Good afternoon, and welcome to Skanska's presentation of our Q4 report. My name is Pontus Winqvist, responsible for investor relations here in Skanska. The presentations will be held by our CEO, Johan Karlström, and our CFO, Peter Wallin. After the presentation, there will be possibilities for questions. This is a live presentation here in Stockholm, but we are also webcasting and having a telephone conference at the same time. So after the presentation, we will start with the questions here from the audience in Stockholm, and after that, take the questions from the telephone and web conference. So with that, I welcome Johan to the stage.
Thanks, Pontus. Good to see you all here. Can you recognize the project that we have on the very first slide? It's a good project we're very proud about, and that is the A1 phase II project that we built in Poland. It's a PPP project, which means that we have invested with our own money, as it is a concession, and then we have built it as well. So it's been one of the largest project in Skanska history, a very successful one. So let me start with some highlights from the Q4 report. We had a good momentum and a very good order intake at the end of last year or at the end of 2011.
We have followed the strategy that we lined out in the business plan that was presented for the capital market. I think it was actually in this room, a little bit more than one year back. The main components of the strategy, that is continue with strategic investments, both for product development, we talk about land, so we can continue to build on new products, but also, move on, and make some further acquisitions in the target market that we have decided upon. We can also see that there is good opportunities in the backlog. We have a strong backlog at the end of last year, which shows that we will have a slight increase of revenue the coming year.
There's a lot of activities out there in the various bid rooms across the board in all the business unit and the countries where we have operations. A lot of projects, but also a lot of competition as well. In Commercial Development, we see also further opportunities for value creation, as we have a very interesting portfolio of project that we invest in, that, that we built. But it has also been a challenge during the last year. We have had some challenges in Finland and in Norway, and we're working in conception, and we're working really hard to turn it around and make sure that we will come back to, to profitability.
We're also working hard with the residential development businesses here in Sweden, to come up to a higher profitability as the, as the profit level or the margin level that we have there is not, on a satisfactory level. So, let me give you some, some of the numbers, here. And the order bookings, we came in at a little bit more than SEK 123 billion, and that was 41% up in Q4, compared to the same, same quarter last year. But in the book-to-bill ratio, which I think it's, maybe the, the most interesting ratio to follow here, Q4 came in at 123%, which shows that we are building up the backlog, going into 2012.
For the full year, it was 107%. We have now a backlog of 16 months of work, SEK 155 billion. Revenue in construction ended with 150%, and that was up 8% in local currencies. We had an operating income of SEK 9.1 billion, with a gain from Autopista Central of SEK 4.5 billion, and a gain from divestments in the product development portfolio of SEK 1.4 billion. The margin in construction, 3%, compared to 3.9% the previous year. With that, the board has decided that they will propose a dividend of SEK 6 per share, which is 25% up from the dividend that we passed out the previous year.
That corresponds to 68% of the net profits, which is within the dividend policy of 40%-70% of the profits. I just want to remind you about the extra dividend that we passed out or paid out, or distributed to the shareholders last year, after the divestment of Autopista. There was an extra dividend that we handed out last year, but it was a gain that we made in the same year. So with that, I'm moving into construction. As I've just said, on my first slide, we had a continued improvement in order bookings. We have had especially good order bookings in the Americas, both in USA Building and USA Civil, and in Latin America.
The niches that we focus on in the U.S.: healthcare, infrastructure, high-tech buildings, and what we mean by high-tech buildings, that is pharmaceutical type of buildings, it's data centers, and also buildings for the IT industry. And the fourth sector that we now can say that we have entered into through the acquisition, the energy sector. These four segments, which are the main sectors, segments in the U.S., we see a positive momentum and an underlying drive and need for, and we can see that there is several projects coming out into the market. So we believe that we are very well positioned in the U.S., in those four segments. Overall, the market situation, it differs, though, somewhat. It's stable in the U.S., Latin America, and in the Nordics.
It's weaker in U.K. and in Czech Republic due to cut in the public spendings. So there is a little bit of a mixed picture in the market, but. There is also a mixed picture if you talk about the performance in construction in Skanska. Doesn't really follow exactly the situation in the market. We had a very strong performance Sweden, here in our home base, which is very important for us. In the U.S., of course, both the two units that we have there, USA Building and USA Civil. Poland is definitely a very good performance, and U.K. That's the business unit I want to mention on that side. On the other hand, we have disappointing negative numbers from Poland and from Norway.
Sorry, from Finland and from Norway. And we're working extremely hard to turn it around, and we are cleaning up the organization. We are changing managers, closing some of the offices, introducing new procedures, risk management. And in Finland, we have changed the business unit president. We know the right way to run a business. Just look at the profit level and the performance in some of the other units. So we have all the knowledge in Skanska. Now, it's time to turn it around. And we are sure that we will be successful. We made several acquisitions during the last quarter. The civil acquisition in Finland, which will strengthen our businesses there, the Soraset company, which we acquired.
A minor acquisition in Poland, which allows us to move into a new area of, into one of the regions. It's on the civil sector. Company's name is PUDiZ. But the most important one, that was the acquisition that we made in, in the U.S., ICI. It's a very strategic investment. It allows us to go into a new part of the country, if you talk about the geography. It's based in the Midwest, in Indiana, and reach out the whole way up to Chicago and the neighboring states. But the most important thing with the acquisition is which sector it operates into. It's towards the energy sector, and it's working a lot with different type of power plants and chemical plants.
We have been into that part of the civil operation, but with the acquisition, it now opens up for us a possibility to strengthen our footprint in energy, and we can also come in with the resources that we have and the balance sheet. So through that vehicle, we can go into further projects in the energy sector. One of the interesting things with the energy sector in the U.S. is that there is a new regulation of upgrading several of the power plants, and they have to be green, they have to be less pollution there, and that is exactly the type of business that we want to go for, and that's exactly the niche that the acquired company is into.
So it's a very strategic investment that we have made there. So let me go into some new orders here. You can see the new power plants that we landed in Rio de Janeiro, in Brazil, of SEK 3.2 billion. We have a university medical center in New Orleans, and we have also a mass transit project in California. Railroad project in Norway.
There is a good pipeline of projects in Norway, especially on the civil side, and a high-tech building in U.S. If you look at the examples of the big projects that we landed during the quarter, you can see that several of the projects here are from the Americas and from the U.S., and that is the typical situation. There's a lot of big projects out there in the market. In residential development, we ended up with an operating margin of 4% compared to 7.4% last year. And the low margin, which we are not satisfied with, it's impacted by basically three different things. Increase of cost in some of the Swedish projects, which we talked about in the Q3 report.
But it also write-downs of land in Estonia and in Bratislava, in Slovakia. And then we have also invested some money in the startup projects or the startup businesses that we have outside London and in Warsaw, in Poland. And we have also launched the first project in U.K. outside Cambridge. We are basically on the same level as previous year. If you talk about homes started, it's around 400-500 number of homes, less than previous year, and on the sold level, it's basically flat. And we will adjust the organization according to the market situation.
In commercial property, in CD, we have divested for more than SEK 5 billion during the last year, and we made a gain of SEK 1.3 billion. We have now 32 ongoing projects, and with a total investment of a little bit more than SEK 9.19 billion. That actually shows the strength in the organization and the possibility for us to create more value here going forward. We have a leasable area of 470,000 square meters, and during the last year, we have signed leases for 220,000, which is close to double the volume compared to previous year.
In infrastructure development, we have reached financial close during the year on one project in the U.K., a street lighting project, but also in a wind farm or a wind farm project up in the northern part of Sweden, Sjisjka Wind Farm. I think it's an interesting area for us to go into renewable energy. We see a lot of interest around the world, both in Sweden, in the U.K., Chile is another country where there is a lot of windmills, and also in the U.S. And that's a target market for us, both on the construction side, but also it can be interesting for us on the for an ID investment.
During the year, you know that we divested the two motorway projects that the highway projects that we have in Chile, Autopista, and the Antofagasta, which is an ongoing project, we sold down from 100% to 50%, because 50% is the target level of ownership that we want to have in the project. And on top of that, we also divested one of the smaller school projects in the U.K., which was completed and was set up for sale. And it shows that we build up value creation, and once we are coming to the point when it's time to sell, we divest it, and we will continue to do that with further projects in 2012.
The next thing that we hope that's going to happen here in this stream, that is to reach financial close on the Midtown Tunnel project in Virginia, in the U.S. Which is scheduled for the second half of this year in Q2. I think it's going to be a very interesting project for us to go for. It's going to be a breakthrough, and the first project in the U.S., it's going to mean a lot for us on the ID, but it's also a major project that we will work on with USA Civil. In the financial model that we have in Skanska, it's a very important thing that we focus on. The construction business, we are running in a very cash positive way.
The excess cash that we have in construction, we are using in the project development streams, the three streams, for investment. Here you can see what level we are at in 2011. It's close to SEK 15 billion in internal revenue coming from project that we have created ourselves and investing. That portion has increased quite a lot in the business plan, and it was also an important component of the business plan that we launched one and a half year back.
Going over to the order situation, you can see here that, if you look at the slide here, you can see here that, the order, the book-to-bill ratio was 123%, for, the last quarter, and for the full year, it was 107%. But if you look at the graph here and, follow the two lines, the red line, that is the rolling 12 revenue, and the, the, the dark blue, which is the rolling 12 order intake. And you can see it, a very clear trend that is, that it is, the rolling 12 of order intake is now over, the rolling 12 of revenue, which is an indication, that it's gonna be some growth, for the construction stream, going forward.
If we take a look at the breakdown of the business unit, I can give you some comments of the numbers here. So we start with Sweden, which is the first one. Sweden is a very stable, stable business, stable market as well. And we have a book-to-bill ratio of 91%. Should I be worried about that, that we are eating backlog? No, I'm not worried about that because we have an exceptionally strong and good, strong, and long backlog in Sweden. And, so, this is not something I'm awake at night for. Norway and Finland, you can see that we have had quite a good order backlog, especially in Norway, and that is the large projects.
There's a huge pipeline of civil projects coming to the market, and there are quite large pieces there, and that is something that we are interested in and been successful to land. Poland, 88%. Is that on the low side, you can ask? Not really, because the number which is compared with is compared with the order bookings versus the revenue. The revenue consists in Poland of one third of just one project, which is the A1 project I just showed you on the very first slide. And so the 88% should be compared with 2/3 of the business, because that's the ordinary business that now will continue once we have finished the project.
Czech Republic and U.K., I think it's more of a sign of the market situation. A lot of cuts in the public spendings, and we can see that it has some impact on the order bookings. U.K., though, which is actually the lowest number here, if you talk about book-to-bill ratio, I'm not worried about that one either, because we have a very long order backlog in our bag, and which a very healthy one. So I think that we are in a very good position there.
As I said in the beginning here, you, if you look, take a look at the three businesses there at the end, USA Building, USA Civil, and Latin America, we have a good momentum there, and I think that we are very well positioned in the right niches going forward. So with that, Peter, over to you. I don't know if you want to be on this side or that side, but if you want to be here, we should maybe change this one, because this one has died. So-
These guy, these things are too heavy.
Exactly. So...
Hello, everyone. Okay, numbers. I'm gonna talk about the cash flow, profit and loss, and balance sheet, and I'm starting now with the construction business stream. We saw a revenue at SEK 150 billion, which was 8% up in local currency. So on the basis of this, a profitable growth, that very much outshines sort of the market conditions, I would say. The acquisitions were made at the back end of this year, so they only gave SEK 0.5 billion, roughly, in impact as of this year. And the book-to-bill ratio was still kept at 107%. Looking at the operating margins, they came out much lower than last year, at 3%, compared to 3.9%.
The reasons for it predominantly stems from Norway and Finland. As you can see, we've managed to keep the overhead at the same level as last year in proportionate terms of 5.1% of net sales. Coming into the various business units, Johan has mentioned the numbers. We have very strong performance in the usual suspects, and unfortunately, we have poor performance in the other usual suspects, Norway and Finland. If you look on the fourth quarter, especially, you will see that Sweden had a very good quarter. You will see that the Polish business have spoiled us with double-digit margins, came in a more normal margin. And there is nothing to worry about in the Polish business. It's normal.
Sometimes when you move projects, it all sort of comes back and happens because of the percentage of completion in the quarter when you do the change. So sometimes the numbers move in that fashion. And we also managed to do very good in the U.K., I would say, despite the fact that we have had very difficult market conditions there. Coming into residential development, we managed to have quite good sales in the fourth quarter, and the residential development is something which we have been talking about over the past quarters, as you know. And we've had a very back-ended plan in terms of starting to sell properties with residential units.
With the market conditions right now, we have been quite cautious and focused on the sales efforts in the projects we have started up. The operating margin of 4% is on a like-to-like basis with the last year numbers, actually closer to 6%. If we add back the write-downs we had in Estonia and the Slovakian markets, if we add back the costs we incur for starting up businesses in U.K. and Poland, and also the fact that we've changed accounting principles, so now we account for JVs on a gross level. We are still not happy with the numbers, but that's part of the bridge to explain the differences. When we look on the various markets, I would say that Norway and Finland is quite okay.
The main challenge is in the Swedish market, as you can see from the margin and the results. The predominant impact here was that for all of the third quarter, when we were a bit wrong-footed on the cost estimate to start with, and when you roll that back into, it all happens in that quarter, similar to the way you do it in construction. Looking at the numbers here, we have 5,400 units under construction, of which we have sold 58%. So in the fourth quarter, isolated, then we have started the biggest number of projects over the year compared to any other quarter. And in the same fashion, we have also handed over the largest amount of units.
So that means that the sales degree in the ongoing projects is automatically lowered as you top out the high sales values and then start new projects. The new project we start at a default around the 40% presale level. The started was 1,273 units in the quarter and that gave us started, which was sold, which was flat, more or less, compared to last year. And you can see here on the graph showing the sold and started on a rolling 12-month basis, that started, the started curve is above the sold units, and that's something which we would like to see, because then we have an inventory to sell from.
You can see how we took a deep dive by stopping investments in late 2008, and that created a situation which took a long time to come up from. And there is when you get wrong-footed on the land bank and also the size of the organization. Number of unsold, the bars here, the started, you can clearly see the back-ended portion here, because the last bar, as you can see, it jumps up quite considerably. But if you look on the orange portion, the completed unsold, that remains more or less unchanged. Coming over to the commercial property development. We had a very good 2011, selling properties worth SEK 5 billion, with SEK 3 billion landed in the fourth quarter.
We had a profit over the year of SEK 1.4 billion, which meant that we sold these properties for 10% above their estimated internal market values, which is pretty good. If we take a look on the sales here, you can see that an average margin of these sales were at an average 28%. And in the first three quarters, I think that we spoiled both you and us, because the margin was very, very good on this one, that, those one. And in the fourth quarter, we sold properties with a margin of 26%. And it's a very good margin still, and we are happy with the prices we've got for those properties. So it shows that we are creating a lot of value in the business development businesses.
Taking a look at the portfolio, we have a number of ongoing projects which will constitute SEK 9 billion in investments by completion. They have an estimated market value of SEK 11.6 billion. What's interesting here is the relationship between the occupancy rate of 44% and the degree of completion at 43%. Those are the ones to be in line with each other in order to maintain a good risk profile. That is why, exactly as you once said, the leasing is crucial in order to both create value and also mitigate risks in the portfolio. And we have a fantastic organization that does a very good job on that. Infrastructure development, pretty good year, even though the Autopista sale was discounted as early as in January of this year, I would say.
All the numbers are dwarfed compared to the Autopista Central gain of SEK 4.5 billion. The Antofagasta sale down and the Midlothian were down at very good levels, and it shows that this model really works. We have increased the portfolio, the value of the portfolio. We can really go into the various drivers here. If you look on the portfolio of three, the net present value of the development gain of SEK 3.5 billion at the start of this year, the de-risk time value is when we take down the risks in the project, and also we're getting one year closer to the cash flow in the portfolio we have.
Cash returns is something which we actually have received, so that minus is coming in, in the cash account. So it's not that bad, but it does tap out value from the portfolio. Then you have a net investment of a positive 0.4, and that means you invest in the portfolio, so it increases in value. But this is a net number, so we invested SEK 1 billion, and then we have sold Antofagasta 50%, and we sold Midlothian, which takes it down to 0.4. So you understand, it's sometimes hard to keep all those numbers in your head. So it means that we have a SEK 4.2 billion unrealized development gain in the ID portfolio at year-end. Clearly, the Midtown Tunnel will create a huge impact upon being closed.
The equity investment in that project for Skanska constitutes in the tune of $150 million. So wrapping up the P&L and looking at the group, we have an operating income from all the business streams I've been talking about of SEK 9.7 billion. If we take out the costs for us at the center line and also the eliminations, we end up an operating income of SEK 9.087 billion. And that's SEK 9.099 billion after financial items. The taxes of SEK 970 million is very low. It's 11% if you look on the percentage number. But Autopista was done as a share deal, and this does seem to be a tax zero impact for Skanska, so it's a bottom-line impact. If you adjust for that, you get that 21%.
The earnings per share was SEK 19.72, and as you once said, of that basis, we did the SEK 6.25 in extraordinary dividend, which we got the proceeds from Autopista in April, and we handed SEK 6.25 out to the shareholders in May. So that was a quick turnaround on our cash accounts. We have a total balance sheet of SEK 82.8 billion. And that increase compared to last year is predominantly on based on the fact that we are investing in the development businesses, and also the acquisitions made at the late part of 2011. The net debt was SEK 2.9 billion, and I will be going through how we came from 9.9 to 2.9. But we still have a very good financial position.
As you once said, crucial and very elementary for driving the development businesses and investing in them is to make sure that we have a very efficient and lean cash flow from the construction businesses. This graph shows you the negative working capital, i.e., that we get prepayments and in advance. So you can see that on an absolute level, the dark blue bars, the working capital was more or less unchanged over the year. And that is because, the more mature project handed settled a lot of cash outcomes as was expected during the year. I'm sorry. And at the same token, we started to get invoicing on the growth we had on the revenue side. I'm sorry, I'm...
You talk too much these days.
Sorry for that.
So we are measuring this on a five-quarter weighted average and a % compared to the revenue, and that amounted to 16.2% at the end of the year. So it's still on a very good level, I would say. But the mature projects, we will continue to settle with subcontractors and partners. But we will also see the benefit from having an increased order booking situation and book-to-bill ratio. That's why we are talking so much about it. Looking at the change in the equity over the year, we went from an opening balance of SEK 20.8 billion to an end of the period equity of SEK 19.6 billion.
In the quarter, we took an additional SEK 300 million hit on the pensions, taking the change in the pension debt to SEK 2.6 billion for the year. This is predominantly caused by the fact that the long-term interest rate has dropped significantly over the year, which means that the debt we have on the defined benefit schemes have increased. Also, people, even though I'm coughing now, people tend to live a bit longer in Sweden. So, that has also increased the debt for these people, which also actually offsets a positive development on the Norwegian pension. Taking the cash flow, you can see that we had a zero working capital last year for the full year, had a very positive fourth quarter.
On the net investments, they seem very small, at SEK 1.1 billion for the year. But if you take out the proceeds of Autopista, you can see that we actually invested SEK 4.6 billion in the development streams and in the construction business over the year. And in addition to that, we also invested SEK 1.4 billion in the businesses acquired. So, and then we handed out the ordinary and extraordinary dividend, in total, SEK 5 billion. We took the cash flow for the year to SEK 4 billion. Those SEK 4 billion then also, the big difference was then the pension liability, which increased then by SEK 2.6 billion. We are not, as you know, all know, we are not using the corridor method, so this might be an interesting exercise for those companies who are still using the corridor method.
But so that will take, that will take, took our interest-bearing net debt to SEK 2.9 billion. When we look at the real cash in the business, we do two changes. First of all, we add back the pension liability, because that's something that will sort of never be realized over a very long period of time. The other thing we do is also we add back then the loans we have in the co-ops, in the residential business, and we call that our investment capacity. At the year end, that amounted to SEK 9.5 billion, and that is sort of the true net cash of the business. And my last slide, it's the investments. I've been talking about the net investments.
So you see the net investments of +SEK 3 billion here. Rolling out Autopista will give you a -SEK 2.4 billion. And to get up to the -SEK 4.6 billion I talked about, you will also have then to add the investments we are doing in CapEx in the construction business. The capital employed is SEK 25 billion, which has increased then compared to 2010. And SEK 12.7 billion in resi, SEK 11 billion in commercial, and SEK 1.4 billion in infrastructure development. We see that the returns we get on the development businesses on the commercial side and infrastructure development side has been very good. So that's a very good business for the shareholders. Johan?
Thanks, Peter. We have a couple of minutes now before we open up for questions. So I will cover the market outlook very, very quickly. In general, there is a lot of bid activities, a lot of projects out there in the market, but tough competition. I know that I said it in many presentations. It's not really a change here, but I just want to mention it's not an easy ride to land projects. It's a lot of companies out there that want to go for them as well, including us. In general, positive outlook for the energy sector. That's the reason why we made a strategic investment in the U.S., and in Latin America, we are basically focused on the energy sector there.
Stable in the Nordics, in the U.S., and in Poland. In general, I would say for larger civil projects coming out to the market. Healthcare sector is another other part that it goes across the borders. The underlying need for healthcare is there regardless of where we are in the business cycle. And I think it's gonna take quite a time before the politicians in several markets start to cut down the healthcare services for that they provide for the societies. High-tech buildings, which also mentioned, is an other interesting niche, which we believe that we will continue. Weaker outlook in Czech Republic and U.K. Regarding residential development, a slight difference in the Nordics.
Sweden and Finland follow each other very closely from a market standpoint. It takes longer time to sell an apartment. People tend to wait and see, can a family afford to buy? They don't rush into those deals. There is some uncertainties on the horizon from the consumers regarding what's happening in the Eurozone, and they hear a lot of different things here. So, that has caused some cautiousness from the consumer in Sweden and Finland. It's not a standstill as we saw after the Lehman Brothers crisis in 2008, not at all, but we can see something slowing down here. In Norway, it's a little bit more stable. They have another underlying economy there.
But I think that we should be cautious going forward and take a look at, you know, the projects that we start up on speculation. We don't see that it's slowing down, but I think that we should have a look at and follow very closely. Czech Republic, weaker, and in U.K. and Poland, we are focusing on a micro market, outside London, in Cambridge for the moment, and some of interesting sites in Warsaw. So I think it's more of a discussion re- for us of getting hold of the right price there. Commercial Development, still a need for new, modern, green, energy-efficient offices.
We see that there is a demand for those premises, but also, I think it's good, we can also see an interest from the transaction market once they are completed, even if there is fewer buyers out there now when we had the Euro crisis. But it's still a flight to quality, so if you have the right product, it's definitely a market for on, on the transaction side there. In the U.S., we have four cities that we target, and we see opportunities there. In 2011, we delivered profit or capital gains from divestment from the portfolio here in the Nordics, primarily Sweden.
Going forward, we expect that it's gonna be projects from several of the markets, that's coming up on the divestment list, because they have reached that stage when it's time to go to the market with them. And infrastructure development is not moving so much between the quarters. We see, we can see some progress that goes on in the PFI sector in the U.K. We see several projects coming back to the market there as in a little bit of a different shape sometimes. Some interest in other markets like Poland for civil products, more highways that they want to be built there, and also opportunities in the Americas, Latin America, and in the U.S.
But in the U.S., the project takes a very long time before they materialize in the market. So let me summarize here, how is it? Overall, it's a stable market with some exceptions. The focus for us is to integrate the acquisitions, and especially the strategic acquisitions that we made in the U.S., and continued high activity in Commercial Development and on the infrastructure development side. Intensive work with the turnarounds. We are, I would say, extremely eager to get them back on track and profitability. And high bid activity and the strong backlog that we have, we believe, gives us a good opportunity and a good foundation for 2012. So with that, Pontus, I think that we can open up for questions.
Yes. Then we will open up for questions, and we start with the audience here in Stockholm. Before you tell the question, please tell your name and what company you are representing.
Peter Trigarszky at Danske. Could you... I have two questions. Could you comment a bit on your two U.S. division performance, and then on the very strong order intake, how has, you know, competition been, been? And then secondly, you have sized up your investments quite a bit in CD. You know, is there room for continuing sizing that up, or are we around the level where you're happy?
Okay, if I start with the U.S. part of your question, I hand the CD over to you, Peter. But okay, so the U.S., yes, I think that we have a very strong operation in the U.S., both on building and on the civil side. The base for our operation in the U.S., if I start with USA Civil, that is in New York. We have a fantastic operation there in the northeast corner there, around the New York area. What we are doing now is that we are taking that knowledge, the people that we have there, and transforming them and moving them to other parts of the U.S. And we are especially talking about the West Coast.
So the one of the projects that you saw on the list of new projects that I showed here was a mass transit project in California. That project, we shouldn't have been able to go for that if we haven't transferred some of the very knowledgeable and people that we have there in the organization. And this is a strategic move to go into the West Coast. So that's one of the transformations that we're doing, including and on top of that, we go into new sectors and new geographies with the acquisition. The performance at the margin level, it's a little bit boosted with project that we landed in a very good market some years back.
We still have some of the large projects on the backlog, and we were going to work on them in 2012, and even go into 2013. But over time, it will be somewhat diluted with new projects as we come down to a more normalized margin. There is no dramatic shift here, but gradually, it's gonna go in that direction. On the building side, which is a little bit of another, is a different type of business. It's more, it's a low risk, low margin business. There we focus on the sector's high-tech buildings and healthcare. And I think that we have found the niches where we should work on, and we will continue with that.
And then it was CD.
Then it was CD.
Yeah.
And how much we can increase there?
How much? We can increase, definitely. And, of course, the Nordics is what the Nordics are in terms of size. But the Central Eastern Europe, for example, if you look on the Central Eastern Europe, you can expand very much into new cities, which are sort of more than 1 million inhabitants. We have 40 cities in Poland, which qualifies for that, so. You have 40 cities in the region which qualifies for that. But then predominantly, I would say in the U.S., we have just started to tap into that market, and there we see a lot of opportunities to grow in areas like Houston, for example, which has a very thriving business life right now with a lot of influx of people and businesses.
It's a very nice melting pot to be a part of. And that's a region where we, for example, we foresee of growing more.
Just to add to your, to Peter's answer here, is that the good performance we have in that business, of course, it's more interesting to put the money in the business where we see potential, there is a high performance and good return on.
Okay, Peter, was that an answer for your question?
Thank you.
Thank you. Okay.
Hi, David Savi from Pareto. A couple of questions on residential development, if I may. Starting off with the S&A in percentage of sales, you're talking here about adjusting operations to be in line sort of with the market conditions. You're at 8% now. Can you guide us, please, on what level you would feel satisfactory? Secondly, what about return on capital employed in R&D? You're targeting 10%-15%. You historically have been on 6%, you're currently at 3%. So when would you think you will reach the targeted level, 10%-15%? You mentioned also here, you're starting more than you're selling in the unit. You are at 58% sold. What's in production now? How low will that have to go before you will actually adjust your starts?
Finally, will you be a net investor in R&D also in 2012, like you were in Q4? Thank you.
That was a few questions, David. But you, you promised that you would come up with a few, so, and, and you outperformed. I would say on the selling and admin, sort of on, on a going concern level, 5%-6%, I think, is a good number for a residential business. You can count there two ways. You can cut down the overhead dramatically, or you can increase the volume. So, the question then was, with regards to return on capital employed. Well, the return on capital employed is nothing I write home about. Let's put it that way. And one of the reasons for, first and foremost now, is to get the, get sort of the momentum in finding a good level of starting a business.
Then gradually you will see the return on capital employed pick up. The issue now with the current market is that we have a big and very good land bank. But on the current volume, it's such a big sort of long turnover rate, so that kills the return a little bit, I would say. So it will take, I would say, a few years to come there to be realistic. And on the basis of your third question, this sort of startup percentage, we will not do anything stupid there. But we will focus on getting, achieving good sales levels in the projects we start, to start the new projects.
We are talking about a slower market, a more cautious market, which means that we need to be much more focused on the sales efforts, not lowering prices, but be more active, finding the right clients, et cetera. So be there more physically, you can say. And then, fourthly, net investments in R&D. I think that you can expect to find net investments in R&D as a stream. But if you look on the region, on the geographies, you will see the Nordic ones dwindled a bit, be reduced a bit, and increase in the new markets we have talked about starting up. Now we're investing in the U.K. and Poland, and those investments better get to come into use.
So starting up businesses in those areas and investments in those areas is sort of part which is showing some of the growth on the stream level. Did I pick all the things?
Okay, thank you, David. Tobias?
Tobias Kaj from Carnegie. You mentioned that it's two ways to get to the 5%-6%, but not which way you would, would like to choose. If we would continue to have a tough market in 2012, for example, could you sort of accept to stay on a very low return on equity or return on capital employed in residential development, or would we see a big cost-cutting program in Skanska in that case?
Well, with the big land bank, you will have to accept that it gradually becomes better. You will have to look on the capital, return on capital employed in the specific project. That should, of course, be meeting all kinds of targets to achieve. But on a total level, because you have a land bank of SEK 6.3 billion, it will hurt the return from a group level. And then you can say, "Okay, should we not stop any projects because the total looks bad?" That's not the right answer, because it will look even worse. So we will start projects on a sound basis, on the project-by-project basis in those markets and in the specific categories we are working in.
But it will take some time before the returns get into the range of 10%-15%, which we have mentioned before.
Given the current market situation, do you think that you will be able to increase the number of starts in 2012, or is that more a long-term ambition?
I think that again, it comes back to the new market, new markets we are looking at in terms of if we're going to show a growth or not. But, we will not do anything stupid in an unsecure and uncertain market.
The market will actually decide that for us, because each project that we go for in the market, we have a pre-sale hurdle, and it differs somewhat between the various market and the various projects. It can go as low as 20%, it can go up to 50%. We tailor-made as where we set the target there. And, so we launch the project, and when we reach the pre-sale hurdle, then we kick off and go for the project. So which means that, it's actually the market that will drive the size of our business. That's the model we use.
If we look at the U.K. and Poland, you're still in a startup phase in those two markets, so they are not contributing to earnings. Will that be the same case in 2012, or when do you expect them to start to contribute?
Well, I think that it will take much longer in the U.K. than it will take in Poland. And let's see if they can match our bet that we have made internally. But it's to start up a business one year and expect a profit the next is a very far-stretched target. U.K., we are taking step by step there to do a very successful launch. But it is a more mature market and much higher prices, so you need to be right on the mark in terms of starting there. So it will be tougher to reach it in 2012 in the U.K. compared to the Polish business, but it's still a far stretch that quickly.
Thank you.
Thank you, Tobias.
Thanks, Pontus. Niklas Anger. Just some questions on the acquisitions you have made. What's actually the tangible equity in those entities combined and net income for the last 12 months? And also, how much of more acquisitions are you actually targeting for the coming years?
Well, I think that if I can come back to you on the intangibles ones, and the earnings-
I can start with the back end of the question.
Yeah, yeah.
If you talk about the further acquisitions, the target market for us, where we want to expand, that's primarily U.S.
You can see where we want to expand. It is the high-margin business in USA Civil, and it's in niches, and it's in geographies where we can complement and build out the operation. Because we have a strategy to build a nationwide civil operation in the U.S. So that's where we continue to look at the market and look for acquisitions. It's not easy. I think that we looked at more than 100 companies before we really came down to the one that was right for us.
Now we have to integrate that company, carve out the synergies, but we continue to take a look here, but we are not in a rush. I don't know if you want to-
In terms of intangibles, it's added roughly SEK 950 million.
Thanks.
Thank you, Berg. I think we had Niklas here.
Yes, hi, Niclas Höglund, Swedbank. A couple of questions, if I may. If we come back to Sweden, we're seeing that NKS is... Well, we're starting to see the building is growing here. Could you maybe elaborate a little bit on the percentage of completion in the project and if it's starting to contribute to earnings?
The project is somewhat more than 10% completed. And we don't disclose the profit level that we book—that we have the various projects booked in, but I can give you an idea of what strategy we have regarding large projects. Large projects, when we book them, we book them on a very low level. The reason why we do that is that there is still a lot of risk within the project. And then if the pro—you know, during the project, the lifetime of the project, we gradually move the profit level up to the level where we think that it will end up.
So in a typical project, profit recognition in a project that goes over several years, it's not a straight line like this. The profit recognition, it goes like this. And that is the right model to use, and that model we use for NKS.
So then I should expect more profits than less, I expect.
If it goes according to plan, that will show up more money at the end, the back end of the project. That's correct.
Great. Now, just moving over the Atlantic, talking about ICI, the industrial acquisition in the civil business, could you give us some more flavor on the order backlog? Because I saw that it was only SEK 570 million in the backlog on related to acquisitions, and it's a $500 million business. We're spoiled with more backlog in civil.
Yeah, and very good question. I'm glad to answer that one, because I think it's important to understand that they have a somewhat of a different type of mix of business. What they do, they go into power plants and go into maintenance and service and rebuilding of them. So what they have is, like, you know, they have several frameworks, framework agreements on large power plants and large chemical plants, and which means that they stay there for several years, but they book, so speaking, a smaller project as they go. So they have a completely different profile of order bookings and large projects compared to USA Civil. So it's nothing to be concerned of, but that's the explanation why it is a different dynamic here.
What we will do now with the business is that, you know, with the knowledge of large, complex projects and the strong balance sheet that we have, we will use that knowledge and go for larger projects with their skill sets in the energy sector.
Thank you.
Thank you, Niclas. Any more questions here from Stockholm? Then I think we pass over to the telephone conference.
Ladies and gentlemen, if you have a question for the speaker, please press zero one on your telephone keypad, and you'll enter a queue. We have a question from Mr. Jaap Kuin from ING. Please go ahead, sir.
Good afternoon. My first question will be on margins, and specifically on Norway, Finland, and Poland. I was hoping you could comment a bit on your expectations for next year on the margins in those three countries, please.
Yeah, I can give you my view. More, Finland and Norway, they underperform of the profitability level they should do. They should be on. And Poland, they are boost. The margin is boosted by the large projects. They will, over time, come down to a lower level.
Can you be a bit more specific on the timing? Is there, for example, for Norway, can we expect a more normalized profit margin next year already?
Nobody is more eager than us to come back to, to profitability. It will be some project that goes into 2012 with 0 profit, because when, when you write it down, you have to complete the project, which we called dead volume, as it's, and, with, with no profit. So that's gonna take down the, the, the, the profit level in, in, in those markets.
Okay, thank you. And then my next question would be on a potential weather effect, given positive effects in first quarter of last year and also in the fourth quarter. Is that something which influences your business? And would there be any negative comparable in 2012?
Well, in this part of the woods, it's a negative impact on the first quarter because it's frozen everything. And I think the winter entering into 2011 was very difficult. With that said, we had a Dutch winter with very warm weather, so we had a good sort of turnout. Well, that partially explains the growth in revenue in the fourth quarter, because we could produce so much longer in the winter. But seasonal impacts happens unexpectedly often, so it's hard to say whether it will happen in 2012, regarding spring and the new winter.
But snow in Sweden, I think, is normal at this time.
Okay.
Built into the schedules and estimates.
Okay, thank you. This is very helpful. Thanks.
Was that all? Thank you, Jaap. I think we have to go to our last question from the telephone conference.
Next question is from Mr. Will Morgan from Goldman Sachs. Please go ahead, sir.
Hi there. I have a few questions. The first one, could you talk a bit about your average selling price in the real estate development business? It looks like your average selling price has gone up, which I was a bit surprised by, because I thought the mix was shifting a bit more to kind of prefabricated houses, et cetera. The second question is, in terms of your gains in commercial, I just wondered how your selling prices compared to your original market valuations. The third question I had was just on the outlook for US orders into next year. I realize that U.S. Civil is going to be very lumpy indeed.
But when I look at the Midtown Tunnel contract, I mean, that seems to be, if I just looked, about around 34% of your U.S. Civil order bookings that you had in 2011. I mean, can we just think about that as a sort of base level of growth, or is that just going to be part of keeping the whole situation stable, given the big orders you've had in this year? Just any kind of color on that would be very helpful. And then I guess my final question is that if I add back some of the write-downs you've had this year, you're looking at an underlying margin in construction of around 3.9%, I think.
Clearly, it sounds like it's not going to go immediately back to that level, but I just wondered, with all the kind of shifts in shape and size and focus in this business, where you really see a more normalized margin being over the medium term? Thank you.
Let me start to address some part of your question here. The selling price in the residential development depends very much upon, you know, which product we have, product mix that we have sold. The BoKlok, the low one, has lowest selling price because it's a more simplified product. So it's more a question of what mix we have in the portfolio and what part of that portfolio has been sold. If you talk about Commercial Development, we sell generally over our own market valuation. U.S., coming back to the order situation and the backlog that we have there, 2012 is more or less in the bag.
And, the new orders that will come in will not have an impact on, on 2012. Very little, because it takes some time before you start them up, so it's a question of projects for 2013 and further on. But of course, on top of the backlog that we had in our business, you have to add the size from the acquisition. I don't know if you can comment, Peter, on the margin here.
Well, the margin, as you know, Will, we have a target of between 3.5%-4% over a business cycle. And I think that we will not expect Poland to be delivering this kind of margins forever, USA Civil either. At the same token, we were gonna sort of turn around Norway and Finland. So that range would give you an indication of where we expect the business to be in.
Okay, thanks. If I could just follow up very quickly on your initial comments on the residential development.
Yeah.
I think the mix is key, but could you maybe just give a slight feel for how you see the mix of likely sales being in 2012, or is that not possible to speculate on at this point?
Well, we have a certain plan, of course, but then the market is the market. I think that we are predominantly looking on starting our projects in sort of the core. That's not neither premium nor sort of value, because the core clients have a sort of- They are already in on the property market. They are, they have good jobs and good earnings, so it seems quite resilient. It is also the type of a category that you find in the larger cities, in Stockholm, in Gothenburg, in Malmö, in Sweden, and in Oslo and Stavanger in Norway, for example.
The value segment, that's the newcomers of the market.
Yeah.
Sure. Okay, great. Thank you.
Thank you, Will. With that, I think we will close down this presentation from Skanska. As you can see here on the last slide, we are actually celebrating 125 year in business this year, so you will probably see us next quarter as well. Thank you.