Welcome, everybody, to this presentation of the interim report of the fourth quarter and the full year 2019. My name is Tomas Carlsson, and I'm the CEO of the NCC Group. And with me here today, I have Susanne Lithander, the CFO of NCC. But first of all, welcome to our new office. We're really proud of this building, of course, we are, because we've built it ourself. It's also a very good demonstration of what we do when we invest in our own business in Property Development. And as most of you are aware of, we have sold it before Christmas, and we'll recognize the profits and have the cash flows during the first half of this year.
I'd like to point out that you may think that this is a large building, and it's, of course, partly the headquarters for the NCC Group, but what it mainly is, is the office for our Stockholm operations. So it's not primarily a headquarters building, but it's primarily an office for our local, our local business. Now, highlights from the fourth quarter and the full year, and they are pretty much on the same theme. But I would like to start with that the fourth quarter was a strong ending of the full year 2019. Earnings improved. They actually improved pretty significantly, nominally speaking, a lot, but that's that was a given due to the big one-off write-downs that we, or devaluations we had last year.
But even if you add them back and compare, like to like, to the best of our abilities, the improvement in the quarter is 64%. Net sales is slightly up, and we have a really strong cash flow in the fourth quarter, and for the full years.
Orders received are a little bit down compared to the strong year of 2018, but there are a number of explanations for that, and the two main ones are that road service business, we are down SEK 2 billion in orders received, and that's due to the decision that we have made to be really, really careful and selective in further bidding for the road service, given our 15 years of less stellar performance in that business, and it's also in the divestment process that it's continuing. And then last year, we also had one really large order for Centralen in Gothenburg for Infrastructure, which was SEK 5 billion, and we're of course happy with that order. But you shouldn't expect that you should have SEK 5 billion orders on a regular basis.
Overall, pretty decent orders received. It's important to remember that we have a stronger order backlog at the end of the year than we had in the beginning of the year. The order backlog is actually increasing throughout the year. That's the highlights, and maybe the last highlight is that the board proposes a dividend of SEK 5 per share, which is an increase from SEK 4 the previous year. Now, if you look at the NCC Group, we've added a couple of slides here, and one is this chart describing the distribution of orders received and net sales for the group, not according to the normal business area reporting that we have, but country by country. There's one important point I'd like to make, and that is Denmark.
If you look at Denmark, last year, we were a bit concerned about Denmark because the orders received was low. They only represented 9% of the overall, orders received for the group. But we took a deliberate decision not to start bidding at low prices or get into a panic mode of, having, making bad business decisions, but said, "It's important to actually be really selective in how we deal with the market in Denmark, and continue with the good discussions that we had already 2018." And that paid off. So the orders received in 2019 is on a record level in Denmark.
That's something that I've tried to illustrate over the last year in different ways with the residential markets, that you can have individual quarters or even individual years with a little bit slower orders received, but it's important to stick to your knitting and be really selective on how you deal with orders. So when you assess the overall group, think about the development in Denmark. And that means that you could, you know, without taking too much risk, assume that revenue will increase in Denmark going forward. That's also what we see in Finland, that had really good orders received 2018, with a subsequent increase of revenue in 2019.
So that's sort of the idea on how you can think about the long-term nature of orders received and development of net sales. Second point I want to do is slightly different, and that is accident frequency is going down. And to us, that's really important, because we have lots of people employed on our sites, and it's important that we are a good employer, both from an ethical point of view, but also as to make sure that we can recruit the best people to our organization. So this is a really encouraging trend. We're far from where we want to be or where we should be, so we're continuing this, the work, but we have a good development. Order backlog stronger than previous years.
And for those of you who may have the reflection, how can you have the same orders received as sales and still increase the order backlog? Here's the explanation. Property development is included in the net sales, but not in the orders received and order backlog. That is the main explanation point, and then you have some valuation effects because of foreign exchange rates, where order backlog is valued at the end of the year, and orders received as an average throughout the year. Orders received, full year, slightly lower than last year, but still on par, on a really good level, mainly explained by Road Services and Centralen, as I said.
Then in the quarter, slightly lower, Road Service business - Building Sweden, and infrastructure, while Building Nordics is up a lot. And then while we're at it, Residential. We have seen for a longer period now, a slightly lower demand for residential building. We've maintained a good orders received from Residential, but with lots of variations quarter-over-quarter. And as I like to point out, even in a very good year as 2017, you could have an individual quarter with low orders received. And in a slower year as 2019, you could have an individual quarter with a really high orders received for Residential. That continues. This is slightly below average, but it's sort of continuing the trend.
Important to understand that this is primarily consisting of rentals, and not condominiums or owned apartments, as opposed to 2017. Net sales slightly up in both the quarter and the year as a consequence of the order backlog. And then earnings improving, and I will talk a little bit more about this. Nominally, in the fourth quarter, we improve more than 100%. If you add back the revaluations, it's 64% improving, but we're now at 3.7% in the quarter, and all business areas are contributing to this profitability, and all business areas have a positive impact. Full year, pretty much the same story. The bad year was 2018. And then you may think, how should you think about this, you know, the development?
We were at just below SEK 1.1 billion in 2017, going down, and then we had the big turnaround, launch year, 2018, with lots of revaluations. We had a nominal result of -SEK 764 million, and then now we're slightly below SEK 1.3 billion. How can you think about this? And this is one way. If you add back the write-downs, and they are a little bit more than SEK 1.7 billion, and try to compare like to like, it's still at 36% improvement year-over-year. That's the first thing, first way you can think about it. But then you can say, "But hey, that's, that's a slow year. It's not as much of an improvement compared to 2017." But then you have to remember that we have two different ways of recognizing profits in this company.
We have Construction and Industry with Percentage of Completion profit recognition, and then we have a Property Development with completed project profit recognition, and that impacts the way you can look at it. So if you split it into two parts, one with Percentage of Completion profit recognition, and then one with completed project profit recognitions, i.e., Property Development. And if we start with Property Development, 2017 was a very good year. That was Torsplan Två here in Stockholm, impacting a lot. 2018, not so good, but that was a large part of revaluations. And then you had 2019, which I think is actually a pretty good year. It's not where we should be, but it's a pretty good year with several successful sales in the year. So that's the completed project part of our profit recognition.
Then you then you move back to the percentage of completion profit recognition part, Industry and Construction. Then you see that you have more than doubling of the earnings 2017 to 2019. And then we forget about 2018. So if you compare with 2018 2017, which was a more normal year. I think that's one way to think about the business, thinking about the percentage of completion part of the business, which should be where we're working with a more prudent profit recognition, more selective tendering, where we are aiming for less volatility and gradually increase of the margins. And then on top of that, you have PD, where you will have a large variation year-over-year and quarter-over-quarter in the earnings.
Finally, I will end with 2 slides on from a shareholder perspective. One is dividend, proposed dividend, SEK 5, paid in at 2 occasions. One, suggesting is 3rd of April, SEK 2.5, and then, November, SEK 2.5. And then finally, how are we then measuring up to our targets? Well, operational margin of 4% or above, we're not there, but we're moving in the right direction, full year, 2.2%. Net debt, it's we have a 0 here. You could say, not applicable because we actually have a net cash position. So we're meeting that actually probably too much. And then return on equity, and before someone else says that the equity is low, so return on equity is easier to reach that way, but we're meeting that target pretty well.
With that, I hand over to Susanne to give you all the details behind this.
Thank you. I'm gonna have water. Okay, this time we'll start with looking at the balance between our business areas as it looks by the end of the year. As you can see, our largest business area when it comes to sales is Infrastructure, followed by Sweden, 23%, and then we have our industry and Building Nordics on the same level with 19%. As you see, property development has a very small share of our net sales, 5% only. It looks a bit different when we look at the earnings side. Here, industry is contributing 31% of our earnings, followed by Sweden, 22%. And here, property development is 19%. And then we have infrastructure and Building Nordics on the same level of 14%.
Moving over to infrastructure, and looking at their also their spread between the segments, how that relates, we can see that a strong increase in the segment of the groundworks, it's up to 36% of the orders received. Roads, energy, roads, and energy and water treatment, both 22%. This means also that we keep our leading market position in energy and water treatment. And as you see, there is a drop in railways in this year, but that comes back on the net sales side, as we had really strong order booking last year in railways in both Sweden and Norway. And on the sales side, groundworks also grew, and this makes up for 34% of their sales. Moving over to the income statement. Orders received down to SEK 3.9 billion in the quarter.
The decline is explained by two really big orders we took last year in Norway. Loenga and Sandøytunnelen was booked in the fourth quarter last year. For the full year, the orders are also down, but as Thomas said earlier, if we remove Centralen, that had a really big impact last year in 2018, they're on the exactly the same level as they were the year before. And they also end the year with a really strong backlog of SEK 20.3 billion. Net sales, SEK 5.4 billion, which is an increase both in the quarter and also over the full year. And that's, of course, due to the high workup that they have in their big projects, especially in the Norwegian large projects, they have a very high rate of working up. Earnings, improving significantly, up to SEK 78 million in the quarter, and a 1.4% margin.
And that means we end the year on 1.2% margin. Profit levels continues to improve day by day, quarter by quarter in this area, and we still continue to have a very cautious approach to our profit recognition. We have a couple of large projects that are in their early stages that we do recognize to zero profits. We also see an impact from the revalued projects we did in 2018 that are still ongoing with a lower level than they had before. But the margin is steadily on an upward trend. Orders, Road Services, as Tomas mentioned, the process of divesting the business is still ongoing, and the orders received are down with SEK 2 billion, and that's a conscious decision to be very prudent in our tendering. This year, they have actually made a little profit.
Moving over to Building Sweden, and here we can see that residential is growing on the order side to a third of orders received, and they also have a third of our net sales, and two-thirds of that are rentals. The order intake was SEK 4.1 billion in the quarter, five point nine last year in the quarter. They're also down on the full year to 12.7. The decline in the quarter is explained by some big projects we had in the fourth quarter of last year. Overall, we see a more cautious approach from our customers that are pushing the processes. It takes a bit longer to get the orders.
However, their backlog are on a quite normal level, coming from a very high level before, so they are back on a more normal level when we end the year. Net sales are also down to SEK 4.2 billion in the quarter and SEK 14.9 billion for the full year. Earnings in the quarter are on the same stable level as last year's last quarter, 2.4%, and they have improved margins in their projects. For the full year, they have a profit of SEK 364 million, corresponding to 2.5% margin. We should remember that they have taken restructure or additional costs for old settling of an old project, Rågården, during the year, SEK 45 million.
They're also impacted by the fact that we are continuing to work with our turnarounds in some of our departments. Building Nordics. Here, we can see that the residential part in their booking corresponds to 32%. Refurbishment has decreased to 21%. Meanwhile, the health segment within orders received has grown substantially. We've taken some really large hospital projects in both Finland and Sweden. No, Finland and Denmark, as this is Building Nordics. And on the net sales side, we can see that residential and refurbishments are making up more than 60% of their sales. And Building Nordics have had a very strong year when it comes to orders received. They have grown and to SEK 16 billion for the year.
They had a little drop in the quarter to SEK 3 billion, but they end the year with a really, really strong backlog of SEK 15.8 billion, and it's primarily Denmark that has driven the increase. Net sales has increased 10%, both in the quarter and for the full year. That's primarily driven by Finland, who had a really strong order intake last year that Tomas pointed out before. Earnings in the quarter positive SEK 99 million for the quarter, corresponding to 2.8% margin, bringing them to SEK 231 million for the full year and a 2% margin. All countries are profitable, and they continue to have a very cautious approach to their profit recognition also here. The substantial improvement, of course, comes from improved margins in the project, but also, to some extent, from volume.
Moving over to industry, and here, we only showing the different markets we're on, and there has been no changes. Sweden is still the largest market with 55%, so not too much to comment on this one. When it comes to the volumes, the stone material are basically on the same level as they were in the fourth quarter of last year. This last year's quarter, they were down due to weather condition, which may sound strange, as we've had a very warm winter. But there has been a lot of rain and very wet in Denmark, in the south of Sweden, and we also had very early snow in Norway and some parts of Sweden, so that's what caused the season to close early. Net sales, slightly down in the quarter, due to the same volume downturn that I mentioned before.
For the full year, they are basically on the same, on par with the previous year, and the same- they are on exactly par, almost on par, SEK 3 million higher than last year in net sales. EBIT shows an improvement in the quarter, and is on a solid level of 5.1% margin. For the full year, all units contribute to the improvement. Return on capital employed, 9% in the quarter. Oh, no, for the full year, of course. They-- their capital employed has increased with SEK 600 million. That is driven by IFRS 16. Moving over to property development. During the quarter, we've started one new project, and for the full year, we've started eight projects. In total, we now have 15 projects going in our portfolio, and 63% of that is in Sweden.
In total, we have 230 square meters of lettable space. We've had a really good year when it comes to letting. During primarily the first two, three quarters, we had a drop in the fourth quarter, but for the full year, we have actually increased our letting with 40%, from 71 square meters to 99 square meters. And we continue to have a very healthy relationship between our letting and completion ratios, with a letting ratio of 51% and a completion ratio of 44%. Net sales in the quarter was SEK 2 billion, and SEK 3 billion for the full year. We recognized profits of five projects in the fourth quarter, and also we took sale of building rights in Norway. For the full year, we recognized eleven projects to profits, compared to nine last year.
On the earnings side, we had an EBIT of SEK 273 for the quarter, and SEK 313 for the full year. 75% of the earnings in the quarter did come from the building rights in Norway. Capital employed has declined to SEK 4.9 billion since the previous quarter, due to the sales we did this quarter. We end the year on a margin of 10.2%, and a return on capital employed of 6.2%. We have the last segment that we show, other and elimination. This segment contains the two lines, NCC headquarters and other group adjustment, which include the headquarters cost, but also our small non-BA subsidiaries. It includes our treasury company, our insurance company, and all kinds, and associated companies. It includes adjustments for pensions and IFRS 16.
This item is -SEK 100 million this year. Last year, it was +SEK 50 million. The difference between the years, both when it comes to full year and in the quarter, is driven by the impact of pensions. We had positive effects last year from pensions that drives this change or difference. Internal gains are eliminations of the profits during the construction phase in PD, and this is reversed when we recognize our profits in PD, and this is positive this quarter with SEK 15 million. And we are aware of the fact that this item or this segment is very difficult for you and everybody else to understand what it really contains and what happens with the numbers in here. This is an attempt to explain what goes on in these numbers. We've split it up into the three areas.
Internal gains, and when we look at internal gains, there's a spread of +50 to -50 per quarter over the past three years, and this depends on the internal sales between building and property development, due to the different profit, profit recognitions that Thomas talked about earlier. Then we have HQ costs. That's primarily personnel costs, and, it's steady over time, with a slightly lower cost in Q3 due to the vacation period. And then we have the adjustments for the subsidiaries, pensions, treasuries, insurance, et cetera. That's a more variable item, and it depends really on both financial and business factors. Stock market, for instance, for our pension fund, claims in our business for our insurance company, it could utilization when it comes to our manpower company, and as some examples.
What comes in here, and they are-- we understand they are very hard to predict for you. Anyways, moving on with the income statement. Net sales in the quarter has grown from SEK 17.8 billion to SEK 18.2 billion, driven by Building Nordics and PD primarily. For the full year, net sales has increased 1.5%, and most BAs contributed to that. Gross profit has steadily improved compared to last year, even when you exclude our revaluations, we see steady improvements. Selling and G&A expenses, 4.5% in the quarter, exact the same percentage as last year, and for the full year, 4.8% below our target of being around 5%. On the same level as last year.
EBIT, Thomas has already talked a lot about the EBIT, 670 in the quarter, due to the improved margins and increased volumes and less revaluations in the quarter. The full year improvement is 36% when we exclude the revaluations. Financial net during the period increases, driven by IFRS 16. Also, tax in the quarter implies a pretty hefty or high tax rate. What we need to understand there is that 70 million of this is a timing issue that will be reversed in the coming years. It has no cash flow effect. If we take that out of the picture, we're on a normal tax rate of 19%-20% for the full year.
Net debt has increased SEK 1.45 billion almost, coming from leasing liability, SEK 1.3 billion, and SEK 561 million is the increase on the pension liability. We are in a net cash position, thanks to our really, really strong cash flow in the fourth quarter. And that has also made our net debt to EBITDA target of being better than 2.5 times pretty much insignificant. So, it's zero, we say. It's -0.03. Cash flow, very strong in the quarter. As you can see, driven by both profits and improved working capital. SEK 3.4 billion, both in the quarter and for the full year. Positive impact from property development in the quarter, but over the year, we continued to invest in our property business.
Also, our investment activities are down a bit due to not buying as much machinery in our industry business. So, a very strong cash flow, SEK 1.5 billion for the full year. With that, I hand over to you, Tomas.
Thank you. I'm just going to wrap up before we open up for questions. The way to think about the fourth quarter, and I also think that the way to think about the full year, is that we have significantly increased earnings, regardless on how you compare. We have really strong cash flow for the year and for the fourth quarter. Net sales slightly up or basically flat, and a really good order backlog as we enter into 2020. The board proposes a dividend of SEK 5. With that, we open up for questions.
Stefan Andersson . A few questions. First on that order intake. One quarter, of course, is difficult to draw any conclusions. So instead, asking you about the pipeline, where you're tendering, if you look into that, do you see any changes on the levels of activity there?
No, we have pretty much the same assessments as we've had throughout the year, that there's fundamentally a good demand for our services. But in some areas, and that is primarily Sweden, we see a more cautious approach to decision, which extends the decision-making period for parts of the market.
...And then, on this relates mostly to the building division, I guess. Sometimes when there's been very, quite a lot of snow, there's been some complaints that the margin is hampered because of that. So we haven't had as much in key parts of your business this year. Has that helped you on your margin in those two divisions in any way?
Well, it's been, with the exception of industry, it's been a pretty good winter so far, but the snow impact is normally for the first quarter. And we're still, you know, not halfway through the first quarter, so-
And then on your balance sheet,
So far, it's a good winter.
Oh, good. On the balance sheet, it's strong, and maybe you will receive some more cash in Q1 from divestments in development. So what is your thinking about that? You're far away from your target. What do you want to do with that position?
The target of
Net debt target to EBITDA.
Yeah, we're low on the net debt. Well, we can have lots of discussions on the strength of our balance sheet, and I would argue that we have a pretty strong balance sheet. Primarily driven by the cash flow. We have a low debt position, so that's good, and that's, to me, important for the group. On the other side, you have a part of the population arguing that equity to asset ratio is far too low. From my point of view, that is not as important. I would like to see it higher, but it's impacted by so many factors today.
The way that IFRS works, it's, of course, impacted by our own earnings, but it's also impacted by changes in the pension liability and the changes... It's impacted by other, you know, items lower down in the P&L sheet. So we would like to see it increase, but, you know. But to me, it says that we have room to invest in the business. That's sort of the conclusion.
When you mean, when you say that, what do you, what part of the business? Is it the development?
Primarily the property development business.
Okay, and the final question then, Billerud reported, I think, yesterday, and they mentioned that, Gruvön, which you've been involved in, has not been performing as they hoped, and they have held back, I think, SEK 200 million in payments to subcontractor, which they don't name. Just want to ask you if you could be that, and in that case, how you handle that claim?
We have delivered the new factory for Billerud, and we have a continuous discussion on the final payment for with Gruvön. I don't want to be specific on the amount.
Is that something you recognize as profits? It could be a risk for reverse or-
I mean, we always assess all projects on the risks of, on the final outcome, and we think that we have provisions on the right level for all projects in.
Thank you.
Nicklas, Nicklas Haglund, Nordea. Okay, let me start out with a couple of questions. Firstly, on you mentioned for infrastructure, and I think it was related to Building Sweden, that you have... Well, you're working with your portfolio. You have a lot of projects where you sort of don't recognize profits at the moment, either owing to that, that are in a ramp-down phase because they have a low profitability, and you've taken them down, or, and you have a more cautious and prudent way. Could you quantify this sort of amount, percentage of sales, to get us a better feeling on this sort of impact or dilution to the underlying EBIT?
No, not really. I'll give you the reason why. I mean, you have primarily three levers to pull. One is to be more prudent in profit recognition, and that is because we understand that we have not the ability to predict everything that will happen throughout the course of the project. We'd rather be more cautious in recognizing profits now. To quantify that would be sort of guessing again on the final outcome and trying to predict, so we can't do that.
The second lever that you have to pull is that you do assessments on, you know, the state of negotiations with ongoing, you know, it doesn't have to be claims, but, you know, discussions that you have with customers about, you know, the final payments or what kind of, of reimbursement you will get for changes to a project. That's, that is one of provisions that we make in. I really don't want to speculate in that either, because that, again, is, you know, trying to quantify risk. Finally, the third lever we have to pull is that we, you know, on top of the prudent profit recognition, we do zero or partly zero recognition on projects that are, you know, extra complex or with an extra long duration.
And that's something we do, you know, on the business area level. And then again, that is recognizing that we are mere mortals that cannot predict everything that will happen over a long period of time, trying to be more prudent. But what I can say is that we're building, we're working on to get to a level where we have a sufficient comfort in the type of prudency built into the P&L we have, and then being able to improve the earnings day by day, quarter by quarter. But I don't want to quantify it, because then would be again speculating in risk.
Just a follow-up on that. When you compare with the sort of previous through the year, are you more comfortable to be able to reach your targets long term, given the sort of mixing portfolio and given the sort of what the company kind of continue to deliver, or is more the same or worse?
The question to that question is the answer is yes and no. And the no is because I've sort of I've always thought that the target levels we have are achievable and realistic. You know, 3%, 3.5% for contracting should definitely be achievable, 4% for industry should definitely be achievable, and PD should be able to reach a 10% margin. That should that's sort of I've always felt the confidence in that. But the yes part is that during the year, we see clear evidence that we're starting to get improvements. So even though my initial assessment was it's doable, I see that, you know, we're moving in that direction.
Okay. My second question then, moving over to Building Nordics, which, well, at least in my book, were the sort of stellar performer in this quarter. You're mentioning that it's the strong backlog is driven by Denmark. At least when we knew the sort of profitability in Denmark, we found out that it was sort of above group average, and you've been prudent waiting for the right product to emerge, and now it seems to be doing that. And so, are you positive on mix, looking at Nordic, owing to Denmark, and what's your thoughts on mix going forward?
Short term, yes. I think, you know, short term, I think we have the right mix. We have most of our order backlog in, in places where we have a track record of actually being able to perform, i.e., Denmark, but also Finland. At long term, I, I think that the big opportunity for the NCC group is to grow outside Sweden. I mean, we have a pretty large market share in Sweden. We can probably grow something on that, but, the big opportunity is actually growing outside Sweden, and particularly for building and infrastructure.
Okay, I have more, but I can have one final question.
We have plenty of time.
Well, we're happy to hear that it's difficult to predict the other and elimination part.
Mm-hmm.
But given the visibility that you have on this sort of headquarters costs, as one,
Mm-hmm
... I mean, the internal elimination, at least in the ongoing portfolio, and not assuming any further sort of, well, lower interest rates or what have you, that and impact from the market, could you guide a little bit on this sort of other and elimination line? Should we expect the costs to increase substantially in 2020, or is the pipeline of projects that will be delivered over the next year clearly compensating for that, and also assuming no pension costs?
We've had a long discussion before this quarter ending whether we should try to guide you, and we decided not to do it. We will consider that for after next year. We see. I really see no reason why there should be any increases in any cost. That I can say, no.
I mean, we've had really long discussions about, you know, how to be as transparent as possible. But, you know, as Susanne pointed out, headquarter cost is pretty flat. We don't expect that to increase. That's pretty flat.
Yes.
But then you have two big items that is contingent on so many variables. The internal gains is when do we recognize profit a certain project for property development? And then you have, you know, positive or negative impact depending on how much you build at the same time. So it's two things working sort of against each other, and particularly the exact timing on when we sell is notoriously hard to predict. And then on the other part, there are so many factors impacting. You know, everything from the stock market increase, from insurance, you know, global insurance market development, and intercompany payments, and things like that. So trying to guide on that becomes, you know, it's not possible.
So, what I hear is that all else equal, there's no reason for costs to go up.
No.
That was.
No.
That's good enough for me.
It's not that we're assuming more risk or doing more, or, you know, it's, you know, it's the way the system is set up, and sometimes it works in our favor and sometimes not. But for an individual quarter, it's really hard to predict.
Thank you.
Thank you. Tobias Kaj from ABG. I have a couple of questions on the property development side. You mentioned that you feel you have the ability to increase your investments from a balance sheet perspective, but when you look at your kind of zoning positions and available building rights and so on, do you think you can increase your starts 2020 compared to 2019?
... I'm not giving any forecasts, but I would say that that is probably more of a limitation than the balance sheet.
And regarding the letting in the quarter, I mean, you mentioned that the full year was very strong, but you also saw gradually lower activity in letting during the year, and in Q4, it was quite low activity. Can you give some more comments on that? Is it some specific reason, or do you see more cautious potential tenants?
I think there are two things. Good letting in the beginning of the year meant that we had less area to let. That was one component. The second is, was a more cautious and longer decision-making times. You know, if I would give some, you know, a little bit of beginning of this year, we see that the general market sentiment seemed to be a little bit more positive, but we haven't seen anything tangible from that yet.
Is the lower activity of letting in Q4 something that worries you and might limit your starts for 2020? Or should we see it more like volatility between the quarters?
Well, parts of my job description is as worry and be concerned. So, yes, absolutely. I don't think it will be a big factor.
Thank you.
Thank you, Eric Orgen, Carnegie. I just had two questions, starting off with industry. You're basically at the same level as last year in terms of volumes, order intake, order backlog is more or less the same. The main difference is obviously profitability. The profitability is now close to your target at 4%. How do you view the outlook going into 2020? Is there a mixed situation in terms of volumes or anything that is pointing in any other direction that you're expecting to deliver somewhere around the same sort of profitability, unless something dramatically happens in the market?
Yeah. I would say we're back to normal now. And now we're working with the big, you know, improvement program starts for industry, you know, trying to be better day by day and quarter by quarter as everybody else. Back to normal for industry, I would consider this to be. And there are plenty of potential to improve on for industry as well.
Okay, and then my final question was actually regarding something that you stated in the report and also had in the presentation, but did not focus on so much, and that was the fact that you're saying that in Sweden, there's some more situations where you see customers being more cautious. Could you sort of tell us something about what is going on in that perspective? Is it any special sector? Is there anything specific, or is it simply because we're moving into a new year where everyone seems to always be cautious?
It seems to be pretty much across all sectors. You see it in building, you see it in infrastructure, you see it in letting as well. You know, longer decision-making times. It could be the new year, it could be something else, so we'll see what happens in the first quarter.
Okay, thank you.
But it's important to remember, it's still, you know, a good demand, so we're just trying to add some nuance to the overall message, and that is the more cautious behavior that we see. Any more questions in the room? Otherwise, we will open up for questions from online. Any questions?
Thank you very much. So, ladies and gentlemen, if you wish to ask a question and you're on the phones, please press zero and then one on your phone keypad now to enter the queue, and then after I announce you, simply ask that question. And if you find that question has been answered before it's your turn to speak, just press zero and then two to cancel. And first question is over the line of Simen Mortensen at DNB. Please go ahead, sir, your line is open.
Yeah, hi, this is Simen from DNB. One question which has been touched upon already is the internal admin, but you have, you have a crew, which you have already announced you're going to sell, you're a 40% tenant in that, and you also communicate that part of this profit will be recognized as internal gains, et cetera, in parts, because you're a tenant in, in the 10 years to come. Can you just help us understand how this will actually affect the central admin accounting and on the profit recognition of this project?
I lost parts of what you said. Are you referring to this building where we now?
This is impact what we have seen so far in your figures.
Yeah. We will take the big part of the profit in property development during the first half, and but since we have a 10-year contract and it's a sales leaseback, we have to take that on from a group level, we have to to take part of the profit over 10 years. So that's... I don't remember the exact amounts that we gave in the press release. Maria, do you remember the amounts in the press release? So, so what happens is that we're gonna have a positive effect in other and elimination from that every quarter, moving forward for 10 years.
10 years. So it's the sale and leaseback rules that kick in. So we eliminate parts of the profit, and then, you know-
It comes back over 10 years.
It comes back over the next 10 years.
We equal amount every quarter.
That was in what you already stated earlier today, or just a few minutes ago, before I asked this question.
Yes.
- or should we think of this as extra?
No, that is part of, of that.
We made a pretty detailed explanation in that when we sent out the press release, when we sold the building on how it exactly works and the ratios and the-
Yeah
... the amounts.
Thank you. And the other thing you talked about, the tax cost, and timing effects. Could you just tell us what is the, that is commercial sales and, when, and at what time should we expect this one to be reversed, those tax hikes and tax rates we saw in Q4 here?
The tax rate moving forward should be the same as we usually have, 19%-20%. Did you also... I didn't hear the-
When we will get back the Norwegian extraordinary thing?
We will get that back over the coming years, 20% per year.
Okay, clear enough. Thank you.
That was the only question from the phone, so can I please pass it back to you in the room.
So, any further questions from the room? If not, thank you all for attending this presentation. And, yes, exactly. If you would like to see more of the office, we will have a guided tour for interested parties, after this. Otherwise, you know, see you around, see you next quarter.