Welcome, everybody, to this presentation of Skanska's year-end report for 2013. My name is Magnus Persson, and I'm responsible for investor relations. The report today will be presented by Johan Karlström, CEO, and Peter Wallin, CFO. You will have the opportunity to ask your questions to Johan and Peter, but please do so after the presentation in the Q&A session. The live event here is combined with a telephone conference and a live webcast. When you ask your questions after the presentation, it is important that you talk into the microphone, and we have runners with microphones serving you with that. With that, I hand over to Johan.
Thank you, Magnus, and good to have you here in our fantastic new building, the new headquarters of Skanska. It's a modern office, and we are really proud of it. I don't know if you know, but the investment that we have, the money that we invested here in the building, it was last year, it was actually the largest office investment in Sweden. Skanska, we are taking one part of the building, and Nordea just around the corner here, a little bit further here on my right-hand side, will move in just shortly into that part of the building. So we are really proud of the building.
Talking about buildings, here up on the slide, you see another one, and that is the Post Oak office building that we just completed last year in Houston, in Texas, and that is also CD, commercial development project. Modern, green, energy efficient, very well located. It was completed. We also sold it last year with a very good profit. So we are active not only here in Stockholm, but in a lot of other places around, the various markets where we have operations in commercial development. So with that, let's move over to the annual report, sorry, the year-end report, and, I'm gonna give you a little bit of the highlights here, starting with that before Peter takes over. The top line, the revenue increased by 7% in local currencies during last year.
If you look at the combined U.S. operations that we have, we had an increase of the revenue of 18% in dollars. That was important for us. It is in the plan, in the profitable growth plan that we have, to expand our operations in the U.S., to expand, I will say, you know, overall in Skanska, but so we are delivering, we're doing what we have in the plan. Very good performance in commercial development. We had record high leasing activities during last year, and that was good. I will come back and show you some slides about that. We ended up the year with a strong cash flow, with a net cash situation of SEK 1.1 billion. And the market looks overall, I would say, it's slowly improving.
It differs between the markets, and we'll go deeper into that, but I would say overall, we see some, some, some improving. The board decided that it's gonna propose a dividend of SEK 6.25, bumping it up by SEK 0.25 to the AGM later this year. In construction, we have basically had the same top-line growth as the group. Here it was 6% in local currencies, and we also have had an order bookings in of SEK 120 billion- SEK 120 billion, same as we had last year. If you look at local currencies, it is actually up 3% there, which is important. The major units we have in Skanska, they performed really well.
You know, and we are talking about the U.S. one, the unit in U.K., Sweden reached the important 4% margin, which I think it was good for the construction part here. And then, of course, in Poland, it's a little bit smaller unit, but it's a very important part of our business, also had a very good performance. Finland and Norway, which is on the way up from a lower level, if you remember that, the one from here in the audience that have followed their reports earlier. They have a steady growth of importance, and they are on the way up to the level where we expect them to be.
In Latin America and in Czech Republic, we are now focusing our business into sectors, into type of projects, type of contracts, and also type of clients that we have a good performance in, in historically. So that means that the numbers there and the revenue in these units will shrink, and the lower order bookings that we have had, I will say that that is something that should be also expected, that we think is the right thing to do, to shrink it into a more focused operation. Residential development, we increased the revenue by SEK 500 million, and we sold a little bit more than 300 apartments if we compare year-over-year.
The operating income, it was dramatically increased and improved, compared to the previous year. We have a very strong performance here in the Nordics, I would say, and especially in the Swedish unit. Yes, we have been helped by the market, because it had been a favorable market, but we have also done a lot of hard work internally. We're talking about the things that we have mentioned earlier: processes, designing, reducing the cost, and all these things that's there. We believe that we are on the way up to the level which we stated when we decided to make the turnaround, of the goal of 10-10. 10% EBIT margin and 10% return on capital employed. That is what we aim for in the business.
We have lowered the overhead cost dramatically now when it's combined with the construction unit. We have also reduced the capital employed in the business. We now have it on a level which is, we believe it's the right one. So we have gradually shifted over the capital and capital we have in that business over to commercial development. And commercial development is gonna be the one which will continue to increase even further here. So the return on capital employed, we think that we will also improve over to the 10% target. Here on the picture, if you can see that one, this is a very interesting thing. And that is the BoKlok. Maybe if you're familiar with that concept that we have together with IKEA.
We sell apartments to, I would say, first-time buyers. We have had it for, I think it's around 14, 15 years now. Now we have launched a new modular system for a 3-5 story building. We are building the first one in Södertälje, and we think that this new product into that sector will help us to move into even a little bit more centrally located plots and places compared to where the old BoKlok system or concept could be used for. Last year, we had a record high number of BoKlok apartments, 700, and most of them in Sweden. All the numbers there in BoKlok, they are embedded in the residential development numbers that you see. Switching over to commercial development.
We divested, you see the numbers here, close to SEK 6 billion, and we had a very good result coming out as a capital gain. It was actually the second-highest capital gain that we have delivered in a year from the commercial development stream, only beaten by the year before that you see here in brackets. So we have now 30 ongoing projects that we are building now, commercial offices with our, in our, within our own books. 18 of the, of the 30 has been started last year, and you can see here that the total investment of all the 30 projects is over SEK 11 billion. One ratio that we follow quite closely is the one that you see here on the chart. We always want to have the pre-leasing ratio ahead of the completion ratio in construction.
It's a good hedge there, so we always follow that. And talking about the leasing activities. Last year, we actually had the all-time high leasing in the business here of 330,000 square meters. And, you know, leasing activities, that is the activities that's building up future divestment gains and value creation. So it's a very good, I would say, key ratio to follow to see what's gonna come in the future. Infrastructure development, we have a net present value of the portfolio of SEK 4.9 billion. It was increased by SEK 400 million during the period. We divested five projects during the year, and we're looking forward to do even more in this sector.
I've talked about the synergy model quite a lot in all the presentations we have had. And here you can see that we have now 12% of the revenue is coming in internal projects created from the cash flow in the construction operation. So the positive cash flow we have in construction, we use in product development, plunk it into new projects that we own ourselves, and of course, these guys buy the construction from the construction unit, and that comes down to 12% of the total revenue. It's a very important part of our model. Some new orders that we landed in the last quarter, and the very first one is an R&D facility. It's an addition to an existing product that we have on the West Coast in the U.S., a very important one.
The second one is a big highway in UK, and you see on the picture here, that is the renovation of a downtown office for Vasakronan here in Stockholm, and you see some other examples there. You see the order bookings. Here we have, during the year, a big book-to-bill ratio of 94%.... If you look at the breakdown on the second slide, you can see that it differs. If you look at the book-to-bill ratio here, that column, it differs a little bit between the various units. So let me comment the order bookings here unit by unit, and give you our flavor of how we view it.
Starting with Sweden, to deliver a book-to-bill ratio of over 100% here, I think that is a very good, because we are now comparing the order bookings with the revenue, and the revenue consists now of 10% of the revenue; it's coming just from the Karolinska project. So we are not only meeting what we burn from the backlog in Sweden from the ordinary operation by additional orders, we are also filling it up, what we burn in the big hospital project. And I think that that's a very good result for the Swedish unit, and it looks promising for the future. Norway is okay.
It's a little bit different here between the two sectors, civil and building. I will come back to them when we talk about the market a little bit later on here in the presentation. Finland, I'll say a little bit surprisingly high in a weak market, though, here with 113%. But it's, I think it's a good, very good situation going forward now in Finland. Given the turnaround we have done, and now filling up the order books here. Poland, oops! Something happens here. Maybe somebody can help me.
Poland, we have had a good order intake, and we expect now that there's gonna be a positive things in the market now coming from the EU fund, that now gonna be starting to be used in infrastructure projects in Poland. In Czech Republic, and if I comment Latin America at the same time now, we are now focusing our operation, as I said before, on the type of projects and type of segments and contracts where we have a good track record. So you see a lower order intake here. I actually think that's healthy to you know, shrink it down to healthy core. So I'm not nervous at all regarding the orders booked in these two units. I think it's rather good that we have it like that.
UK, with 83%, given the long order backlog that you see that we have there in the right-hand column, months of production, 18 months is the second highest in the group. I think we have a very good situation. And now with the change in the market that we have flagged for in the report, that we see more projects now coming on the civil side, I think, that's gonna help the situation over there. USA Building, good order inflow, and we also see a lot of projects in the market out there that we're working on. In USA Civil, there is exactly the same situation as we had the last quarter. A lot of projects out in the market on the infrastructure side.
Big ones, and several of them are with a PPP model, which is something that we are interested in. We see it both on the East Coast, the West Coast, down in the South. So the flow of projects in US, we still—we definitely see that it's still continuing. But on the other hand, we are not the only one that can see that. So it's, of course, a tough competition. Everybody wants to be a part of that. Always lumpy between the quarters, and given the long backlog or the, you know, the strong backlog with 22 months, I think that we are in a very good position for the future here in the US. So with that, I think I should hand over to Peter.
You can go a little bit further into the details.
You bet. Thank you. Okay, as usual, let's start with the construction stream and the income statement there. We saw 6% growth year-over-year in local currency in the revenue line, and we posted a SEK 3.8 billion operating income, which was SEK 300 million over last year. That equates to a gross margin of around the same level as we posted last year, of 7.6%. But as you can see, we have done a much better job on the S&A selling and admin side, so we are increasing the margins to 3%. The fact that we are not meeting the range, the financial range that we have stated of 3.5%-4%, is completely linked to the issues we've had in Czech and Latin America. So let's see what's under the cover here.
As Johan said, 4% in Sweden is a fairly good margin. We had a very good end of the year. Some of you were quite concerned about Sweden. We were not as concerned. Very good job. And before you ask, we have not changed the profit take on new Karolinska Hospital. It remains the same. Norway and Finland turnaround there, the teams have done a fantastic job making sure that the margin and sequential improvement is visible in the numbers. And we think that especially in Finland, given the quite weak market, have done a fantastic job. Both teams deserves a pat on the back, that's for sure. Talking about a good, stable team, Poland, 4% business, and now we exclude this huge infrastructure project, which have actually lifted the margin for quite some time.
So this is without that project, under 4%, very good and stable margin. And then as I say, over to something completely different, Czech. As we presented in the third quarter, we had issues that we dealt with, with write downs of assets, et cetera, because of the market having showed a downturn for quite some time. And we are now operating at one-third of what the business used to be four years ago. And in the fourth quarter, we had to take an additional SEK 130 million. The biggest proportion of that was linked to a verdict which came with an old case of SEK 80 million, and then we have written down bad receivables. In a bad market, you do see bad receivables, and that put an additional SEK 50 million over above the eighty.
U.K., very good, stable operations. The U.K. market has been tough, but our team in the U.K. has done a fantastic job. Very good, profitable order backlog to work from and good performance. The same goes for USA Building, and we are coming in almost the same margin as last year. And if you now look on USA Building and USA Civil, they're posting 18% growth in local currencies, top line. Very good performance there. So USA Civil, 8.4%, and close to $1.2 billion in EBIT. So even though the margin is somewhat lower compared to last year, they are still doing a fantastic job there. And then Latin America, where we have continued to have difficulties on the back of the tough market and the ongoing restructuring program.
So we've been forced to take another SEK 100 million in the quarter in project write downs. All in all, 3%, SEK 3.8 billion. As a side note, if you look on the numbers behind me, you're going to find the Swedes cringing a little bit because USA Civil is actually now the biggest unit in terms of absolute profitability in the construction stream. So, that bodes well for a very healthy competition next year. Going over to the second stream, residential development, we can see the revenue going up by 6%, the volume, number of sold apartments going up by 11%. And, we are continuing to improve the margin.
If you look on the EBIT line, we have improved the underlying EBIT by SEK 300 million, if you take away the one-off cost of SEK 380 million, which we sunk into 2012 results. And we have continued to improve the gross margins and improve the efficiency of S&A. So we're posting a 6.2% margin. This is something which we then have the target to reach 10/10, 10% in operating margin and 10% in return on capital employed in a few years' time, and we are on a very good way of reaching that target.
If we dig into the various markets, of course, Sweden, where the market where we had the biggest issues to deal with in terms of cost increases, and they really jumped back big time and posting a 7% operating margin. Norway, 6.8, not as big improvement, but the Norwegian market has stalled in the back end of last year. And what happens then, if you don't sell apartments and you still have the organization and overhead, that dilutes the margin a little bit. We are very focused on making sure that we have the right size of organization compared to what kind of markets we are meeting. Finland, poor market, great team, shows a very good improvement here. So the Nordics posted a 6.7% operating margin. A very important number here is SEK 4 million.
4 million representing the EBIT result for the full year in RD Poland, RD Czech, and then in these numbers are also RD UK, which we are winding down right now. So now all the businesses are profitable apart from RD UK, but that's not an ongoing business anymore. So that's an important milestone to reach. If we look on sold and started, we gave a guidance of tops 3,500 units. Some of the market analysts did not quite catch that, but, we are made almost 3,400. I would say the shortfall of not making, the top 3,500 is completely linked to the stall we saw on the Norwegian market last year.
If we take a look on the stock of sold and unsold, we have 5,037 units under construction. Some of them are next door here. Of those, 67% is sold. It's a very good number from a risk perspective. It's not a good number if you want to sell a lot of units. So we need to start, continue to start new projects. 405 completely unsold does not make my sleep go completely bad. These are quite new apartments. It's a very low stock compared to the overall size of the business. Coming into the third stream, commercial development, posting a very good operating income of SEK 1.1 billion, lower than last year, because last year it was all-time high in terms of sales.
This is the second year completely compared to the all-time high. So it's still a very good year. And we can see a good trend continue there. If we look on the gains that we posted, and you then look at the, a longer term graph, and you are thinking to yourself: Will you be able to repeat this next year, and the year after, and the year after? On average, we have posted SEK 4.9 billion in sales each year, with a gain of SEK 1.2 billion. So that's a margin of 24.5%. Guess what's happened if you take 1,415 divided by 5,779, 24.5%. That margin is somewhat shorter compared to last year, where we ended at 25.9%.
But that number was very high because we sold a big, huge property which have been completed for many, many years. So a bit of old historical gains coming up there. These are a very new products being sold more or less, not even being completed. So the churn rate in the commercial development is very high right now. The interest for our products there are extremely high and positive. This is an interesting, perhaps, new graph for you. And the bars represent the size of the ongoing projects at completion. The bar 2013 is the biggest ever, and it's also the biggest in proportion to the book value you have of this business. This means that we are continuing to build new products to be sold. And the predominant part of this blue bar, 2013, is actually linked to the CD US operations.
That business is getting bigger and bigger by the day right now. As Johan pointed out, the ongoing project is kept with a completion degree of 48% and a pre-leasing rate of 60%, which is a good hedge. Leasing is extraordinarily good of 330,000, and if you want an equivalent, I can say that the new Freedom Tower in New York, on Manhattan, will consist of 242,000 square meters. So one and a half times that, that is what our organization have done in a year. ID, last stream, very good, stable results. We have not sold any projects during the last quarter, but the returns on the project is good and stable. It's like a bank taking in money.
So if you look on what's changed in the portfolio compared to last year, you can see the bars here, ending at SEK 4.5 billion last year, and then ending this year at SEK 4.9 billion. This is despite the fact that we have sold projects of SEK 200 million during the year, and we have received cash in dividends and interest in repayments of SEK 200 million. And in addition to that, we are increasing the value. So it's a very good and nice model. That is one of the reasons, one of the reasons why we would like to win more, more of these in the US. So if you combine all the streams together in the group income statement, you're going to find SEK 5.9 billion in EBIT.
And then you have a central cost and elimination, so you have a group EBIT of SEK 5.1 billion. Net financial items, more or less at the same level as last year, despite the fact that we have extended the duration of our funding quite a bit in the very good market conditions that has existed. So we have a SEK 4.9 billion EBIT. To that, we deduct with taxes of SEK 1.4 billion, which equates to a tax rate of 29%. In the fourth quarter, we have taken costs relating to earlier years in the tax line. In addition to that, we have also shored up our tax reserves, and all that in the fourth quarter. So if you look on the tax rate in Skanska and wonder: What should I apply?
With the current mix of business, geography and type of business, it's 27%. Cash flow, very good cash flow. You can see the bars, fourth quarter behind me, and, it was a quite a fantastic, cash flow this year as well. We saw a cash flow of SEK 5 billion compared to -SEK 2 billion. Operations increased their cash flow, but the predominant part comes, of course, from a very good net divestment level in our development streams of +SEK 6.6 billion. So we, we can clearly see that we are shoring up and increasing, strengthening our financial position here. The free working capital, the negative working capital in construction, increasing in the fourth quarter, being the reason for, one of the reasons for the improved cash flow in the fourth quarter.
The percentage in terms of revenue, it sort of, you can see how the descent is sort of smoothening out a bit here. Clearly, we are still bidding projects in the market, which, if we want to turn this around, we have to bid and win design build projects and PPP projects. Those are the ones with the best cash flow in for us as construction company, and also from terms of our financial synergies that we have been talking about. Financial position, we are ending with a net cash of SEK 1.1 billion. The investment capacity we're looking at, we are calling Omfall. Omfall reached SEK 6.8 billion, which is SEK 5.6 billion improvement over the third quarter.
... and gives us a very good position to work from looking at new investments and new opportunities out there in the market. 24.4% in equity to assets, that's a good and strong balance sheet. And in addition, of, of course, also should be placed the excess values we have in the development businesses. So if you take a look compared to what we started the year at and what we ended with, you're gonna see also we have a cash flow. We reduced the pension liabilities. The impact compared to the third quarter, however, was a bit of a negative because people in England and Norway, they eat fish, and that means that they live longer, and then we have to pay more pensions. So that was a bit of a negative in the fourth quarter.
And we ended with an Omfall of 6.8, as I stated. Equity dividend out, profit for the period ending on the SEK 21.3 billion level. So, with the investment divestment we showed, and as Johan stated, we have actually reduced the capital employed in the residential part by SEK 600 million, if you just look at the stream. In addition to that, we have also reduced this excess land bank that we put separately, as you remember, when we made the restructuring. We reduced that with more than SEK 1 billion in addition to this. So SEK 1.6 billion leaves resi and goes into commercial and ID, predominantly. That means that remaining stock of this excess land bank is around SEK 800 million.
600 of those will be transferred back to the Swedish order business because they are prime locations in Stockholm, where we have increased the number of building rights. So there is a bigger embedded value in those, and the Swedish operation is the organization who can take best care of it. Remaining SEK 200 million be a runoff during the year, so we are largely completed by the sale of the excess land bank. And with a good financial position, we are ready to move to get more investments in the future. So let's have a look and at the market, starting with construction. Overall, it's a stable situation if you look at the market combined. But of course, we have a little bit of a mixed picture between the countries and the various markets.
Solid building operation in Sweden, I would say stable. But if you go over and take a look at Norway, it's an interesting situation where the civil market is very hot because the government have decided that they will invest more money now, and they will also use the PPP model, which we definitely want to be a part of. But on the other hand, the consumer market and the building market, we can see a decline. So in Norway, we have definitely a mixed picture now.
If you talk about the other European countries, in UK, the politicians have talked for some time that it's gonna stimulate the civil business with more railroads, road projects, infrastructure projects, and we decided to wait and see until we definitely can see the projects coming here. Now, we see that. There is a shift now in the civil side in UK. We see definitely more projects and the to be done and to work on there. Czech Republic, we expect that it will continue to weaken the market there. In the US, there is a good pipeline of product, both in the building side, we see a lot of projects in aviation, in healthcare, in high tech buildings, also in the office market.
And we see a long stream of products also in infrastructure, on the infrastructure side. In Latin America, where we focus on the mining business and the petrochemical industry, we see also shrinking market. Take a look at this, the picture there. It's actually from Ground Zero in New York. We are on the way to build now the transportation hub, a huge steel structure, which will be one of the iconic buildings there. And it's the architect there is Calatrava. So if you have the opportunity, if you go to New York, take the subway down to Ground Zero and look at now. It's a fantastic project that we are now building.
Residential Development, talking about the market, the Swedish market is definitely improving, Norway weakening now. We see that the consumers in Norway are more cautious, and that has an impact on the residential market. Finland remains weak, and we see no real change there. In the Warsaw market, where we have started up operation, and in Prague, it has stabilized, and we see an opportunity, especially in Warsaw, which is a big city with a huge need of new apartments. In Commercial Development, basically the same situation as last quarter, when we talked about the stable vacancy rates. Still a demand for modern, new, green, energy efficient offices in central locations, which is exactly the product that we have. We will continue to focus on that segment.
Increasing interest from international investors in Sweden to come in and buy completed products. We also see that Poland, Warsaw, and all the other five major cities we are operating in with CD in Poland is, it's an interesting market. In the U.S., there is declining vacancies, and we see a good opportunity to increase the operation there. We have now operations in four cities. I don't think that we will go to a fifth city, because there is enough opportunities in the four for the time being. U.S. is the one- the place where we see the best growth potential here. Infrastructure development, a little bit of shift here. Less projects in U.K., more projects in the U.S., has shifted over there.
And so that is what we focus our operations on. So with that, I think that we are ready to open up for questions. So Magnus, how will we go about it?
We will do this, this way, that we start with the questions from the audience here in the room, and then we move on to questions from the teleconference, and after that, the live webcast. When you state your question, please also state your name and the company you represent. Tobias?
Hi, Tobias Kaj from Carnegie. I would like to start to ask a question regarding your order intake and your book to bill for 2013, that's 94%. And given your target of creating growth compared to what we have seen in the past few years, how worried should we be about the order intake in 2013? Is this a temporary setback, or is this something that worries you, and should we expect fall in volumes in 2014 due to the order intake in 2013?
You have to take a look at the various markets when you talk about the order intake, because it's hard to, like, you know, just give one answer for the entire stream. And to where we have the lowest book-to-bill ratio, that's in Latin America and in Czech Republic. It is a weakening market, but it is also an intention from our side to keep it low, because it's a way to focus the operation and shrink it to a healthy core. So that's part of, like, you know, the concept that you have when you have to turn around the business. So that's a little bit of a separate story.
If you go to the Nordics, I think I was clear about my view about the order intake in Sweden. It's has been very good, especially if you think that we are now comparing revenue numbers that has been inflated by the, the big hospital there. So we are, like, you know, we are keeping up that pace. And we, we see a lot of projects out here in, in Sweden. We, we look—we think that the market here in Sweden will give us an opportunity to have an increase the, the, the revenue going forward. Finland, you saw the number. Norway, mixed picture. Good civil market, a little bit slower on the building side.
In U.K., yes, of course, we would have loved to have some order intake, but on the other hand, we have a long order backlog, and we see now an underlying economy that is picking up, and we see clear signs in the civil sector that there is more projects. So that's the view there. In the U.S., building, on the building side, several sectors we are active in with a lot of products. High-tech buildings, aviation, sports arenas, healthcares, schools, and commercial offices. We are focusing on some segments there. And I would say that we have quite a good visibility of what is on the way into our operations in USA building. So I think that this gives... That definitely doesn't make me nervous. In USA civil, there is always a lumpiness between the quarters.
We have a strong backlog. I expect that we will get our share of all the pipeline of all the big civil projects that's out there in the market.
In total, for the construction stream, do you think that, you know, strong backlog in some markets and good outlook in other markets will compensate for the markets where we will see deteriorating sales?
Yeah, it takes some time before the backlogs goes into the revenue, and there's different timing between the business units. And it will always be a little bit of a shift between the units there. But overall, I think that we have a stable situation.
You talked a bit about the profitability and the improvement in Norway and Finland. What do you expect going forward? If we look at the past, you have never had as high profitability, I think, in Norway and Finland as you have had in Sweden, and now the gap is roughly 1 percentage point. Does that indicate that the level we see in Norway and Finland now is pretty much as good as it gets, or?
I will be careful to give you a number, and you won't get it. If you talk about the percentage number in any of the business units there. But, the business should be able to deliver more. We are. I'm not fully satisfied with the number I see... Last question, Tobias. I have to move on.
Okay, one last question regarding the profitability in commercial development. As you mentioned, it's been very stable, and delivers roughly 1.2-1.3 billion SEK a year. Is that a level that you're satisfied with, given that you increased your capital employed quite a lot in the past couple of years? So now the return is actually only 8%, for this year.
The return is 10.6% this year with the value creation you've done in the ongoing portfolio. That's the way we measure it, as you know. But we can always be better. The churn rates, keeping it up on a good high level will increase the return. And the return is the most important one, not absolute profit. So I mean, the absolute profit with an underlying growth should over time go up, of course. When it comes to the return, I would like to make a comment, and we are making a 10.6 return on capital employed in an inflation environment of 1%, in a long-term environment around 2%.
So if you look on the differences in the past, I think you're going to find that the differences between the return we are posting and the interest level in the environment is actually all-time high.
Do you think that you still will be able to achieve 10% even in this low inflation environment?
Yes.
Thank you.
Okay. Next question, Nicholas?
Hi, Niclas Höglund, SEB Bank. Firstly, if we can continue maybe on the profitability side of things, moving over to the US. Could you elaborate a little bit? We have seen throughout the year a little bit of a margin compression. Civil, you've been talking about that quite much throughout the year, although we sort of expected maybe that the decline should have happened a little bit more, not as fast as it could, as I saw it in the fourth quarter. Could you elaborate how far we have come with regard to dilution in the civil margins, with regard to the large projects which have been very profitable?
We have a very strong backlog. We have a lot of good projects in U.S. Civil, and never look at one quarter's profit and the, and the margin, especially not, I would say, in U.S. Civil. Because it's a project that goes over four, five years, and what the profit is take out in just one quarter is not the right, just not the right thing. So you should at least look at the rolling twelve number when you, when you look at it. And, over time, and I've said it many times before, it's going to be a dilution of the margin level. It has been postponed, given what we thought, what we thought in the past. And the reason for that is that the, the new projects and the ongoing projects have actually improved margin-wise.
We have a very good operation there, a lot of good people. That is maybe one of the best skilled organization we have in Skanska. Very focused on they know what they're doing. So I'm confident, confident about the performance there, and that is the unit, the business where we see the greatest potential and want, want to grow the operation. We believe that the revenue over time will go up. That's our plan. And, margin-wise, it will slightly go down.
So if you look at the competitive environment for the civil business, you've lost some or lost, but you haven't taken on some of the bigger orders that were out for grabs in the fourth quarter. Have you been too greedy? Has the market come down in sort of margin-wise?
No, I don't think that we are too greedy, but we have a good situation with more or less two years backlog overall in that business unit. I think it's important here to be careful when we bid for projects, so we are not going down with the margin requirements too low, so we are coming in with a low-margin project. We don't have to do that. Yes, it is a competitive market there, but it's not only about price. It's also about having good technical solutions in Design Build projects. So, there is room for really good technical solutions as well. The last question, Nicholas.
The last question, okay. I want—I need to get some more clarification on the tax thing. I mean, you saw the deferred tax coming up with SEK 500 million, and well, if you exclude the capital gains, the underlying tax rate is close to 40% rather than the 27. So when you talk about 27% going forward, then I guess that you're excluding capital gains in this sort of reasoning, or should we expect you to pay tax on those kind of gains?
If we look on the capital gains, we are not paying tax on. Those are in the Nordics and in Central and Eastern Europe. In the U.S. operations, we are paying on an average 30%. It could depend on which state the projects are in. And in the 27%, I do include a certain degree of capital gains in Nordic and Central Europe. So that's the blend. If we do a lot of deals here in the Nordics or in Central Eastern Europe, that could go down. But if we continue to grow the U.S. operations with 19% year-over-year, the tax line will go up because the profits go up. So it's given the picture of the business as it is structured right now in composition.
The adjusted tax rates in the fourth quarter were coming up due to adjustments from previous periods, as you're talking about.
Storing up reserves.
Yeah, exactly. But should we expect the paid tax in 2014 to reflect that higher provisions? I mean, i.e., the deferred taxes.
Now we come to something which is a long nighttime story, because here in the Swedish business, we are settling taxes when the projects are completed. In other regions, we are actually using the profit on the percentage of completion. So the paid taxes will fluctuate depending on the big proportion of gains in completed projects in Sweden, predominantly. So it could go up to some extent, but it's very dependent on completing projects here in Sweden.
So if it, well, then also, if you complete the projects in Sweden, then you and, and you divest them, and then you should probably not-
No, no, no, I'm talking about construction projects now. Completed projects is the way we are accounting for the taxes in the construction. So this was not the CD side, no.
Thank you.
Thank you.
Hi, Albin Sandberg, Handelsbanken. I wonder, you've had strong cash flow in Q4, and you're writing that's more cash coming in from sales during the first half. Do you think you will be a net investor in 2014?
I mean, given the number of opportunities we see, we could be, could definitely be a net investor in 2014.
Would that be spread across the business lines, or is it primarily in commercial?
It's primarily in CD, primarily in CD. Because we are now, sorry, Johan. We are now in RD on a very balanced level with investments, divestments, in 2014 and onwards. So, that will be even steven, more or less. So it's mostly in CD, and hopefully, if we win any ID projects, then we will see investments there as well.
I know you have spoken before, you have been looking into acquisitions in the U.S. What's the latest there? Have you been close to any deals?
We have exactly the same strategy as before. We are focused on the U.S., we are focused on the industrial sector, the contracting part of the industrial sector. We are, we've worked very hard on it, and you're going to be the first one, together with all the other here in the group, to hear about when we have something to tell.
Okay, great. One more question, just can you say if you're involved with the Apple building and what that will mean to you in terms of volume?
We can not talk about that project.
Thank you.
Thank you.
Maysa?
Tobias Loskamp, HSBC. I have two questions. The first one is on your dividend policy. I think now for the second year, your dividend payout is above your target range. Is it a sign now that you potentially will move the dividend payout ratio up sustainably because you are now in a more mature business model phase? Or should we see it more from an excellent point of view, that you want to provide investors with a steady increase in the dividend?
I think that the way to look at it is that it's also. It's—I would say it's a sign of where we believe that the momentum of the profit level in the company and where we're going. So that's like in one part. Another thing is we have a very strong balance sheet, second part. And the third part is in a part of the charges that we have taken during the last year has been a non-cash items.
The second question that I have is, lately, we have seen a bit more volatility on the foreign exchange markets, and I was wondering if you have some headaches, especially with regards to the Latin American business. I mean, is the cost base higher? Do you have 100% of the cost base as well, or do you have a cost base in Sweden, which could then weigh on the margin, when the Latin American currencies weaken?
Short term is, I mean, we have a lot of other headaches than the effects in Latin America.
Yeah.
What you're going to find is if the exchange rate remains on the levels they are now, you're going to have a translation impact in terms of revenue, EBIT, and equity. But we don't have any cross-border unhedged positions, which makes me concerned.
Okay. Thank you.
Thank you, Tobias. More questions from the live audience? Nothing? Okay, let's move to the telephone conference. Do we have any questions there?
To ask a question, please press zero one on your telephone keypad. We have a question from Mr. Jonas Andersson from Nordea. Please go ahead.
Yeah, yes, good afternoon. I have two short questions only. One is regarding the residential development, and it seems that the value per unit is quite high at SEK 3 million, if I have calculated right here in Q4. And you talked about BoKlok being a big part, and I assume those to be very low value per unit. So what is driving up this value per unit?
We have some other apartment which is, you know, higher up than on the price side. So that's it, it's basically the mix there.
That could remain at that level?
... It's hard to tell, but you know, we are trying to work on all the various segments that where we have operations, both in BoKlok and the middle part of the segments and some of the higher. So yeah, that could be a fair view of looking at it.
And my last question is regarding the net cash position. I mean, a couple of years ago, you targeted to invest much more to get rid of the net cash position. So, the question is, why haven't you invested more in commercial property projects in land and so on, for the commercial property development?
Okay, we are too successful getting the cash in, so that's bad now. But we are, we're missing you out here, Jonas. You have to move out here soon so we can talk about the net cash. But we are plunking down a lot of investments, and if you're looking on the gross investments on the CD side and the ongoing portfolio completed value, that is something which is a good indication of where we're seeing the development going.
Okay, thank you.
Thank you, Jonas. More questions from the telephone conference?
Our next question comes from Mr. James Rutland from Goldman Sachs. Go ahead.
Hi, I've got three very brief questions. Firstly, I was just hoping you could elaborate a bit more on what you're seeing in terms of the improvement in U.K. Civil, whether that's large sort of infrastructure projects or more at the local and regional government scale. Then just on your Latam and Czech Republic businesses, should we expect you to further decrease the size of those, or are you happy with where they are now? And then finally, just on the working capital, just on a rolling 12-month basis, is a ratio of around 13% of sales right for the construction business, or do you see more pressures there heading into 2014? Thank you.
Okay, let's... I'm gonna talk about the two first questions and leave the last one there for Peter. In UK, yes, we see more civil projects coming out. It's rail, it's road, and all types of businesses in on the civil side. We have the projects in the bid room, or they have been announced, so they are on the way to come in, so we'll start on that. There is basically what I can say about that part. Your second question was about? Remind me.
Latin America.
The size.
Yeah, the size. Sorry.
Yeah.
Yeah. You can expect, you know, that the Latin American operations will be reduced if you talk about the top line. You could see it in the order intake, clearly, and it's also the intention to shrink it down to a healthy core.
Then working capital, 13%. We are aiming for a growth in revenue, so the percentage number, as we have indicated when we put the business plan forward in 2010, will likely continue to shrink. So that is the bidding and winning the design-build projects and PPP projects, as I talked about, is always also linked to the fact that we are entering into the design phase before we actually start to see the large cash flow and mobilization fees coming. So there is a lag between booking and starting to see the cash come in in the form of working capital. So it is likely that it will continue to decrease somewhat.
Thank you.
Thank you, James. We have time for one more question. Do we have any more questions on the telephone conference?
There are no further questions on the telephone.
Nothing on the web live cast either, I hear. So with that, thank you all for coming here, and hope to see you next quarter. Thank you.