Good morning, everyone. Welcome to this presentation of NCC's interim report for the first nine months. With me here, I have CEO Peter Wågström and CFO Mattias Lundgren. After the presentation, we will open up for questions. Since this is a web call, I would like to urge everyone to use the microphone and state your name before you ask your questions. Before we get started, just some safety instruction. Safety is a very important question for NCC, so I would like to point out that you have emergency exits to my right and to my left, and there is a heart starter downstairs. With that, I would like to welcome NCC's CEO, Peter Wågström up on stage. Please, Peter.
Thank you, Johan. I love the picture with a lot of stone. Stone materials is absolutely necessary when you're doing construction, both in roads and concrete and asphalt, so it's nice to see there is a lot of stones there. The third quarter 2017, we have lower net sales in NCC Building, mainly due to our operations in Finland and Denmark, and that's due to that we've been a bit cautious in Finland, and in Denmark, it's a bit late with orders received. We got some orders in quarter three, but then you need to start them to get them going, to get them into net sales. We have impairment losses, as we have released earlier in NCC Infrastructure.
It's one tunnel in Norway that we needed to do a write-down, and that has an effect, a big effect, effect on the quarter three results. We have good earnings in NCC Industry on a high level. Last year, we had, we were on a very high level, but it's in high level this year also. I'm very happy with that part, and we have a high order backlog, and we got more orders in the quarter. In the third quarter, orders received SEK 12.8 billion on top of last year, and we have net sales slightly lower than last year, with SEK 13.1 billion compared to SEK 13.6 billion. We have a very strong order backlog, with SEK 62 billion compared to SEK 47 billion a year ago.
Profit of the financial items, 365 compared to 471, and here we have the hit from the write-down in Norway when it comes to [Bjørnafjorden] that affects heavily the profit in the quarter. For the period January to September, orders received on a high level, SEK 40.7 billion compared to SEK 40.2 billion last year, so just on top of that. Net sales, SEK 38.3 billion compared to SEK 36.4 billion last year, it's higher. One of the effects we have this year is that property development had two strong in the first quarter, has an effect on the net sales.
Order backlog is strong, and I'm very happy with the order backlog, and profit after financial items is higher than last year, nearly SEK 1.2 compared to the SEK 700 we had last year for the period of January to September. So looking to the construction market, and the outlook for the construction market, it's a strong market. We have strong growth in 2017, and just to remind you that the numbers is what's in production. It's not orders, it's what's produced for the moment. And the view is that 2017 will be 7% up on the Nordic market, and next year, around 4% up. And it's really much higher than GDP, average GDP growth in the Nordic. If you look into the segment, new construction is really high.
It's up 14.5%, and civil engineering is normally fairly stable over time. It's longer projects, and they get a longer position or delivering over time compared to building. That's shorter projects, and very normally, and it goes up and down a bit more. So it's higher than GDP, absolutely, in the segment, and refurbishment is normally on a stable level, around GDP level. When it comes to asphalt and stone, high numbers also, it's an effect of that we have a strong construction market in Nordic, especially Sweden and Norway, and that gives a need of asphalt and stone. As I started with, I liked the picture with the stones. Jumping to NCC Building. In the period January to September, Sweden has had the largest part of orders received, as we normally have. It's our largest market.
Finland, we've been a bit more cautious, as you see, lower than last year. Denmark has picked up in the period, and especially, we got some orders here in the third quarter. In net sales, Sweden, strongest market, a very strong order backlog, has picked up, and have more to work up in the coming year when we look into the order backlog. In Finland, it's a bit down, and also Denmark. The product mix, residentials is the largest, and I said in some comments lately that in our portfolio, we've been thriving for having a balanced portfolio of residential products, and we have worked it to get in more rental apartments, especially than in Sweden. We get a more balanced portfolio for the coming years.
There have been a lot of tenant-owned apartments earlier. Refurbishment is the second largest one, and education is the third when it comes to net sales, but public buildings has picked up, and it's the third one when it comes to orders received. The backlog, orders received is slightly down in building. In Sweden, we have a very strong order backlog, so we've been restricted there to taking new orders, so we're a bit cautious because we have so much to produce the coming year. And in Finland, we've been really looking to which one we're going to take, and with having the right lists, and so they're taking some, but the orders received with that is slightly lower than last year. A very strong backlog, and it's much higher than last year.
Rolling 12 orders received, then it gets slightly down compared to also the quarter, and net sales hasn't picked up in total, and that's due to that we've been in Finland a bit cautious, and in Denmark, a bit late with orders received. Some examples from products, one that we got here in the third quarter is Falkoner Center in Copenhagen. It's a refurbishment, a rebuilding, and extension, and it's hotel and some office and some retail space in that part. The customer is ATP Ejendomme in Denmark, in Copenhagen. We also got some residential, 152 apartments from Bonava in Uppsala for SEK 250 million. We also got the police station that's going to be built in Rinkeby, here in Stockholm.
It's a redevelopment of a residential building, and it will then become a police station in Rinkeby. And the customer is Familjebostäder, who's one of the, owned by the municipality of Stockholm, and the order value is around SEK 520 million. NCC Infrastructure, when it comes to orders received, Sweden is the largest market for us, and, it's also, through this period, and, Norway is in line with last year for the full, period. Net sales, Sweden, the largest one, has picked up a bit, and Norway is a bit down, and it was in the interest that, we have been, wanted some more orders when it comes to Norway, especially some, large orders could be of interest in Norway.
If you look into the product mix, groundworks is the largest one, and orders received, industry has been large through the period January to September. We got especially one really large industrial project. In net sales, groundworks and roads is the two largest parts, and that's building roads. When it comes to orders received, when it comes to the quarter three, it's higher than last year, and here, especially one railway project that comes in in numbers that gives us a higher orders received in one large project. Orders, very strong order backlog to work with, and rolling 12 orders received is in higher level than last year, and net sales has started picking up in infrastructure.
The product we have or got as orders received in the third quarter is the new extension of the railway connection between Lund and Arlöv in Skåne, and it's a joint venture with the Spanish company OHL, and our part of the order is SEK 1 billion, so you need to double it, so more or less. Another product that we have in our orders and in full swing, and we are producing, is the Eysturoy Tunnel and Sandoy Tunnel in the Faroe Islands, and it's an undersea tunnel, and it's a traditional drill and blast tunnel, where we've done plenty of through the years, both in Sweden and in Norway, especially under sea tunnels, and I have a short film of that part.
The Faroe Islands are situated in the Atlantic Ocean, about halfway between Scotland and Iceland. Here, in the midst of a total of 18 islands, NCC has been commissioned to build two new tunnels: the Eysturoy and the Sandoy tunnels. The tunnels, about 11 km long, run under the seabed and connect several of the island's major cities. NCC has cutting-edge expertise and extensive experience in tunnel construction. The tunnels will reduce travel time by more than half for most of the island's 50,000 inhabitants, raising quality of life and improving conditions for the archipelago's economy. The distance between the capital, Torshavn, and the city of Streymoy, for example, will be shortened from 55 to 17 km. NCC conducted the first blast for the first tunnel entrance in March this year.
The Eysturoy Tunnel is to be ready during 2020, and the Sandoy Tunnel by 2022, uniting the Faroe Islands people for the next generations to come.
... So it's two tunnels, and we showed here one of the tunnel. The first tunnel is about SEK 1.5 billion . And then we have the second tunnel, where also the federal government has options to cancel if they would like to in the next spring or next summer. But we understand that they want that tunnel also to be built, but it's two tunnels that they have as a contract. Yep. As I say, industry, we have increased some volumes and more or less absolutely in line with last year. It's a good market as I was into, there is high volumes in the market. If you look into the net sales, they normally look—they look fairly normal for the season.
It's foundation that has increased a bit, and that gives an effect of the others getting down. But it's about the normal in between the segment. Sweden is our largest market, and we are the market leader in Sweden when it comes to geographically distribution. As I said, property development, if you just look into the outlook, it's a good market. It's a strong market. We can see some yield. It's getting slightly up in Stockholm CBD, but that's also due to the really high event that we now see in the CBD district of Stockholm, and that normally gives a slightly upwards trend on the yield. The rest is more on the stable or downwards level when it comes to yields and vacancy. We have now 18 products ongoing. We recognize one product in the third quarter.
Sweden is the largest part, and the focus is to start more products, and I've said it, plenty of times, and it's still the same focus, and we need, some zonings just to finalize to get some more products. We have a pipeline, pipeline on new products coming up. Low level of lease, in the quarter, just 1,800 sq m . But if I compare it to getting ratio, to completion ratio, then we are, on a higher level today than we've been before. So it's on the, on the right level when it comes to risk handling in the projects. And with that, I would like to hand over to Mattias Lundgren for financial part.
Thank you. I'll go straight into the income statement. As usual, we will start from the bottom. The profit for the period of the tax is lower than the same quarter last year. If we look at the reasons for that, we can start from the top. Net sales are down, and that is to a large extent due to Property Development. That is a transactional business, and as Peter said, we have only had one project to recognize this quarter. That was a smaller logistic project, and we'll look at PD in detail a bit later. Last year, we had a larger finished project to recognize. We also have a lower net sales in Building.
This has an impact on gross profit, and together with, with the, write-downs made in infrastructure, we have a lower gross profit. Selling and admin expenses are roughly on the same level as last year, but of course, with a lower net sales, that means that the cost ratio is slightly higher. For the 12th month period, the cost ratio is still down compared to last year, but of course, we do have this in focus. And as we stated before, we feel that 5% is roughly the level we can afford in order to reach our strategic targets. So this is still in focus. Financial items is on a less negative level than last year. And the reason is a lower net debt, but also actually a bit lower interest rates in our portfolio.
So all in all, a lower profit of the financial items, as Peter already showed you. Moving over to cash flow. Here we have a better cash flow from the operating activities, but we have a cash outflow from the property projects. And it, of course, is the effect when we only have one smaller project to recognize, while we are still investing in the ongoing projects. So there we have a negative cash flow. We don't have housing projects anymore in the group. We didn't have that in the third quarter last year either, but we did own Bonava for the first half of 2016. So that's why you have a full year effect last year of housing projects. Other working capital, here, I pointed out a high level of receivables when we looked at the Q2 balance sheet.
We have been paid during the third quarter, so we do have a positive working capital effect here. That is usually a seasonal effect we have in the third quarter. We still have a high level of receivables, but since I got the question last time, I will answer it now. We don't see an increased ratio of overdue receivables. It's a seasonal trend that we see in the balance sheet. We have finally a negative cash flow. It's slightly more or more negative cash flow than last year from investment activities, and the reason is M&A activities within industry. We have made acquisitions on the Norwegian market when it comes to piling and asphalt production. All in all, a positive cash flow of SEK 443 million.
Operating profit and loss, I will go into the business areas in detail later. But, as you can see, we have a positive development in building, and then we have a slightly lower or lower profit levels, for the rest of the business areas. I will dig into other eliminations, as usual. We have three parts here. The first is our headquarters and central costs. Here we have a slightly less positive, effect than last year. So why do we have positive or a profit centrally? Well, the reason is that we have a linear allocation of costs to our business areas from central support functions. The 1/12 of the cost is allocated every month. But we have a lower burn rate of actual costs during the vacation period.
That means we actually make a small central profit during the third quarter, on a lower level than last year, but still a profit. We have negative internal gains. Again, property development has only delivered one project, while we are investing in the portfolio, so we are eliminating internal gains, primarily from building to those projects. Finally, group adjustments is on a more negative level than last year. Here you see mainly the effect of pensions and the local GAAP we use in business areas and our international accounting standards in the group. Here, we do not have the same positive effect as we had last year. Slight positive effects, but on a lower level, and that is why you have the deviation. All in all, minus SEK 62 million compared to plus SEK 35 million.
Going into business areas, starting with building, as we said, and Peter said, we have a lower net sales. We have lower net sales outside of Sweden, and the reasons, just to repeat, we have an ongoing turnaround in Norway that leads to lower levels. That's going according to plan, but lower net sales, lower production volumes. We have been focusing on margin and profitability in Finland, so restrictive order intake there to keep the margins up and focus there. That has led to lower net sales in the, in the quarter, and also a timing effect in Denmark.
We are very good, I would say, at large, complex projects on the Danish market, but when you are finalizing some of them and you are still working on the new ones, and you, as you see in pre-orders received, came this quarter in Denmark, or started to come, then you have a lag before the production volumes comes up again, and that's the Danish effect. Still, despite the volume decrease, we have increased operating profits. So the operating margin of 2.2% is significantly better than last year, and 2.4% for the 12th month period is also an improvement. We are still away, quite some bit away from our strategic target of 3.5%.
We have a good order backlog, and we have a order intake that supports the strategic target, but it is more large projects now than it has been in the history. So you will see that effect mainly next year. There is a longer duration, so to speak, in the order backlog. Moving over to infrastructure, the net sales is increasing, so we have a growth here in the business area. The growth is in infra services, as we call the division, that works mainly with groundworks. And both when it comes to larger building projects, but also the larger infrastructure and civil engineering projects, the first thing you do is the preparation of groundworks. So there is a logic to that increase coming first. We do not see the same increase in civil engineering yet.
We have a good order backlog, but we haven't seen the increase in production yet. That leads to some capacity costs, fixed costs that we do not cover in the Norwegian part of the operation. As Peter showed you, the Norwegian part is actually declining rate. And that has an impact, and will have an impact on the profit level until production picks up again. Operating profit, including, of course, the write-down of the tunnel project in Norway, is negative. That has an impact both on the quarter and on the 12-month period when it comes to operating margin. So here, we have not been able to show our increasing order backlog as increasing projects in the income statement. If I would answer what I think will become a question, when will we see the improvement?
Well, this is a longer duration of orders in the order backlog, especially when it comes to civil engineering, and we are cautious with the new projects, so you will only gradually see this improvement. You will not see the full effect next year of the new order backlog. It takes a long time. Some of these projects, like the Faroe Islands project, it's several years. Moving over to industry, here you have a more positive development. We have generally, I would say, we have growth in all divisions, so both Asphalt, Stone materials, and the Piling Business in Hercules. We have what we think is a good operating profit in the quarter. It's not quite on the same level as last year. We did not quite reach the same level in asphalt.
Still, operating margin, both in the quarter and for the 12th month period, is well above our strategic target, and return on capital is also above our strategic target. This is a good performance, we think. The focus is to grow the business, and as I said, when I looked at the cash flow, here we have made some acquisitions on the Norwegian market, so we are growing the business. Finally, property development. A significant decline in net sales in the quarter, but it is a transaction business. The net sales is fully dependent on handovers to customers and profit recognition when we hand over projects. It was one smaller logistic project in Sweden this year. Last year, it was one project in Finland called Mattin Killa. Operating profit, therefore, negative in the quarter, and the operating margin is negative.
But for the 12th month period, we are well above our strategic targets. So for the 12th month period, if you look at the performance, it's good. I would also like to point out, I did that last time, I would like to point out that we have a table in the quarterly project. We are now back to zero projects to be recognized this year, not dedicated for recognition anyway. And we don't give forecasts, but if you look at the history, we were in roughly the same situation late 2010. We had delivered projects, and the first quarter 2011, we actually did not have any new handovers or profit recognitions.
You can be inspired by the first quarter, 2011, if you want to understand what will happen here going forward. We also have a pretty low completion ratio. Peter showed you the comparison with left and completion ratio. It's slightly on top of 30%. Of course, if you look at the profit potential in that list, most of it is actually in 2019. Going over the group total, the operating margin, let's start there. Despite the weak quarter, we are on a higher level than we were last year. We still have a gap to our strategic target, and we will close it, but we will close it gradually, as I said.
There is a long duration, both in building and especially in the civil engineering part of infrastructure when it comes to the order backlog. So it will be a gradual closing of that gap. Revenue development, the growth average annual is close to 2%. Our target is 5%. But as we said, we do prioritize margin increase, especially when we do a turnaround in Norway, when we look at a Finnish operation that we had disappointment in earlier this year. So we are focusing on margin expansion first and growth second. Finally, if you look at the balance sheet, Equity Asset Ratio, the green bar here, that is slightly below our target of 20%.
We had a slight revaluation effect of pensions in the quarter, and we've had. That does not really have a positive impact on the year. I'm not worried that we are slightly below the target of 20%. This is more from a marketing perspective in public procurement, that we want to have a high Equity Asset Ratio. Return on Shareholders' Equity, the blue bar. Well, there we have an increase, and we are well above our strategic target of 20%. Finally, net indebtedness. If you exclude our pension liabilities, we have a net cash position. So we do have a large headroom to our restriction on 2.5x EBITDA.
When I look at the financial stability of the group, this is my main key ratio that I look at. So with that strong financial position, Peter?
Yep.
I hand over to you to summarize.
Thank you, Mattias. Just to summarize, the third quarter in 2017, we have lower net sales and a lower result in the third quarter, if you compare it to last year. As to building and as to the infrastructure, they focus on delivering on the backlog and securing that we have an increase in the margins over time before CCM expansion. As the industry is on track and has its high result and good result, and is growing through the different parts of industry, the three different divisions in the industry. Property development is focused on project starts, as I was into. We would like to see more project starts, and there is more in the pipeline. We have a high order backlog, and we have favorable market outlooks.
We have good markets in the Nordics when if you look overall, especially in Sweden and Norway. With that, Johan, we could take some questions.
Thank you, Peter, and we start here at [Stefan Vargas] with CFAN.
Stefan, from CFAN . A few questions. First, actually going back to, to, just so I understand, your comment that you just made on closing the gap to your target, because you are saying that there will be less, not as much development profits in Q4, maybe Q1, who knows? You had lots of development profits in sales in Q1 and Q4 last year. Are you trying to say that you will, you know, offset those—they support margins completely, so are the other divisions going to be that strong, so they're going to offset that? Or do you really mean in a long return perspective? Do you understand my question?
Yeah, I do mean what we have in the property development, products as such. We don't have much to recognize in the first quarter next year, and then the quarter four, as you can see in the table as such. Normally, we have stronger results from the rest of the business there in the fourth quarter, and normally they have the seasonal effect that comes in the fourth quarter.
Yeah. I'm just trying to... With it, it's a 20% margin, and, and you have large sales, so just trying to understand the slide that you showed where you were closing in the gap. I mean, I'm not trying to say that you're going to close gradually from this level in, in, Q4 and Q1. I mean, you're talking longer term.
Longer term.
Thank you.
That is exactly.
Yeah.
It's highly unlikely. We don't give forecasts, but it's highly unlikely to be able to cover for the too strong profit from all the other business areas in the first quarter next year.
Then, one question on, sorry, in industry. Just so I understand that correctly, it seems observations on the residential market, and this is a scale business, and if I understand correctly, a residential activity is very good for that part of the business. Could you maybe elaborate on how much sales that goes into residential of that, if you have that number?
And-
Or just correct me if I'm wrong. Is there a correlation to residential expansion in there?
Well, but normally, residential is around 20% of the net sales in the business as such. So it's about a fifth, the residential part, and totally of... Or if we compare the total construction business with infra and building. And we have a very, very strong order backlog in that part for the coming two years. So we're more or less full.
I was thinking about the road solution. I just had the impression that that part is supported by residential a lot, but maybe I'm incorrect there.
Yeah, all buildings need groundworks, and all groundworks need some stone material. So yes, there is a correlation, definitely between the sales, especially in stone materials and construction activities in general, not least the residential part. But the residential market discussion that we see now, it is focused to Sweden and especially Stockholm and tenant-owned apartments. There's a huge need and a huge demand for rental apartments, and from public customers. And you don't see any discussions of the demand going down, if I look at the media. So I'm not that worried, really.
The final question. Still early days, and I, yeah, media is, they just love to write about the negative stuff on the housing market, so we'll see where it ends up. Regardless of that, there is quite a few of, of new players with less, no experience. We talked about this before. Of course, with the head, headwind, they could run into trouble. You have very strong, balance sheets. You have, experience from, from running hou- housing business before. I mean, i- i- if there's opportunities to pick up land and projects, is that at all anything you would look at, or would you ra- rather distribute, to, to shareholders instead of, of, of going that route?
Our plan is not to establish new housing, and that's not in, on the agenda. The focus has been to be securing that we have the focus on the construction parts, not the development part when it comes to residential, and I've been key all the time. For sure, that could be something where we go in partnership with something, but not in, in the level that we have had before. Then it's by pro or bus- or case by case, so it could be something, but the margin is really, really nice. But we're not building any new housing. That's not on the agenda, and it's not on the strategy.
Thank you.
What we have communicated is that we do have financial capability to go into joint operations, joint ventures, similar with developers, if we, if we find it attractive. If something happens when it comes to residential market, that gives an opportunity to use that wisely, though, that's money, of course we will. But, we will not build up the new housing or new Bonava to private customers.
Thank you, Stefan. Let's hear from the telephone conference, please.
Thank you very much. Ladies and gentlemen, if you would like to have a question for the speakers, please press zero one on your telephone keypad. Our first question comes from the line of Fredrik Zion of Carnegie. Please go ahead. Your line is open.
Good morning, Peter and Mattias. A few questions from my side. Starting off with the building unit, obviously, you guided for this in connection with the profit warning that the backlog duration is, is different from in the past, but, still sales fell here in the third quarter, and, the backlog usually has a shorter duration than the infra unit. Should we expect sales to grow already from the fourth quarter, or will that take longer?
Well, again, we never give forecasts. The duration of it, of the order backlog is longer, as you say. The orders received in the third quarter will actually mainly be produced next year. I think that suggests to me that you will see a stronger growth in 2018 than you will see in the fourth quarter this year, at least. To what extent the growth will be in the fourth quarter or the first quarter next year, we don't give that forecast.
Given the fixed cost absorption for 2018, and then, that should materially improve, and you've also had some improvement in the underlying margin for building units. So to me, it sounds like we should be more optimistic about the building units margin development for 2018 than some other units, perhaps?
The business logic certainly supports that theory, yes. Whether or not you should be more positive than you already are in your forecast, that's up to you to decide.
Fair point. So and then on the third unit, the capital employed is obviously down quite substantially year-over-year. The completion rate is low. Could you give us some guidance on the potential from the already started units? Can you elaborate on the total investment amount in the projects that you have ongoing?
Well, I think you can actually deduct that yourself from the book value you see in the balance sheet, in the project portfolio, ongoing part, and the completion ratio you have in the property table.
Yeah. Okay. But that's, based on a linear, linear, investment volume, which I think, I doubt is the, the correct way to measure it, but, correct me if I'm wrong.
No, that is a good point, but those are the figures that we have made publicly available, so I think I'll stick to those. But as I said, the... If you look at the profit potential in the portfolio, you clearly see that it's mainly 2019. And that's just based on the completion ratio in the larger projects, and they are listed by square meters, so you can see that.
Okay. Then my final question on the residential market here in Sweden, have you noticed any impact on the order intake or the interest for new orders from the somewhat weaker residential market in Sweden of late?
No, not really. We say no, or we've been saying no to a lot of question of construction. We're really sorting out in Sweden what we would like to do. But we're also focusing on financial stable customer, where we really believe in, and also rental apartments, instead of tenant-owned apartments.
Okay. Thank you.
Thank you. And just to remind everyone, if you would like to ask a question, please press zero one on your telephone keypads. And our next question comes from the line of Niklas Haglund of Nordea. Please go ahead. Your line is now open.
Yes, good morning.
[audio distortion]
I just have a couple of questions, if I may. First, if we start out with industry, which was there above your target, but well about well below last year's so margin numbers. And you talk about higher competition from Norway and slightly lower volumes regarding asphalt. Could you put your comments on industry in connection with the recent acquisition, and how much would volume be supported by the acquisition? And will you have any positive or negative effect on earnings related to that acquisition? Thank you.
In industry, it's and asphalt, if you look at the fourth quarter, there are variances across the different geographies, of course, in performance. And we have stiff competition, well, everywhere, of course, but we are more or less successful in that competition. So that has decreased the high profit level from last year. We're still on a good level in asphalt. And I think I won't comment more because that's what we've written in the quarterly report, and I won't give more than that away to our competitors either. When it comes to the investments, we fully expect a positive impact from them on the business. But we've recently done them, and they will be integrated, so you will not see that effect this year.
You will see that effect next year.
Basically, there will be some this year, but not, not many bigger amount.
Not, not-
It comes, it's a short time this year that comes in, in the fourth quarter.
Just to follow up on that, haven't you taken any costs in relation to integration that you had already in the third quarter?
No, we have not taken any costs. And the structure of the acquisitions are such that there should not be any significant costs other than, well, some time and cost from my M&A team, for example, but that's very minor.
... Yes, fair enough. You're also going back to building. You're commenting that you're running with it. You have a solid profitability in Sweden. Could you give us some flavor to those numbers? And we saw you talked about that volumes were rather flat, despite strong backlog and order intakes. Shouldn't we expect a slightly quicker rebound in profitability rather than next year, if the mix are improving related to the Swedish operation? Thank you.
Well, when it comes to building and profitability, we definitely strive for an increase, not only in Sweden, but from the turnaround in Norway, and from the projects in pipeline and in orders received now in the third quarter in Denmark, especially. So, yes, we expect an increase next year, and it will come gradually, due to the duration in the portfolio. It's a lot of hospitals and larger other buildings there. So yes, we expect an increase. We have not changed our strategic direction, we have not changed our strategic targets, and we have not done that because we don't see any reason to do it. But it will be a journey, of course, and a gradual improvement.
A follow-up. You talk about solid margins related to the Swedish operations, but are they, or have they improved year-over-year? And could you share some thoughts on the losses from Norway? How much have they diluted margins in the sort of first nine months? Thank you.
We don't go into the divisions and the individual divisions' performance, so I should refrain from comment on them. Do you want to do it, Peter?
No, no. We can say that they have developed in the right direction through the last year, when it comes to Sweden, without any comment at the level. And when it comes to Building Norway, they are following exactly the plan we put when we started the turnaround process. So they are exactly where we expected them to be, through the first nine months this year.
Those were my questions. Thank you.
Thank you.
Thank you. Our next question comes from the line of [Jan Mobay] of Kepler Cheuvreux. Please go ahead, your line is now open.
Hi, thanks. You talked about Order Backlog in Building, and mentioned that you have both tenant owner and rentals. You can say about what the mix is roughly in comparison?
In
We don't go public with our detailed order backlog. So we only specify how much is residential, and not what ownership type, if it's rental or co-op in Sweden, or housing companies in Finland, for example. So again, I should refrain on commenting on things that we don't provide in the quarterly report.
Okay. That was all for me. Thanks.
Thank you. There are no further questions at this time on the telephone lines. Please go ahead, speaker.
Okay, thank you very much. Is there a final question here from, in the audience? No? Okay. Thank you, Peter, thank you, Mattias.
Thank you.
Thank you very much for coming. Thank you.
This now concludes our call. Thank you for attending. Participants, you may disconnect.