Good morning. My name is Johan Bergman. I'm Head of Investor Relations at NCC. I would like to welcome everyone here in Stockholm, everyone on the telephone conference, and the audience taking part in this on the web. My role here today is to guide you through the morning and make sure that we keep the time schedule. This is the agenda for today. We have two sessions with presentations from members of NCC's executive team, with a 20-minute break in between at 10:20 A.M. We have scheduled a Q&A session at the end of session two. If there is time, we will also take questions before the break. In the first session, NCC's CEO, Tomas Carlsson, will go through the findings and actions from the extensive business review.
Mattias Lundgren, our CFO, will present the preliminary Q3 numbers, and then Kenneth Nilsson will go into more details when it's NCC Infrastructure. And we end the first session with a presentation from our newest member of the executive team, Henrik Landelius, the head of our new business area, NCC Building Sweden. After the break, we will hear from the other business area managers, starting with Klaus Kaae, who will talk about the new business area, NCC Building Nordics. And then Jyri Salonen will talk about the industry business, and before the Q&A session, Carola Lavén will talk about Property Development and some of the new projects they started. And finally, Tomas Carlsson will sum up this morning. But now, I guess you're all waiting with interest to hear what Tomas has to say. So please welcome NCC CEO, Tomas Carlsson.
Welcome, Tomas.
Thank you, Johan. Good morning, and welcome. And as you have seen from the two press statements that we have issued during the last 12 hours, we have some news to talk to you about this morning. And that news goes like follows: We have concluded the business review that I initiated when I started in May. And as a result of that review, we have the Q3 result impacted by revaluations of SEK 1,565 million. That leaves us with a preliminary Q3 result, with increasing net sales to 14.3 billion, and a highly disappointing EBIT of -1.1 billion. This is obviously not good, and therefore, we have a comprehensive action plan. And this is what I, together with Mattias Lundgren, will spend the next 45 or 50 minutes or so talking about.
The conclusions from the business review are pretty simple to summarize like this: There's a good and healthy core to the NCC group. About two-thirds of the group performs on a good level. However, that leaves a too large part, one-third, that is underperforming or even loss-making. We have an uneven performance throughout the group. We can find good performers as well as low performers in all business areas and in all countries. To me, the conclusion of that is that, that means that any part of our core business, and in any country that we are active, you can make money. Market conditions are generally good. The only exceptions is obviously, residential market and, more specifically, the condominium market in Sweden and in Norway. We have identified and isolated the challenged areas within the NCC group.
We have reduced the risk level throughout the group, and the revaluations that we do today has a very limited impact on cash flow. That is the summary. Before I continue with that, I'd like to walk you through the process that we have been through, and the process actually starts long before this slide. In 2016, the board of NCC decided to spin out the residential market, as a residential developer, to Bonava, making two new companies, NCC, as a contractor and property developer, and Bonava as a residential company. The purpose of that was to be more transparent on how each part of the business was doing. In 2017, the board concluded that the development in the contracting part was not meeting expectations, and decided more or less exactly a year from earlier from today that they wanted a new CEO.
And that's the reason why I'm here today, and that's why I started in May. One of the first things I did was to initiate the review of the company, and that has been made together with the management of the business areas and the staff functions. It's dual tracks to this review. One is a qualitative review, where we have held many, many meetings with the organization, with local management teams, and also with customers and other stakeholders, trying to figure out how is the NCC Group doing right now. And in parallel to that, in June, we started what we always do, a hard close, but this time, more thorough and going into more details.
That Hard close is represented by the bottom-up approach on this slide, with the projects and the departments and the divisions going through the business, doing assessments, evaluations. And then an iterative process with the business areas, where we also have brought in internal experts to review what the departments and divisions has been saying, but also external experts in terms of lawyers and auditors. And finally, the last step of this project process that ended yesterday evening is an iterative process between the group and the business area. The key insights from this review are four. The first two has a clear impact on the revaluations that we have done.
The latter two, number three and four on this list, has some impact on the evaluations, but mainly it has an impact on the underlying business. Let me walk you through this. First of all, we conclude that we want to have a more prudent approach to claims and warranties. And it's. I think it's important to emphasize, we are not talking about new claims, we are not talking about new warranties, we're talking about valuation of, on the balance sheet of, of, the value of claims that we have, ongoing claims. Second, we have taken a number of decisions to exit segments and markets where we don't think that we can, create value going forward.
Third, we want to have a lower risk profile and a more structured process for tenders going forward, and I will talk about actions on that, in a little while. And fourth, we have we have identified a backlog of projects that are not performing. We need to manage them going forward, and we have a plan to do that, but we are also launching initiatives for a more structured way to handle projects and cost controlling projects. I will get back to all of that. The revaluations are distributed like this: the largest part, just short of 700, is revaluations of claims and warranties. I would like to point out that we still have claims, valid claims.
We are still expecting to get revenue from our payments from these claims, but we are lowering the risk profile in the claims and warranties portfolio. Second, development properties. Our development business is good, it's thriving, and we're investing in it. However, this revaluation is the result of three things. One is the real estate market in Stavanger, where we have one finished office that we started when oil prices were really high and ended when oil prices are really low, and the real estate market in Stavanger has basically gone away. That's half of this. The remaining half has two explanations. One is Finland, where we have made a decision not to develop offices in suburban Helsinki, but rather focus on the more urban parts of Helsinki, where we think it's a good, better market going forward.
And third, we do not anymore find retail property in Denmark as a focus area, and we have decided to divest whatever development properties for retail that we have in Denmark. Before I continue, I like to be a little bit theoretical, and talk about how we can think about the NCC group in terms of value creation and profit recognition, and what we really do. We have five business areas. We have three fundamentally different business models. We have a contracting business model, we have an industrial business model, and we have an investment part. I'm going to focus on the contracting part. Common for all these three business areas, is the value creation in the business area is all about maintaining a high turnover, a rather small margin.
Regardless if you're doing fine or not, it's a rather small margin and low capital employed. That's the value creation. This is all about handling risk and handling logistics. While industry, on the other hand, has still significant turnover, needs to have a slightly higher margin because they have fixed assets in the production facilities they have for quarries and asphalt plant and paving. That means that the business for industry is all about utilization. It's about using the assets you have, and it becomes a volume game. While thirdly, we have the investment part, property development, that has a relatively small turnover compared to the rest of the group. But since we have significant amounts of current assets for investment property, we need to have a higher margin than that.
Now, the way we recognize revenue and profits are very different from between these business IDs. In contracting, it's all about percentage of completion. Our average project is two years long. That means that the contracting business has a project value of approximately 100 billion. Thousands of people, where the revenue recognition is not connected to identified items. It's about making assessments about the end result of the entire project. So the NCC group is depending on that we have correct assessments in each and every one of these projects going forward. We are depending on thousands of people doing correct assessments. That's why we strive now to lower the risk profile in the way that we handle these projects.
Industry, theoretically, they also have percentage of completion revenue recognition, but it's more connected to direct sales from asphalt plants, quarries, and paving teams, and less a question of assessments, more a question of what you sell. And then, in the end, we have the Property Development. We are where we are recognizing revenue on a completed basis, a completed project basis, and not only completed project, but completed project with a vengeance. We need to have built the house, we need to have sold the house, we need to have been paid for the house, we need to have delivered the house, and then we recognize the revenue and the profits, which is completely different and has different impact on the group.
I know that you all know this, I know that you are slightly bored that I tell you, but for the record, I think it's important to state that this is happening. Now, the challenges we have are not driven by the market, because we think that we fundamentally have to have a good market, for our services. We have large infrastructure projects and investment plans in the Nordic region, both Sweden and Norway. They have a little bit different character, but they have a strong market going forward. We still have a strong, generally strong demand in building, residentially in Norway and Sweden being the exception.
However, there's a demographic shift that drives the demand for public buildings in terms of schools and hospitals, and other types of service buildings, as there's still investments from the industry, there's still a office market. So generally, we think it's a strong demand for, in building. We have urbanization with growing cities and growing population driving the demand. Finally, the Nordic region is stable and with reasonable growth projections going forward. That was my last slide before I hand over to Mattias, but I will be back. After Mattias, I will talk about what are we doing about this. Mattias, welcome on stage.
Thank you, Tomas. So, preliminary Q3 results and the impact of the review of current trading and the Hard close process connected to that. As Tomas say, Hard close is something we do every year. We do it in order to have a efficient and quick Q4 process, so it is audited. But this year, it has had an, let's call it extended scope, not least when it comes to documentation, to update Tomas on all valuation items there might be. And the result is this in Q3. If I start with EBIT, we have a negative EBIT of 1.108 billion, negative. Here, we do have the impact of revaluations, SEK 1.565 billion. So, if you exclude that, we are roughly on the same level as last year, which is admittedly not good.
The reason for that is that we also update all the projects in all the business areas, and there we also have a negative impact, but that's more of the ordinary course of business, so we don't separate out that kind of adjustment. I'll come back to the effect of that later on. Order backlog is strong, and that is reflecting a high order intake this year, if you look at the accumulated January to September. Net sales is increasing in the quarter, and that is driven by the high order backlog, and orders received in the quarter remained on a high level. We have more infrastructure in the quarter and a bit less in building compared to last year. That, I would argue, is not a bad thing for building.
They have a very high order backlog, and we need to focus our resources into delivering what we already have in the order backlog. But we'll come back to the business areas later today. Turning to the full period that we report, January to September, again, starting with EBIT, heavily impacted by the revaluation items of S 1.6 billion or 1.565 billion. So negative - 1.020 billion. The order backlog, yeah, the same as in the quarter. Net sales, you can see the growth, but here I would like to remind you all that in the comparison from last year, we had Torsplan, the large PD project in the beginning of 2017. So the underlying growth in the other business areas is actually larger than you can see in this number. And orders received, significantly higher, thanks to a good order intake in the first half of 2018.
Turning to EBIT level, and if you look at the business areas, here we have split business area Building into the two parts we operate in from 1st of October, Building Sweden and Building Nordics. You can see that Infrastructure is heavily impacted by the hard close review. There we have a significantly negative profit level in the quarter. Building Sweden, not impacted as much. Building Nordics has a significant impact, Industry has a bit of an impact, but not that significant, and PD, there we have revaluation of properties. I will go into the business areas, but before I do that, I would like to look at the cash flow. The SEK 1.6 billion in revaluations we made in the hard close, and that we are presenting, does not have a cash impact in the quarter.
They are revaluation of assets, write-downs, or they are revaluation of provisions, so we make extra provisions. None of that has a cash impact. However, we are also reevaluating all the forecasts in all the ongoing projects, in the contracting business, building and infrastructure, but also in the paving projects in industry. That has had a negative impact as well, both on profits, that's why we have a low profit level even before these revaluation items, and it also has a cash impact, because it is, to a large extent, cost overruns in projects, and those cost overruns are, to a large extent, in projects with high work operation, so they are nearing completion. That means it's actual cost, but it's also actual cash flow. That is the reason why the cash from operating activities is only 134 in the quarter, compared to SEK 477 last year.
It is actual cost, it is actual cost and cash flow. Then we are net investing in the property project, and we also have a negative impact from other working capital. Here, the reason is, again, in Property Development. We have made transactions this quarter, so we have handed over projects to customers. We got a prepayment at signing for one of these in the second quarter, SEK 500 million. And of course, we can't get paid twice for the same property. So now we hand it over, that reduces interest-free liabilities, so you have a negative impact here in the working capital. If you exclude that, it is neutral in the working capital.
All in all, after investment activities, - 574 million in cash flow, and as you can see from the history, the light blue bars, the third quarter is not our strongest when it comes to cash flow. Fourth quarter is generally better, and we are focusing especially on the working capital issue here, so we get a better cash flow in the fourth quarter. But that's for the Q4 report to come back to. So negative cash flow, and on top of that, a negative revaluation effect when it comes to our pension liabilities, when we calculate that according to IAS 19, leads to a net debt of 4.1 billion in the quarter, and that was part of the press release sent out earlier. Having said that, I will turn back to the business areas.
Starting with infrastructure, net sales on par with last year, EBIT level - 883 million, and impacted by revaluations of 727 million. The split of revaluation here, you can see it's claims and warranties. In this bar, it is mainly claims in this business areas. We have write-downs of some projects, and this is related to the Road Services business. It is not the normal contracting project you see in building industry or the paving operations. In asphalt, this is service contracts with a pretty long period, and we have not the profit level and cost level we need to run this, so we have revaluated them, and they are included here in the SEK 225 million. Minor restructuring and property revaluations, and then some other revaluations, which is related to goodwill in one subsidiary in Norway.
Moving over to Building and Building Sweden, I should point out that when you get the final Q3 report next week, Building will be reported as one business area, because it was until the 30th of September, and then from 1st of October, we split it in two. Here you have Building Sweden. Growth in net sales, an EBIT level 91 million after revaluations, and 83 million in revaluations included there. If you exclude that, it's actually performing better than last year and performing on a pretty good level. The revaluations is mainly claims and warranties. Here we have roughly one third of this is warranties, the rest is claims.
Then a minor, other revaluation items, which is related to different risks related to penalties, fees, and other damages in litigation processes we are having or that we are expecting, but a minor amount. Moving over to Building Nordics, again, an increase in net sales, a smaller one, but still, negative EBIT of 198 million. Here you have a more significant impact of revaluation items, 212 million. Of course, even before that, it is a profit level very close to zero. Here, there are ongoing turnaround initiatives, and Tomas will come back to that, and we will get into depth after the break in this business area. The revaluation items, claims and warranties, here it is mainly related to warranties and not claims.
Some restructuring costs, mainly, regarding office space that we do not use, and then other revaluation items, similar to the Swedish list. But on top of that, we have an increased zero profit recognition. So where we find a complex project, we are careful in the early stages in recognizing the profit, and that has also led to a revaluation here. Industry. Here we have a growth in net sales. Jyri will talk about his business area later, but this is not volume-driven. It is actually cost-driven. So the energy prices and bitumen prices has increased, and that is directly reflected in market prices for asphalt. And of course, that increases net sales. It also increases the cost level, so you don't get an EBIT increase from this. You actually get a slight margin decrease.
The EBIT of 283 is impacted by revaluations of 150. If you look at the split there, it is partly claims and warranties. It is slight restructuring costs when it comes to recycling business, part of stone material, and then other revaluations. As Tomas said, we have high performers and low performers in all business areas, and we are taking actions when it comes to the low performers in industry, which leads to some write-downs of fixed assets, and also some restoration and cleanup costs when we close down production sites and leave them, especially after stone material and asphalt operations. Final business area, Property Development. We have an increased net sales. That means that there has been transactions in the quarter.
We have an EBIT level -SEK 326 million, due to revaluations, 363 million. It is a positive EBIT if you exclude this, due to the transactions made. Tomas was into the reasons behind the revaluations. It's market conditions, local market conditions in Stavanger. It is our view on retail in Denmark, and specifically Copenhagen, and the project market for offices in Helsinki, where we are refocusing on more central locations. This has led to the decision to stop developing quite a few plots or completed projects. We do not spend more money on value-added activities we decide to sell. From an accounting perspective, that means they are no longer valued as properties for development, they are valued as properties held for sale.
So instead of a valuation based on future value, we now value them based on current net sales value. What would the sales price be minus sales cost? And that leads to an effect of 363 million in write-downs. So having said that, I give it back to you for some actions, Tomas.
Thank you, Mattias. The remaining part of this session, I will talk about actions and what we are doing about this situation, and both the financial situation and also the qualitative situation of the company. We've split the actions in four buckets. One is about organization and team, one is about exiting or divesting non-performing businesses, one is about turnarounds in businesses where we feel that we can, going forward, have a good business, and four is about improved processes and training. I will give an outline now, and then you will see actions from the specific business areas when the business area is presenting later on today. I will start with organization. You've already seen this. This is actions already taken, but it's part of the review.
It's in an effort to make the organization flatter and more transparent and more efficient. The three big tickets are: in the business area, we are splitting the big business area Building to a Building Sweden and a Building Nordics. They have different objectives on what to do and different work to do. So this is an important part of having higher transparency and a flatter organization. Early this spring, already in May, we split the large division, Civil, that was covering Norway and Sweden, into a Norwegian and a Swedish part, because they have completely different markets and some completely different challenges going forward, and are performing on a completely different level. And then the third ticket is Operational Development and IT.
It is perhaps not obvious from, from the revaluations, but it's obvious from my review, that, we will have to work more with processes in a more structured way for tendering and project management, but we will also have to step up our efforts with, when it comes to IT and digital. Therefore, we are centralizing all efforts for operational development processes and IT, but we also have a new management team for operational development and IT, with different competencies, and I will talk about that in a little while. That gives us a structure of the group with four, relatively evenly sized business areas when it comes to turnover, number of employees. Property Development, of course, smaller because of the nature of that business, but a balance in, the size of the business areas.
Starting with executive team of the group. You can talk about this from a structural point of view, and you can talk about individuals, and I will start talking about the structure. My personal view on management teams in organizations like this is that they should be primarily about business leaders, but you need some staff functions to balance them. Normally, you end up with a situation where you have the business areas or the business leaders, and then you have vital staff functions coming in because they are important, and then you get the staff-dominated leadership team. My firm belief is that that's not correct. The first part that you should observe about this, we have now five business area leaders and two crucial staffs in this. That is the first part.
So we have a flatter, smaller, and more business-oriented structure. That's the first thing. Second, we can talk about individuals. Four out of the new members in this executive team are joining NCC this year. Some of us are rejoining, like myself or Ylva. Some are coming in from the from other companies. And I will talk a little bit about the new members on the team. First of all, we have Ylva Lagesson over there. She is now the head of audit. She has long professional experience from NCC, but also professional experience from outside. She has a good track record for running major projects, but also running staff functions, ranging from developing to marketing.
But she also has experience from consultancies, from working at Stockholm City Hall, and also, most recently as the CEO of a real estate company. To the new CFO, Susanne Lithander, she's not here today. She's actually conducting her last board meeting with her old company right now. She has a long track record for building and structuring companies from primarily Ericsson, where she has held many finance positions, but also operational positions. She has experience from running a consultancy, and most recently as the CFO of BillerudKorsnäs. I'm really happy that she's joining NCC. And then for the business area managers, we have Kenneth Nilsson, with a 30-year professional experience from one of our big competitors, and with a long track record of running turnarounds within the infrastructure business.
I'm really happy that that Kenneth has joined NCC. Then we have Klaus, who is the most experienced leader in, in the, in the team. He's now getting a focus on particular turnarounds, and he was instrumental in the turnaround of Denmark that we did some time ago, when we actually understood how to, to run the, the Danish, contracting business. So, he will be tasked of running similar types of turnarounds. Henrik Landelius is not new to the company, but he's new in the executive team. He's been, running the division, Building Sweden, and we welcome him, him to the, to the executive team. And then we have Jyri Salonen for industry, and Carola Lavén, that has been around in the team for a long time.
Four of eight new, 90 years of NCC experience, but 100 years of combined experience from outside NCC. I think that's a good mix. Flatter, smaller, more business-oriented, with a good mix of experiences. In addition to this, we made a number of appointments and flattened out the structure. We have a new senior management team with partly new people and partly people that has been holding the same functions before, but are now reporting directly to me. And then we have a number of key appointments for structural changes that we want to do in the organization. And then the business areas has done the same type of changes to support the efforts to a more structural approach to tendering and project management and lowering the risk profile. So organization on the group level, check.
That has been done.... Second, it's exit or divest non-performing businesses. Most of it, and I have to be fully transparent with that, is small actions. It's a long list of small actions. It's about closing asphalt plants in Finland. It's about closing a number of offices. It's about, divesting or closing small subsidiaries in loss-making businesses that we've had forever. It's ongoing. It's happening in every part of the organization. It's a part of a pruning process. What I like to talk about is one big, divestment that we have now decided, and that is, Road Services. Road Services is an essential service to society.
It's the people that clear snows, make sure that we have sand on the roads, salt on the roads, that you have clean roads, that you have clean exits, that you have basic maintenance in place, that fences and things are in good shape. This is an essential service to society. We have long service contracts in Sweden, Denmark, Norway, and Finland. This is a business with a turnover of approximately 2.5 billion. We have approximately 650 employees. However, we have not been a good owner to this business. We have low profitability over many, many, many years, and because it's not our business, it's not a business that we understand, and it has low to none synergies with our core businesses, so we are not a good owner for that.
We think that for the right owner, this could be a good business. It has a number of good features that should be attractive. They have a strong customer base. It is a stable cash generator. It's non-cyclical. It snows the way it does regardless of the economic cycle. We, the board, decided yesterday that we will explore potentials to divest and find another owner for NCC Road Services. As of the fourth quarter this year, we will carve this out from the reporting and report it separately. That was exit or divest non-performing businesses, started and ongoing. Third, turnaround plans, and there are three key elements that I like to talk about in turnarounds. Turnaround Civil Norway, Kenneth will talk about this more in a little while.
What I like to highlight is that Norway is a market where we have a very good legacy. We have done good business over the years in the Norwegian Civil Engineering markets, but that reputation has been stained over the last couple of years. But the history is that we have a good track record in Norway. The Norwegian infrastructure market is really attractive. In relative numbers, investment per capita, it's the largest in Scandinavia, but it's also the largest in absolute terms. The investment in Norwegian infrastructure is actually larger than the investments in Swedish infrastructure. We've started with a number of activities here, and maybe the most important was to split the division and have a new divisional head since May.
Second, turnaround Building Nordics, carving out or splitting the business area, demonstrating that you have one performing part, and then you have three countries with different needs for turnarounds. I would like to emphasize, these are our core markets, but they have different needs for turnarounds. Finland is still suffering from the spin out of Bonava. The residential building and the construction business was well extremely integrated, and when that was spun out, they're still suffering from that. We have isolated that to one department. Klaus will talk more about that in a while. Denmark, we have been performing on an extremely good level for many years, but not the most recent years. We have isolated that to parts of the organization, and we know what to do about it.
Klaus will talk more about that. And Norway is actually the big ticket here, where we have a more comprehensive turnaround ongoing. However, that part of this, of Building Nordics is by far the smallest part of, of the business area. The third part of turnarounds that I would like to talk about is non-performing departments. As of now, the NCC Group will take a more granular approach to how the performance is in each and every department. This is a representation of the performance of all departments in the group, and you can clearly see that two-thirds are performing, while the tail is too long and very much underperforming. The group will take an interest in every, each and every one of these departments, and that's a granular approach that the NCC Group has never had before.
Part of Civil Norway and Building Nordics is, of course, in there, but there are departments from all business areas and all countries in that. That was turnaround plans. Finally, improved processes and training. This is a big area, and it takes time, and you will have to do many things. I would like to show some things, though. For tendering, the business areas have initiated a number of programs, all in line with the idea of a more structured approach to tendering, project management, cost control, claims, and warranties. To introduce organizational changes, structural changes, process changes, control changes, training changes, all of that in the business areas. This is a comprehensive program of changing how we look at projects. In addition to this, we are now launching the Project Management Academy for the NCC Group.
This is our core business. This is an initiative to secure key competence now and/or for the future, starting with everything from the beginners in project management to the very experienced and seasoned managers, from the people that are running the many small projects that is actually the core of the business, to the people that can manage the really large projects that we have ongoing. This is not a training program, but it is in collaboration with the Royal Institute of Technology in Stockholm, and we're looking for other collaborations as well.
It will not be primarily about training, it will be primarily about finding best practices, finding role models, finding a way of having direct impact in the projects, and transfer learnings within the company, because most of the projects of the organization works well, and we want to transfer that knowledge into all projects. So improved process and training ongoing. The overall message for this action plan is profitability before volume. Profitability before volume. We need to restore profitability. We need to be more consistent in how we deliver, and it's all about focus. And as a part of that focus, the board decided yesterday to reduce the numbers of targets we have. It will be all financial targets. The ambition levels are unchanged.
They are the same as they were before, but it's fewer targets pointing towards performance, operating margin, or margin, net debt, return on equity, and we have remained with the dividend policy of 40%—above 40% of profit after tax. The new baseline for the NCC Group is based on that we have a strong and healthy core business. We have a strong and healthy core business. We have thousands of competent people that know how to run businesses. We will focus on projects, customers, and geographies where we can add value and deliver value, and that means that we are exiting businesses where we don't think that we can actually add something. We have introduced a lower risk profile in this business, but lower risk profile does not mean less ambitious.
The goal stands, and the ambitions for the group is the same, and the clear objectives for the group is to restore profitability and have a better consistency in what we do. And finally, my key message to the organization now is this: What we should strive to be, is to be a professional partner to our customers and to other stakeholders, to make sure that we are the most attractive employer in the industry of running and conducting large projects, and profit and quality always goes before growth. Thank you all for listening. And now I'm going to hand over to Kenneth Nilsson to talk about infrastructure.
Thank you, Tomas. Okay, I'm going to talk about three things today. I'll give you a short presentation of NCC Infrastructure. I will go through our main challenges, and then I will go through a little bit of our action plans for increased profitability. This is what we do in NCC Infrastructure, as you probably know. We are building roads, we are building railroads, we are building bridges, tunnels, industrial work, groundworks, and so on. We are doing very much traditional civil works, and besides that, we are doing Road Services operations as well. We are divided into four divisions. It's Civil Engineering Norway, that is doing all the civil works in Norway.
Then we have Civil Engineering Sweden, who's responsible for the larger project in Sweden, but they also have operations, for mid-size and smaller projects in southern Sweden and also in Denmark, they're also present in Stockholm. Then we had Infra. You can say they're doing the mid-size and smaller projects in the rest of Sweden, but also present in Stockholm. And as Tomas said, Road Services, they're working in all four Nordic countries. We are 5,400 employees. We are 3,000 blue-collar workers and roughly 2,400 white-collar workers. We got 700 ongoing projects and 700 customers, whereof 60%, roughly, is, public, and 40% is, private customers. Okay, looking at the net sales year to date.
As you can see from this figure, we have a lot of operations, a lot in Sweden. It's 76%. Then we're in Norway, 16%, Denmark 6%, and Finland 2%. Also, when it comes to orders received, we are pretty much Swedish dominating. It's 73%, Norway 19%, Denmark 5%, and Finland 3%. Going over to the market, as you probably know, there has been a good Civil Engineering market in Sweden and Norway for some years now, and that is continuing. If you look at the growth rate in Sweden, you can see the construction output for 2019 and 2020, it's growing 5.9% and 3.0%. When we look forward to our tendering list, we can see there's a lot of large project coming up, often over SEK 1 billion.
In Sweden for the near future, it's very much concentrated on railways. And also, there's a lot of project coming up, large project now in Stockholm in the near future. And there is, and has been for a long time now, strong international competition for the major projects. That's really nothing new. Moving on to Norway. Norway, the market in Norway, as Tomas has mentioned, it's actually bigger or larger than the Swedish market, and it's also growing faster. You can see the growth rates here, 10.8% in 2019, 6.5% in 2020. Also, in Norway, there's a lot of major project coming up, many of them actually over NOK 1 billion. And in Norway, they are mainly focused on roads. And there is now a lot of concentration around the greater Oslo area.
Also, in Norway, there is a strong competition, has been so for many years for the larger project. So going through the numbers here to date for 2018, starting with the orders received. Our orders received are 18.7 billion. It's an increase compared to last year. And the main reason for that is we have won one large project in Gothenburg on the Western Link Central Station. That's 4.7 billion. And also a large railway project in Norway, Venjar- Eidsvoll, that is 1.7 billion. Our net sales are increasing to 13.8 billion from 12.4 billion, and the majority of that raise is Civil Sweden and Infra in Sweden, the Swedish operations. So the backlog is 24.9 billion, and the main reason for the increase are the projects which I mentioned.
We got the EBIT, and of course, we are very disappointed with this EBIT. The main reason, as has been mentioned, is revaluation of claims. We have had some increased cost, primarily in large project coming to an end, and those projects have often been some challenges in. Also, we have revaluation of some of the forecasts. Our EBIT margin is -6.1%. Our challenges, as Tomas mentioned, Civil Engineer ing Norway and Road Services, that is our main challenges. When it comes to Sweden, Civil Engineering Sweden and infra, it is a strong and stable and profitable business, has been so for a long time. I've been here now for six months, now looking back like 10 years on the Swedish performance, and it is a good performance.
It's been on a high level, but also some years you could ask for a little bit more. The problems in Sweden, they are very much concentrated to three large project that was won in 2016, and also within one geographic area. We have several small loss-making projects. We've gone through the root causes to understand why is this so, and it's partly when it come the biggest, larger project, partly optimistic in the tendering. But it's also so that we have disagreements with the customers regarding the contract in this project. When there is smaller projects, we had a high staff turnover and lost some project management competence through that. Civil Engineering in Norway, as Tomas was saying also, it has been a profitable, solid business between 2005 and 2015.
The problems there now are primarily caused by projects that won in 2013-2016. It's four large projects, and it's four mid-size, complicated projects. Same here, root causes, partly optimistic tendering, and here we had real disputes with our customer regarding the contract. And also, we had, during some time, too many large project and complicated projects in parallel, so we couldn't really staff them with enough competence for project management. A good thing here is that project completion are about 95%, so we will soon hand over this project to the client. Road Services, that has generally been a low profit or loss-making operations for the last 10 years. And now, we entered into several loss-making contracts during 2015 and 2017.
It's also due to optimistic tendering, and it's, I would say in some cases, insufficient project management. Now, as Tomas has told you, that we are now exploring the possibility to divest this business. Moving over to action for improved profitability. Profit before volume. This is, you can call it maybe a strategy or the umbrella under which we work. It means that we will not go for project unless we see there is a clear profit in it. We will have no growth ambitions. It's even so we can even detract a little bit if we don't see there's a profit in the project. Only goes for profitable projects. Action plans to increase profit. We have now, since June, starting action plans in all the regions.
It's been an extensive work in progress, and we are soon to be finished. One thing that might be a little bit interesting is that we have a special focus on projects over SEK 100 million. Reason for that is then we actually target 50/55% of our revenue. And if so, when you look at how much, how many projects is for every region, it's five, six, seven, eight projects. Very tangible, very manageable. So we actually see here that we can get a lot of bang for the buck working with these. We on top of these actions, we do a turnaround plan in Civil Engineering Norway, one of our areas where there are challenges, and here we really do a, a in-depth analysis of the performance, of the capabilities.
We're looking at the market, we're looking at fact base, how we perform different products, geographies, customers, and that will be, of course, the basis for us going forward, a fact-based analysis. Then we have Road Services. And Road Services, they also, of course, make an action plan for the regions, but also it is a potential divestment. So our action plan in the regions for 2019, I will try to walk you around this a little bit, so you get a better understanding what we are doing, what we are planning to do. We have four focus areas. And so the first one, that's the right organization and team. Here we want to sharpen up our organization and make it more competitive. Then we have win profitable projects and execute profitable projects. That is actually our main process. That is what we do.
We want to win project and execute project, so we are improving in that area as well. We have a fourth action, four area, that is action plans for underperforming units. We want them to do a separate action plan, a probably stronger action plan, and it is units that have been delivering EBIT less than 2% for a number of years. Of course, you can understand there's a lot of money on the table if you can lift everyone up above zero and up above 2%. Dive in a little bit to these areas. Starting with right organization and team, right management. We are now challenging our regions to look through their management, and we want them to promote high performers, and we want, of course, them to do more.
The opposite, of course, is that we've low performer or underperformers, they should probably do less or maybe something else. And of course, we have higher demands, the higher up you are in the organization. The next one is adapt organization to competitiveness. It might be so that in a region, you have one part of the region that is underperforming. Then we should seriously consider, should we put in the effort to turn that part around, or should we reduce it, or is it better worth effort to improve the rest of the business? We have specialization. I would say that NCC pretty much are specialized, but there are some improvements to be done. Now, for instance, in Norway, we are setting up a new region that will be specialized on large project.
By doing so, we get better control and competence in tendering, better control and competence in project execution. Moving over to the tendering. I mean, this is so important, so crucial that we have control and in-depth understanding of the tenders we enter into. You can say that this is actually where we create the basis, if it's gonna be a successful project or a failure project. And from a top management perspective, we are putting a lot of effort in here. The division manager, and we have a newly appointed business risk manager, and myself, are deeply involved in the screening of the project and selecting of the projects which we're gonna go for. And also very deep in the tendering review, and in the end, actually deciding, should we go for this project or not?
The areas we are looking at here is prioritize the right project. That's very crucial, and you need to know your market and select the right project through through, is it the right customer? Do you have the team for this? Is the right contract? Is the product that we, that we know? Prioritizing project, that actually means saying no to to to projects. And by doing so, you can go much deeper in the in the interesting project, so you really understand it, you see the risks, you can price it, or get out of the project, and you, of course, see the possibilities, so you can win the project and also have a a very predictable journey. The next one is to ensure we have the right tender team and project execution team.
This is also very crucial, and we are now establishing no team, no bid. If we don't have the right team for this project, we won't bid for it. And also, we are ensuring it now by having a CV and track record for every person in the tender team and key roles for the larger project, the project of 100 million that we want to enter. The next one, risk analysis and contingency. To make that short, we will not enter into project if there is uncontrolled risks. We will charge for risks, and that is a very important area.
Also, contingency, meaning that is a, in a lot of large projects, you are, there is some unforeseen costs, and that is very experience-based, and you need to include that from that experience, also put that as a cost in, in the tender. The next one is execute profitable project. I think I talked a bit on the staff and key roles. Then we introduce a new outperform scorecard, and that is a very systematic way how to challenge the project to go for, from tender margin to an outperform margin, X% better than a tender margin. And it's by working, looking at what is it costing the tender, focus where the money is, challenge that to do better, somebody's responsible, some action plan for that.
My experience working with that is that projects that work the systematic way make more money than if you don't. This is really challenging a performance culture. This is creating a performance culture. Then we have project management, classical project management. And of course, in the project, we want to increase the income and lower the cost. That is good for the profit. And increasing the income, it is very much protecting our contractual right. So we get the time and money we are entitled to according to the contract. And for that reason, for all projects over 100 million, we will start meeting with lawyers and follow-up meetings, if necessary, so we understand the scope of the contract. Also, in the larger projects, we should have dedicated persons working with contracts and commercial issues.
When it comes to costs, we of course want to reduce the cost. We have productivity tools, which is a lot of planning, follow-up, and corrections. We have purchasing plans that show the—what's the strategy—60%, 70% of our cost is purchasing. That shows the strategy, the budget, the target, responsibility, and actions. We have design management tools. All these we already have in our way of working, and what we need now to make sure is that that is applied in all our projects, especially over 100 million. I think I talked about the action plan for the 4 million. Right organization and team, it has happened a lot, I would say, during this year, in the challenging units during this year. In Civil Norway, for instance, it has become a new division.
We have a new head of the division, and we had two out of four new region managers. In Road Services, it's also a new division. We have a new head of divisions and two out of three new region managers. In Civil Sweden Infra, which is the most stable part of our business area, it's one out of nine new region managers. Summary, business area Infrastructure, we are very satisfied with our EBIT. We are underperforming in terms of EBIT. We have a strong order backlog, and now it's lower risk than previously. Our main challenges is, as I mentioned, in Civil Norway and Road Services, Civil in Sweden Infra, stable and profitable time.
We have a comprehensive action plan to improve profitability, and now the combination of a good market and a strong order backlog, that actually allows us to be more selective in the coming tendering. So thank you, and I want to welcome Henrik Landelius on stage.
Thank you. Good morning. I will briefly try to walk you through my business area from the first of October. That will be shown to you separately from the other parts of building for the first time today. When I started as the head of division for Building Sweden, we had a clear aim to be the most professional building partner to the market in the selected areas where we want to be. I will try to describe my business area to you in a brief like this. Our business, the building business, is extremely local. We meet our clients all over Sweden, so we need to have a strong geographical footprint. My business managers needs to be close to their local clients. So therefore, it's important that we are present all over Sweden, from north to south.
We are working in some 500 ongoing projects, and we have some 30 offices to operate from. Our customers, they are evenly distributed between private companies and public interest, you could say, or mainly public companies, with the latter growing a lot, and I'll get back to why they are growing. We have been working with a number of prioritized segments since we founded the division, now to become a business area, and that's another way to for you to get to know us a bit, to see what we actually prioritize. So I will walk you through a number of them. Well, residential, and I'll get back on a market outlook for the residential market, of course, that's obvious, we need to comment, is a strong part of what we do, and we do it in a number of cities.
Ahead of 2016, we decided we wanted to be less vulnerable to condominiums and improve the parts actually within rental apartments. At that time, 60% of our order backlog was within condominiums. As per today, 60% is within rental apartments, and I'm satisfied to see that development. It's obvious in the Swedish residential market that there's a mismatch between what the demand is and what we could actually offer the market as per today. There's too few solutions for affordable living, so we have worked with that, and we have established a couple of what I call residential products. Sounds a bit boring, but they're actually designed by us to be able to deliver affordable living to the market, and we have delivered some 2,000 apartments throughout these years.
I actually believe, and I also see, an increasing interest in those kinds of solutions. Healthcare. Well, the healthcare sector is really growing, and we are clearly the number one hospital contractor in Sweden by now. We have some 10 projects all over, mainly southern Sweden. And the key to success for us to building that volume and increasing the net sales within hospitals are a small core team of specialists working close to me in the business area, but providing support to the local project management teams, delivering the projects out there in the country. And this team also gives the possibility to actually share experience between the projects. It's not more than 10 projects. I'm sure we will grow it, but it's still manageable to share those kinds of experiences.
Offices, obviously, we will hear Carola Lavén describe Property Development and their path ahead. Our most important client, some big deals coming to us in this quarter that we are looking forward to, and Carola will inform you about that. But also other big, important clients like Vasakronan, Fabege, and Klövern, to mention a few of them. A profitable business for us. Public buildings. Well, I'll get back to the market, as I said, but the demographic development that Tomas also mentioned drives a strong demand for schools, for preschools, but as I said, for other kinds of public buildings, like healthcare and swimming facilities. You could say that's a small part of our business, but it's an extremely specialized part. We have almost 40% of the market in newly built swimming facilities in Sweden.
That, again, is the result of a small core team of specialists knowing how to handle the technical risks that are obvious in swimming facilities, sitting on the business area level, helping the local projects out there in the market. There is also, obviously, a strong demand for other types of public buildings, like, in this case, this is a photo from the Lunds tingsrätt that we successfully delivered to our customer just recently. So courthouses and other types of administrational buildings are also extremely important. So where does this put us? Well, let me start with the net sales. There's a strong growth within our net sales, actually 14% compared to the first nine months of last year. We still have a very strong and healthy order backlog.
However, as you can obviously see, our orders received compared to the record-breaking first nine months of last year are lower. That's due to a couple of reasons, and I want to dig into them a bit. Of course, we are influenced by a lower interest in new residentials, but growing with 14%, having a healthy order backlog and actually lack of competent project management teams to put into new complex projects, has led to us being more selective in tendering, trying to keep the prices up when the market pressure comes. Of course, hitting the hit rate we've had in the short while. We can keep that kind of strategy for a while, and then, of course, we need to improve the orders received. But as I said, we are working on a number of strong key agreements.
Peter will mention two of them that I expect us to close in quarter four, so I'm not worried. As you know, and as Tomas said, and Mattias came back to, we have also done revaluations of our ongoing business. Still, I'm happy about the EBIT margin. I know there's room for improvement, but if we had not done these revaluations, we would have performed on a 3.9% level by now. So I really expect us to be able to improve the margin also going ahead, but I'm happy about the result in the first nine months. So what are the conclusions and actions then from my side? Well, it's obvious to me that prioritizing on segments where we know that we have experience and knowledge is the right path forward.
It has helped our order backlog to become healthy, it has helped us to improve our profits, but it also actually helps my local departments out there in the country to avoid high-risk areas. Because they know they won't get support in areas where we have not prioritized from the business area. I cannot give that support. So that's also important. The growth in healthcare, schools, and other types of public buildings will help us maintain a strong net sales. It will help the rapid slowdown in residentials by growing in other markets. I'm also happy to see that we've been able to increase the number of what we call partnering agreements within our portfolio.
That's to put it short. I know a lot of you know what it is, but to put it short, close collaboration with our customers, we get earlier involved, we work in transparency together with the customer, handling the risk, and that, of course, reduces both our risk in delivering, but it definitely gives us a much better opportunity to actually deliver what the customer wants in the end, and then hopefully getting them back as customers as well. So that's also a healthy part of the order backlog. Unfortunately, I also have low-performing units. I have a couple of them out of my 11 departments. We have had turnaround plans in place for a while. We're progressing somewhat, but as it has been said, this takes time, but I'm sure we will reach it in meanwhile.
What is also good to us, and that's a strong core of our growth, is that we have almost doubled the number of really large projects throughout these two and a half years, and increased the volume significantly in large projects. For a number of consecutive quarters, we've been able to perform a bit better in margin every quarter. So that gives us a really healthy core, and it's good margins in that. A really, really healthy core to build also going ahead from this quarter and into the next year. So that's a good take for me. What about the market then? That's obviously a question in the Swedish market. Well, I would say, and it's been stated earlier, that the market is fairly strong.
We're coming from record levels, it's normalizing somewhat, and it's obvious that the residential market is in a strong slowdown. On the other hand, the urbanization and the population growth drives a need for residentials. If we can meet the demand much better when it comes to affordable living. So I'm sure it will shift again. I will not guess when, but it will have to shift, otherwise it's a hazard to our whole economy. As I said, public investments are increasing, and the financials in Sweden are strong. There's an extreme demand for schools, for preschools, for other kinds of public buildings, as I said, elderly homes, hospitals, that drives a lot of net sales, and that has a healthy customer base investing in that. So I actually see that we are growing in those kinds of market.
What I'm also happy to see that there is a strong increase in interest for long-term relationships, and what do I mean by that? Well, mostly public customers want to choose one contractor to work with for a long row of years, and with a portfolio of projects instead of just going for one project at a time. We call it strategic partnering, and we've been extremely successful in winning strategic partnership deals. So, we have a strong hit rate, and we're obviously market leader still. I aim to remain in that position. We have a number of hospital deals and also a number of schools in and around Sweden that you could read about in that connection.
So by stating that the market is fairly strong, by being content with our ongoing performance right now, of course, improving for more, I'm sure that we will remain to be the preferred professional partner, building partner for our customers in the prioritized segments. And I, of course, aim to grow the EBIT as a following consequence of that.
Thank you, Henrik. There is a few minutes before the break, so we will have time for a few questions. So if I could ask Tomas, Mattias, and Kenneth to join Henrik on stage, we will have a few questions.
... Two questions, if I may. First, on the infrastructure, could you possibly elaborate a little bit on the bigger costs, the claims that you're taking on the Infra side? I guess there should be some bigger ones. Or connected to that, the Faroe Islands tunnel that you gained might be in there, I don't know, but you were supposed to actually record the second phase of that contract in your Q3. It wasn't recorded, so adding that to the question.
Yeah, I'll answer that, and you can build on it. Starting from the end, Faroe Islands is doing fine. There's an option that we already have, and there's still a theoretical chance that they can decide not to go ahead with tunnel. So as long as that is not finalized, we are not recording it as orders received, but the project is doing fine. I've actually been to it as a part of my review of the business. The bigger Civil Engineering write-downs, you can have that in two groups. One is actually cost increases in the limited numbers of large projects that Kenneth was talking about. They are realized cost, primarily realized cost and not estimates, and they are in the underlying earnings.
And then we have revaluation of claims in Civil Engineering, and that is primarily in Norway. Claims that will go on for three, four, five, six, seven years, who knows? And where we have lowered our risk profile, i.e., what we expect to get, you know, what we recognize as a profit from that. Would you like to add something?
No, it's good. Then the second question, the parent company equity. As how I mean, you have a target to distribute 40% or more of your profits, sometimes non-cash affected, one-offs are excluded. I don't know what the view is in this case, but coming to the question, and the parent equity, 3-point-something billion, it is needed partly for guarantees, I guess, and also to distribute dividends. I mean, how do you view that? How happy are you with the size of that equity at the moment?
I mean, we have stable financial situation. We have, you know, adequate position for the type of business we're in. Dividend is an owner question, it's a question for the AGM, and it's recommended to the AGM for the board six months from now. But my assessment right now is that we will have the capacity to continue with the dividends that we've had previously.
Thank you.
Fredrik Sylvan, Carnegie. Just a clarification on that. The equity ratio now should be around 13%. I know that you're not maintaining the 20% target, but don't you think that's an issue long term?
You know, in the ideal world, maybe a little bit more, but I think it's more than adequate for the type of business that we are running. So I see with that we have a stable financial position, so.
Then going back to the financial targets on the 4% margin target, you've been quite below that for a while now. When do you think it's realistic to be back above 4%?
Let me put it like this: It would be super tempting for me and all of these guys to come up with a strong statement saying, "This will happen, it will happen," you know?... now and it will happen in this, at this pace. We will not do that. Because what we think is important now is to really understand the situation we are in now, deal with the situation now, find the actions that will drive improvements, and then we will make sure that every day we're a little bit better tomorrow than we are today. And if we continue to do that, it will be fine in the end. So we try to focus on now instead of giving forecasts for the future.
Thank you. We will have to take the rest of the questions at the Q&A session. Now we will have a 20-minute break, and please be back here at 10:40 A.M. Thank you.
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... Welcome back, everyone. Now it's time to hear from our most experienced business area manager, Klaus Kaae, talking about his new business area, NCC Building Nordics. Please welcome Klaus Kaae.
Thank you. Hello. I would like to introduce you to the new Building Nordics. I will tell you who we are, what we do, which challenges we have, how we are dealing with the challenges, and how we will make this business area profitable again. But before I do that, I will start showing you a few examples of what we are doing. We're doing refurbishment in Helsinki, changing a railway station into a new hotel. We are doing residentials in Copenhagen, in Østerbro and we are doing a school in Asker, in Norway, just as examples of what we are doing in Building Nordics. Geographically, we are present in Finland, Denmark and Norway. We are 2,800 employees, and we have more than 180 ongoing projects.
We have a strong focus on prioritized segments in each country, and I would like to emphasize that it's not the same segments. We do what we believe we are doing good in each country, and that's why it's different segments. Looking at the market, it is like, Tomas has been into. It's a good market, and the problems that we have are not coming from the market. We see an increasing market within early involvement projects, where we find ourselves doing good. We see a strong refurbishment market in both Denmark and Finland, and we see a strong market for public buildings in Norway. Looking into the numbers from January to September 2018, we here have the three divisions when it comes to net sales, orders received, and order backlog.
As you can see at the net sales, Denmark and Finland are almost equal, but historically Finland is the largest division in Building Nordics. When we look at orders received, you can see that Finland probably will be the largest division again in 2019, and I see that we have, in all three divisions, a promising backlog for the coming time. Looking into the numbers, we have a slightly increase in net sales in Building Nordics. We have a strong improvement in our orders received. We have received 2 billion more than last year so far, and we have, as I said, a promising backlog of 11.1 billion. So I think we have a healthy core within Building Nordics, but we also have challenges that I will come back to.
The EBIT level is very unsatisfactory, and we need to do something about this in the coming time to be a profitable business area. But why is it that we are actually having this unsatisfactory EBIT level? We have three divisions, and there is actually three different causes why we need to make a turnaround in this BA. If we are looking at division Finland, they are still recovering from the split from NCC Housing in 2016. NCC Housing was a very large customer, and to balance the loss of volume from Bonava, the department manager in Residential Helsinki was too optimistic, and together with inexperienced project management on the projects, we were left with a long list of quality problems and loss-making projects in Finland.... Going into division Denmark, the problems is isolated to one department, a big department Building East in Copenhagen.
Also there, we were too optimistic when we tendered in 2016, and we have, as a result of that, loss-making projects and also quality problems of some of the projects. Another issue in Denmark is also that we actually have an increasing numbers of projects in dispute, something that we haven't had before, and this is mostly due to bad designs in the projects that we have, and there we have disputes with our customers. And then there is Norway, and I think all of you who have been here before have heard of Norway. We have a legacy of old quality problems and disputes in Norway. We have been working with the turnaround since 2016. We have done a lot of actions in Norway, but we are still not there.
I have said it before, this takes time, and it will take time, but we will get there. We have a lot of detailed plans when it comes to our turnarounds in the three divisions, but here are some actions that we have taken already to endorse the continuing turnaround in the three divisions. Looking at Residential Helsinki, we moved a very experienced department manager from one of the good performing departments in Helsinki into Residential Helsinki. We cut net sales by 45%. We moved unit managers and project managers into Residential Helsinki, so that we got a strong team there to actually work with all these bad projects that we had. At the same time, we changed the risk management system so that we are not tendering in the same optimistic way.
Looking into Building East in Denmark, we changed the whole management team in 2017. We cut net sales by 30%. We changed business and business managers and project managers in the projects that were bad. We made a root cause analysis why we had these two optimistic tenders. Why didn't our risk management system that we had been working with for many years, why didn't it catch up? And we are now developing the risk management system so that we will do that in the future. In division Norway, as I said, this is a totally different story. We changed the whole management team in 2016. We cut net sales by 25%. We introduced a totally new risk management system with steering committees and contract boards, things that they have never tried to use before.
We have restructured in Norway. We are still restructuring the organization, and we are restructuring our way of working, so it fits the way that we work in the rest of Building Nordics. We have moved our tendering from competition on price alone to only early involvement projects, meaning we compete on the solutions, the organization, and the competence, and we are working with the customers for a long phase before we go into these projects, so the risk is much lower. At the same time, we have been working with more than 60 old projects from before we came into Building Nordics in 2016. A long list of quality problems and disputes with the customer, and hopefully, these are phasing out during 2019.
And at the same time, when we lower the net sales so drastically as we have done, so that we can solve the problems, the quality problems that we have, we, of course, also have to adapt the costs in the three divisions. So we are actually prioritizing profit and quality instead of volume in these three divisions. And when we are ready, we will start to grow again. Prioritized actions going forward, we will work with the right organization and team. We will work with selecting the profitable tendering, fitting the competencies that we have in each department. It's not one segment, but we have departments that are specialized into certain kind of projects, and we will continue to work with that.
We will work more by executing profitable projects to ensure that we have the right people on board when we starts the projects, but also to secure management that they support in the right way on each project. We will also make separate action plans for all departments with an EBIT below 2%. So just to summarize, I think we have a strong and healthy core in Building Nordics, but parts of Building Nordics are underperforming in terms of EBIT. We are three divisions. We are three different turnarounds. The different challenges are identified now, and they are reevaluated. Action has been taken to finalize all old projects, which takes a lot of energy. We have plans made to execute the turnarounds going forward. So what we really need in Building Nordics now is time to work, to recover, and to build up strength.
Thank you. And now I will ask Jyri Salonen, Head of Industry, to join me on stage.
Thank you, Klaus. So good morning, everybody. I would like to start by reminding all of you what we do in NCC Industry. We are a large producer of asphalt and a large asphalt paving contractor. We are producing stone materials in stone quarries and gravel pits. We are a big player in foundation works in the Nordics, doing various types of piling works, retaining structures. We are also manufacturing concrete piles and steel reinforcements. We are a market leader in the Nordics. We are 4,000 employees, working in over 300 production units, across the geography in Sweden, Norway, Denmark, Finland. And a little bit like Henrik described Building Sweden, we are a very local business. It is important for us to have local presence. That's why we are scattered all around.
In terms of volumes, in 2017, we produced 31.3 million tons of stone materials and 6.5 million tons of asphalt. That is the volume that makes us market leader, and I just want to emphasize, Tomas was a little bit into that, this is a volume game. It is very important in our business to have volume because unit cost is a key driver for competitiveness in this business. So you need to have volume, you need to have scale, and we have it. Just looking into our business from a product mix and geographical mix point of view, this is based on net sales from this year. Two-thirds of our business is asphalt related, 22% stone, and foundation business around 11% of our net sales.
From geographic point of view, over half of our business is in Sweden, and the other half is split quite evenly between Denmark and Norway, and then Finland is our smallest geography. But kind of bottom line of this picture is that we are asphalt heavy, we are Sweden heavy, and it means that our largest department, which is Asphalt Sweden, they account for approximately one-third of the turnover in NCC Industry. So as being a market leader, how does the market look? It has been a strong market, it is a strong market, and we believe it will be a strong market. We heard from Tomas, Kenneth, Henrik, Klaus, all talking about strong market continuing, and in my business, key driver is the Infra and building market in the Nordics.
A couple of things specific to asphalt business, we clearly see that there is an increased public funding for roads. A lot of road projects ongoing across the Nordic region. There's also a clear ambition to decrease road maintenance backlog, which is good for asphalt. There are a lot of larger contracts, road contracts, particularly in Norway, but also in Sweden, and that is affecting positively the asphalt demand. We've seen that in Denmark, in terms of growth, the asphalt market has been somewhat slower, growth-wise, but it is at a kind of a good, solid level. The demand for stone and foundation is boosted by the strong building and Infra market also going forward, particularly in Sweden and Norway.
Then if we looked into our financials, year to date, net sales 9.1 billion versus 8.6 billion prior year. Six percent growth driven by asphalt, but as Mattias was into, this is not really volume-related growth. EBIT-wise, we are slightly below 200 million, compared to over 400 million, same period last year, so this is obviously quite a significant drop. Couple of reasons for that. First of all, we have three underperforming departments that we are dealing with: Asphalt Denmark, Asphalt Finland, and also foundation business in Norway. I will get back to these three units. Then we also have some effects in Q3 from closing of some smaller, unprofitable parts of our business, and also we have exited Russia, where we had an asphalt business in St. Petersburg area.
A third factor affecting negatively our, our earnings in the comparison for last year is actually foundation business in Sweden. We had a really strong year in 2017. The market continues to be there, but we haven't been really successful this year in winning the volume of tenders that, that we had planned for. And also, we have some delays in, in project startups in, in the foundation business in Sweden. We are looking at this being more of a temporary effect, given that, we've seen after summer that our order, order intake is picking up in this business. Those were the negative bullets, but it should be noted that there's a lot of good things also related to our business. Stone business overall is delivering as expected in the strong market.
Asphalt Sweden, which is our largest unit, they had record earnings last year, and in fact, this year they are somewhat ahead of where they were in 2017. Also, our Norwegian asphalt business is very well on track, capitalizing on the strong market that exists in Norway at the moment. I said that I would get back to these units where we have issues. I think first thing to note is that while we have three underperforming departments, these are isolated issues specific to these three departments. We have action plans, focused action plans in place to remediate these issues. They are unit specific, but of course, there's also a lot of similarities in these action plans.
Some of these actions are already completed and some are ongoing, and obviously change takes some time, so there will be future positive effects from these actions, but they are not yet visible in our earnings. We have changed management in all three units. I think that's super important because we need to have the right management in place to execute the plans that we are aiming at completing. We have restructured and are restructuring them organizationally and also management team-wise. We are rightsizing these units. Rightsizing means both downsizing and sometimes scaling up. We are reducing machinery in these units. We are shutting down some production units, unprofitable activities, loss-making parts.
But in Foundation Norway, we have also made an acquisition at end of last year to enhance our competence and our market position, and to have the scale that we need in this, this market. So we are into quite a significant change in, in this Norwegian unit. Then in Finland specifically, we are shutting down and have shut down several stationary asphalt plants because we believe that it's a better setup to be able to serve the smaller market with more flexible mobile production units, and we believe that's going to have an impact in this market. Process issues are very important in all these units. We're centralizing our tender selection and pricing. We have put new processes in place to be better at risk management, project management, and also financial steering of these units.
So to summarize, NCC Industry, our Q3 results, heavily affected by isolated non-performing units and also for the shutdown course that we have taken for unprofitable business. We have already taken actions with future effect, and we have focused remediation plans in place for the underperforming units. We have a lot of units who are continuing having a really, really strong performance, so we have a really solid base business to build on, and our market continues to be strong. Thank you for listening, and I'm happy to hand over to Carola Lavén, who will talk about NCC Property Development.
Thank you, Jyri. I will spend the next couple of minutes to guide you through Droperty development, who we are, what we do, where we focus, and some examples of projects we have in the pipeline in the near future. On the picture, you see the work site of the new head office of NCC. It's one of the larger ongoing projects that PD have. It's a large development project. The total project is approximately 90,000 sq m, and this is the first phase where we have 34,000 sq m ongoing in production. Who is Property Development? We are a Nordic developer, where we are focusing on the capital areas. We have local organizations in the capital areas in Stockholm, Oslo, Copenhagen, Helsinki. We also have offices in Malmö, Gothenburg, and Aarhus.
We are roughly 100 employees, and we have, for the moment, 18 ongoing projects. Our focus and our main segment is office. Offices in good locations, and good locations is locations where you have good infrastructure and access to public transportation. As mentioned before, Tomas mentioned that PD is an investment business within NCC, meaning that we search for attractive investment opportunities where we can invest our capital, and also use the skills and the knowledge that we have within development and within construction to leverage on that… to create value and return, and offer good returns on the capital that we have invested. We have local organizations that have the skills within key areas in development when it comes to letting, city planning, and property transactions, to mention a few. But also to combine that with a Nordic knowledge and a very thorough investment process.
And together with this Nordic knowledge and investment process, together with the network that we have locally to find, and identify, and execute, we work to identify, find, execute, and sell our projects. The main part of our portfolio, as you can see, is in Sweden, and we have been focusing to increase our portfolio in Sweden, and we have managed with that. And in the short run, we will continue to increase the portfolio even more in Sweden. If we turn into the financials for the first nine months, as mentioned before, the financials for Property Development, the first nine months, is heavily impacted by the revaluations of some assets. And these are assets that are not in line with where we focus going further. It's not in line with offices in locations where you have strong locations long-term.
It's identified, as mentioned before, it's the biggest part is Stavanger, where we have a completed office project. That market is heavily affected by the oil industry, and it has dropped considerably. It's also connected to retail boxes in Denmark, and to some land in Finland, which is in more the outskirts of the Helsinki area and outside Helsinki. All these three asset classes has to be decided to intense our work to divest, and therefore is the background for the revaluation. The underlying business is, as you can see, a good business. Going forward, where are we focusing? We will continue to focus on our capital areas and the larger cities.
These cities and areas have a population growth today, and will continue to have a population growth, and that will provide good business opportunity and a demand for attractive offices. We will, in the short term, increase our investments in Sweden. We will be selective where we invest our money, and we will be very focused on office segments in good locations. Our business is also very important on building a project pipeline over time. We need to have projects that we can start within quite a short time, but also projects that we can start within a couple of years. It takes time for a development project from the first idea and from acquisition to the actual execution. As mentioned before, we only recognize profit when the project actually is completed, let out, and sold to investors.
It takes time to build up a project portfolio over time, and that's where we also focus. It's also very focused for us to have the local presence, to have the local organizations, to identify, find, and execute, but it's also very important to have a common Nordic development skills and a common investment process, so we can be very clear where we invest and where we not invest our money. I would like to show you some of the projects that we have in pipeline, and that we plan to start in the end of this year and the beginning of next year. These are all examples of good projects in good locations, and the first one is the project in Bromma that we announced recently.
This is a project that we acquired from ICA, and it's a project of approximately 50,000 square meters, and we have already leased out 20,000 square meters. This is a project which we plan to start in the end of this year, and last week we got the building permit from the city. So we are really in the starting point of starting up this project. The completion will be 2021. To mention another example, it's a project in Gothenburg called Kineum. It's a project of approximately 42,000 square meters. It consists of new building and existing building, and the letting rate, so it's already 65%, and the last letting that we made was for a hotel, ESS Group, that we signed quite recently.
This is also a project that we plan to start in the end of this year, and the completion is planned to be 2022. To mention another project, also in Gothenburg, is the Masthugget, and this is an attractive location in Gothenburg. It's a big city plan, contains of different parts. We have three phases of totally 32,000 square meters, where we plan to start the first phase in the beginning of next year. This is three examples of projects in good locations that we plan to start quite in the near future. To mention some of the market drivers in our business, first of all, is going back to urbanization and growing cities. Growing cities will require a demand for new offices.
There are also very low vacancy rates in the bigger cities today when it comes to offices, so it will be a demand for new offices over time. We have a low interest rate environment. This environment makes the investments in real estate attractive. And globally, you can also see that it's more and more capital allocated to the real estate sector, especially from the pension funds. And of course, the pension funds are important buyers of new offices. And investors look at the Nordic market today as a positive market. It's a macroeconomic, positive, fundamental outlook. It's a market with high transparency, high activity, and that offers good returns, and that's important market signals for both domestic and international investors, investors that are buyers of our development projects. And to summarize, we have opportunities, we have growing cities.
These cities will provide a demand for new offices and services and so on, and that will provide business opportunities for us. New-built offices are today, and will continue to be, attractive investments. And development business is a natural part of NCC Group, and will offer us a business potential, both in the short run and in the long run. And we will continue to focus on office projects in strong locations, and in short run, increase our investments in Sweden. Our main focus is to build an attractive portfolio and project pipeline for the future, for the short takeoffs and for the long takeoffs. Thank you.
Thank you, Carola. And now we have the scheduled Q&A, and I would like the presenters to join me up on stage. Hopefully, we will fit enough room. Do we have a question in the room, or should we hear with the telephone conference? We have it in Stockholm here.
Hi there, Albin Sandberg, Kepler. I have two questions. One was the chart that you showed on the non-performing, I guess, projects or units. You showed the tail that didn't really perform. I mean, if you look historically, does it tend to be the same units, or do they vary over time?
It's a mixed bag. There are some departments that has been there for a long time, but there are some that I expect to be temporary visitors.
I guess the reason why I'm asking is just if we stand here in a year or two years-
Right.
You will just show the same charts and
And that's of course a risk. But by focusing on them, we have a much higher probability to actually do something about them. And some of them we are actually exiting, some of them we have a clear turnaround strategy that will take some time, and some things we think will be a shorter visitor.
Then my second question is just, so I fully understand, the comment you are making about some of the actions you're taking today being non-cash. Now, if you raise your provision for guarantees and warranties, there could be a risk for cash flow further out. It's just that it's not happening now in this quarter, or am I missing something here?
No, you're basically right, but if I can clarify a little bit, the bulk of that revaluation is claims, where we have decreased our expectation on future payments. So, the risk is not that we have been, you know, too conservative. If the question is, have we been conservative enough? But we have taken a more conservative or low risk profile on future claims. Warranties is there, but I think it's better to actually acknowledge what kind of challenges you have had, make a provision for that, than just hope for the best for the future.
Thank you.
Tobias Kaj from ABG. I would like to start follow-up on, on write-downs, and, out of the total write-downs, was anything related to goodwill?
A minor part. Mattias, maybe you would like to elaborate on that?
Yes. You can see it in the other items in business area infrastructure. So it's a very small amount, and it's isolated to a subsidiary in Civil Norway. So a bit north of SEK 30 million.
This review included an impairment of the goodwill as well, I assume?
Yes. We have made impairment tests of all goodwill in the group, and that is the only impairment need we have seen when it comes to goodwill.
In terms of, I mean, in Civil Sweden, I think you mentioned that three projects explain the weak profitability, and they were taken in 2016, and now you implement a more cautious way of order accounting. I mean, if we look at the total order intake, 2017 compared to 2016, if you look at large projects, about 1.5 billion, then the volume tripled in 2017. I mean, have you also looked through all those projects and are confident that we don't have the same kind of profitability problems in those volumes as we have seen in the ones from 2016?
I would say like this, 57 billion or close to 57 billion of order backlog is a large number. We've done an extensive review of the backlog, but there's no way that we can go into detail into every single projects. We have used criteria for what kind of projects we will go through, you know, size, what kind of projects they are, when they were taken. So that's the first one. So we've done a lot, but we haven't been able to go through all of it. Second, two-thirds of the organization is working very well, and a large part of the order intake last year was Building Sweden, which is actually a very well-performing unit.
We've done as much as we can do, but this business is all about handling risk and logistics, and we cannot rule out that there's something in it still, but we've been very thorough.
One final question, if I may, regarding your net debt that increased 3.2 billion in 12 months. Roughly 1 billion is paid dividend, but apart from that, can you give some more flavor of why we see such a significant increase in net debt?
Mattias?
Well, I would say one major part is what Carola stated regarding property development. We had large deliveries in the end of 2016 and beginning of 2017 of completed projects that were sold, handed over to customers, and we realized the profits, and since then, we have been rebuilding that portfolio. So we are net investing there. We also have made some investments within industry, mainly. So that is the investment part of it. Then unfortunately, we've had low profitability, and that's why Tomas is the new CEO of the group. So we haven't generated enough cash to finance all that from industry, building, and infrastructure business areas, where we should generate more cash flow than we have.
And that is why we have increased the net debt.
Okay, thank you.
Yes, hi, Niclas Höglund with Nordea. A couple of questions, if I may. If we first start with the Road Service division, you mentioned that you, you're planning to divest it, and we will probably get some more numbers in the full report in a couple of week, in a week's time. But could you elaborate on the, the capital employed, and that you still have related to, to Road Services, and, maybe how much was recurring losses up until the nine month, or, even if we can have, have it for last year?
We will actually not talk about capital employed and more details in Q3. We will report Road Services of Q4, so that is when we'll break out. In Q3, it will still be a part of infrastructure. Over a ten-year period, it's accumulated losses of 80 million or something like that.
It's yeah, during this ten-year period that we reviewed, it's been roughly 22 billion and no profit. So, that's magnitude of the business. So someone else should run it, not us.
But have you seen accelerated losses than in the last year? I mean, must be one trigger to, for you to sort of get out of it.
We saw larger losses last year due to a number of projects, one a couple of years ago, and Kenneth talked about that in an ambition to grow. Now, this year, of course, given the revaluation of future costs that we have made, the losses will be significant.
And then, then if I may, going into the building and Building Nordics. Could you elaborate a little bit on the differences in profitability between a different part? I mean, the smaller part being Norway, but I would sort of guess that maybe Norway's not in black numbers, even adjusting for these writedowns. And maybe you could shed some light on the sort of what you can say, dead revenue or these larger products being completed a little bit longer ahead of time. How much will that dilute profitability in Building Nordic?
Should you?
Should I do? Yeah. Yeah, but if you look into the divisions, in Building Nordics, and starting with Norway, I think that if we are looking away from what we have done, it's not a profitable division still, but they are increasing close to breakeven. If you go into the two other divisions, the expectations were that we were actually profitable in these two, before we, we make the revaluations in these. So I'm, I'm pretty sure that we will be on a very, very low level, but as I said, this take times, and, and, we have still a lot of disputes to finalize. We still have quality problems to solve in the, in the, all three divisions, but we are going in the right direction.
Thank you. We're running a little bit short on time. We have one last question from Mattias. Go ahead.
... Thank you, Matias Montgomery, DNB. So the 200 million in continued write-downs you expect to year-end 2019, can you give some more flavor and, and, which segments are related to this?
Yes, all segments are related to this. We have low performing units in all business areas, in all countries. I'd like to stress, before I go into that, we will have a continuous need to recruit a lot of people. But as we are taking actions, there will be adjustments in the personnel staff in various locations. Moderate effect, but there will still be -- and then there will be offices that we will exit. And we cannot book that as a cost as long as we're still using it and people are still working.
Just one detail on the write-downs in Property Development. The methodology used here, if you, for instance, divest the Stavanger property at the value you assess it to today, will you return a zero EBIT from that project or-
Yes.
Or how does it work? Okay, thank you.
Thank you. And just to say the management will be available after this event for more questions, so. But now, Tomas Carlsson will summarize this morning.
Yes, I will be extremely brief. Summary of the findings is that, there's a good core for the group, but we have too many issues in the group. We have identified and isolated the issues, and we have a clear action plan on going forward. There will be focus on building on the strong core we have, making sure that we focus on the projects, the customers, and the geographies there where we can, where we can add value. Lower the risk level in the entire portfolio, and make sure that we always prioritize profits and quality before volume. Thank you all for listening, and I look forward to continue to interact with you. Thank you all!