Welcome everyone. It is 10 A.M. My name is André Löfgren, and I'm heading up Investor Relations at Skanska. I would like to welcome you to the presentation of our full year report for 2019. The presentation will be held by our CEO, Anders Danielsson, and also our CFO Magnus Persson. After the presentation, you will all be able to ask questions, and that includes all the people on the web as well. With that, I hand it over to you, Anders.
Thank you, André. Good morning. Before I go into the highlights of this report, I want you to look at this picture. It's Bank of America Tower in Houston, in Texas. A project that we have developed, we have constructed it and in the fourth quarter, we divested the project. We divested 90% of the project, actually for an amount of SEK 3.5 billion. This is the largest divestment ever in Skanska when it comes to square meters. Of course, we have the highest standard on environmental certificate. We have a LEED Platinum on this one. First, the highlights of the year-end report. We have increased the earnings per share with over 60%, so we have 15.46 SEK per share for the full year.
Operating margin in the Construction, 2.4%, compared to 0.7%, the year before, so significant improvement in the underlying performance here. Return on capital employed in project development, 10.3%. That's slightly above our target of 10% return. And we also beat our target on the return on equity, 21.4% versus our target on 18%. Significant improvement performance in the Construction operations. We'll go into that more deeper but we have also a strong value creation in project development. We have a strong balance sheet. We also have a supportive market, and we have a very interesting investment opportunity in project development.
As you saw last year, we have expand our commercial development into fifth new city, Los Angeles, in the U.S., and we also expanded our low-cost affordable housing, BoKlok, into the U.K., so that is really interesting. And that's great opportunity for the future. We need to have a strong balance sheet, and the proposal for the dividend is to increase it to SEK 6.25 per share. Now, I'll go into the different streams. When it comes to Construction, the revenue is pretty much flat in local currencies. We have order bookings of SEK 145 billion or close to SEK 146 billion for the year, and we have a book- to- bill of 91%.
Slightly below the 100%, as you can see, but that is also my expectation, because, as you remember, we took certain strategic actions two years back and we are consistently working with those plan to prioritize profit before volume and to be more selective in the market. I will go into each market, but, I'm confident that we win project in the geographies where we actually perform well and in the different segments as well. The underlying profitability improves. We are more selective, so that's our plan going forward. We want to continuously improve the profitability in Construction. We're going for the 3.5% target that we have, and we with quarter by quarter, we stepping, closing that gap.
I'm confident that we have the fifth quarter in a row now without communicating write-downs in the Construction stream, which is of course, also important and contributing for the improvement in the profitability. Residential Development, the revenue increased, SEK 12.5 billion. We increased the homes sold. Decrease of the homes started, so but the - if you look at the last year, we started a lot of more project than we actually sold, and of course, we can't continue doing that, so we have closed that gap, but the priority going forward is to start new projects. The operating income, close to SEK 1.2 billion.
We have an operating margin of 9.6% versus our target of 10%, so it's slightly below, but we also had a one-off effect with the goodwill write-down. So if you add that back in the, for the year, we are above our target, both when it comes to operating margin and on return on capital employed, that we also have a 10% target. We have a well-diversified portfolio, both when it comes to geographies, and also by the, when it comes to segments of the market, which is a big benefit for us. And we also have the financial strength to actually take advantage of a, of, of a market, and take advantage of the opportunity that shows up in the market.
We can also see that the Swedish market is gradually improving, which is encouraging. We can also see the trend that I talked about, that the trend, the behavior among the buyers in the Swedish market, have a trend to buy in the later stage of the project, closer to the completion. I expect that to continue, because people want to buy and sell in the same market, which is fully understandable. But that is also an opportunity for us. I see that as a competitive advantage, because we have the financial strength, we have the ability, we have the right location to actually start project with a lower sales rate. We will do that, and that is a big focus going forward. Commercial Property Development.
We have an operating income of SEK 3.3 billion, and it's a new all-time high when it comes to gain on sale. SEK 4.4 billion Swedish, including the joint venture. So that is an all-time high. Very impressive. And we beat our target on a return on capital employed, and we invest a lot of, a lot of, billions in, in this. You can see that close to SEK 28 billion investment amount when upon completion of the projects, and we have 42 ongoing projects for the moment. The occupancy rate versus the completions rate is also on a very healthy level. It's close to 60%. We have started 15 new projects during the period, and we also have a strong leasing activities over 400,000 square meters during the year here.
We can see a continuously strong market when it comes to investors and also buys from tenants. We have attractive products. We for both environmentally very high standard and very attractive for tenants, and because they realize they want to have their operation in a good facilities, good office, to be more attractive for new talent people and employees. And the investors, the same there. They very attractive, and we can see that when we divest projects. You can also see the on the picture here, that the new project in Los Angeles, in Beverly Hills, that we will we have sort of pushed the start button. Construction, the order situation is on a healthy level.
We have 91% book-to-bill, but you can see there that the bars there, the blue bars represent the order backlog, which is stable. I will go into the different market, but we, we have a good - the green line there is quarter order bookings per quarter. So you can see that we have a quite strong finish of the year, strong, quite strong fourth quarter. And if I go deeper into each geographies, we have the Nordics overall, 100% book-to-bill, very healthy and we're actually above 100%, 107% in Sweden, which is we have a good performance. So, and also in the U.S., close to 100% book-to-bill. So we, we are selective. We take the orders in the geographies where we perform well.
And we also see slightly lower order intake in Europe, and there is mainly two reasons for that. The first one is due to the market. We have a more hesitant market in the U.K. due to Brexit. We follow that carefully going forward, and I would expect it to improve going forward, more that the hesitation we see in the market goes away b ut we'll see. And it's also more hesitant in the Polish market. We can see that some of the projects are postponed, external and somewhat internal as well, due to the cost increases we have seen. So there is a strong focus for us now to get the cost increases under control.
I can see that it's flattening out, so we don't see the same cost increases in Central Europe that we have seen in the last few years, which is encouraging, of course, because that gives us more - it's easier for us to get the business case in place so we can start projects. But it's also in Europe, I would say effect of that we are more selective. We are more selective. It's profit before volume, and that is our plan we have worked with for the last two years, and that is also the reason why we have seen improvement, gradual improvement in the profitability. And that is the way forward, to go for the 3%-3.5%. With that, I'll leave it to Magnus to go deeper into the figures.
Thank you, Anders. Okay, so we start with the Construction and income statement here. And as you can see on this, we grew revenues slightly on a year-over-year basis, but part of this is also currency. So if you adjust for the currency effect, revenue is down approximately 3%. So that goes all hand in hand with what you see in the book to bill, which is 91% for the full year. But the effect of bookings is sort of mitigated a bit by currencies over the course of 2019. S&A, SEK 6.7 billion and 4.2%. Here we have a goodwill write-down in that is taken in the U.K. operations, part of the U.K. operations to the tune of SEK 370 million.
Of course, if you want to understand S&A level, you need to take out the goodwill, because that's not representative of the actual underlying cost for the overhead organization there. So if you do that, you would end up with an S&A percentage of 4%, which is historically speaking, quite a low, actually a very low S&A level for the construction organization. And we have been working very hard with the cost structure in the company overall and in the Construction stream over the last one and a half years, and this clearly has an effect there. So that is quite positive. If we look at the operating income, then SEK 3.8 billion, and of course, here we, that is, including then the goodwill charge, a margin of 2.4%, on that.
If we are to step out of the goodwill again, we would be at 2.6%. On the quarter isolated, we reported 2.6% margin, if we take out the goodwill 3.4%, so, quite a good quarter, yeah. If we then go into the geographies, you can see the Nordic part of the Construction business is improving margin slightly from a 3.8 up to a 3.9%. And this, the margin in the Swedish infrastructure operation is then coming down but for reasons that you already know, we've had some challenges there in the asphalt business and also in the residential construction in Stockholm. Both of these we have a very good grip on, I would say.
The margin in the quarter isolated for the Swedish business was 4.8%, which is sort of an average over the last five or six years, average Q4 margin here. So that's, that gives you an indication of where we are. For Europe, of course, being, having this goodwill charge of SEK 370 million, obviously this is not the margin where we would like it to be. If you were to adjust for the goodwill again, you would end up at 2.7% on this. Of course, the quarter the reported margin in the isolated quarter then becomes quite low due to the goodwill there.
For the U.S., 1.5%, again, we have a, a sort of a plan to successfully improve the margin and performance of the U.S. business, and we are sticking to that plan, we can say. So we are not at all satisfied with 1.5% in the overall scheme of things, but it's following the plan that we have laid out as we are successfully completing these problematic projects where we have that revenue that is diluting the margin for us. And you can also see this in the fourth quarter, isolated, we had a margin of 2%, so we're successfully improving that performance in the underlying portfolio here, which is, of course, very good. We're going to Residential Development. We have quite a big step up in in revenue. I think it's around 15%.
Part of this is due to a number of units sold that were increasing, and part of it, it is due to the price mix. Essentially, we sold, relatively speaking, less rental, residential, and BoKlok units in 2019 than we did in 2018. So of course, the price mix becomes a little bit different, and that contributes to the upwards shift in revenue here. If we then look at the S&A line, we have SEK 791 million, and here we have a goodwill impairment in the Norwegian or the operations of SEK 100 million.
That, again, if you would like to understand the underlying cost of the overhead organization, you would need to take out the goodwill charge here of SEK 100 million, which would take us down to an S&A, not at 6.3%, but around 5.5% for the full year here. We report a margin of 9.6% for the full year, which is then quite a lot below last year's margin. But as we have said repeatedly, last year, we had very large positive impact from the sale of land, which we made large profits on, and also the release of excess provisions that we had in projects, essentially risk money that, where the risk never showed up, that we could release the profit.
And if you add these two effects together, that was around SEK 500 million. So you will have to sort of take that out to understand the underlying performance. And when we do these adjustments, we can say we are still above the 10%, in 2019, and actually a slightly bit better than what the margin was in 2018. So the underlying portfolio is continuing to perform at around or just a tad higher than 10%, which we think is good in the current market. If we look at geographies, the Nordics, 9.2%, and of course again here you have the SEK 100 million in goodwill charge. If you adjust for that, we're above 10%.
So across the line here for the full year, we are performing above the 10% level that we have sort of set out for the stream as a whole, which is, of course, quite positive then. We look at homes started and sold. Here you can see that we increased the number of sold units, approximately 5%, and the remaining part of the revenue increase then can be attributed to the price mix of the different units there. As started units, on the other hand, comes down, we started 3,400 units, approximately. And, you can also see on the different lines here, the light blue line, which represent the sold units, we successfully increase it. The dark blue line, which is the rolling twelve-month started units, is below the sales.
We would like to start more units in Residential Development. One of the challenges in achieving this is permitting processes that are slipping in time. And I think anything that can be done in order to, to sort of facilitate the speed of permitting processes would be quite beneficial here. Homes in production, we had around 7,100 homes in our portfolio that was under production at the end of the year. Of that, we had sold 70%. And I say that's a very respectable number, especially given the shift in customer behavior that Anders alluded to, where customers are buying closer to completion in these projects here. And it's not we don't want to be too high in the sales rate either, because you need something in the inventory to sell from as well.
In terms of unsold completed, 134 units, it's very little in comparison to the whole portfolio. We have successively, through the whole year, worked down the number of unsold completed units. And we also have a good churn of those units that we have. So very few units that are sort of getting old in that. It is more that they are not sold before we actually complete, but quickly after that. So good churn in that. It's not a concern for us. We move to commercial property development, and the big news here has already, of course, been mentioned. This is a record-breaking year, SEK 4.4 billion in gain on sale, if we include the sale of the joint venture that we did in the first quarter.
We now have 42 ongoing projects in the Commercial Development stream, which of course bodes well for the, for the future here. It was a bit tricky, of course, to top up last year's stellar performance, but this year turned out to be even a tad better than that. So that's a very strong performance by Commercial Development. Unrealized and realized gains, the green line that you see here represent a rolling 12 months average of the gains that we have realized over the profit and loss, and the bars represent the unrealized gain that we have inside the portfolio. And you can say we have now realized, as we said, SEK 4.4 billion during the year, and we have in the portfolio approximately SEK 8.2 billion. In the fourth quarter, isolated, we actually realized SEK 1.6 billion worth of gains.
At the same time, as the unrealized gains is estimated to be the same. So there's a high pace here of value being created in the Commercial Development business. The completion profile of the portfolio of ongoing unsold projects looks like this. As you can see, nothing really stands out there, except in Q1 2020, we expect properties to a large investment value to be completed. They are also leased to a high degree, 92%. That feels good. The other thing that can be then commented on is that in Q2, we have a lower leasing rate, a fairly low leasing rate, on the properties that is expected to be completed at that point in time. But if you look at the investment value of that, it is not so much.
Normally, you really start to push leasing activities when you are sort of six months ahead of completion here. It's a little bit too early to - we are not concerned about this at all. So overall, I think the portfolio of this looks very nice with the completion profile goes very well with the leasing profile in the portfolio here. Talking about leasing, we leased just north of 400,000 sq m for the full year, and it's easy to be a bit misled, I think by the bars here, because the last four quarters has been - the leasing activity has been very, very high, and up 500,000 sq m.
So now we have a drop here, but I'd say 400,000 square meters over the course of a year, it's a very high number here. Occupancy rate, 59%, as has already been said, and the completion rate of the portfolio, 56%. And of course, that, that also gives you an indication that over the last year or so, the maturity of our portfolio has increased, here, here with an increase in, in the percentage of completion of the, of the Construction works. So we want also here to start more new projects, of course. Challenges here are a bit similar to Residential Development. In some cases, we see slippages of the permitting processes.
We have alluded to some challenges in nailing down the commercial case fully to start the projects in previous quarterly reports because of the cost escalation that we're seeing, in particular in the European markets. Now that that is waning off a little bit, then we can see that the escalation is sort of toning down, which is, of course, very positive news for our ability to start projects and backfill here. If we take all of this together and we look at the group, we had a total operating income from the business streams of SEK 8.3 billion, and we had central costs of SEK 388 million, which I think warrants a bit of a comment here, because if you compare it to last year, we had SEK 780 million, so that's a big shift there.
But in order to make sense of these numbers, first of all, you need to add back to this year's number, the revenue, that we took when we released the provision that pertained to the Czech competition case that we referred to as R4. That was done in the second quarter of 2019, to the tune of SEK 200 million. You have to add that back. And in a similar fashion, in 2018, we had, of course, restructuring costs to the central costs. So then you can make a more fair comparison here. If you look at the numbers on an isolated quarter level, you will also note a slight uptick in the fourth quarter number.
As we do regularly, we go through the portfolio of old legacy business and make adequate adjustments to make sure we don't carry risks forward there, so that has also been done. If we look at the net financial items, maybe a bit of an educational journey then, but due to changes in accounting and the international accounting standards here, we have, as all other companies, been moving the interest costs, the financial cost part of leases from cost of goods sold down to net financials. That was not done in 2018, but it's done now in 2019. That adds approximately, for us, SEK 270 million in financial costs in 2019 versus 2018. So that, of course, explains a lot of the worsening of the net financial items here between the years.
But as you can also see, the difference here isn't SEK 270 million, it's considerably less. And we've been quite successful in managing the group's excess liquidity through our internal bank, and making use of the investment possibilities we have within the strict framework, of course, of risk control here. Been done in a very successful way in mitigating quite a lot of the negative effects on that line from IFRS 16. Taxes, SEK 1.4 billion. We taxed out at 17.5%. This is rounded to 18% here in the slide. It's a bit lower than last year, but last year we had to write off the value of some of the deferred tax assets that we held in Poland because we could not make use of its value.
In terms of the PPP portfolio, what you know is this is a run-off portfolio. We don't go into any more new projects. We're successively sort of completing what we have here. No major movement in the portfolio. During 2019, we sold the remaining part of the RV3 project in Norway, a transaction that was done with the Swedish Pension Trust. Apart from that, which has only a very minor result effect, the movements you see in the portfolio values is mainly due to changes in the time value of money in the discounted cash flow area. And talking about cash flow then, we had, for the full year, a cash flow of SEK 1.3 billion. I want to direct your eyes to the top part of the slide here, where you can see the chart.
It's pretty clear that we have a large seasonality of the cash flow here. In 2019, from the first quarter through to the third quarter, flows were negative and then there comes a lot of cash in the fourth quarter to the tune of SEK 8 billion that comes in. And if we look at that flow, then you can say we had a good inflow of working capital, and we had also a very good net cash flow from net divestments in the fourth quarter. Over the course of the full year, net working capital flows were slightly negative, which could be interpreted as sort of not a good sign.
But that really means that we can maintain a very high nominal level of working capital in the Construction business, the high level that we exited 2018, which I think is a good feat for that organization. And speaking of working capital, then here you can see the balances and you can also see the key ratio that we use to track working capital on the green line, which is net working capital over revenue. A ratio that came in at 15.7% year-end. It's a very, very high level, and you can also see the actual nominal balances here being quite high. And here, I think you understand what I just alluded to, that just maintaining this level is somewhat of a feat. It's a historically very high level, this.
We have been, as we have been saying also many times, I don't think we should fully expect this level to sort of maintain out into eternity here. But we need to sort of take a bit height for shifts in this portfolio. Investments, divestments, and capital employed. As you can see, we slightly decreased investments in Residential Development compared to last year, and vice versa for Commercial Development, where we quite significantly increased the divestments. And if you look at the top part here, we have been in a net divestment territory for quite some time, and now we're slowly moving down to a net investment territory again here.
But this is the changes in capital employed there is, I say overall according to plan, even if, as I said before, we would like to start a bit more units. Financial position. We have a very strong financial position in the company, and that's exactly how we would like it. We are in a cyclical business, and we need to stand on a strong capital position in the company. We have successfully increased the relative share of our property business in the company, and we aim to continue to do so, which makes it even more important to have the staying power in these long-term investments that we make in property development here.
So if you look at the balance sheet values, we had SEK 126 billion in total assets, and equity over that was around 26%, which I think is very stable. And then we had an adjusted net debt of SEK 3.2 billion, which is, I think, roughly in line with where we were last year then.
Before we start the Q&A, I will address the market conditions, starting with the Construction. We have a pretty much unchanged, strong market in our different geographies. In the Nordic, it's still a mixed building market, where we have seen that, even though we have seen a slight improvement in the residential construction, it's still on a somewhat lower level that we have seen the last few years. A strong, strong civil market, though, in both in Sweden and Norway. Finland's stable. We can see a slight slowdown, not too obvious but a slight slowdown in the residential market in Finland. Europe, I talked about Brexit, that definitely impacts the U.K. market, both the non-residential, the commercial market where we operate, but also in the civil market.
So that's something we follow closely, of course. Central Europe, stable. Cost escalation causing some postponement of projects, but as I said earlier, we can see it slowing down the cost escalation, which is good for everybody, of course. In the U.S., continues to be a strong market, very good growth in the economy, enormous need for infrastructure investments, and we are in the right places, but it's still fierce competition, of course. Everybody wants to play and take part of that market. The funding on the state level, that is healthy, so we can see that the funding is in place for the pipeline that we are interested in. On Residential Development, high construction cost and long zoning process in all our markets. That's high.
That's something we definitely address. We have slight improvement in the Swedish market, stable in Norway, and, as I said, a bit slowdown in Finland. Europe, overall, stable market in Warsaw, Prague, and in Krakow. Commercial Development, high activity. There, strong market in all our geographies, the Nordics, Central Europe, and also in the U.S., both from investors and tenants. And it's low vacancy rates and low, high, high rents in Sweden, definitely. And the yields, we have not seen any push upwards on the yields in any market, rather, actually the opposite, so that is really encouraging. To summarize the group overall, significant, significant improvement in the construction stream, very strong, very strong report in that sense. High market activity in our geographies and segments.
The underlying profitability in Residential Development are at the solid 10%, target we have, and we also have a good, diversified portfolio. Attractive, Commercial Development portfolio. We have a strong balance sheet, and that is a big advantage in, in any market condition, because we can choose on our own when to start a project development project, or not. So we have a significant opportunity to grow the project development in, into the future. So with that, I'll leave it to André to start the Q&A.
Right. Thank you Anders, and also thank you, Magnus. It's Q&A time. We'll start with the audience here, and then we hand over to the webcast after that. So just raise your hand and state your name and where you work at, starting with Erik Granström at Carnegie.
Yes, thank you, André. I'll, I'll state it for the record as well. My name is indeed Erik Granström, and I do work at Carnegie. I had a few questions, and I think we'll start off with Construction. You mentioned that you're obviously pleased with the fact that the development of the Construction profitability, and that seems to be the case as well. If we dive in a little bit on the details, Sweden returned to rather substantial improvement in terms of the profitability, but as both of you, I believe, alluded to, that the margin in Sweden is actually lower than the margin in the rest of Nordics for the full year. I can't believe I remember any time when that was the case.
Is that something that we should expect to continue, or do you believe that what we saw in Q4 is more indicative of where the Swedish margin will end up going forward?
I would expect more from Skanska Sweden in the future, definitely. We have seen strong improvements in the fourth quarter now. We were at 4.8% in the single quarter, so which is, if you look year some years back, at the above the average for a fourth quarter, which is usually a strong, strong quarter. So I would expect, and I can see that the issues we had with the asphalt business and also the residential construction here in Stockholm, we have we are improving those businesses, so I expect them to contribute more in the future.
Okay, thank you. And then perhaps moving on to Europe, where you did make a goodwill write-down. Could you just explain a little bit, and we could touch upon the RD part of it as well? There seems to be some sort of archaeological dig down into the sort of goodwill situation, because I can't remember last time you made such large acquisitions in the U.K. that requires a goodwill adjustment at this point in time.
I can start. This is when we look at the strategic action we took two years back to go for profitability before volume. We also have communicate that the action is to concentrate us to the core, core business where we have seen profitability in the future. So it's profit before volume, and that means that our - our volume ambition that we had a few years back we don't see that now. And that's the main underlying reason for taking the goodwill write down.
Okay, but we shouldn't expect that sort of to continue due to some sort of market changes or anything like that?
No, no.
We could just touch upon it. If we do put that money back then, the 367, I believe it was, Europe delivers 4.7% EBIT margin or something like that, isolated in the quarter. You care to comment on that? That's an extremely high figure. Was there no weather effect, or what's the reasoning behind that?
I can comment on that. I think in the fourth quarter, a lot of things has gone right here. And when you add them up, there's no single large event that sort of explains it. But when you add the things up, it becomes a strong quarter. And then of course, yeah, so I mean, that's basically the explanation. But you're right, it's a very strong quarter, and it sort of stands out if you do that adjustment, yeah.
Okay, and then perhaps on the U.S., you're again back at 2%, which I believe the last time we saw that was in Q1 2018. So it's a while back. Could you say something about the development of some of the projects that you've had issues with, how far you've come, what you have left, and if there are any sort of extraordinary situations in Q4 in particular?
I would say the underlying profitability in U.S. is in a good place. So, it's definitely going in the right direction. I can see the new project that we have won the last two years is on a healthy level, performing well. We can see that the problem we had with a couple of projects in the past year, definitely especially during 2018, they are sort of stabilizing. We are pretty much 75% POC on those projects. So we're slowly but steady, we're completing those projects. But there will still be some deferred revenue into 2021.
Okay. And then moving on to Commercial Development, obviously, you praised them quite substantially, and that's understandable given what they've delivered for 2019. The board seems to agree as well, because that's the sort of underlying background behind the dividend hike and in investment pace. If we go back a year, I remember 2018, you started more than 50 projects, and that's obviously one of the reasons why Capital employed is increasing this year. This year, I'm sorry, you had more than 50 ongoing projects a year ago. Now you have about 40, 42 ongoing. You started 28 last year. You've started 15 this year.
What - how should we interpret that sort of the number of starts and the fact that the ongoing production in number of units is coming down, and at the same time, this business area is delivering extremely good profitability for the company?
The main - I can start. The main focus is to start new projects. So, and we have a good pipeline in all our markets. So I expect us to be able to start more projects. That's priority number one for the Commercial Development.
Okay, and my final question is on RD. You, you increased your sort of outlook for Residential Development in Sweden because of the market then sort of improving a little bit. I believe Q4 is probably one of the reasons as well. But at the same time, you're saying within construction that the residential construction market in Sweden is weak. Could you sort of elaborate on the differences between your view on the outlook for Residential Development Sweden versus the Construction market for residential Sweden?
We can see that the Residential D evelopment market is improving, definitely, that we increased the sales rate, the customers are back, but we haven't seen the same trend. I think we are in a good position because we can start new projects. So we can see that opportunity going forward, that the market is back. I don't expect a recovery in the same pace for the Construction side.
Okay. Thank you.
Stefan from SEB. Going back to Construction, three or four questions for me. You said a lot of things went well in the quarter, the margin is fantastic. I'm just trying to understand, is there, you say it's a lot of things and not a big one, but is there any one offs - I mean, do you have reversed claim- have received claim - on the claims that you provisioned for in the U.S., for instance? I mean, is it that kind of thing supporting as well in the quarter?
I'd say that there is always a little bit of push when you come up to year-end to sort of settle various commercial issues. I said that it's not the one single event there that sort of explain it, but we've been quite successful across the business here in the fourth quarter with actually doing this. Part of the shift that we're seeing in the Construction business generally, it's becoming quite contractual. Of course, then you more often end up in this, so you have to go after money and sort of have a bit more of a dialogue with the clients on that end. We've been successful with that there coming up to the year.
And so it's actually many different places with sums, but when you add this together, it becomes an effect, so.
And then, on Residential, revenues improved quite a lot. You had a decline, I think, in Q3, and now is a major increase year-over-year. Starts are more or less on the same level. Just trying to understand where do you get that pickup from accounting-wise? And also, is there a goodwill write-down in residential as well, of SEK 100 in the quarter?
Yes, there is.
You mentioned that that is due to volumes. So just trying to understand what, what you mean by that. What, what is really written down?
Well, it's the Norwegian real estate business that held this goodwill that we have now taken down. And of course, very similar to the situation in the U.K., even if it's a different business stream here, we need to make sure that we can defend the goodwill with the volume assumptions going forward here. And it's been a bit tricky to start projects, which I think is what we're saying here. We have the ambition to grow project development, and it's been alluded to that we need them to keep on starting projects. When we look forward here, it's hard to defend the goodwill position based on the volume outlook. So, I mean that's essentially the simple story behind it.
Why the major pickup in revenues in from -
We sold a lot of units in the fourth quarter.
And then if you look at city business, you have some completed projects. And of course, it's a very hot market out there, so we rarely ask about any potential problems of what you produce. But just asking, what's the older stuff you have there? Is there any of those that you have, for some reason, a problem to get the price you want out of, or are everything fresh and fantastic?
You're referring to Commercial Development or - y eah. And we have, I think we have eight projects in that, in that orange bar. And, of course, some of them are older than others. But, I would say we have, maybe one or two projects that is a bit older. But, I mean, we're not talking five years or anything like that. But that we, basically, we need to ensure we get the leasing and then, and then sell it, so to speak. But, but, when you look at that bar, what you're actually looking at is not like a balance sheet landmine. This is actually these are fine assets that we have, but we need to transact them, and most of them are quite new also.
Final question, is it a big demand for offices? And I meet many international investors who are asking, "Why isn't more being constructed in Stockholm, given the vacancy levels and so on?" And you, you're both building and you have the development part. So, on that, what's holding you back to not start more and even start on speculation even?
We do, we do start on speculation in the right location. But I, I would say if you look at the last five, 10 years in at least last five years in Stockholm, there has been a lot of focus of getting zoning in place to build new residentials, which has been quite successful. So I, I would say, why don't we start more? I would say it's the zoning and the getting the land in place, and the permits is the bottleneck there.
Okay, thank you.
All right. Thank you very much. Any more questions from the audience here? If not, then we'll move over to the webcast, and please follow the operator. All right. Somebody's calling someone out there. Okay.
The next person is Tobias Kaj from ABG. Please go ahead. Your line is now open.
Yes, thank you. I would like to start with a question regarding Commercial Development. If you look at your capital invested at the end of the period, it's about 12% higher compared to one year ago. Do you think that will continue to increase in 2020? I mean, you say that you aim for more starts 2020, but you did reduce the number of starts in 2019. So I'm just curious about the timing effect here.
I can take that. Hi, Tobias, this is Magnus. I mean, long term, we definitely have the ambition to continue to increase this. Then, of course, it can go up and down a bit, depending on exactly when you strike down in time and look at the numbers. But, overall, yes, we do expect this to increase.
But does that go also for 2020, or is it more like a long-term guidance?
That's a long-term guidance. It, it's really hard to say something, how that will look, in the fourth quarter of 2020, specifically.
Okay. And regarding Residential Development and coming back to the very strong growth in revenues, I mean, it was an increase of 28% year-over-year in the fourth quarter. Number of units sold also increased, but it was an increase of 6%. So is it that much higher average prices, or it's something else that we don't see here?
In the fourth quarter, what happened was, first, we sold units in rental. And of course, they are sold as, you know, you make one transaction, and then along comes a lot of units with that. And then we had a very busy sales quarter in the fourth quarter in Residential Development, which sort of, then you get this revenue effect essentially, because we take the revenue, recognize the revenue at the point of signing the binding sales contract.
Around 25 units sold in Q4. Is the rental not included there, or are they on top of them, so to say?
I don't know where you're looking, Tobias.
The units should be included. The residential units should be included. But it's also an effect of that the portfolio looks a bit different now. So we have more co-ops than we have proportionally, that we have seen before in 2018, for example, which is more expensive per unit.
Oh, okay. And a final question regarding your -
I mean, when you look at these things on a quarterly basis, you can find all the explanations to that. But, but I really think you need to look at longer perspectives than that to understand how the portfolio is moving.
Okay.
Yes, just a moment.
Regarding your net working capital, the ratio actually increased in 2019. You have been talking about that we shouldn't expect it to remain at this high level before. Can you explain why we have actually seen this increase during 2019? Are there some temporary effects?
I will first of all, if you look at the bars here, a lot of different things is included in the nominal working capital. You have everything from currency changes, you have projects that are good, and you also have projects that we're challenged with, where the net working capital actually consists of money that we need to push into projects in order to complete them. So, we have a good grip on the working capital position, and we follow it very closely. We're quite satisfied with the high level that we have maintained on this, over the course, the time between 2018 and 2019 here.
But when we look forward, and especially when we think about the order bookings, and that we have decreased revenues now 3% in local currencies, I don't think we can sort of fully count in that we will remain at this high level. So I think we should be quite cautious about doing that.
The risk on the downside, is it like a percentage point or is it many percentage points?
You can look historical at this and I think if you take a historical average of five years or something, you would end up at 13%. It's extremely hard to predict this, of course. But if you're in a situation, and you need to plan for a Construction business, then you need to look at what is the industry performing, and what have we done before? I mean, we are at a very high level of market activity in most of our markets and that needs to be taken into account into any such planning.
But also, I mean if it would come down to some 13%, and that would have an impact on your cash position of maybe SEK 4 billion-SEK 5 billion or something like that, would that have any impact on your operation, given that you already operate at the net cash position?
I mean that would not have an impact on the Construction operation per se. I mean, this is money that is, if you will, free float from the construction operation that we can use in other parts of the business. Of course it would, it would have an impact, but, I mean, one of the reasons to why we are so we need to be so sure to maintain a strong financial position is to avoid that it will have an impact. We are going into and are being quite long in property development here, and part of that is, for instance, investing in land and also investing in some really large development projects. And then you need a strong balance sheet in order to mitigate potential effects like the one you mentioned now.
Okay, thank you for taking my questions.
Sure.
Thank you. Our next question comes from the line of Niclas Höglund from Nordea. Please go ahead. The lines are open.
Yes, good morning, Niclas Höglund from Nordea. A couple of questions from me as well. If we start out with the U.S. market, in your outlook statement, you're mentioning that it's the competitive environment continue to be very fierce. At the same time, you're talking very positively on the sort of backlog and improving margin trend. Could you elaborate a little bit more on the competitive environment in the U.S. case?
Yeah. I mean, it's still, it's unchanged, I would say. We still have fierce competition. A lot of competitors from different, all parts of the world are competing with us. And what we have done now, more consistent in the last two years, is to be very selective, to go for project where we can see we have a, a competitive advantage, and that, where we can see that we are in the right geography, we have the right competence in place, the right team, enough resources, so we can actually get the margin that we want to have. And of course, we also look at the risk reward. Is it attractive or not for certain types of contracts? So we are following the plan. We are very consistent with that.
Okay. And then a follow-up on the sort of Sweden, very strong or rebounding construction margins in Sweden. You previously, in the previous quarter, you did mention the sort of asphalt and some productivity issues in the received production. Have you seen reversals of any costs relating to the previous issues, or is it a clean quarter?
There's no reversal of any earlier provisions, if you will. It's just that we gradually improving the profitability. So overall, it's a strong quarter for them.
Right. And then, looking at the sort of Construction revenues, you've previously been very firm pointing towards the sort of lower book-to-bill, and the sort of ramp down in European operations in Czech and Poland. Now, we're seeing that the improvement in orders again coming up. What do you have any sort of guidance for revenues and mix going into 2020?
We don't give any guidance or forecast for the future, but the strategic action we took two years ago, they are still valid. We work according to the same plan, and we're consistently going to follow that plan forward.
Okay. And do you have an update on the energy operations in the U.S.?
No, we don't have an update on that.
Okay, could you -
We have communicated that we don't bid for jobs in the energy sector in the U.S. any longer.
Right. But any indications of underlying profitability, are you running at black or red numbers?
No, we don't comment the profitability at that level in the organization.
Right. Okay. And then my second question was over to residential. I mean, starts is coming down, and then the starts for the group are down 30% since, well, the peak in 2016. Now, sold units are coming back again and you are talking about some bottlenecks. Could you share the ambition for starts, or should we sort of expect you to come back to the 2016 level, or is it more of a gradual improvement?
Again, we don't - we don't give forecast on how much volume or revenue going forward. But I expect us to continue to focus on starting new projects. And we can see the sales rate is going up, and has done so a few quarters now, which is encouraging. And we do have some bottlenecks to start project, but that's to overcome those zoning issues and so on. So the priority is to start new projects in line with what the market allows us, of course, and but now we can see improvement, so that's good.
Okay, but should we expect then that starts will be more aligned with the sold units going forward?
Yeah, normally t hey should. Over time, if more a long term, of course, the rolling sold units should be in pair with the started units.
It's better to look at the rolling sold than to get a better feeling for the opportunity to start?
Yes, definitely.
Right.
Should not look at it in a single quarter, because that could be quite volatile. For example, if we have - let's say we have 30% pre-sales rate, then when we start the project, we booked all the pre-sales in one quarter. So you should definitely look at the more rolling twelve.
Right. And then my final question is, well, looking at the dividend proposal, it's a small uplift in dividend. You're talking about opportunity to invest more in the commercial side. Well, we are in a very low interest environment. Y ou are running at cash. Should we expect you to sort of have a position like a bank going forward? Why are you taking such a cautious view on the balance sheet?
We don't have an ambition to be a bank, but as already said, we, I mean, we operate in a quite cyclical industry. We're at the top of things, I believe, in many places right now, and we need to be in a strong position, balance sheet-wise, in order to continue to drive growth in project development, and also in order to take on the project development project that we want to start. If we would, for instance, not like to be stressed into, like wanting to divest a property too quickly if the market weakens, I mean, that could be one way to think about it.
So we need some staying power, in order to ensure that we can create value from the property portfolio that we go into and that we expect to continue to grow here.
Okay, and then a follow-up on that. You have, you have substantial buffers, both on, on completed projects, or close to SEK 8 billion in, in, in your sort of, portfolio, or market value at least, and then you have your ID portfolio. What, what could trigger you to be more- more positive or to, to pay extra dividends at this point, what, what would you sort of- what would make you more ease on the, on the, on the balance sheet at this point?
I can comment again. We have a strong balance sheet, and we're determined to keep that strong financial position, because it's an advantage when it comes to having the opportunity to go for new opportunities, even in any market conditions. And you should remember the history, how we have developed this commercial development in the U.S., for example. So if you have that sort of dry powder in-house, you have the choice to take action when no one else can do that. And that's also, but already in today's market condition, we intend to grow the product development, and we need to have a strong balance sheet to be able to do that in a good way.
Okay, fair enough. And then, final follow-up on that point. You are mentioning the Commercial Development and investment opportunities, but are you also looking at other M&A opportunities that might come along?
That's not a priority to look for acquisition. We want to invest more in product development by growing it organically.
Super. That's all my questions. Thank you.
Thank you, and as a reminder, if you do wish to ask a question, please press zero-one on your telephone keypad now. Our next question comes from Simen Mortensen, from DNB Markets. Please go ahead. Your line is now open.
Yeah, hi, gents. Thanks for taking my questions. A lot of the questions have already been asked, but to follow up on the dividend, I would like to think back. When you had your, hosted your CMD last, you, in the spring of 2019, you talked a lot about the risk capital, and that being capping your dividend capacity because you needed risk capital in terms of equity, not necessarily just in terms of net debt. Can you just tell us how is that situation coming along now, and how much is that need for equity impacting your dividend proposal this time?
Yeah, this is Magnus. Hi, Simen. I don't think we ever talked about our dividend capacity, just to keep sort of the words right there. What we talked about was the debt capacity and how that plays into the property portfolio. And of course, this is - I mean, our view, generally speaking, is that as we move more of the company into project development, this requires a bigger capital base for the company, in order to maintain a solid financial position. Which is, in essence, the conclusion also of the more detailed run-through of our thinking around the capital base of the company that we delivered at the Capital Markets Day, so.
In terms of, but given the recent trends, and you continue to increase, how do you see that continuing along? Will you - Are you saying that the need for less risk capital will constrain your dividend going forward as well, as we see the dividend - y ou had a huge hike in EPS this year versus 2018, but dividend hikes were quite limited.
I don't think, Simen, that we sort of can comment on future dividend decisions here and now. That needs to be sort of dealt with on a yearly basis. And first as always, the company needs to earn the equity and collect the cash, and then every situation is new.
Thank you. And just a final question. I thought, did you say something earlier today? I had a hard time catching on, on reclaims in Construction. And if you, in the quarter, and you can, please elaborate on that, if I hear correctly.
Yes, that you heard that correct, even if you don't - didn't hear me clearly then. What I said was that we've been quite successful during the latter part of this year in settling various commercial issues with clients that has had a good effect for us. But there's none single large individual one that is sort of the reason to the strong quarter here. But generally speaking, we have been pushing this a lot. We are pushing it a lot in our different business units, and we're quite successful with it, which, of course, is good, because we always need to collect the money that we have contracted right to from the projects. So that is one of the reasons that I mentioned, and I think that's the one you are referring to.
That's one. Thank you, and thank you for taking my questions.
Thank you, and as there appear to be no further questions, I'll return the conference to you.
No more questions? Okay, thank you. All right, that was it for today. Thank you for your time. Hope you found it well spent. And we will be back on April twenty-eighth with the first quarter results. Thank you for now.