investors in Germany in this hot market.

[David Eriksson Flemmich, Analyst]

Yes. And the next question relates to the volumes that you do expect to start in the coming years. I mean, it sounds like it's not reasonable to expect 800, 900 units annually in Germany. But what do you see in 2021, '22? What do you expect?

[Joachim Hallengren, CEO & President]

With that number, I think you referred to investor sales, right? Starts, sorry. Yes. Investors.

[David Eriksson Flemmich, Analyst]

Yes. Yes.

[Joachim Hallengren, CEO & President]

Somewhere around 500, I would argue. We have seen a growth in investors for a while now, but it's 500-ish, then is timing. It might be 600, might be 400, but somewhere there. We will still be able to find reasonable profitability in sort of cherrypicked project.

[David Eriksson Flemmich, Analyst]

Great. And the next question relates to the gross margins in the Nordics. You did report a positive gross margin in Q3. And if I understand it correctly, the problem projects have now been recognized and are out of the books. What do you see going forward in terms of gross margins in the Nordics segment?

[Ann-Sofi Danielsson]

What we have said is that in the long run, you should expect double digit, 10% EBIT margin also in the Nordics. That is our objective and well, or what we strive for and that is what you should expect also from the Nordic segment in the long run. However, of course, that will take some time to achieve that, but that is the long-term expectations for us on the Nordic segment.

[David Eriksson Flemmich, Analyst]

And for the projects you have in production as of now, is it reasonable to expect a double-digit project margin in those, which will, of course, land in a significantly lower EBIT margin due to low volumes or?

[Ann-Sofi Danielsson]

Yes. So all in all, I would dare to say that. But of course, that will take some time before you see them in the P&L since we have some time -- we still have some time to produce them. But that is -- I would say that the remaining portfolio, all in all, there could be some projects with problems. But all in all, most part of the project portfolio in the Nordics, where we have low or very low margins are out of the books.

[Louise Tjeder, Head of Investor Relations]

We take one last question from Simen Mortensen on the web. How much of starts is planned Q4 versus Q1 and versus Q3? And how fast should we expect starts to jump up in line with the sales?

[Ann-Sofi Danielsson]

We don't give that kind of forecast when it comes to starts. What we've said is that we will pick up starts in Germany and in Sweden as much as we can during the fourth quarter if you compare to the first 3 quarters of 2020. But to forecast exact numbers, it's too early to do that in, well, if we should -- well, disclose an exact number of the starts.

[Louise Tjeder, Head of Investor Relations]

Yes, indeed. And we have communicated that Q4 is a larger quarter than the quarters in the current year. So that says some at least.

[Ann-Sofi Danielsson]

Yes, yes.

[Louise Tjeder, Head of Investor Relations]

Okay. And we have one more question. Operator, please?

[Operator]

The final question comes in from Tobias Kaj of ABG.

[Tobias Kaj, Research Analyst]

I have a follow-up question regarding your guidance for the margin in Germany in Q4. Do you expect that to increase quarter-over-quarter from the 9%? Or is the guidance year-over-year compared to the 16% in Q4 last year?

[Ann-Sofi Danielsson]

It's compared to the first 3 quarters of 2020. That is what we guide on.

[Tobias Kaj, Research Analyst]

And compared to the margin in the fourth quarter last year, do you think you can achieve a margin in line with that? Or should we expect a lower level?

[Ann-Sofi Danielsson]

It was a very good quarter last year. So -- but let's be back on that because I think it's too early for us to predict and give you an exact margin for the fourth quarter, except that we expect it to be back on fairly good levels also in the fourth quarter for 2020.

[Tobias Kaj, Research Analyst]

Okay. And if I look at your guidance for recognized units in coming quarters, it looks like the number of recognized units 2021 will be down 18% compared to 2020. Are you able to start projects in Q4 that is completed already in 2021? Or is the current guidance plus the unsold units kind of the maximum level to recognize next year?

[Joachim Hallengren, CEO & President]

It will be very hard to finalize anything 2021 that we start in the fourth quarter. However, there is always a possibility that projects might be completed earlier. So we might see 1 or 2 projects slipping into 2021 from 2022, but that's way too early to say. This is the best forecast we can do at this point, but you shouldn't expect any new project to land within 2021 at this time of the year.

[Tobias Kaj, Research Analyst]

Okay. And one final question regarding your cash flow. You had a very strong development from other changes in working capital, both in the third quarter and year-to-date. Do you expect that to continue in Q4? Or is it the risk of a reversal?

[Ann-Sofi Danielsson]

Reversal. But to keep it up at these high levels is rather tough for us, but you shouldn't expect a reversal. But the -- to keep it up on these high levels due to high advances from customers could be rather tricky. So don't expect it to be SEK 3 billion in the fourth quarter, but don't expect it either to be negative SEK 3 billion in the fourth quarter. So that is what I can say.

[Louise Tjeder, Head of Investor Relations]

Thank you. So it seems we have no more questions. So we thank you all for listening in. And next report will be published on 29th of January. Again, thank you, and have a very nice day.

[Operator]

This now concludes our conference call, ladies and gentlemen. Thank you so much for attending. You may now disconnect your lines.