Okay, good afternoon, and welcome to the presentations of Skanska's Q4 report. My name is Pontus Winqvist. I'm responsible for investor relations here in Skanska. The presentations will be held of our CEO, Johan Karlström, and our CFO, Peter Wallin. This is a combined live here in Stockholm, combined with telephone and web conference. There will be possibilities to ask questions, but please ask the questions after the presentation. So with that, I think we are ready, and Johan, welcome.
Thanks, Pontus. Good to see you all here, and I assume that we have somebody on the webcast as well. I'm gonna start to give you a little bit of a brief of the overview, and an overview of the year-end report, and some highlights. You can see here, starting a little bit with the construction. We saw a revenue growth of 8%, 8% both in local currencies, in Swedish krona, compared to previous year, 2011. The earnings in construction came in at the same level as previous year. So the underlying profitability in several of the units was really strong, but of course, a big disappointment with the Latin American operations that we went out with a release before Christmas.
The operations that we have in Norway and Finland, that we have, we have started to turn around. If you go back two years, it's now back in black, and show an increasing profitability, and they will gradually go back to the level where they should be, if you talk about bottom line. We also continue to show very strong development in the city and the ID businesses. And we can deliver an additional year with a lot of good profit coming from these two streams. So we truly create a lot of shareholder value with the investments that we do there. One of the things which is- was extremely important, that was a strong cash flow in the last quarter.
We will continue to comment on that, you know, a little bit further down here in the presentations. US looks good. We have a strong position in the US. The market looks favorable. We have a very good performance in US, and it's in the focus for our business going forward. So that's, I think, a very strong position to build upon in the Skanska operations that we have. The board decided that they will propose for the AGM an unchanged dividend of SEK 6 per share.
Turning over to construction, SEK 124 billion, up from SEK 115 billion, as I mentioned earlier, and the SEK 3.5 billion in bottom line, including the write-downs of SEK 860 million, where we released SEK 500 million in the last quarter, there. So we have taken a huge loss in Latin America. So you can see that the underlying profitability in several of the units have been really strong, and I want to mention some of them here. U.S. Civil continue to deliver very good earnings and a stable performance there. And also, looking at the Swedish operation, which is good as well. And in a depressed market like U.K., I think that we have a very stable and profitable operation with good performance, there.
The strong development of free cash flow, or free working capital, we call it now free working capital, not negative working capital, because we want to have a more positive spin on it, there. So, and that is, that has turned out to be a very strong Q4. Q4 is always a strong quarter if you talk about the working capital situation in construction. And we have also showed that that has continued to be that in the fourth quarter. And that is, of course, extremely important for us to have that, continue with that, as this is the engine and the financing for our development operations going forward. Order bookings, SEK 120 billion, just SEK 3.5 billion short of previous year.
I've talked about the U.S. as a very strong market. Here you see some snapshot of some order booking, orders that we booked in the last quarter, some examples. U.K., we managed to book two very important projects there. One is a maintenance project in the utility sector in Greater London. We booked SEK 2.1 billion there, but it's actually a frame agreement with a client that goes over eight years. So it's in total SEK 8.6 billion, but we only booked the two years in, so that's the reason why we have only put 2.1 in the books. Highway is actually the one that you see on the picture there.
It's an additional phase of building out the M25 project in around London. And then you see examples of major orders that we also booked in the U.S. At the end of the year, we managed also to sign the contract for a big shopping mall in Finland, which was important for that market because it has been quite slow order bookings in Finland. Residential development basically the same level if we talk about number of sold units, and you can see that the revenue, it's the same. They are linked to each other, of course. And the number of started units, it's in balance now with the number of homes that we have sold.
Operating income of SEK 140 million for the full year includes the SEK 380 million charge that we released in June 2012. And if we look at the isolated Q4, we had a 4.6% operating margin. We are not satisfied with that. It's not good enough for the business, but it's one of the first steps, you know, to back to the level where we should be. And if you talk... Say some words about the restructuring process in the Nordics, where we have the majority of that work has to be done within the Swedish organization.
We have the organization in place, and we are continuously working with the processes and designing our projects in a cost efficient and productively friendly way, so we can lower the cost on the projects there. Commercial development, we managed to sell quite a big part of the completed portfolio, SEK 6.3 billion. And in Q4, close to half of that came in in Q4. One big property here in Stockholm and two in Poland that was up for divestment. Very important for us to continue to deliver stable earnings and stable profits in that area. We have started 13 projects, and four of them were in Q4.
Today, we have 25 ongoing projects in all the various markets, and we are in 4 markets in the U.S.: Seattle, Boston, Washington, D.C., and Houston in Texas. And then we have some city, 4 regional cities in Poland, and Warsaw, of course, which is the main, main driver there. We have Bucharest, and we have also Prague, and then the 3 major cities in Sweden, and together with Helsinki and Oslo. So we more look at the metropolitan areas compared to countries and focus on that one. And now we have projects in all of these markets. And we will continue to start new projects in 2013, and of course, as we complete the projects, we will also put them on the divestment list.
One of the 25 projects that we have in the ongoing portfolio, they are under production today, and combined, they have a 48% completion ratio if you talk about the execution, the production. We always compare that ratio, the 48% today, with the leasing ratio, and you can see the leasing ratio here of these offices. That's 61%. To be ahead with the leasing ratio versus the completion ratio of production, that's a very good risk mitigator. That is a key ratio that we always follow in that portfolio. We managed to lease 230 square meters in all the projects that we have during the year. Infrastructure development turns to be also a very good business for Skanska.
We sold four hospitals in U.K. and also one highway in Finland with a very good profitability that was higher than the internal market valuation than we have for these projects. We also closed three projects here that you can see in here up on the chart, and the most important one of them, that's the Midtown Tunnel, of course, which is the largest one in U.S. And that was a very important breakthrough into the market to really put Skanska there in the P3 market in U.S. Going forward, this is important for us because we now see more projects coming and more interest as the shortage and of funding and the need for more infrastructure in U.S.
So, that's also one part of the U.S. story of Skanska that is also important for us. I'm sure that you have seen this chart before. That's a financial model of Skanska, and to the left-hand side, you have construction, and we are running that with a negative working capital or a free working capital, as we call it. And, we use that to develop in the project development stream. I don't know if you can read it here, but in the middle of the chart, you see 12% of the overall revenue; it's coming from internally created project through that free working capital. 12% of the overall revenue in construction, and you see a breakdown on that a little bit further down there.
And what residential development, more or less the same? But commercial development has started to increase their activities, which is exactly what we want to do. And that's the reason, because we see opportunities for us there, both in construction, but also in development. Just a clarification, when we talk about profit in development, we measure that in the development stream. On top of that, we have a construction margin, which we book in construction. So the total result from the investment, then you have to combine the two to see that. But we always separate them and put the various results in separate streams. Order bookings, we ended the year, the full year with 96% book-to-bill, which means that we have started to eat a part of the backlog.
The revenue, you see the revenue there has increased 8%, as I said, and the order bookings has not followed up, with the, with the revenues, SEK 3.5 billion short of previous year. And that means that, we now have to look at the various units, which I have a breakdown here, and see where we're building up the backlog and where we are eating from or burning the backlog. So I will mention a couple of them here right now. Sweden, as you see, to the right-hand side, you see the book-to-bill ratio for each country or for each business unit, 91%. But if you compare the actual bookings from 2011 to 2012, it has increased slightly, but the revenue has increased faster than the bookings.
So that's the reason why the book-to-bill ratio is below 100%. Norway is a huge difference compared to previous year. The reason is not the market, because the market is maybe one of the best in Europe for the time being. The reason is that it's actually twice. We had a very strong book of orders, and so we don't have which we had to work from, and we are also more cautious if you talk about the margin there. So it's actually what we want to be more picky of the orders that we took in. The Finnish situation, there we see a slowdown in the market. And that's the weakest of the three Scandinavian countries for the time being.
On the other hand, we managed to catch up with the large shopping mall as an order booking in the last quarter. Poland is somewhat boosted with part of the revenue coming from the big A1 project that's coming to the end for 2012. So when you look at the book-to-bill ratio of 85, that should be viewed when you look at the business without the A1, the A1 operation in. Czech Republic, that is the weakest market where we operate today. It's a lot of cuts in the public spendings, and the overall construction industry has to reduce the capacity, which we do in line with the market.
We think, though, that it is right to stay there for the future because this, the country is in the middle of Europe, and, this is also an interesting place to be in. UK booked several good projects, as I mentioned earlier, in the last quarter. We see some signs from the politicians. They have started to talk about spending in UK. But I want to see it more materialized before we really put it into our view and the forecast of how the market, if it's really going to turn into a better market there. But there is a lot of discussion, at least there.
USA Building and USA Civil operate in the same market, and we see quite a good situation there with activities in the various sectors where we operate. Civil had for the year 142 in the book-to-bill ratio, which means that they have built up the order backlog. The last quarter was lower, but as we have said so many times before, a single quarter, especially for USA Civil, which only work with mega projects, really big ones, can jump between the quarters and can be lumpy. So take a look at the business more on a rolling 12 basis. That's the best way to evaluate the situation.
Latin America, we have started to be much more cautious to take on the projects where we believe that we have the right client and the right contract conditions for. So with that, Peter?
Thank you, Johan. I will be start to go through the various business stream and the performance there, and starting with construction. The net sales corresponds to an increase of 8% in both, local currencies and Swedish krona, giving a gross income of SEK 9.6 billion. The, that is, thus impacted with the SEK 860 million in total in product write-downs in Latin America. Operating income, SEK 3.5 billion, at the same level as we had in last year. And if you look on the margins, given that our world looks a bit different, U.S. compared to Europe, we have managed to keep the S&A in a very, in a very good shape. So, actually, that, that gives, part, offsets some part of the impact, of the European, downturn, gives a margin of 2.8%.
So let's take a look on the various businesses in the construction stream. Sweden, a stable, good earning, earnings. If we look on the operating margin, we had a very large number of large projects that were completed at the back end of the year, thus giving a large release of profits. And the turnarounds in Norway and Finland is on the way. Poland, again, impacted to some degree with A1, the project that we have talked about in such a long time. The 4.7%, and just not a warning, but be prepared for that to be a bit softer as we go ahead.
We will not sort of, it will not be bad, but since the market is tough, and A1 now has come to an end, it will not be in the 5%-6%-7% that you have seen before. Czech Republic, we have kept S&A in good order despite a very tough market, so the operating margin of 2.2% has to be seen as, as a, okay. Coming to, from okay to great margin, U.K., fantastic operations, despite the very tough market, because of a good quality backlog. Now we are also included some new orders with good potential. USA Building, steady as a clock, and USA Civil, fantastic performance. Latin America, not fantastic performance. Here we have a loss of SEK 544 million, thus SEK 860 million.
So if you add it back, you have a clean underlying EBIT margin of around 3.8%. I know that the quarters, in the fourth quarter, if you do that math, the EBIT margin is 8%, and it sounds staggering. In Latin America, we have a large amount of O&M contracts, where you have a number of change orders built into them. So at the end of the year, you do a catch-up of the change orders and the profit take on them. So that's Latin America, if you look back every year, the major part of their profits comes in the second half of the year, with or without write-downs. RD, our residential development unit, posted an almost unchanged net sales levels compared to last year.
Gross income was impacted of SEK 230 million in re-- of project write-downs and land write-downs, and SEK 150 million impacted on the S&A of restructuring charge in that business, giving a negative operating income of SEK 114 million. If you look on the fourth quarter, isolated operating margin was 4.6%, thus sequentially improving from the level we saw in the second quarter. If you look on the various countries, as Johan said, Sweden took the biggest hit, because they have the largest volumes and had the, had the, the biggest challenge to work from. Norway and Finland are, if not, if not okay, it's still better than Sweden.
Czech Republic, negative because of SEK 80 million in land write-down, but you saw in the fourth quarter, we posted a 9.2% operating margin there, despite the very tough market. The other, which is not a very sexy title for start-up markets, it's predominantly then Poland and the UK. In this fourth quarter, we are posting a gain there because of increasing sales, because we've started our projects there. So that should now on be in black, and that's also bolstering the operating margin in the fourth quarter. Residential development, then, in the fourth quarter, we started some 1,013 units. We've sold almost all of them right away, thus keeping a good balance between started and sold.
If we look on the bars representing the stock we have of ongoing projects and completed projects, you can see that we have increased the sold percentage from 58%-60%. The number that is a bit discouraging is, of course, the increase of completed unsold homes. Most of them are related to projects that were completed during 2012, so they are not old projects, and they are predominantly in Finland and Sweden, that we have seen the increase. We are not concerned, but we are keeping this under very strong overview to keep the balance down. On the CD side, the CD stream, another fantastic year, and a posting an operating income of SEK 1.5 billion, with gains of SEK 1.693 billion.
In addition to that, we can also add the elimination of 107, which keeps a very nice and round number of SEK 1.8 billion in gains over the year. If we take a look on the background, this is a business which over and over again demonstrates that we invest and then we sell. We invest and sell. The margin we have in addition with the elimination, also added back, is actually 29% over the year, which is a very good, very good margin. You can see that the green line on this chart also represent the, more than one, often more than SEK 1 billion in gains, year out and year in.
It could be sort of jump between the quarters, but to completely disregard it, that is missing a big piece of Skanska. If we'll take a look on the portfolio, we have an excess value of around SEK 4 billion of the whole portfolio, and you can see how the completed projects are shrinking. We are adding SEK 2 billion in carrying amount of completed projects, because when we've opened a bottle of champagne on New Year's Eve, we start to drink, and then on the first January, they become completed. And that's the way we deal with it to keep it simple for you guys and for us. But SEK 2.6 billion of those carrying amounts have been divested already, so the stock of completed is quite low.
As Johan said, we have a good control and a good pre-leasing and the degree of completion in the ongoing projects. Leasing is very important in order to mitigate risks and to increase values, and we are once again performing at a good level in the quarter. Then the last, but definitely not the least, Infrastructure Development. We posted close to SEK 600 million in EBIT for the year. That was triggered by divesting the five products that Johan mentioned of SEK 400 million. And if we take a look on the profit and losses, what we realize. Now, if we look about the unrealized value in the portfolio, we started the year with an estimated market value of 4.2.
We ended the year with an estimated market value of SEK 4.5 billion. So, the 4.2 corresponded to SEK 1.2 billion in unrealized development gain, bottom line, and that has now increased by SEK 500 million to SEK 1.7 billion. We have worked with the projects to de-risk them, and we have also come closer to the cash flows in projects going to be completed. We have invested also in new projects, and then we have divested. The 0.9 you see represented here is the estimated market value at the beginning of the year that we are taking out. Change in cash flow, which means we are getting cash flow. So that one, SEK 500 million in change in unrealized market value should then be added, the realized EBIT of close to SEK 600 million.
Then your SEK 1.1 billion in what we have created during the year. That's a good business. Adding all the streams down, we have SEK 5.4 billion in EBIT. We take out the cost of the central. That's almost unchanged compared to last year. Then we have a negative elimination, and this is the fact that we are increasing the ongoing projects, and we are eliminating the construction profit. This will be released when we sell the projects. And despite the fact that we have sold a number of projects, the balance is still negative because we're increasing the ongoing project portfolio. Operating income for the group, SEK 4.6 billion.
Take out net financial items, SEK 4.371 billion in EBT, tax rate of 24%, and a profit for the year of SEK 3.3 billion, giving us a very round and exact EPS of 8 SEK. The 24% tax rate is quite low, on the balance of that the commercial divestments are done through a limited company structure, so we are limiting the tax impact. If we look, take a look on another strong number, cash flow. In the fourth quarter, we had almost a SEK 3 billion positive cash flow, and it came predominantly from the working capital in the free working capital in construction.
The cash flow stood at negative SEK 2 billion, and then we also handed out dividends, et cetera, of SEK 2.7 billion, thus giving -SEK 4.7 billion in cash flow for the year. In the corresponding year, we sold Autopista Central, so the SEK 4 billion number should actually, if you want to compare it, that was -SEK 9.4 billion in the corresponding year. Let's talk about the free working capital, because I know that you're all interested. We are portraying it in the bars, which is the absolute level of working capital, and then we have this line, which we relate the absolute levels of working capital to the revenue. If revenue increases faster, the percentage drop, or the other way around.
We measure that line over five measure points, so there is a built-in stickiness into that number, both in the downturn and in the upturn. You can then see that, that the bar representing Q4 2012, the dark bar at the very end, the difference between that and Q3 is SEK 3.5 billion. It hasn't been that big since 2008, after the Lehman crash, when everybody was scrambling for to get paid on the invoices, which means that if we are looking forward, you should expect now this negative drop of the line to start to abate and go to flattening during 2013. Take a look on the financial position for the group. The uptick is clearly visible there, and we ended the year with a SEK 1.9 billion reported net debt.
The debt we look at when we look at our investment capacity is the operating net financial assets/liabilities, or ONFL, another abbreviation you need to learn, of SEK 4.6 billion. And, in those numbers, we have not yet gotten paid of SEK 2.4 billion from the properties sold during the fourth quarter. So, we have a heyday at the bank these days. Then looking at the financial position, we started the year with a positive net cash position of SEK 2.9 billion. We have the negative cash flow of SEK 4.7 billion, then we changed the pension liability, and if you look, it's a positive development in the fourth quarter. And the reason for that is that we lowered the discount rates in Sweden and Norway, which actually increases the debt. But because the interest rates are so low, we also reduced the expected inflation rate in the future.
So that's what creates a balance of the pension liability. That closes the year at SEK 1.9 billion, then we add back the pension liability, SEK 3.6 billion, and the interest-bearing debt in the co-ops of SEK 2.8 billion, giving the ONFL at SEK 4.6 billion. Taking a look at the change of equity, dividend to the shareholders, profit for the year, and then we have the other comprehensive income, which I know you like to read. For the very interested in the impact on pensions, SEK 127 million of the negative impact there is due to the fact that we have a deficit in the pension, which means that we record a tax asset, deferred tax asset. Because the corporate tax rate in Sweden is lowered from 26% to 22%, that tax asset is also being reduced by SEK 127 million.
Now you have something to tell your kids when you get home. So, with the investments and divestments, in the development stream, we had SEK 1.9 billion waiting to be released, SEK 1.9 billion in invested capital, thus, decreasing the capital employed in the development streams. You will continue to see us lower the number on the RD side and keep it on a good level in CD and increase it in ID.
So, let's just wrap up here with some views about the market situation, and starting with construction. When you see the arrows here? When they are gray, there is no change from previous quarter. So that's like, you know, the easy way to take a look at it.
Overall, a stable situation, but of course, very tough competition in all the markets where we operate, even in the U.S., where we see a favorable situation, as you can see with the arrows here, you know, pointing up. The sectors in the U.S. are building, healthcare, aviation, different type of IT or data facilities, and also commercial buildings is in the sector where we see opportunities today. And with the Obama administration, you know, taking a second turn and going into the second part there, we also can see that there is a lot of investors in the healthcare sector that now know that the rules will be there, so they can continue to invest there. So that has been a, you know, a positive thing for us.
Nordics, a little bit of a mixed picture. Norway, very good. Finland, trending down. Sweden, somewhere in the middle, slightly down, I would say. Residential development, here you see no change as well compared to previous quarter. More or less the same picture as you saw in construction. Norway, good. Poland, which is the Warsaw market for us, we started up the product, and looks promising. Good sales in that one. Sweden, Finland, and the small business that we have in Cambridge operate in the market, which is sliding down. Finland, somewhat more than Sweden. Czech Republic, a very weak market for the time being. Commercial development, here you see the only change compared to previous quarter, and we see a positive trend in the commercial sector in the U.S.
Increased demand for new premises in good locations in the four areas in the four cities where we have operations there. So that's a good thing. Otherwise, it's the same with the look at central located operations or premises with in energy-efficient buildings. That is something where we see that there is a demand for. If something is wrong with a project, it's either a little bit further out in the market, you know, from the city center, or a lease is maybe too short, or the building is a little bit older, then the investor market, the transaction market, they are really picky today. So it has to be right here, exactly with all these things, and that is exactly the sweet spot that we operate in.
... Infrastructure development, we continue to have a positive view of the U.S. market with various, several projects in the pipeline. Otherwise, Europe, there is a limited number of projects in the area. Focus areas going forward, for us, if you look at them in the streams here, U.S. is definitely the time and the right place for further expansion. Challenges, of course, to fix the Latin America operation, so we don't end up in the same bad situation as we presented earlier or previous year, 2012. And that is also the actions that we have highest up on the agenda. And we see opportunities in residential, in Warsaw.
40 million people in Poland, a lot of them are moving into Warsaw today, and that is the place to have a residential development operation in Central Europe today. The challenge we talked about, the turnaround and making sure that we have stable profitability in the residential in Sweden. The commercial side, we see great opportunities for further value creation in the portfolio that we have of all the 25 ongoing projects, and during the year, we will start several more. We have several projects in the pipeline in all the markets where we operate. The challenge, though, that we always face, that is to fill up with the raw material, raw material that is in that sector, the land bank.
And the toughest part for us is actually here in Sweden and in Stockholm and other places in the Nordics to find the right land plots for future value creation. So that's always something that we have high up on the radar screen to be out there and spot the right places. Talking about infrastructure, the thing, though, with that business is that there's a long process to land a project, and but we always have to have a lot of projects and bids in the pipeline. And we're looking forward for 2013, expect that we're gonna reach financial close even this year in that stream. So Pontus, should we then open up for-
Yes, then we will-
For questions?
Open up for questions, and we start here with the audience here in Stockholm, and please tell your name and the company that you are representing.
Hi, Tobias Kai from Carnegie. I have two questions regarding US Civil. First is regarding the margin. Is it any extraordinary in the fourth quarter that makes the margin so strong? Second question is regarding the order intake. Even though we know it's very volatile between quarters, we also think that maybe a couple of large projects that you have focused on have went to competitors, and has that in any way changed your view on the outlook for new projects in 2013? Or how should we view the future regarding order intake?
Let me comment the margin first. It goes a little bit up and down between the quarters in almost all businesses, business unit, including US Civil, of course. And I don't think that you should view the last quarter as a special one, so look at the trend instead, and on a rolling 12-month basis, that is the best way to look at it. So it was nothing special in the quarter. It was more that they closed out some of the projects there. And it always have a tendency to be more closeouts at the end of the year.
If you look at Skanska overall in construction, the fourth quarter is always the strongest quarter there, and that's the background to it. Regarding the order situation and the market in the U.S. for civil operations, yes, you're right, it's lumpy between the quarters. And we managed to book several good ones in the early part of the year. In the last quarter, it didn't go our way in several of the really mega projects that we were eager to win. So that is, you know, behind us now, but we see a very healthy and a good pipeline of projects coming to the market that we focus on.
There is a lot of other plays there as well, so that's the reality. But we have not changed our view of the market. And with the very good order backlog that we have, we don't wanna go low, because we, we are picky to, on, on the margin and want to have a good margin on the project.
If I may ask another question also regarding the dividend. You lowered your dividend policy to 40%-70% payout ratio, not that long ago, and now, you suggest a dividend of SEK 6, which implies 75% payout ratio. Was it a big discussion whether you should, you know, keep the dividend at 6, or whether you should have lowered it and stayed within the range of 40%-70%?
The management and the board agreed on that, the financial situation for the company is good, and the underlying profitability of the business, if you add back the charges we are taking in Latin America and in residential development, it's higher than we presented, therefore, the proposal is to keep the dividend at SEK 6.
... Thank you.
Thank you, Tobias. Yes?
Niklas Hägerås, Swedbank. A couple of questions, if I may. If we first start with the residential side, you previously commented on that you wanted to release approximately SEK 2 billion in capital. Have we seen any gains in the fourth quarter related to divestitures of land banking in Sweden or in the residential part?
Well, it's hardly, hardly visible, the ones you've seen. It's some cash flow in and a small, tiny bit of profit. And that is down from the excess land bank, and the excess land bank is kept centrally, so those kinds of gains you see on the central line. Yeah.
Okay. Good. And then a follow-up on the U.K. U.K. are showing very healthy margin improvement here in fourth quarter. Is there any one-offs related to that, or should we expect the solid order backlog now to bode well for stronger profitability?
It's more or less the same situation, same answer, with UK as with USA Civil. Look at the business over a four-quarter perspective. That is the best way. We had some closeouts and then lowered... We look at all the projects in the portfolio every quarter, and one goes a little bit up, one goes a little bit down, and the sum of all the changes is, you know, what you see coming out in the bottom line. So what's not something special, so look at it more on a longer time horizon here. Yes, we have a very good backlog in the business with a healthy margin despite the tough market there.
So, yes, we continue to think that we can keep a very good operation.
Then just to follow up on the U.K., you announced a healthy project there on the maintenance side, making SEK 2 billion for the first 2 years. Could you elaborate a little bit on the financial structure of that kind of project? Are there any risk for cancellation, or why you just taking first 2 years, and maybe on the profitability?
A bad answer, but the correct answer is that that's our policy, because we want to keep... The two years is a foreseeable future. What's beyond two years could be hard to comprehend. And no, there is no such risk as a cancellation of the eight-year contract. We have worked very diligently and intensive in order to land that project, because it was won in an extraordinarily high, competitive situation.
The maintenance project type of business, low invested capital, and then low margins, returns in line with the group policy, or about?
Absolutely. Absolutely, but you're, you are onto something, because then the working capital is not free anymore. It's tied up in that business, because you do your activities, and then you get paid afterwards. So it's a different setup in terms of tying capital. But we're talking about sort of a 15-day net, 10-15-day net in total carrying impact on the working capital. But you have a, you have a positive sign on the working capital instead of negative.
Thank you.
Thank you, Niklas. Peter?
Thank you. Peter Garnry at Danske. I may have a few questions. If you could maybe say a few more words on Poland, how big earn-out has there been from A1? Is there anything left? And then maybe if you could comment what has happened in U.S. building, which normally has so stable margins. And then finally, if you could comment residential development in Sweden. Very good sales number, but it feels like it's not so much leverage coming through. Why?
Starting with Poland, your question regarding Poland was?
Size of earn-out you have received?
Okay. I don't wanna, like, give you an exact number here, but it has been a part of the profit for 2012. That's that came from the big project. So going forward, the margin will be somewhat lower there, going back to the normal profitability in that country. USA Building, look at the business, steady as a clock. Don't look at one quarter, look at fourth quarter rolling. That's my answer on that one. And the last one, the residential development-
Thank you very much, Johan.
No, you're quite right, because there are two factors to come in here. One is the pipeline, the immediate pipeline we had to work with. If you sort of pull that pipeline away and start to redesign it, it's a lot of cost that you build into a change like that. So sometimes you have to start a project which are not meeting the exact profit margins that you want to hit in order to start a project. That's number one. Number two, and this is important, we mentioned it in relation to the release on RD, we are taking a much more cautious initial profit take when we start up projects now.
So it will be much more back-end loaded?
At least, if it's much more, it is much more than it used to be. It's actually infinite, because we did not back-end things in the past.
But if I compare it to the other countries, there it seems, you know, it doesn't, you know, if you look at the numbers, you don't get the feeling that you have changed the way you are taking out profits versus the Swedish operation.
But we have.
So also, when I look at Czech or Finland, it's a more cautious?
Absolutely.
Yes, same methodology in all markets in the entire stream.
Okay. Thank you.
Thank you, Peter. Do we have...? Yes, here we have one more.
Fredrik Sjödin of SEB Enskilda . First of all, on working capital. In the report, you mentioned a certain outflow working capital in early 2013. Is that more than the seasonal pattern? And then, secondly, in connection with the write-down you had in Latin America, you guided for a profit within construction of SEK 3.2 billion-SEK 3.4 billion for the full year. You surpassed that. What was the surprise? Thirdly, strong margins in Construction Sweden in Q3, and then they came down a bit in Q4. Anything in particular impacting Q4? And then, finally, on Swedish residential development, you sold quite a considerable number of units in Q4. And despite that, you view the market as tough. Haven't you noticed any improvements?
Do we remember all the questions?
I remember at least the working capital.
Okay, you start with that one, and I can comment on the profit level.
That's a good mix, right? I take the cash flow, you take the profit. Yeah.
Okay. That actually goes together to some extent. The working capital, yes, if you look at the past 5 years, on average, you have seen a sort of a between SEK 800 million to SEK 1 billion in outflow in the construction in the first quarter. That is, to some extent, very much linked to the Czech operations, and because the Czech operations are now a smaller part of the universe compared to what they used to be, that impact is not going to be as big this time, but you're going to see a certain outflow. And then you had a Swedish margin to comment upon-
Yeah.
and then Swedish RD markets.
Yeah, and the overall expectation or the, if it was any surprises in Q4 compared to the guiding, if I remember right. And starting with Sweden, just look at the four rolling quarters. I think that, you know, don't just look at just one single quarter there. As the Swedish operation is a very steady business, the 4.1 is a good return there, and I believe that they will continue to maintain that level going forward. Compared to the guiding 3.2, 3.4, we said before Christmas, we turned out somewhat better. It was a little bit here and there across the board, a little bit more in U.S. Civil than we expected, but not something special there.
R.D., what was the question?
The markets. We are selling a lot in Sweden.
Yeah, we are selling a lot in Sweden. It's a little bit different there between the various cities. Malmö, the Malmö region is somewhat weaker than the other two major cities, Gothenburg and Stockholm. Was that the answer of the question?
Partly.
Okay.
If you look at the number of sold units, it was the highest since Q1 of 7, I think, and you have a negative arrow on the Swedish resi markets. So why are you selling as many units as you do in Q4?
Well, it's actually two different things, because the sales is not only depending on the market, it also, what do we have available to offer the market in terms of projects? And the sales is a function both of the market and what we have to offer, what supply do we have there?
If I can add also, given a bit cautious view we have on the market, we have not put projects sort of sold sell-ready until we reach a certain threshold in pre-sales. So we have released some of the products at very high pre-sale levels, so it gives that impact as well then.
When we then start a project, then the sales of all the pre-bookings just come at once there.
Thank you.
Any more questions here from the audience? Then we can ask our telephone participants if there are any questions.
Please press star one on your telephone if you wish to ask a question. Your first question comes from Manu Rimpelä of Deutsche Bank. Please ask your question.
Good day, gentlemen. Can you hear me well?
It's fine.
Yeah.
Hi, it's Manu Rimpelä from Deutsche Bank. I would have three questions. Can you firstly comment a bit about the margins that you see in your order backlog today for the construction division? And also, how have you done the testing in terms of the project? You mentioned you do it on a quarterly basis, but have you kind of taken a conservative view on that front, that we shouldn't expect any more write-downs on that front? Secondly, on the residential development, can you give us some idea, when would you expect to reach the return on capital employed targets that you have for the division or the whole of the residential development operations?
What kind of an impact could this more conservative accounting have on that front? And then do you see any need for potentially cost cutting in the construction division, given the book-to-bill ratio has dropped below one? Or is that something that you only expect to be temporary? And if you see a need, do you are you prepared to do that? Thank you.
Okay, I'll start a little bit backwards here, so I can remember your questions. So I start with the last one regarding the book-to-bill ratio of 96, and if we see some need for cuts in the overhead. Yeah, to some degree, in Czech Republic, there is a weakening market. And if the volume declines, we continue to cut the cost, cut the overhead, which we have been in that country, we have been ahead of the curve of the decline there, which means that we can keep the S&A at the right level. So if we see something like that in the market, then we will do that.
But, I don't see an overall big program to be launched. Question regarding the margin in the backlog, I think I comment a little bit there, here and there, during the presentation here. It's a, I would say, stable, and it's good. One thing, though, that I said, and that is that, the backlog for the Polish operation will have a slightly lower margin than what you see right now in the P&L from that business unit. Over time, USA Civil, I'm talking about over time here in the longer horizon. USA Civil margin in percent will slide down.
As we build out the business, we increase the revenue. So but we think that we can offset the decline in the margin, the percentage, with the larger business. So that's basically the questions regarding the construction operation. Then you had one remaining one regarding RD.
Surprise, surprise.
Yeah.
We've set the 10% operating margin target and a 10% return on capital employed. And because it takes time to sort of get projects up where we have through a much more efficient design and much better collaboration between development and construction, reducing the cost and increasing the margin, it takes some time to get those products out in the market. And thus, having the impact on the operating margin and on the return. So I would say we will sequentially improve our performance. But I wouldn't expect us to be there until around 15, so in three years' time or something like that.
Okay. Thank you. No further questions from me.
Thank you, Manu. Do we have any more on our telephone line?
Yes, one more. So you have a question from Tobias Loskamp of HSBC. Please go ahead.
Think that, because of the sale in December in the commercial property development business, you will see a SEK 2.4 billion cash in in January. Can you comment on whether there has been a similar case also the year before? The second question is, can you comment a bit on the competitive landscape in Scandinavia, and do you see more of the, let's say, Central European contractors moving into the market, or is this a stable situation versus last year? And the third question is, on the net debt position, it has declined over the past years, mainly due to the investment in the development businesses. Can you... What would be a level where you start to feel, let's say, less comfortable with the net debt level?
In that sense, can you also tell us a bit your expectations on when you expect to cash in from the land bank sale in the resi, from the resi business?
Yes, we see increased competition from larger international players from Europe. They've been, they have been here in Sweden, but we also see players coming to Norway. It's a strong civil sector there as well, so they have turned up there. I don't know whether I got all your questions, Tobias, but we can help each other, perhaps. If I start with the ones I do remember, as the cash flow in the will actually come during the first quarter, not in January, as you stated, but during the course of the first quarter. We did have a smaller impact in 2012, in the Q1, but not at all at the extent that we are having in 2013, Q1.
Then you asked us about, was it debt ratios? Can you please repeat that part?
Mm-hmm. On the net debt level, which is, let's say, increased from a net cash position, however you want to define it, but at least the net cash has declined over the last years. And what to what extent do you want to leverage the business model more? And when do you expect the land bank sale from the residential development business to be cashed in?
Thank you very much for helping my poor memory. Starting with the, what we actually look at is the ONFL, operating net financial assets/liabilities, as defining the capacity we have to increase our investment from the current level. With the SEK 2.4 actually having come in or on its way into our bank account, that number will, of course, improve everything else equal. So, we are very, very safe given the levels we are at right now, of continuing to keep a high investment rate in our CD and ID portfolio.
The cashing in on the RD bits, we are aiming to get a major part of the excess land bank off the books within a year and a half. But then also, since we are not replenishing land bank in the Swedish business and Norwegian and Finnish businesses, actually getting projects started will gradually reduce the land bank within the normal business setup.
Okay, thank you.
Thank you, Tobias. I think it's time for the last question. Do we have any more on the telephone?
Sorry, next question comes from Martin Wachtel from Bank of America. Please ask your question.
Good afternoon. I have a couple of questions. The first one is on your M&A strategy. You didn't really do any, any deals in 2012. Do you expect, perhaps, to do some bolt-on acquisitions in 2013? And, do you see any attractive targets, perhaps in the U.S., or elsewhere, for that? And second question, could you be a bit more specific on your, negative working capital position? Where do you expect that to be at the end of 2013, perhaps as a percentage of, of sales?
Yes, we look at increased activities in the U.S., and one way of doing that is to acquire companies. You know that it takes two to tango, and there's a lot of discussions and things that have to be right before we can enter into a real investment area and add it to the company. You will all here be the first one to know when we have something more to announce. Then on your question on the closing, expected closing and balance of working capital in construction, I will not give you a number because it will probably be the wrong number, and that's the reason why I'm not giving you any number.
But what I commented upon when we were talking about the free working capital, with the percentage curve flattening out during 2013, it should remain around the 13%-14% mark.
All right. Thank you.
Okay, thank you. Then I think it's time to finalize this here from Stockholm, and thank you for everybody that has participated.
Okay.
Thank you. Thanks.