Good morning. My name is André Löfgren, Investor Relations at Skanska. And I would like to introduce you to our presentation of the year-end report for 2015. And we have an audience here in Stockholm, a live audience, but we also have participants on the web and on the phone. And you're all equally welcome, and you all get the equal opportunity to ask questions after the presentation. And the presentations will be held by our CEO, Johan Karlström, and our CFO, Peter Wallin. I think we're ready to get going. Johan, the stage is yours.
Thanks, André. Good to see you all. Some familiar faces. Hard to see the faces on the web, though, but of course, you are all welcome here. So I will present the result and the full year number for 2015. Before we go there, I just want to draw your attention to the picture I have, like, kind of behind me here, and that is the big project in Seattle, 400 Fairview. It's a big commercial development operation and a project in CD that we sold during the fourth quarter with a very good result. So now we are well-established in all the four markets in CD in the U.S.
So with that, I just want you to take a look at the highlights for the year. And we have a good result overall for the group for 2015, improved profitability, and a very strong performance in the total Project Development. And when we talk about Project Development, we talk about residentials, we talk about commercials, and also infrastructure development, where we invest our money. And if you have done the math and added them all together, you can see that it's equal profit, EBIT, coming out from the combined Project Development side and the combined construction side. And that is one thing that we are striving for to build up, continue to build up, the Project Development part of our businesses in the group.
Very strong cash flow and a financial position, and you saw the result of SEK 6.5 billion for the year, overshooting a little bit the guiding we gave in the third quarter, and that's primarily coming from better results in the transactions, and when we have sold the product in the commercial development side. And you can see that the return on capital employed on the combined Project Development is, like, well within the range of 10%-15% that we said that we want to have. EPS, earnings per share, up 20% compared to last year, and that was also the base for the decision from the board to propose an increased dividend of SEK 7.50 or up to SEK 7.50.
So with that, just, let us move into the construction side, and there, there you can see that the revenue is up in Swedish krona of around 9%, and in local currencies, basically, basically flat, slightly below the last year's number. Order booking is below last year, and there we can see that there has been a good order intake in the European and the Nordic units. Especially strong, I would say, like in Sweden and in U.K., but also in Finland. Finland with a market where we actually have headwind, but they are performing very well. The book-to-bill ratio is down 8% - 8.7%, and that's primarily in the U.S., and we'll comment on that a little bit later.
We have a very strong pipeline in all projects coming in the market, so we have a positive view of the markets going forward. Solid performance in all the units except for the U.S. Especially strong, I would say, like in if you talk about the profitability, in Sweden, also in Poland, and some of the other units in Europe. Lower in the U.S., and that's primarily coming from the same kind of— The background to that is the same situation that we explained in the third quarter. Six projects where we have cost overruns, and it's primarily related to change of design and cost that we believe should partly be paid by the owner, by the client.
That is a discussion that is ongoing, will take long time. These six projects will be completed one this year, but then it's they go up the whole way to 2019. Very complicated discussions, and so that's something for the future. In on the residential development side, you can see that the revenue is significantly up compared to last year, and now we have both started and sold over 4,000 units. And roughly half of that that is we in Sweden, and the Swedish market is very good. And talking about Sweden, I have to mention the BoKlok, which is the concept we have together with IKEA.
They have last year sold slightly over 1,000 units, and that's a very good achievement from that concept. It's a very important concept for us, because that is primarily towards the market where we have the first-time buyer. And it's a big market that will continue to be strong, especially in the Swedish market. But we are also rolling that concept out now both in Finland and in Norway. We talked about, we've preached about the 10/10, and that is like in a 10% operating margin, 10% return on capital employed. And we are just there, you can say. We are definitely overshooting the return on capital employed. You can see that here. And on the operating margin, we are slightly below the 10% mark.
So but we see that there is a good opportunities for us here going forward. We have very few unsold units and that are completed. Where you can find them, that is in Finland and in Norway, and that, of course, is like in something that we have a very strong focus upon. And on the Norwegian market, you can find them in Stavanger that has been, like, in a hit by the slowdown in the oil and gas sector. Fantastic results from commercial development. There is a huge demand for properties that are new, modern, green, center located, with long leases for international tenants and stable tenants. And that is exactly our product.
So once we have a product completed, we go out to the market, and we see a strong demand there. And we have actually received better result and higher prices on the projects that we have sold in the commercial development sector than we anticipated. So we are overshooting the internal market valuation that we have once we go out in the market with the projects. And you can see the record high capital gain that we have pocketed this year, and it's actually a record high, like, in two years in a row. Strong return on capital employed, and now we have 44 ongoing own investments in the three markets where we operate: Norway, Central Europe, and in the U.S.
And you can see that the total investment of these the 44 product is close to SEK 19 billion. So this is something that we gradually continue to build up for the future. One ratio that we also talked about in the past, that is a comparison between the pre-leasing versus the completion ratio. And you can see that the pre-leasing is, like, in a below 38% versus the completion ratio. And that is due to the increased presence in the markets in Central Europe and in the U.S. And these the two markets there, they work a little bit different compared to the Nordics, so it's harder to get pre-leases. So that means that we are starting on more speculative basis now, when we are operating in these two markets as well.
Six projects started in Q4, and you can see that's a strong, strong leasing that we have had last year and also during the last quarter. Infrastructure development, it also an investment business that we have. Profit is up. We sold two projects in the U.K. with good results. And you can see that the return on capital employed is also within the range that we have set up for the Project Development operation. There's a lot of activities going on especially in the U.S. Strong markets, a lot of projects, and we have a lot of focus to close the deal around the LaGuardia project in New York.
There's a lot of discussions there, complicated ones with all the airlines, because that's part of the payment, how the cash flow will come in. We have positive momentum in those discussions, and the-- we expect that we will reach financial close mid-year this year. A very important thing here now, when we talk about huge infrastructure project, that is that it has to be a political champion, a political support for these large projects. And we can see that, that's the case for LaGuardia, and I think that's important to understand, that there's, like, a political support for that one. Some examples of new orders that we have been awarded during the last quarter, and you can see that several of them are in the U.S.
We have a strong pipeline of projects that we work upon. In USA Building, compared to USA Civil, it works a little bit different, because in USA Building, we are involved in pre-construction before we get the product. We define the product together with the client, and design them, and we calculate, and once it is, like, in the way that the clients want to have it, then we close the deal, and that's the time when they go into award and order bookings. So that means on the USA Building side, we have a much longer visibility of what's within the pipeline project that's coming to us, because we already work on them on those projects.
So we can see a long pipeline of product there that is for the future. Take a look at the picture here. That is the World Trade Center, the Oculus building, the transportation hub that we just completed. So if you have the opportunity, next time you're going to New York, go down to Ground Zero and the World Trade Center and have a look at that one. That's a fantastic building. The book-to-bill, you can see here, it's 87%, and I think that it's mostly important and interesting to have a look at the breakdown there of the various business units.
There you can see that, all the, the European and the Nordic units, they have a book-to-bill ratio of 100% or above, except for, for Poland. Poland is just, just below, 100% there. So that we can see like in a good market in all the European, countries where we operate. Take a look at Finland. There is a headwind there and a slow construction market, but you can see that there are, like, in a good order intake there. It's primarily coming from that we have a big part of our business is, like, we develop ourself in residential development towards our own business, but also together with, with external clients. So that's like, a growing part of how we work now, that we develop the product together outside competition.
I think that's a good example of what we do there. In the U.S., you can see lower order intake, and if you start with USA Building, it is like primarily two reasons for that that you can see, like, in the book-to-bill ratio is low. First, we talked about that in the previous quarter. We had a huge cancellation of an R&D facility, so that's like a negative number that's coming in there. And also that we can see that the clients, they are more eager, and it's more important for them to design their projects to exactly their need. So several of the projects they are working on, that we are working on, in pre-construction, they have, so to speak, like, have been pushed into 2016.
In USA Civil, there is always lumpy the order intake, large projects there. So that's something that, like, can differ between the quarters. So that's like in one thing. The second thing is that we are more cautious now. We are more picky to really go for the product that we think are right for us, where we have the right capacity, the right people, the right contract, and the right client. We are not at all under pressure to to get a lot of product. You can see that the order backlog is long, so we focus more on profitability than volume. So that's like, you know, the reason for one of the reasons why you see lower order bookings in the U.S.. A lot of projects coming.
The politicians in New York have said that's gonna be even more now in the New York area on the infrastructure side. So that is not the case that we see fewer projects or a slowdown in the market. But you should be aware of that it's we are not the only one that see it. It's a lot of competitors out there and tough competition. With that, I hand over to Peter Wallin.
Thank you, everyone. Hello, everyone. Starting with the P&L, Construction. Net sales accounted for SEK 140 billion, roughly, which is up 9% in SEK, down 1% in local currencies. We posted an operating income of SEK 3.9 billion, which then, of course, is hit by the SEK 750 million in project write-downs taken the first 9 months, related to the U.S. business. That gave us an operating margin of 2.8% for the full year, and, I would like to draw your attention to one thing, which is very important in a hot market, is to take control over the SG&A. And, we are below 4.5%, which is a very good number, given, given the context of bid costs, et cetera.
So looking across the various markets, extraordinarily good performance in all our Nordic businesses, with a very good performance in Sweden, and improving performance in Norway. As Johan has stated, the Finnish business is doing a great job despite the headwind in the market. And we also have a very good performance in the Polish business. The Czech business, you can clearly see the turnaround that we have done in this business, and of course, we are also benefited from the improving market conditions in the Czech market. U.K. margin is down. Of the reasons we have talked about previously, we are performing well, especially if you compare us to other peers in the U.K. markets.
We've had some delay in projects, meaning that we have a higher proportion of SG&A, diluting the operating margin. And in addition to that, we are starting up big projects where we have a conservative profit take. Then the U.S. businesses, where U.S. building has sort of come back to normal in the fourth quarter, as you can see from the margin. We have dealt with the most of the challenges we've had, and we are not out by far, but we have dealt with the major challenges there. Civil is still the challenges which Johan highlighted in cost increases.
However, the cost increases in the fourth quarter has abated, and we are in very intense discussions with the clients to seek equitable adjustments for cost increases driven by the clients. RD, yes, the market is very good. We have a sales increase of 29%, 25% if you look at the volume of number of units. We are continuing the trend of improving the gross margin, thanks to good execution of projects, and then, of course, also thanks of a good market, which we can take benefit of having a good execution. The operating margin almost meets the 10%, and in the return on capital point, we overshoot.
The way we report this segment, so we report when we sign a contract, a binding contract with the buyer, which means we then report the income, whereas the capital is built up as we produce and complete the various units. So there is a time lag here in a very hot market. However, with the segment reported, we think it gives us a superior control of acting when the market changes. So we still think that this is the best way to steer the business at. Sweden beating the 10%, very good execution, good market. Norway, we have a good performance. We are limiting ourselves to the markets, which are performing well, and predominantly the bigger and greater Oslo area and some other cities in Norway. Finland is a tough market.
Here we are executing well. We're doing a lot of bundle deals, meaning that we are selling to investors in blocks of flats. That puts sort of hampering the operating margin somewhat, but it boosts return on capital employed greatly. So overall, in the Nordics, close to 9.3%. And then we have had a very good performance in the European businesses, predominantly in Prague and Warsaw, as you understand. So we have increased, sold, and started, and they are in sync. We don't start any projects until they are ready to be launched into the marketplace, meaning that we can secure a good demand and a good price. So we are just around 4,000 units sold and started for the year.
If you look on the balance of units under production and the completed ones, we have close to 5,700 units under production, and you can see that we have sold 76 of these with a binding agreement. So we need to start new projects in order to post sales here. We have a good pipeline, and we have a good performance in the business right now. The unsold completed, as you can see, has dropped compared to last year, and there is a bit of a different mix if you compare to last year. Finland has come down considerably in completed, unsold.
Sweden has more or less nothing left, and the increase you can see in Norway on the back of the somewhat slower market related to the lower oil and gas prices. But the overall situation and volume is very low if you compare to the total bulk of the business. CD, all-time high again, despite our efforts of guiding down the expectations of this in the beginning of the year. We were underestimating the power and the force and the strong momentum in this market, and the demand of our very good projects that our great people is producing and developing. So that means that we post gains of close to SEK 2.6 billion for the year at a somewhat lower sales volume compared to last year.
So if you look on the divestments, we posted an operating margin or a gross margin, if you take the capital gains compared to the sales value, of around 30%. That's a very good number, especially as these are not properties that we've held for a long time. This is actually newly completed projects. So that tells you a little bit about the improvement, because overall, if you take a 7-year average, we have been hovering around 21%-22%. So clearly, we have a boost here. We are continuing to build up the projects in this business, and we have roughly SEK 10 billion in the current portfolio to plunk down before they are completed.
Johan has talked about the impact of the different mix we have in the portfolio of more European, more U.S., means that we lease at a later stage in the project. That impacts the relationship between the completion degree and the leasable area. Then, of course, we sell things so quickly that they are carried in the ongoing projects, and the projects we sell often have a much higher degree of leasing as well. So you have to start every day as a new day and a new week, right? This graph shows you the unrealized gains in the various parts of the portfolio. And as you can see from the drop between Q3 and Q4, we tapped out.
You can see that in the profit and loss, so you can see the line going up. We have a very good portfolio business, and the market continues to look bright. So we continue to see increased activity during 2016, in this very good business of ours, which is a recurring business. One thing which is important to underpin, of course, the values of the projects depends on the good leasing we do, and it also mitigates the risk. So, again, we are doing well on the leasing side, as you can see, hovering around the 375,000 square meters leased. The last, but not least important stream is ID, infrastructure development, where we've had a big increase in the profit.
Our portfolio is performing well, and at the end of the year, we reported a sale of the Barts and Royal Hospital in London to our three pension trusts. The value that we got was the estimated value that we had also externally assessed, and that constituted a profit for ID at SEK 420 million, which equates to 1.8 x investments or 24% in IRR. The market value then of the portfolio has dropped more or less in line with the reduction of Barts. And that also tells you that we are keeping our estimated market values a fairly conservative level. Then it all boils down to the group, so we sum all the business units.
If you look at the central items, they are gonna give you a few hints there. A big chunk of roughly the central cost, we are hovering around SEK 850 million-SEK 900 million on a run rate on an annual basis. Over and above that is the negative impact of Latin America taking during the year. For the fourth quarter, we have taken only a very minor adjustment in Latin America to the result. One of the reasons for the increases on the central items is actually all the legal reviews that has been going on related to Latin America and the Czech Republic. That has driven a lot of costs during the back end of the year.
That, we also have a negative elimination, meaning that we have a bigger growth in new projects where we eliminate internal profits, giving us an operating income of SEK 6.5 billion. So why did we overshoot our SEK 6 billion top guidance? Better performance in many units and better pricing and closing all the deals. That's the secret recipe. Net financial items, we are reducing these, as you can see, as we highlighted in Q3, as we are winding down Latin America with a very high level of interest rate, if you compare to all other geographies, this will impact financial net considerably. And then, of course, the strong balance sheet we have will further reduce the negative impact here. This is strange days.
The more cash you have, the more negative impact it has on the balance sheet. So this is really an effort of managing our cash flow in a good and wise way. And we have an excellent treasury department, which does a fantastic job in that. We had an EBT of SEK 6.1 billion and a tax of SEK 1.2 billion, so taxes equates to 20%. The low tax rate is explained by the mix with a lower proportion in the U.S., which normally has a higher corporate tax rate, and then, of course, a very good level of CD gains, which are tax-exempt in the Nordics and in the European business.
If you look forward into your beloved Excel sheets, I think the guidance for 2016 would be to look at the 21% mark in terms of corporate tax rate. I can see that the right people is making notes right now. So the earnings per share has increased by 20%, and if we look on another positive in the report, it's the very strong cash flow that we have had. Seasonal, of course, but also an impact of the SEK 9 billion proceeds of divesting projects in the fourth quarter. So we will have a good, strong balance sheet before we continue to increase the investments into the Project Development.
The graph that normally is talked about a lot, the free working capital in construction, you can see that we are increasing the volume of negative working capital, free working capital, up to over and above SEK 20 billion, so very much driven of the volume. And we are maintaining the same, same percentage as last year, despite the strong growth in revenues, and, we are big focusing in on cash flow. This is not a patchwork.
We are constantly trying to review and improve the cash flow profile in our projects, being a good and important part of the Skanska business model. This gives a very strong financial position ending with an overall positive net cash position of close to SEK 14 billion, SEK 14 billion. So that gives us plenty of firing power when it comes to investing in a good way in the business. The financial position, of course, is predominantly driven by the strong cash flow of close to SEK 5 billion. The pension liabilities were reduced as an impact of increasing the discount rates in the Swedish pension trust.
All in all, a good, strong balance sheet, and the same goes for the equity, which is then, of course, supported by the good growth in earnings. So, if you look on the capital employed, we are more or less at the same, exact same level as last year. Residential Development has dropped. This will increase as we build up the balance of projects under construction. Commercial will we continue to increase as long as we see the good market conditions we do. In Infrastructure Development, we would like to increase as much as possible. So all in all, we have a better cash flow position than where we came into this business time period, and we have a higher capital employed in investment businesses. And on an average, we have increased our investments, gross investments, into the development streams by 70%.
So, I think that, this bodes well for the future. So, let's wrap up here before we open up for questions and, just say some words about, the market. The overall, situation in the market is basically exactly the same as it was one quarter back. We have looked at every single market, every segment, and every country, and we can see that it's like in a basically, basically the same area. And, so it's overall, it's like in a positive situation for us. We are not exposed towards, China, to Asia. We want very little exposure to the oil and gas sector and then, and what's happening in, those markets. So I think that, like, you know, we have a very good footprint, given the, the macro picture today.
The Nordics strong, Sweden is very good, the underlying situation there, a lot of projects coming, both on the housing side, but also in on the infrastructure side. U.K., a lot of projects coming, and we see also activities within the Polish and Central European market. As I talked about in the U.S., we do not see a slowdown on in the U.S. market on any of these segments and the part of the geography where we have operations. It's rather the opposite. Residential development, as you know, very strong, especially in Sweden, but we also see a good opportunity for us in the Central European market, and we have presence in Prague and in Warsaw.
In commercial development, a lot of opportunities for us to divest our properties, but also to lease. On the flip side, of the good markets in CD and RD, that means that it's harder to find and buy land for the future, because that so to speak, like, it goes together with the positive market situation. But that is, of course, like, an important for us to continue to invest for a future value growth in, especially in the commercial development side. In infrastructure development, it's basically in the U.S. We see more projects that we can go after. We select the one that we think are the right one for us, and then we go all in for those projects. We are monitoring the situation in Norway.
We see some projects on the horizon, and of course, if they're coming, then we will be a part of, we try to be a part of, like, you know, the companies that can get some of those projects. Positive political situation, especially in the U.S. for PPPs. There is a big need in Sweden for infrastructure projects. And I think there is a need here for alternative financial solutions. But here is a question about the political will. The capital is there, the capacity is there to do it, but it's about more or less about the situation and the decisions among the decision-makers there. So, with that, I think that we should go over to questions. André?
We will. Thank you very much, Johan and Peter. Questions, let's start with the live audience here, and then we will turn to the telephone conference afterwards. Tobias? And state your name and where you work for as well. Thank you.
Yes. Thank you. Tobias Kaj from Carnegie. I would like to start to ask you regarding the order intake, excuse me, which is also a little bit lower than expected in this quarter, and it was down quite significantly compared to Q4 last year or in 2014. But you, you indicate that it, it's not due to the market, it's more, temporary effects. Should we expect a significant uptick in order intake in, in the first half of 2016, or?
[audio distortion] , because when we talk about like, you know, the slower order intake, it's like in the U.S.. The European and the Nordics have good order intake, so we are, like, kind of clear about that. So when I'm commenting now, I'm only commenting the U.S. situation. And on the building side, I think that you can say that it's the one of the reasons is that the clients have, like, kind of pushed the product into the next quarter, and that, of course, is a part of the market situation. It's not, so to speak, like, in our own decision. That's a client's decision. They are more eager to tailor-made and make sure that these projects are the right one for them.
There is cost pressure on the clients, so that to make sure that they are, like, you know, the right ones. It's not about the discussion between us and the client, about our contract. It's more that it's designed according to what exactly what they want, what they want to have and what they need. And we have seen several of those projects that we work with the client on, that have been pushed out. We expect that several of those will come in 2016. Will it be like in a big uptick? Well, that's— I can't predict, because you can think about that maybe other projects will also can be delayed. So but, we see projects definitely, you know, on the building side that will come to the market.
Healthcare, aviation, the education sector, and so on. So that's a lot of activities there. On the civil side, I think it's more like in a how we act. We have been more picky. We want to pick the right product if we have the capacity and experience. There is a lot of projects in the market, and there are now the politicians in the New York area have also announced there's gonna be, like, even more spending in the future. We haven't seen those projects yet, though. But I don't, I cannot see that it's gonna be a slowdown on projects in the U.S., in the various sectors and geographies that we have activities in.
Based on the order intake that we saw in 2015, and based on the fact that you are more picky in U.S. Civil, should we expect a significant revenue drop in 2016 for U.S. Civil?
If you look at the order backlog, which is strong, especially for the civil one, the orders for 2016 is basically there. So now we're talking about like in orders for the future, which means that we are not under pressure at all to pocket some product because we have to fill up the capacity now. So it's like in a product for the future, which gives us an opportunity to really pick and choose.
Continuing on U.S. Civil, the margin was down around 2 percentage points year-over-year in the fourth quarter. Have you seen any more cost overruns or project write-downs in the quarter, or is this the underlying level?
Still have the six challenging projects that we talked about last quarter, and they are still challenging. We have not reached any settlements with the clients. It's a very difficult and long discussions that will take time. The projects are not completed, so it's like in an ongoing discussion that's gonna follow us to the very end of the projects. And I don't expect to see a fast solution of those negotiations.
But those projects, are they loss-making in the quarter, or are they just diluting margins because of zero reasons?
We have several on the loss side, because we take full cost, even if we believe that we have right to a part of compensation. So we take it, like, in a very conservative way, that we take full cost, but we don't take anything on the income side until we have a written agreement.
And finally-
That means that we have, so to speak, like in a dead, a part is like in a dead volume with no contribution from.
And then one final question for me, regarding commercial development, where you mentioned that the operating margin is around 30% compared to more like 20% in the past. If you look at the pipeline or the project you still have in the group, do you expect to see margin continue at this high level, or have we seen temporary positive effects in this year?
Temporary effects depends on the market. So I would say, given how the market looks like, we will have a very strong support in earnings creation.
So if demand in the market is stable, you expect a similar margin?
Well, 30% is all-time high, so all-time highs are, are hard to always live after, but we were gonna find a good support for the earnings growth in the business.
Thank you.
Any other questions? Silent crowd today. Okay, let's move over to the telephone conference.
Thank you. Ladies and gentlemen, if you do have a question, please press zero one on your telephone keypad and you enter a queue.
We have the first question registered from Fredrik Steinsvik from ABG. Please go ahead, your line is open.
Good morning, guys. A few questions from my side. Starting off with the divestments within CD, you overshoot your expectations in 2015. What's your outlook for 2016? And do you expect that you can deliver the same kind of volume, that you achieved in 2015?
We have an increasing business on the development side. So over time, that business will continue to grow. But of course, it will always differ between the years and especially the quarters when the divestments will come in. So, but we believe that we can continue to grow that business with a good value creation.
Okay, and then moving over to RD. You have a startup increase year-over-year of 40% in 2015. At the early phase of last year, you indicated that you will be fairly cautious in starting up new projects. What's your view now going into 2016?
We said, Fredrik, that we will not start up projects that is not ready to be started, and we have been working hard to get to that stage with the pipeline. So it's not that we get sloppy all of a sudden. So it's gonna be hard to post another 40% increase, but we are working as much as possible to have all the projects they're ready to launch into the market, ready to go. The most important thing to do is, firstly, to secure that we have a good, we have the good pricing, and we have control of the costs.
Design to cost is very important, and the number one, number two is also to make sure that we are not taking too much risks in certain pockets of the markets.
Then a clarification on the central EBIT line. Did you indicate SEK 800 million-SEK 900 million in 2016?
On the central costs?
Yeah.
I said it's hovering around SEK 850 million - SEK 900 million , or did I... Then otherwise, I said something very wrong. That's the run rate.
Okay. And, those effects from Latin America, those should be, over and out with, so we won't see, any additional costs related to that in 2016. Is that your view at the moment?
We have more or less completed the exit and the close down of the operations in Latin America. All the ongoing E&C projects, the big ones, are completed. And the O&M business are more or less sold. We are on the way to complete the very last transaction as we speak now. So that means that we have basically no ongoing operations. The only thing that is left, that is not gonna—t he warranties, the claim discussions, and some legal issues that will take years to work with.
Two final questions. On net financial items in the quarter, there seems to be a positive impact from, you mentioned it in the report, a reversal of an interest expense. To what magnitude does that impact Q4?
Very limited. If you talk about the reversal of interest rate, but we want to be transparent since we have highlighted a lot of negatives on the financial net. So mostly it is an impact which we highlighted in Q3 of winding down the Latin American operations, where you have had interest rate differences of 16%-20% compared to zero interest environment. And then, of course, the big cash flow in improvement and strengthening of the balance sheet.
Then finally, on the tax rate, you're guiding for 21%. I guess that's based on a normalized view on CD divestments. Is that correct?
Yeah. It's the mix of business that we expect for 2016, given the weighting of where the profit comes from, and countries and type of sales.
Okay. Thank you.
Thank you. The next question comes from Niclas Höglund , from Nordea. Please go ahead. Your line is open.
Yes, good morning, Niclas Höglund here. A couple of questions, if I may. If we start with the RD business, you sold a housing project, well, with a revenue of SEK 400 million, more of a rental property type of project. Could you maybe share some, some, well, talk a little bit on, on the, the, the gains related to that divestments, which I expect to, to, to have seen in the, in the Swedish operation?
So this, this is a question that the CFO will answer because I cannot hear the question.
Well, I'm sorry, Niclas , but you are breaking up, and we can't hear what you say. So, could you please speak closer to the microphone?
Or maybe I'm too close to the microphone.
Yeah.
I don't know.
So it's really hard to hear. I'm sorry for that. It was related to RD, but that was as much as I could understand.
Okay. Do you hear me better now?
Yeah, we have a live testing of the microphone. It works better. Yes.
Okay, well, you sold a project for SEK 400 million in RD in the end of December. And I expect that you posted some one-time gains related to that project in RD. Could you elaborate a little bit on that, on more of a one-time positive?
You're talking about rental apartments in Sweden, not condominiums, right?
You just stated it's condominium.
Yeah. So, what we have done over the past 4 years -5 years is actually to build up a smaller business within the rental concept, which acts within the rental market in Sweden. And that is to support overall business of the one Skanska projects. You're gonna find a lot of examples where we can secure projects with a mixed use of commercial, condominiums, i.e., co-ops, and then also rental. So it's something you will see more and more as we go forward. So I wouldn't rephrase this as one-offs. It will be a continued business, and it actually complements our total offering in a very good way.
We can also add there that we see a good opportunity for divestments of those as the yields have gone down. So now we can see that, like an idea, we have, like, a clear business case of developing just pure rental housing projects in Sweden. That has been difficult in the past, but we see opportunities now. So it's part of, like, you know, the overall package that we work upon regarding the, in, within the development operation.
Okay. Could you, would you like to talk about if margins in the Swedish operations are diluted from these divestments, or if it's on the same, more or less, the same kind of levels, these 178 apartments?
It's more or less on the same level, and it doesn't impact the major, major picture anywhere. You still have a continued strong grow trend in on growing gross margin in the RD business.
Okay. And then just a question, or a couple of questions more. One on the ID. Could you talk a little bit on the underlying earnings for Barts in London in 2015, in order to, I mean, to put the divestment in a perspective on the underlying trend of the ID?
You are really asking what was the yield on the sale, didn't you?
No, I'm talking about-
It was in line with what we assumed in the internal market valuations. So, in a mature market, in a good performing assets like the Barts and Royal, it is hovering around 7%-ish.
Okay. Super. And then over to the construction side. Construction Sweden, now we've seen margins on a very stable level. Could you shed some light? Maybe you talked about that in presentation. I was thrown out, but on the sort of if the margin contribution or if you have a contribution from NKS project in those numbers.
The NKS project is going well, and we don't comment, singular projects. If you talk about the profitability, the overall situation for, and the performance of the Swedish unit is, it's very good, it's a healthy organization, and it will continue to deliver good profit.
Okay, and then a final follow-up, if I may, on the civil. You talked about these six projects continuing to post losses. Could you shed some light on the aggregated sales contribution in the quarter and sort of the run rate? Thank you.
Could you repeat the last question? It was impossible to hear, Niclas .
I'm very sorry for... U.S. Civil, a follow-up. On, if you could elaborate on the aggregated sales contribution from the six non-performing projects. Thank you.
Yeah. You talk about the dead revenue, and the dead revenue is a very big impact on diluting the margin in the fourth quarter.
Could you maybe give me some-
We don't want to-
How big?
Get into, like, more details of the specific numbers than we have given you.
Thank you very much.
Thank you. And the next question comes from Tobias Loskamp from HSBC. Please go ahead. Your line is open.
Yes, good morning. A couple of follow-up questions that I have. First one is on the Latin American business. What is the size of the provisions that you will keep in the books, for now, let's say, after the completion of the winding down of the business? That's the first question. Second is, your tax rate guidance then also implies, you know, and I say, another challenging year for USA Civil. Can you update your, let's say, long-term assumptions of what should be, let's say, a normal margin in the USA Civil market, from your point of view and with your setup? And the final, then a question on ID. Do you— or the portfolio is meanwhile, rather thin.
I mean, do you expect that, either the Polish toll road or the, the toll road in the U.K., that there's a chance that this can be sold during 2016? And the final question on commercial development. You have fewer projects compared to last year. Nonetheless, the capital employed, goes up. Is it that the projects get more capital intensive, or does this have to do with the fact that, you are recognizing the sales rather early, and then later on, you have to invest into these activities. So that's, that's more a matter of timing.
Okay, so let's start with the, at least hear about like a question regarding the U.S. Civil, margin. So let's start with that one. And, we guided, several years back that it's gonna come down from the very, very high number that we had like in, in, in as historical numbers, and, so that will come down. I think that the, the level where you are now is not really the level where, which is like in a, a typical margin level, that you see in the market, the, the margin level is higher. It would be wrong from my side to go out with an exact number. Then it was a question regarding Latin America, but maybe you got that one.
Yeah, well, yeah, I got the three remaining questions, of which two were for the final question. Loskamp, you talked about Latin America, what is the reserves we are holding after winding down that business? And we are holding a considerable reserve, and I don't want to talk about the number, but we feel that it's a reasonable number given the risks and the expected future costs that we see, of the legacy issues in that business, or in the tailing off that business. We had a question regarding the ID portfolio that it was thin. Hopefully, we can add a few projects over the year.
And if we are selling something, I mean, one thing with Barts, as you can see from ID, the return on capital employed is dropping compared to last year, and that is because we are recognizing the mark-to-market values on the portfolio as we go. And given that we then have sold Barts at the same internal market value, means that we have found a good optimum way of selling the projects. And if we can do anything with any of the other completed projects in the portfolio, given how the market works, we will, of course, do so also during 2016. On the CD side, finally, the CapEx in the projects increases relative to the number of projects.
And that is because, and something which you should expect to continue to see as we are taking over larger premises and larger projects, the CapEx will increase. And I think we highlighted this also in conjunction with the Capital Markets Day, where we have been talking about us extended the duration of the portfolio because it will take a longer time to develop it and to crystallize the values in these bits. So it will increase, the CapEx will increase per project as we go forward, as we see it right now. Usually, we have been working with a sort of a plain vanilla size of SEK 300 million - SEK 400 million, if you look in various markets. And of course, U.S. should always be big.
So the projects in the U.S. are bigger than the average, and that impacts how when you look at the portfolio of ongoing projects in the business and remaining investment volume.
All right, now, thanks a lot for the update.
Thank you. As a reminder, if you do have a question for the speakers, please press zero-one on your telephone keypads now. As there are no further questions, I hand the conference back to you.
Okay. Thank you very much, guys. Peter, Johan, and also, sorry, thank you very much for your attention.