Bonava AB (publ)

STO:BONAV B

Earnings Call Transcript 2020-Q4

[Joachim Hallengren]

Good morning all, and welcome to Bonava's Fourth Quarter Report for 2020. Joachim Hallengren speaking; and with me today, I have Lars Granlöf, our CFO; and later, you will also meet Carolina Stromlid, our Head of Investor Relations, who will moderate the Q&A session. Starting with the highlights of the fourth quarter report. We have a high demand on all our markets despite the pandemic. We also see a very interesting trend in an increased focus on homes and neighborhoods. And of course, the pandemic changed the game for working. We work, to a larger extent, remotely. And suddenly, you need to take care of new functionality in the home that you wasn't used to before. I think that we also see a spillover in do-it-yourself business in furniture, kitchen furniture and so on. So it's a really clear trend. What that means, we don't really know yet, but it is certainly supporting Bonava's business. The macro conditions are still very favorable and stable. We have more disposable income. We see an increasing growing population. We do have a migration to larger metropolitan areas. So everything is supporting the business, but the pandemic, of course, influences us a bit. I will go back to that later with an update. Looking at the numbers and focusing more on our own performance, we had a significantly higher rate of housing starts. We were up with 67%. And of course, that is the result of very hard work during the whole year. But there is also something that we have communicated earlier that we were back-loaded when it came to project starts. I'm also really proud to announce that we can now call the turnaround of -- in Finland completed. We have cleared out all the bad projects. We went through everything very thoroughly, and I'm actually very pleased to announce that the Finnish operations is now showing positive numbers, however, and of course, not on the level that we would like to see going forward. But I think it's a very important milestone, indeed. We will dive into the numbers later in the presentation, but I think that if you has missed that, we had an extremely strong cash flow during all the year and that Bonava has very strong financial position, indeed. And that has led to a proposal from the Board to the AGM of an ordinary dividend of SEK 3.25, and on top of that, an extra dividend of SEK 2 per share. The extra dividend should be seen in the light of the canceled dividend last year. It was decided by the AGM to distribute -- or it was proposed to the AGM to distribute SEK 3. We hold on to SEK 1 of that amount, and that is, of course, due to the uncertainty that still lingers around the pandemic. If we look on the Q4 figures more in brief, the top line increased with 16%, and that, of course, was driven by more recognized units, especially in Germany and St. Petersburg. The EBIT, and now I would like to point out that this is excluding items affecting comparability in 2019, where we had a write-down in the Finnish business due to the decision to do a turnaround. So the EBIT is actually strengthened with 31%. It is boosted by the said turnaround in Finland, where we have seen improving project margins, and it's also supported by a really nice project in St. Petersburg, which we hand over with higher margins. I would like to stress that the project itself does not bring higher margins than we used in St. Petersburg. It's in the top range, but it's pretty big. It's 210 units. And of course, that influences the margin for the whole quarter. The EBIT margin, again, excluding items affecting comparability, is increasing from 10.7% to 12%. And as I said earlier, in regards to the dividend, we do have a very solid position, indeed, and the cash flow was extremely strong during 2020. An update on the COVID and the pandemic and our operations. First, I would like to state that the main priority for us here at Bonava is, of course, our coworkers and our customers and other stakeholders. All Bonava sites, as far as I know, is operational and has been so more or less during the pandemic. I know that we have had maybe a handful of stops, but they have lasted somewhere between a few days and up to 1.5 to 2 weeks. So that is progressing well. And construction sites on all our markets are being deemed to be of utmost important. So they are allowed to stay open, of course, respecting all the regulations and rules. However, we see some question marks and some potential impact, especially in our largest market, Germany. It has to do with the decision process. And so the administration around zoning and other construction-related permits, rules and regulation. There are 2 reasons for that. First, it is that the German market is one of the markets in Europe where the lockdown has been the strictest. And we are now actually into our second pretty tough, hard lockdown, and that was prolonged by the Chancellor just last week. The other reason might be a bit surprising for us who lives in the Nordic countries, a part of the German society is not as digitalized as one would expect, and that goes especially for municipalities and authorities. Many civil servants still work with desktops and not laptops and not all have access to broadband at home. So that means that whenever they switch into remote work, the productivity and the momentum goes down. But this is all just [ appertization ], a delay. We're still seeing building permits coming out of the system, but at a slower pace. We do not foresee that this will affect our handovers. There might be a bit more challenging to predict exactly in what quarter there will come if the delay is planned in the very last week, but it's more a question of 1 to 2 weeks delay. But for starts, for project starts, of course, it is essential that we have all the permits in place. There is also an upside, if you can use that word in a pandemic, but this is from a strict business perspective, and that is that we have been able to accelerate our digital customer journey, taking care of both the sales, but also parts of the handover process. However, I would like to stress that part of the handover process is still requiring physical presence. It's hard to, for instance, hand over keys digitally as of now. So there are some uncertainty regarding that. But we passed Q4 handovers with flying colors, but I still would like to mention that it makes things a bit more tricky to predict. I will now spend some time on 2 graphs that you know very well. We have actually developed them a bit to help you follow us closely, understand them a bit better. And I would like to start by addressing a question that we have had since we released our reverse profit warning, and that was how much did you borrow from the future to be able to deliver such growth of top line and resulting in the fourth quarter. And the answer is pretty blunt, more or less nothing. So this is the consumer completions. We have added 2 rows with data sets, the first and the one on top, delta since Q3 might require some explanation. It solely means that in this row, you can see the changes or the redistribution of the volume that we reported as ongoing and for completion within these quarters in the third quarter. So you can, for instance, see that when it comes to the first quarter 2021, we actually added 70 units. However, that most likely came from the second quarter where we now have 90 units less and so forth. The second set of data is the starts. So this is the starts that should be added to the Q3 reported numbers, starts that we did during the fourth quarter. And here, you can see that we actually were able to start 420 new units to be recognized in 2021. And in all, we started 2,365 units to be recognized from now on and later. A gentle reminder, this is stating the obvious, but looking at the fourth quarter, you can see that as very often for Bonava, we will have a first quarter with very low volume. We only have 400 units to consumer to recognize in the first quarter. Moving over to investors. Here, you can actually see that one project, 70 units that was in Finland, was ready earlier than we forecasted and was recognized already in the fourth quarter last year. But to compensate that, we actually succeeded to start another project on 80 units. That will be handed over in Q4 2021. So the impact of the 2021 numbers for investors is unaffected. In total, we were able to start 820 units to be recognized from now on and going forward. And that does not include a project that we succeeded to sell in Sweden in [indiscernible], 175 units because that's actually conditioned by building permit and some other topics. So that's sold on the binding contract but we're still waiting for the contract to be fulfilled. And here, you can also see in Q1, we will have no units for investors to recognize. So just to give you a flavor of what we actually have started and what we're doing out there. There are 2 projects. But before I walk you through them, let's just look at the sold and started numbers, let's start with consumers. We were more or less on par Q4 with last year, and I think that's actually an achievement because we had a hard lockdown in Germany in the last 2.5, 3 weeks. And that has affected the sales in terms of building permits and start of new projects where we have pre-sales level. We also saw a handful of more units where we couldn't handover as planned, they were delayed. The started units, I'm really proud of that number, we achieved to deliver upon what we planned to do. So we are significantly up in starts to consumers. And looking at the full year, the 2 biggest markets, Germany delivered approximately -- well, exactly 1,501 starts to consumers, which is substantially over in 2019. And Sweden also succeeded to start a lot more consumer units than in 2019. We are now at a level which we think is a good starting point for continuous growth. So we are planning to start a bit more in both Germany and in Sweden in 2021 and grow from there. And that is based on the assumption that COVID does not play us a trick and that the market conditions are still in our favor. Looking at the investors, we sold a bit more, 1,820 compared to 712. And we also started that, and as I said, we also have sold a project that is not yet started because it has not fulfilled the condition precedents in the contract. Looking at the projects, I'm really happy to announce or to introduce you to Kongsløkken in Oslo, 127 units to consumers. That was one project in the Urbanium portfolio that we acquired in 2019. And we succeeded to start some projects from that portfolio actually in Q4. And unfortunately, due to the production times, we are not able to recognize anything from that in 2021. But in 2022, you will see the Kongsløkken Oslo region and the Urbanium investments starting to yield. The -- I would call it a smashing success, the sale starts on Kongsløkken. We have sold very well, and we've been able to increase the prices a few times. So I'm really proud to see that coming into action now. Looking at investors, this is a project in 2 phases in Helsinki, and it's called Sitadelli. 110 plus 138 units that we started and sold to investors in Q4. And to be able to facilitate you who are really interested in details, we have some news from this quarterly report. We will update you more in details on our starts on the investor website, bonava.com, and there, you can follow the starts more in detail per region. So with that, I would like to hand the word over to Lars for some more numbers.

[Lars Granlöf, Chief Financial Officer]

Thank you, Joachim. Hello, everyone. It's very nice to start presenting as a new CFO, start to presenting the Bonava numbers with such a solid performance that we see in the fourth quarter. So if we start with the group income statement, as Joachim said, we have improved net sales, and we have strengthened both the operating profit and the operating margin. And of course, net sales is coming from more units recognized than in the prior year. And I will come back to that in the coming slides, give you a bit of a flavor for what has happened in the fourth quarter. Since we had this positive profit warning, we realized then that we actually delivered more net sales than what's expected in the market. So I walk you through that in the next slide. If you look at gross profit, we have a gross profit margin that has increased coming from a better underlying margin. Joachim mentioned St. Petersburg and also the turnaround in Finland that has improved our gross margin, but we also see a positive mix in other areas. But maybe I should point out as well then that as you see in the box underneath the income statement, we have had this legal case from old housing delivered in the 2000, where we had to take further provisions of SEK 67 million that is affecting margin. It's affecting the gross margin as well as the EBIT margin. So factoring in that, we actually have an improvement on almost 2 percentage points on the gross margin level. If we look at the selling and administrative expenses, it's in line with the prior year. But if we actually look into the underlying expenses, we should then consider that we actually recorded some SEK 25 million in cost for management changes now in the fourth quarter. And with such a solid performance that we are delivering for the year, we also have an increase in short-term incentives, bonuses in, say, some delta of maybe SEK 20 million between the years. So factoring in that, we have a significant underlying reduction of cost in the quarter. I mentioned that the EBIT margin, solid 12% compared to 10.7%. And add back the 0.9% negative impact from this legal case in Germany, we are actually up on close to 13% underlying in the quarter. We have net financial items slightly higher than the prior year. But for those of you that are following us, you've seen that we have prolonged the duration of our loan portfolio to reduce the funding, the refinancing risk. So with the longer duration, we also have, of course, higher interest rates. For instance, we launched this green bond successfully during the autumn. Looking at tax, we are delivering a tax -- at a tax rate of 27%. So it's in line with the prior year. It's in line with what we have been delivering during the year as well. Just to remind you, it's high due to that such a large proportion of our earnings are in Germany and the German tax rate is the highest among the different countries that we are operating in. And you can see the graph also then on the right-hand side, won't dwell back on the first half of 2020. You all know that we were all disappointed with the performance then, partly driven by the COVID, the pandemic outbreak. But we started to see an uptick in the third quarter, not in -- at the same level as the third quarter last year, but it was moving in the right direction, but with small volumes. And now with large volumes in the fourth quarter, we are delivering a good, solid profit increase. Aside that, let me walk you through how we see what have happened in relation to what we said in the third quarter report. If we start on the left-hand side, if we then look at these graphs that Joachim showed you as they are now in Q4, we had them in Q3, and we said that 1,600 units to consumers and 670 units to investors. Those were the ones that we are estimated for completion in the fourth quarter. We were delivering that. And if you then use the average sale price to calculate what kind of revenue stream we have, it's a net sale of 6.3. But over and above that, we actually delivered 36 consumer units, mainly in Germany, and we delivered 72 investor units in Finland. So over and above what we said in the third quarter report, and that is approximately SEK 0.3 billion in additional net sales. And you also know that we are selling from completed unsold that we have in the balance sheet. In the third quarter, we also had a large level of completed sold but not recognized because we were not able to close the handovers in time for the third quarter. So those are then delivered and recognized now in the fourth quarter. In total, it's about SEK 0.4 billion in net sales. We have also sold some land in the Nordic segment primarily, and that's SEK 0.3 billion, not with very big impact on earnings profitability in those sales. And then, of course, you have a mix of price increases due to cost increases, et cetera, so say, SEK 0.2 billion in others. So that is explaining the difference between what you might have calculated based on the estimates that we had in the Q3 report and what we now are delivering in the fourth quarter. So then look at -- let's look at the group figures, and this is really a very good, very positive slide, where you see that we have higher volumes recognized, we have higher volumes started, we have higher volumes sold as an average for the group. So it's really pointing in the right direction. So let's move into the segments. And starting then, of course, with Germany being the largest. Here we see that Germany has increased net sales, of course, driven out of more recognized units, both in the consumer area and in the investor area. They have a gross profit that is slightly down 1 percentage point, but here, we have the impact of this old legal case. So with that added back, there is actually an increase of about 1 percentage point on the gross margin level as well as on the EBIT margin level. If we look at starts and sold units, we've seen an increase in started units to consumers. We had a slight downturn in terms of investors, but it's like we're saying also, it's a timing issue. We have a lot of different projects that we are discussing. With the pandemic, some of them are moved in time, as Joachim mentioned earlier on. So the authorities, the longer processes to get building permits, to get starts, but also for handovers when we are due to hand over to our customers. We see that we have one investor deal here recognized, which is in Lebec, some 155 units, and we also had some early on during the quarter. The sold units are decreasing, but it goes back to the comment I had before that we have seen delays in the authorities, and we see delays also in handover. Maybe that is due to COVID that our customers cannot take access of their units. Let's move to Sweden. Sweden, we actually have a significant decline in sales, as you see. We have delivered recognized units in line based against slightly higher than we did in the fourth quarter last year. But as you see down in the box below the income statement, a significant portion in the prior year of the almost SEK 1.3 billion in net sales was coming from sale of land with high profits as well in that quarter. So factoring out that and also the small sale of land that we have this year's fourth quarter, we have a slight decline in net sales. We have a significant reduction in gross margin. But again, it's a land sale in the prior year that has driven the gross margin upwards than in 2019. So if you look -- if you're factoring that out and make it apple-to-apple in terms of the operating margin, the EBIT margin for 2020 fourth quarter is 6.2% compared to 6.8% in 2019. So a slight decrease in margin. But on the full year basis, we have improved margin over the prior year when we are factoring out the sale of land. So in terms of the market, you've probably seen that just the other week, there were more information out and they're saying that we have a price level increase in Sweden of about 10%. If you look at the projects that we have completed and realized, of course, we have not benefited from that in all of those projects, but it looks very promising going forward, in particular, when you are considering that we are -- that we have secured a lot of building rights, some 700 new building rights, in the Stockholm area. That builds a good base for the Swedish business going forward, even though we have a slight reduction in starts and sold units now in the fourth quarter compared to the prior year. Let's move to the Nordic segment then. Here, we have it the other way around. Here, we have sold some land this year that is explaining some of the increase in net sales. So factoring out that, we still have an increase in net sales, but not as big as you see in the reported figures. We have a solid gross profit, not driven that much out of the sale of land, but as Joachim mentioned, we have the turnaround now completed in Finland. So we are seeing significantly better margins in our Nordic business, where we also have a significant reduction in our selling and administrative expenses. You see down here also in the box that factoring out the sale of land, the EBIT margin is some 10.3%, significantly above the 2% that we're delivering in the fourth quarter in 2019. Looking at the development in terms of starts and sold units. This is really the all-time high quarter in sold and start units so far. We see strong underlying demand for both from consumers and investors in all our 3 Nordic markets. And just some highlights here. We have actually concluded 5 investor deals during the quarter, 3 in Finland and 2 in Denmark, we are continuing to discuss even further deals going forward. So here, we really see a uptick and a positive base for the business going forward. And speaking about positive base, St. Petersburg-Baltics, really high-volume recognized units and a strong EBIT margin. In particular, some projects in the St. Petersburg area where we're delivering very good margins. You see 23% compared to 17% already in the prior year, of course, good margins, but even higher now. And we managed to keep that selling and administrative expenses in line with the prior year. So we have an EBIT margin of 21% compared to 11% in the prior year. And if we look then at start and sold units. In terms of started units, a significant uptick in the quarter, and that is coming in the consumer area. So it's strong market development in St. Petersburg. And we see continued recovery in the Baltics, and there are several major projects that is being started. We see a slight decline in -- sorry, we see a slight decline in sold units, but probably some impact also here about the COVID and taking delivery of the housing is impacting the sold units. This is the segment where we have seen a decline in the completed unsold, well sold from the stock in the fourth quarter. And also important to mention that we're now taking the first step into Lithuania, where we have launched, started the first project in Lithuania during the quarter. So let's leave the segments and go to our balance sheet. This is then the total assets. You see that we have a decline in assets, which is normally with our -- normal with our seasonality where we are finalizing a lot of housing projects in the fourth quarter. So we are actually down below the SEK 23 billion level, and it's even down then compared to where we were in the prior year. And you see that we are up again in the equity-to-asset ratio, almost to 35%. So really well above the financial objective of 30% that we have. If we move into the capital employed. Of course, with assets being reduced, we have a significant reduction also in capital employed to SEK 12.6 billion. And even though we are not in return on capital employed in line or in the -- within the 10% to 15% into all that we have as a financial objective, we are moving in the right direction. So we have been down during the year, but now moving in the right direction and delivering 7.9% in the quarter. Joachim mentioned strong cash flow, absolutely strong cash flow. We see for the third quarter in a row, a significant positive cash flow. You see here on the right-hand side, how it looked like in 2019. If I use also 2018 figures, it would look as 2019 with close to SEK 1 billion in the fourth quarter, but basically, negative cash flow in the first 3 quarters. In 2020, we had a negative cash flow in the first quarter, but then we're delivering strong cash flow now in 3 quarters in a row. I will say that some of the SEK 1.9 billion of cash flow in the fourth quarter is an effect of that we have not invested in land, et cetera, in line with the prior year. So that is some timing differences that will come going into the next year. But as you see in the table on the left-hand side, we have a strong cash flow coming from the divestment of the housing projects, finalizing them. We also have good income of advanced payments on the units in production in the quarter. So really good to see this positive development of cash flow in 2020. And of course, with such a cash flow, it's not -- yes, it goes without saying that the net debt has been coming down. So the net debt is actually less than half of what it was 1 year ago. So SEK 3.3 billion in net debt, which sets a good base for us going forward because we have, of course, a lot of unutilized credit facilities, SEK 4.5 billion of unutilized credit facilities by year-end. So we have the base for investing in good land and also investing in new housing projects, of course. So rounding off my presentation, let's then look back on the financial objectives and dividend policy that we have in Bonava. Starting with the return on capital employed. Of course, as I said, we are not within the 10% to 15% yet, but we are moving in the right direction with 7.9%. We are clearly above our 30% target of equity-to-asset ratio with 34.6%. And if we look at the dividend policy, we are saying that we are going to dividend at least 40% -- more than 40% of our earnings per share per year. The earnings per share for 2020 was SEK 6.82. And the Board of Directors have proposed then to an ordinary dividend of SEK 3.25, which is 48% of our EPS in 2020, and extra dividend of SEK 2, and that is corresponding to 35% of the earnings per share in 2019. So by that, I end my presentation and leave it to Carolina -- no, back to you, Joachim.

[Joachim Hallengren]

Actually to me.

[Lars Granlöf, Chief Financial Officer]

Yes.

[Joachim Hallengren]

Thank you very much, Lars. We'll just wrap up. So concluding the fourth quarter report, we have a really strong position financially, not least which creates possibilities for the future. So there is a strong demand on all markets despite of the pandemic, but the extended lockdowns in some of our markets makes it a bit more difficult to forecast, especially everything around decisions and permits coming from authorities. It will not have any significant impact on the numbers of units that we are actually finalizing this year, but it has more to do with in which quarter we can start projects with building permits pending. Good momentum in Germany. As we said, we had quite low starts in 2019. We have now recovered. We're also seeing sales in par with the sales in 2019 despite 2 lockdowns. So we really hope that we can leverage on this going into 2021 once the pandemic is out of the way. The turnaround in Finland is completed. We're back into black numbers, not on the level that we want to be in the future, but still a very important milestone, and the turnaround is now closed. Going forward, we are focusing on housing starts. I mentioned before, the 2 biggest units, Germany and Sweden, we think that we are on a decent level and sort of it's also levels that we can grow from, depending on the development of the pandemic, but also market conditions. But if the starts are right, we are able to start more units going forward. And then as we have stated many times during this presentation, a really strong financial position, fantastic cash flow. And of course, that gives us a lot of opportunities to act in the future. But it also gave us the opportunity to present the dividend, both ordinary and extraordinary dividend, to our shareholders, which we really think that they deserve. So with those concluding words, I would like to hand the word over to Carolina Stromlid, our Head of Investor Relations, to moderate the Q&A session. Please go ahead, Carolina.

[Carolina Stromlid, Head of Investor Relations]

Thank you, Joachim and Lars. We will now open up for questions from the telephone, and you're also welcome to post questions on the web. So operator, please go ahead with the first question.

[Operator]

[Operator Instructions] And our first question comes from the line of Stefan Andersson of SEB.

[Stefan E. Andersson, Analyst]

Three questions from me. Starting with the subject I think you touched upon in the presentation, but I'm still not truly understanding. When we had the Q3 coming out, I think you delivered or handed over some 220 more apartments than you guided for the quarter before. And then this time, I think it's like 350 more handovers. So it's quite a lot of apartments. And we're not seeing -- I think you are even -- well, plus/minus 17 in investor. No change in Q1 next year. So just trying to understand where those apartments are coming from. I guess some of them could be investor packages being upfront. So -- but could you help out there a little bit? What am I misunderstanding?

[Lars Granlöf, Chief Financial Officer]

Stefan, if you look at this bridge that are trying to convey the 6.3 to 7.5, yes, it's true. We have 108 more completions than we were estimating in the third quarter for the fourth quarter. 36 units in the consumer segment, and that was mainly coming in Germany in different projects. And 72 units in the investor segments, and that is in Finland. And of course, these things are happening. And we are -- in this time, we actually managed to conclude and complete them before we actually estimated. In addition to that, we sold some, I would say, 250 units -- or 220 units, I think it is all in all, from completed unsold, i.e., what we have in the balance sheet. And that is hard, of course, to guide on because that is happening all throughout, but we can never predict really when that is happening. And then we had, including that number, some 200 units coming from completed but -- sold but not recognized by the end of Q3. And those were -- it was in St. Petersburg, where we have had a project that was just closed by the end of September, but the handovers were not -- we couldn't do the -- could not complete them before the end of the quarter. So hence, it was coming -- was spilling over to the fourth quarter. And then, of course, we have sale of land and others. But basically, more completed units and sale of units that we had in the balance sheet by the end of Q3.

[Stefan E. Andersson, Analyst]

Okay. I'll try to work with that. Then another question on the -- how do you experience the markets for buying land? I guess, especially reading where you've been lagging a little bit and trying to catch up. I guess, in Norway, you're in a good situation already. And maybe touch on Germany. So Sweden, Germany, primarily, I guess, are you seeing any big changes in negotiations to find land, given that the end markets have been rather strong this year? Or how do you see that situation?

[Joachim Hallengren]

I would argue that the situation is pretty stable. We were actually expecting a sort of downturn in land prices after the setback in prices in Sweden in 2018, but the market has been very active. It is tough competition. We're also seeing an understanding that there is a lot of money on the sidelines. So we're seeing actors that are not typically real estate related, but they've got money somewhere else that moves into this business. So high competition. But we are really pleased that we were able to land 700 units for Sweden in the Stockholm area this quarter. So we are optimistic, but it is a tough market out there. And that also goes for Germany, especially for smaller plots. But for bigger plots, there's still decent competition.

[Stefan E. Andersson, Analyst]

Just to add on to that. Is it correct if I'm assuming that it's primarily Sweden and Germany where you think you have a bigger need so it needs to add up -- why -- which is why you need to add up? But is it bigger there than maybe Norway after the acquisition you made and then what you already have in St. Petersburg? Is that a correct assumption or...

[Joachim Hallengren]

Both yes and no, I would argue, because if you look on the numbers for Sweden and for Germany, we actually have pretty good portfolios, but they are unevenly distributed in time. Many plots in Sweden that we have is not due to zoning until a few years ahead in time. So yes, you're right, we need to add in Germany and in Sweden. In Germany, it's more a question of complementing regions. We never had more land in Germany in relation to our turnover in started units than we have now. We have increased that a lot. But still, we want to continue to grow and securing land, yes. But if you look on the total numbers, we're well prepared for the future, so to say.

[Stefan E. Andersson, Analyst]

Yes. And my final question is on prices. You mentioned in Sweden that the market prices are up some about 10%. I guess just a little bit -- I mean, apartments are actually up 5% and villas are up a lot. So just a little bit curious if you're in a situation where you see that your market actually is up about 10% this year and that you can raise prices with that kind of amount. And then touch on these, I mean, investor packages. We've seen -- that's been a very hot market and there's lots of money over there. What kind of price changes are you seeing in the investor market? Deals are coming down rather quickly on the valuation of those properties. So are you benefiting as well slightly on that?

[Joachim Hallengren]

Let's start with the consumer side. I think we need to remember that there are long sort of duration times between start and end of project, and we will normally start with a 30% to 35% pre-sales rate. Of course, we are not able to leverage on increased prices immediately. I support your conclusion, Stefan, with the numbers. We see a more rapid growth on our single-family business than we do on our multifamily business. But we are following that trend. However, some projects were started earlier, and they have not a profitability that we were used to in the good old days, so to speak. So I wouldn't expect to add on that price increase on top of a 18% to 20% expectance. So we are more coming into the normal range if this keeps up. Moving over to investors. There is an issue with investor deals. I know, yes, yields are compressing a bit. But it's also a price regulated system in Sweden, which means that we can't increase prices to the tenants so much more. And the prices are more or less the same across Sweden, and then we see increasing construction costs as well. So I mentioned before that we would expect to be in the range between 10% to 15%. 15% means that we are really skilled and cost efficient and the market is super strong. And 10% would be some kind of floor. And we've been struggling a bit to grow into the 10% in the Nordic countries, but we're coming closer and closer to that. But 15%, we're not there yet, unfortunately.

[Operator]

Our next question comes from the line of Simen Mortensen of DNB markets.

[Simen Mortensen, Analyst]

This is Simen. First of all, congratulations with a very good result and a strong dividend. Just noted a few things in the report. In St. Petersburg, you now stated also you have to use local funding while construction -- while doing construction there. Will that at all impact margins in any way? Or what kind of impact is that expected to have? My other question goes into Sweden, and your project margins, which basically is 9.5% in the quarter. Typically, you stated that you didn't expect you to come back to the 18%, 20% project margin. But can you tell us -- help us a bit why are the margins so low today and where do you actually expect the project margins? I'm not saying -- I'm looking at the cottage margins and not the EBIT because I want to scale out the profitability from the development in terms of the volumes being delivered. Look, could you please help me understand those 2 questions, please.

[Joachim Hallengren]

So if I start with the first question, and then hand over to Lars for the second question. What has happened in St. Petersburg or in Russia, in general, is the following: that to be able to provide or to prevent scam, the authorities have decided that you need to hold an escrow account in a local bank. It will not affect our margin significantly. We used to work with foreign banks before for the project financing. And so it will affect the cash flow a bit. The IRR will go down slightly. On the other hand, as sort of a treat because we use the local banks for the escrow accounts, they also now provide us with very cheap project financing. So to conclude, no, not substantial impact on margins at all, but another kind of business model.

[Lars Granlöf, Chief Financial Officer]

Okay. And the other question was about the Swedish project margins.

[Simen Mortensen, Analyst]

Project margins exactly, which has been below 10% for several quarters now in terms of the projects having been delivered.

[Lars Granlöf, Chief Financial Officer]

Yes. And maybe I cannot give you very much insight into it. But of course, since we are, as you know, accounting for based on completed contract, just happens that the contracts that we have recognized and completed have had a lower margin. And some of these projects have been there for a few years where we have had to reduce profitability because of additional costs, et cetera. I believe -- even though I cannot give you any figures, I believe that we have an ongoing production in Sweden that is building better margins for projects to be realized going forward, but I can't give you sort of figures per year or per quarter.

[Joachim Hallengren]

I can confirm...

[Simen Mortensen, Analyst]

Yes, I understand.

[Joachim Hallengren]

What Lars is saying. One project, for instance, that we are recognizing now in the second half of the year is Turaidas, a project that was started in 2018 with more or less no margins left. So it comes -- it's sort of -- it comes from that. And going forward, we see much better project margins in the onboarding portfolio in Sweden. But then you have the volume effect...

[Simen Mortensen, Analyst]

The volume I think is different. I was thinking if some of these margins and projects, so if they stem back or when the prices in Stockholm, for instance, dropped in 2017, is that a correct assumption that these deliveries have so low margin because of that?

[Joachim Hallengren]

That is exactly what happened in [indiscernible]. It was an area where we chose a lot of developers, and the prices went down, and we went from 18% to 1%.

[Simen Mortensen, Analyst]

Okay. And just 2 other questions. You might have touched upon it. I didn't catch it exactly. But in other and eliminations, the cost is up to SEK 93 million this quarter. There's no comments in the report. There's nothing at a high level than I -- consensus expected. Can you please give a bit of flavoring on that? And the second, you talk about plot investments. And as you have a cyclical note, what kind of level do you see you want to be buying land for as an enormous level in 2021 and 2022, hopefully.

[Lars Granlöf, Chief Financial Officer]

If I take the first question and about the cost level. Yes, the cost level in the quarter was in line with the fourth quarter last year or actually SEK 2 million above that. But as I said, we have included in this fourth quarter, we have expenses for management changes in the area of about SEK 25 million impact in the fourth quarter. And also with good delivery all over our businesses, we have higher STIs, higher bonuses. That is primarily, I think, recorded in the fourth quarter, say, as a delta compared to last year, we have about SEK 20 million of increased bonuses. So if you factor that in, we actually have a significant reduction of expenses underlying in the quarter.

[Simen Mortensen, Analyst]

That's good. It just -- it wasn't commented anywhere. So I just wanted to....

[Joachim Hallengren]

Yes. Okay. I'm not very sure I caught your second question, Simen. Was it in relation to land acquisition?

[Simen Mortensen, Analyst]

Land and plot investments going forward, what market, where and what kind of volumes?

[Joachim Hallengren]

When we bought the Urbanium portfolio, we said that we wanted to sort of get a foothold in Oslo before growing. And we were planning to be somewhere in the neighborhood of 200 to 300 starts per year, and that was what the portfolio allowed. If we should follow our own sort of conviction that to be a player in a market and be really profitable, you should be #1 to #3. That would mean that we would need to size up the volume to plus 500 on Oslo going forward. I would suggest -- or my plan was to sort of stabilize first on the 200 to 300 level and then make a new decision whether to grow further. Now I will leave that question to Peter Wallin and for Lars to make that assessment. But the plan as it plays today is to be on a regular basis between 200 to 300, and we need to complement the portfolio to do that.

[Simen Mortensen, Analyst]

And congratulations on the solid results.

[Joachim Hallengren]

Thank you very much.

[Operator]

Our next question comes from the line of Fredric Cyon of Carnegie.

[Fredric Cyon, Research Analyst]

A couple of questions from my side. Starting off with the started units in 2020, I think they were fairly strong at about 5,700 units. And as I interpret your communication now, Joachim, is that the ambition, if the market stays as healthy as it is, that you aim to grow in Germany and Sweden, correct me if I'm wrong. But given the high pace in the Nordics and also to some extent and in St. Petersburg-Baltics, do you think that on a group level that the aim is to grow startups 2021 versus 2020?

[Joachim Hallengren]

No, I'm not sure we're going to do that. We just concluded that Finland was out of its turnaround. One sort of cost to that turnaround for us was that we decided to cut down on volume to get control. And I'm not sure that we want to sort of open that profile again, at least not sort of short term before we are feeling really, really secure. And as you well know, Fredric, the starts in St. Petersburg with the pretty large projects, they come in lumps. So -- and we started a lot now in the fourth quarter. So we would like to see the development of Oslo. We would like to see some more starts in Bergen, and I sort of gave you some flavor around Oslo and you know Bergen pretty well. Sweden should be up a bit. Germany continue to grow into the fantastic market. I mean we're looking at a sales ratio of plus 70%. That's too high to my taste. We're missing out potential on the market. But we don't -- I think it's -- we're not focusing on the 2 major segments going forward then in general. We're looking for profitability and for safety in delivery and project margins.

[Fredric Cyon, Research Analyst]

Makes sense. And my -- the second question is on Germany. Gross margins were under pressure in the first 3 quarters of the year. And now in Q4, all of a sudden, they're back at a very healthy level. Based on the current pipeline and the fairly strong market, I would say, what kind of gross margin should we expect going forward? Was it a temporary reduction that we witnessed in 2020?

[Joachim Hallengren]

Yes. I tried to communicate that in the spring that what we saw in the first half of 2020 when it comes to German project margins were sort of an exception from the rule. They were extraordinary weak and they actually lumped together in the first 2 quarters. We also guided that we will see more normalized margins going forward in the second half of the year with emphasis on the fourth quarter. And I think that the number speaks for themselves. I remember being asked in the Q3 call about sort of my perception of what is a normalized level in Germany. We were talking about -- now I'm talking about the EBIT margin in the neighborhood of 12%. So yes, we are expecting solid performance from Germany. And unfortunately, we had a bump in the road with a lump of -- or projects, also due to corona because there were some delays or there was some additional cost to speed up and protect proportions and all of that. So yes, moving into the future, we should stay on healthy levels in Germany, and we stated that an EBIT margin of 12% is a good level.

[Fredric Cyon, Research Analyst]

That's clear. And then moving over to start-up units that might be profit recognized in 2021. I acknowledge and appreciate the new information you provide. Should we expect more units to filter through in Q1 2021 that might be profit recognized in 2021 as well? And if so, is that mainly related to Germany then?

[Joachim Hallengren]

There are only one kind of customer offering that still can succeed to be finalized, and that is actually single-family house or row houses. We only do that in Germany and in Sweden. I would say that it would be a very small volume. Germany is struggling with building permits. There might -- some might trickle through early enough so we can conclude in Q4. I can't say from the top of my head whether we have a project start in Sweden or how it's actually be finalized. I doubt it. It would be really good. So very small numbers will be added to the 2021, and we will build on 2022 and forward.

[Fredric Cyon, Research Analyst]

And then my final question. Of course, with your accounting methodology and the quarterly results are lumpy and volatile. Is there anything that you think is worthwhile highlighting moving into the first quarter that we should keep in mind on a group level or on a divisional level?

[Joachim Hallengren]

Well, I can respond -- I tried to highlight that we only hand over 400 units for consumers. To be honest, I don't really remember the geographical spread that will come into play. But I don't know, Lars, would you like to complement anything on that question?

[Lars Granlöf, Chief Financial Officer]

No, I think that's correct. You're mentioning this Swedish investor project, 175 units, that is subject to financing. We don't know when that can happen, of course. So it's not included in -- so we have 0 completions in the investor segment as we estimated right now. Other than that, of course, there can be some sale of completed unsold from the balance sheet to be added, but that should not be a very significant portion.

[Operator]

Our next question comes from the line of David Flemmich of Nordea.

[David Eriksson Flemmich, Analyst]

I have a follow-up question on starts. You mentioned you aim to increase starts in Germany and Sweden in 2021. Could you please elaborate a bit on the level we should expect? I mean, in Germany, you started between 2,000 and 3,000 units in 2015 to 2018. Last year, you started 1,800 in Germany. Is it around 2,000 to expect? Or can you say anything about that?

[Joachim Hallengren]

Yes. Let me start by saying that the starts in 2018 were sort of -- they were a bit off the chart. I think a good guidance would be what we sell. We sold 1,270-ish this year. So we don't want a too big delta. Of course, we want to lower the sales ratio in the portfolio. But I mean, for me, and I'm not -- I will not be in charge of this going forward, but I think that I can speak for Lars and Peter, it would be more sort of increasing by 100 than many hundreds. And we have to be really, really close to the market, taking into consideration the permit process, the effects of the lockdown and all of that. So a growth, but it will not be an exponential growth. You will be guided by the sales numbers, especially in the consumer segment, so we don't create too big delta.

[David Eriksson Flemmich, Analyst]

Okay. And in terms of mix, should we expect the same mix as in 2020? Or do you see another mix for 2021 between investor and consumer starts?

[Joachim Hallengren]

Yes. We -- I think -- I'm just sort of reflecting the consume -- sorry, the investor starts were pretty low in 2020. But there is a factor or 2 factors actually driving down our eagerness to start investor pro, the first one is that I think, it was Stefan who asked about the land market in Germany. It's very competitive, which means that it is pretty tricky to buy land today that is suitable for investor deals because if you turn them into condominiums of consumers, you have much more profit. So they are like in Sweden, they are priced for condominiums and not rentals. And it's not really keen to go in and take projects just because and by doing so, diluting margins. The second factor that we need to take into account is that the land that is available has a greater sort of -- there is a greater demand and rules steering towards social housing, and that will also put pressure on the margins. So if you go back when we started 800 units, we will not be on that level because it doesn't make business sense for now short term. Maybe somewhere in the range between 300 to 500 would be a good number going forward, but it's very dependent on zoning and building permits. Hopefully, we can boost up the consumer sales a bit more because I do believe that the market has that potential. But you will not see numbers short term going up to 800 or unless we find a gold nugget. But as I said, there are 2 dimensions working in the opposite direction. It doesn't make sense to dilute margins.

[David Eriksson Flemmich, Analyst]

Fair enough. And my final question on starts. 2020 was very back-loaded in terms of starts. Do you see the same for 2021? Or is it more evenly spread out?

[Joachim Hallengren]

We are planning to be a bit more even. But again, with a hard lockdown and with all the sort of the fog around the market, I wouldn't take a bet on that. So I think it's fair to assume that we will be fairly back-loaded. That's how it normally looks. And especially the factoring in the COVID pandemic, I think we should stick to that assumption.

[Operator]

Our next question comes from the line of Jan Ihrfelt of Kepler Cheuvreux.

[Jan Ihrfelt, Senior Equity Analyst]

I have actually 3 questions, and the first one regards St. Petersburg. Joachim started to comment on St. Petersburg, telling that it seems to me that the margins were a little bit -- boasted about better product mix than you had in the past. Is that the true -- is that the case? Or...

[Joachim Hallengren]

It's spot on.

[Jan Ihrfelt, Senior Equity Analyst]

Okay. And second question relates to the profit you receive from the sold apartment from the stock. Did you have to lower prices? Is there some margin dilutive sales? Or could you just comment on your prices you get on the already tenant unit?

[Joachim Hallengren]

With very, very, very few exceptions, we do not lower any prices. We've actually been able to increase prices also on the completed and sold. So we have a very, very strong market. But there was, I mean, 1 or 2 projects where we might have had a handful of units that we just wanted to get rid of that we gave some discount. But otherwise, that is nothing to factor in.

[Jan Ihrfelt, Senior Equity Analyst]

Okay. And the 700 building rights you acquired or going to acquire here in Sweden, how quickly could you turn that into starts? Or could you just give a rough figure of what you could start this year or maybe next year?

[Joachim Hallengren]

That's the one million dollar question. But a very simple answer is later than we think, taking into consideration the very slow and complicated zoning process in Sweden and especially in the Stockholm region. I can't really see anything out of that portfolio being started this year, but I would be positively surprised. But most likely, we will look at starts in '23 to '24. That would be my best assessment.

[Jan Ihrfelt, Senior Equity Analyst]

And the geographical split in this building right portfolio, could you give us a hint of where these are located?

[Joachim Hallengren]

Well, as you know, I live in Gothenburg, I have to be as specific as Greater Stockholm. I can't help you more than that, unfortunately.

[Jan Ihrfelt, Senior Equity Analyst]

Okay. Okay. And my final question regards your -- also your building right portfolio as there has been such a huge difference between the price increase on single houses and on apartments here in Sweden. What's your -- how large is the portion of single houses in your building right portfolio in Sweden?

[Joachim Hallengren]

I have to take that from the shop -- from the hip, but I guess it could be somewhere between 20% to 30% of the portfolio. It is interesting because there is a huge demand from customers. But the municipalities has, for a long time, been pretty reluctant to single family, but they have also understood that, that would be very much in demand. So they are trying to speed up the process, but it will take some time before enough land is available for developers. So unfortunately, we would be on that level for a time. But it's a very profitable and very interesting business. We actually do our 1,000 industrial single-family house next week. So we have a very good, very cost-efficient product that is supporting us very much. But unfortunately, it's very hard to expand the land bank.

[Operator]

Our last question comes from the line of [ John Hellcat ] of Svenska Dagbladet.

[Unknown Analyst]

It's a broader question. I wonder how many people are in distant work. And what are the implications for how you plan for the -- how you roll out layout of the flat and condominiums? Separate -- will that be more doors, more inner walls? Will there be a need for more quiet corners? Or will there be a separation between living and the living room and the kitchen? I mean do you work on another kind of demand now? And how do you see that the demand for -- is changing because of a lot of people working from home?

[Joachim Hallengren]

This is a very relevant question. Unfortunately, I cannot quantify that. We -- as I stated earlier in the presentation, we've seen increased interest and demand. We have a demand for homes with more rooms, that does not mean that our customers can afford to buy a bigger flat. But if there is a flat or a home with more rooms, they prepare that. Unfortunately, due to the zoning process in Sweden and many other countries, we will still live with, if I call it, pre-COVID designs for maybe 5, 6, 7, 8 years. And I think it's way too early to do any conclusions of how a post-COVID home would look like. But it's something that we will certainly follow in the future.

[Unknown Analyst]

Okay. So how -- what would you guess that the post-COVID layout would be? And why does it take 8 years?

[Joachim Hallengren]

I don't know. Because that's the time frame for a zoning permit to go through and the exterior of a building has so much impact on how we can define the apartment itself, unfortunately.

[Unknown Analyst]

Okay. So could you give a brave guess, how is the post-COVID design?

[Joachim Hallengren]

No, I'm sorry, I can't. I can just see that there is a discussion and interest, and I think that it would be very interesting to follow that closely. But I can't help you out because we're just in the beginning of something.

[Unknown Analyst]

Okay. And you talked about 10% higher pricing in Sweden. What about your main market, Germany, how much is pricing has it changed there?

[Joachim Hallengren]

We see positive price development. It's different from region to region. It has been earlier, double digits. I think that we are into single digits now, but I can't quantify it more than that, unfortunately.

[Operator]

We'll now hand back to Joachim for closing comments.

[Carolina Stromlid, Head of Investor Relations]

No, actually, I will close. That was the last question, and the question that has been posted on the website have already been addressed. So we would like to thank you all for listening in, and welcome you back on the 29th of April when the Q1 results is presented. And we wish you all a nice day.