I'm André Löfgren, and I'm heading up Investor Relations at Skanska. We are about to kick off the presentation of our three-month report for 2019. It's held here in Stockholm, live at our headquarters, but there's also a bunch of participants on the web. You will all be able to ask questions after the presentation. It will be held by our CEO, Anders Danielsson, and also our CFO, Magnus Persson. With that, I'll leave it to you, Anders.
Thank you, André. Good morning. Good morning. Before I start, I want you to look at the picture here. It's one of our large project in the U.K. We are having the contract to transform the old and historical Waterloo Station in London. If I start to summarize the first quarter here, first three months, is in 2019. Start with construction. We are seeing gradually improvement in the profitability, and that is really important and also encouraging. We have a 1.1% margin in the first quarter, and I expect it to gradually improve. We can see also continued project development that we perform. We perform good in the Residential Development. In the commercial development, it's low activity, and that's usual for the first quarter.
We can also see that the transaction we have made in the first quarter is smaller compared to previous comparable quarters. Unrealized gain in project development portfolio is SEK 12.9 billion, and that's also encouraging if you look at the future, that we over time have created a lot of value, realized a lot of value in the commercial development, at the same time as we build up the unrealized value for future profit. The return on capital employed in project development overall is 9.7%, very close to our target of 10%. We have a return on equity for the whole group, 13.4%. That's below our target of 18%.
We are maintaining a strong financial position in the company, and we also see that the market supportive; it's very supportive for our operation, both in the Nordics, Europe, and also in the U.S. Going through a different stream now, starting with construction. The revenue is SEK 35.3 billion in the quarter. We have an order book of SEK 27.3 billion. Here, you should look at more over time on a rolling 12-month basis instead of a single quarter. So the book-to-bill ratio, in a rolling 12 months, is 92%, and it's also perfectly in line with our strategic action, which we took more than a year ago.
The operating income SEK 331.71 million, and we have an operating margin of 1.1% in quarter one. The-
Welcome, everyone. I'm André Löfgren, and I'm heading up Investor Relations at Skanska. We are about to kick off the presentation of our three-month report for 2019. It's held here in Stockholm, live at our headquarters, but there's also a bunch of participants on the web. You will all be able to ask questions after the presentation. And it will be held by our CEO, Anders Danielsson, and also our CFO, Magnus Persson. With that, I'll leave it to you, Anders.
Thank you, André. Good morning. Good morning. Before I start, I want you to look at the picture here. It's one of our large project in the U.K. We are having the contract to transform the old and historical Waterloo station in London. If I start to summarize the first quarter here, first three months, is in 2019. Start with construction. We are seeing gradually improvement in the profitability, and that is really important and also encouraging. We have a 1.1% margin in the first quarter, and I expect it to gradually improve. We can see also continued project development that we perform. We perform good in the Residential development. In the commercial development, it's low activity, and that's usual for the first quarter.
We can also see that, the transaction we have made in the first quarter is, smaller compared to previous comparable quarters. Unrealized gain in project development portfolio is SEK 12.9 billion, and that's also encouraging if you look at the future, that we, over time, have created a lot of value, realized a lot of value in the commercial development, at the same time as we build up the unrealized value for future profit. The return on capital employed in project development overall is 9.7%, very close to our target of 10%. We have a return on equity for the whole group, 13.4%. That's below our target of 18%. Maintaining a strong financial position in the company.
We also see that the market supportive, it's very supportive for our, for our operation, both in the Nordics, Europe, and also in, in the U.S. Going through a different stream now, starting with construction. The revenue is SEK 35.3 billion in the quarter. We have an order book on SEK 27.3 billion. Here, you should look more over time on a rolling 12 months basis instead of a single quarter. So the book-to-bill ratio, so in the rolling 12 months, is 92%, and it's also perfectly in line with our strategic action, which we that we took more than a year ago. The operating income, SEK 331.71 million, and we have an operating margin of 1.1% in the quarter. The first quarter is always a slow quarter due to seasonality.
We have low activity, usually in the first quarter, and this is no exception. We also see that we're gradually improving the profitability in the construction stream. And that is very encouraging for me, that it's starting second quarter in a row that we see continuous improvement. The overall ambition here, or target, is, of course, to continue to restore the profitability and reduce the risk in the construction stream. Going to residential development. Revenue here is SEK 2.1 billion. We have sold, increased the sold homes to slightly to 740 in the quarter. We started less homes than compared to previous comparable quarter, but we started 423 in the first three months.
The operating income, SEK 198 million, and we see operating margin for 9.2%, which is also very close to our target of 10% operating margin. Return on capital employed, above our target for 10%, we delivered 11.3% in the quarter. We continue to see a slow residential market here in Sweden. The good thing about our position now is that we are diversified when it comes to geographies. We also diversified when it comes to segments. So we can continue to see the trend that the low segment, the BoKlok concept we have here in Sweden, continue to increase their part of the business. So we, we are in a good position, and the ambition here is to continue to strengthen our position and continue to grow it in the long term, as the market allows us, of course.
Commercial development, property development, operating income, SEK 84 million. The gain on sale, SEK 345 million. Here we have a, in it, it's a slower quarter when it comes to activity, how big divestment or big project we all have divested in the quarter. But we have good, reasonably good margin in, in the quarter, in the divestment, and we also have a lot of activities. You can see here, we have 52 ongoing projects. We have corresponding to investment of SEK 41 billion upon completion. And we also have a good, mix between the occupants rate and the, completion rate. They are both 51 versus 53%, so they should follow each other, which they are. And we have started five new projects in Q1.
The leasing activities has increased in the quarter to 86,000 square meters, and we can continue to see a high interest amongst both, tenants and investors. And that, in combination with, how much unrealized value we have in the portfolio, makes me confident that, we will be able to continue to, deliver good results from the commercial property development stream going forward. The order situation in construction, as I said, we have a book-to-bill ratio of 92%. That's, in line with our strategic actions. We have, order backlog of SEK 90 billion. So we have a healthy backlog. And if you look at where have we taken our order in the last 12 months, and also in the quarter here, you can see that on a rolling 12-month basis, as I...
You should look at, we have over 100% book-to-bill ratios in the Nordics, where we have performed well over time. We also have a lower book-to-bill ratios in Europe and U.S., which is natural and in line with our strategic action. It's profit before volume, that's, the strong messages, and we are determined and focused to continue to gradually improve the profitability in construction stream. With that, I leave it to Magnus to elaborate more about the financials.
Thank you, Anders. We dive into the construction business then, and if you look at the volumes here, we're just North of SEK 35 billion in the quarter. If you translate this into the local currencies, which makes a lot more sense. We're actually coming down around 5% there in revenue quarter-over-quarter, which is then also in line with what we're doing in terms of order intake. You saw the book-to-bill at 92%, and now we're decreasing the volumes in local currencies somewhat. So we, this is sort of the start of something that will continue a little bit, and it's fully in line with the stricter bid criteria that we now have in place here. Operating margin at 1.1%.
Obviously, this is below what we would like it to be if you look at the full year basis. As Anders already pointed out, Q1 is always a slow quarter for construction, and also in this case, we have the seasonality effects, especially in Europe, which I will show you in a minute there. Selling and admin is, I would say, at a reasonably good place at 4.5%. If we go into the different regions then, you can see Nordics coming down in margin from around 3%, Q1 2018, to around 2% now in the 2018. And basically, the whole of this movement is due to the performance in the Swedish construction operations.
It's not unusual that we have this level in the Swedish operations in the first quarter. I think in any project-type business, you should be a little bit careful in making extrapolate individual quarters into the future too much, yeah. In this case, we had some closeouts of very good projects in the Q1 in 2018 that gave a fairly high margin, and we don't have that in this quarter now in 2019 here. Then if you look at Europe, SEK -94 million, this is a large part due to the performance in Poland and the Czech Republic, which almost always have negative first quarters because the production is not up and running in these business units during the first quarter.
So they are basically taken over a bit by the overhead cost structure, and then the profit comes in Q2 to Q4 instead. In this case, not fully compensated then by the performance in U.K. here. U.S., $195 million, seems like a big step down from last year, but you have to recall that in 2018, we had a fairly large settlement of claims in the U.S. civils business to the tune of $200 million. So if you were to take that out from 2018, you can say that the performance here is basically in line with where we were last year. And if you look at the trend there now, as Anders pointed out, we see a continuous improvement of the performance in construction. We had a negative first quarter last year.
We had 0.7% for 2018, and now we had a profitable Q4, and now a 1.1% in Q1 2019 here. So we see this sort of gradual improvement and also better, more solid performance, underlying performance in the construction business, which feels good. Residential development, here we can see volumes going up from around SEK 1.9 billion- SEK 2.1 billion. Operating income around SEK 200 million here, and I'd say a decent operating margin at the stream level of around 9% there. We don't have any significant effects as we've had in some other quarters due to the release of risk reserves in projects that are close to completion in this quarter. So this is much closer to sort of the underlying margin here.
You can also note here, the selling and admin expenses at close to 8%. Obviously, Q1 is a slow quarter, volume-wise, for almost all of our businesses here, and also in this case, and that has a toll on the overall performance here. If you look at the various geographical regions, you can see the Nordics are coming down in margin from 12 to around 9%. Also, in this case, mostly explained by the Swedish business. And the residential margin or the margin in the Swedish residential business at just below 5% is obviously something that we are not satisfied with. I can say performance in the southern parts of Sweden is good and stable, whilst we have a more sort of challenging situation on the Stockholm market there.
If you take that and you add the S&A component to this, that we have Q1 as normal low-volume quarter, while S&A is evenly spread over the year, this is unfortunately the sort of outcome of the operating margin level here. We have for some time, and are still driving actions here to adapt our overhead cost structure to the current market situation. The performance in Europe is good. I would say this is a smaller business unit, but very solid operating performance with 11% margin. The markets in Central Europe here is say flattening out a little bit, but we still have a very solid market and also good performance there.
Homes started and sold, you can see that these lines in the chart is converging now, going together, with started being much closer to the number of sold homes, and we have discussed this.
The order situation in construction, as I said, we had a book-to-bill ratio of 92%. That's in line with our strategic actions. We, we have order backlog of SEK 190 billion. So we have a healthy backlog. And if you look at where have we taken our order in the last 12 months and also in the quarter here, you can see that on a rolling 12-month basis, as I-- you should look at, we have over 100% book-to-bill rates in the Nordics, where we have performed well over time.
And we also have a lower book-to-bill rates in Europe and U.S., which is natural and in line with our strategic action. It's profit before volume, that's, the strong message is, and we are determined and focused to continue to gradually improve the profitability in construction stream. With that, I leave it to Magnus to elaborate more about the financials.
Thank you, Anders. We dive into the construction business then, and if you look at the volumes here, we're just North of SEK 35 billion in the quarter. If you translate this into the local currencies, which makes a lot more sense, we're actually coming down around 5% here in revenue quarter-over-quarter, which is then also in line with what we're doing in terms of order intake. You saw the book-to-bill at 92%, now we're decreasing the volumes in local currencies somewhat. So we, this is sort of the start of something that will continue a little bit, and it's fully in line with the stricter bid criteria- criterias that we now have in place here. Operating margin at 1.1%.
Obviously, this is below what we would like it to be if you look at the full year basis. As Anders already pointed out, Q1 is always a slow quarter for construction, and also in this case, we have the seasonality effects, especially in Europe, which I will show you in a minute there. Selling and admin is, I would say, at a reasonably good place at 4.5%. If we go into the different regions, then you can see Nordics coming down in margin from around 3%, Q1 2018, to around 2% now in 2018. And basically, the whole of this movement is due to the performance in the Swedish construction operations.
It's not unusual that we have this level in the Swedish operations in the first quarter. I think in the project type business, you should be a little bit careful in making extrapolate individual quarters into the future too much, yeah. In this case, we had some closeouts of very good projects in the Q1 in 2018 that gave a fairly high margin, and we don't have that in this quarter now in 2019 here. If you look at Europe, minus SEK 94 million, this is a large part due to the performance in Poland and the Czech Republic, which almost always have negative first quarters because the production is not up and running in these business units during the first quarter.
So they are basically taken over a bit by the overhead cost structure, and then the profit comes in Q2 to Q4 instead. In this case, not fully compensated then by the performance in the U.K. here. U.S., SEK 195 million, seems like a big step down from last year, but you have to recall that in 2018, we had a fairly large settlement of claims in the U.S. civils business to the tune of SEK 200 million. So if you were to take that out from 2018, you can say that the performance here is basically in line with where we were last year. And if you look at the trend there now, as Anders pointed out, we see a continuous improvement of the performance in construction.
We had a negative first quarter last year, we had 0.7% for 2018, and now we had a profitable Q4, and now a 1.1% in Q1 2019 here. So we see this sort of gradual improvement and also better, more solid performance, underlying performance in the construction business, which feels good. Residential development, here we can see volumes going up from around SEK 1.9 billion to SEK 2.1 billion. Operating income around SEK 200 million here, and I'd say a decent operating margin at the stream level of around 9% there. We don't have any significant effects as we've had in some other quarters due to the release of risk reserves in projects that are close to completion in this quarter.
So this is much closer to sort of the, the underlying margin here. You can also note here, the selling and admin expenses at close to 8%. Obviously, Q1 is a slow quarter, volume-wise, for almost all of our businesses here, and also in this case, and that has a toll on the overall performance here. If you look at the, the various geographical regions, you can see the Nordics are coming down in margin from 12% to around 9%. Also, in this case, mostly explained by the Swedish business. And the residential margin or the margin in the Swedish residential business at just below 5% is obviously something that we are not satisfied with.
You can say performance in the southern parts of Sweden is good and stable, whilst we have a more sort of challenging situation on the Stockholm market there. If you take that and you add the S&A component to this, that we have Q1 as a normal low-volume quarter, whilst S&A is evenly spread over the year, this is unfortunately the sort of outcome of the operating margin level here. We have for some time, and are still driving, actions here to adapt our overhead cost structure to the current market situation. The performance in Europe is good. I would say this is a smaller business unit, but very solid operating performance with 11% margin.
The markets in the Central Europe here is flattening out a little bit, but we still have a very solid market and also good performance there. Homes started and sold. You can see that these lines in the chart is converging now, going together, with started being much closer to the number of sold homes, and we have discussed this in these presentations before. So in Q1 now, we started 400 units, and we sold 750 units approximately here. So it's sort of moving a little bit the other way. The quarter was very active also in another sense, where we completed around 1,500 units that have been in production, but now are sort of done, and are not in the production stock any longer.
And you can clearly see this also on the bar chart behind me here, where the number of units in production is coming down from close to 7,500- 6,500 there. So we're reducing the number of units in production here as we have completed such a significant amount. Sales rate at 69%, still a level that we are comfortable with. Obviously, we've been a bit little bit lower some previous quarters here. And then we add around 90 units to the number of completed unsold, but you need to put that in perspective to the 1,500 that we did complete during the quarter.
So the number then that is added to this unsold completed is, just shy of 6%, you can say, of the total number of completed units, which is sort of a normal level here. I think also what should be pointed out is what is most important is that we have a good churn of the units that we have completed, but still have not sold. And we are, on a quarterly basis, selling around one third of those units. So I would say we're not very alarmed by this situation. We have it well under control here. Commercial property development, as has already been pointed out, Q1 is normally a slower quarter, and also so in this Q1 here, a little bit in contrast to Q1 last year, where we had a significant amount of divestments.
So it looks like, the Q1 2019 is a very slim quarter, but I would say it's more normal in that aspect. We're making a good, good divestment gain on the units that we are actually selling here, though. So gain from divestments around SEK 200 million, and also a small, small write-down, in, in our European business of SEK 69 million. I should point out here that this is actually met, on another line in Skanska by a positive effect. So the total net effect here in the, in the, on the result is actually zero. If we look at the total portfolio, we have unrealized gains now of around SEK 9 billion, and we are successfully, increasing this, as you can see.
The green line here represents then what of these gains that we are realizing as we move over time on a rolling twelve-month basis. So we are realizing around SEK 3 billion on a rolling twelve-month basis. It goes, of course, up and down a little bit here. This is a piece of new information that we've added here. And if we take the total portfolio that we have, that is unsold, this is the completion profile of that portfolio. So you should read this chart as the bars represent the total investment in the projects when they are completed, and the time scale represents when in time do we expect to have completed these projects. So here you can see sort of the decay profile of the portfolio that we now have, that is unsold here.
And then you can see the green line, which represents the current, as of today, leasing, as of end of Q1, leasing status for each one of those properties. So the conclusion from this information is basically that we have a fairly large number of properties that are completed here over the course up until Q3 2020, and the ones that is closest that have the completion closest to today are fairly well leased. You also note in Q1 2019 here, we have a leasing rate of that property, those properties of 44% only. But I would like to add here that one of those properties is a multi-tenant property in the U.S., where we, by design, do not lease anything until that is sold. So we sell it completely unleased.
So it's not because of a slow leasing activity on the market or us. It's because of the business model here. So we feel pretty good about this. A word of caution, I realize that it's a bit alluring to take this and project it into the sort of gains, and we, when we will realize that, but it's not always so that we sell an entity exactly when it is completed. It may move several quarters, depending on the specifics of that property here. If we take the leasing in total, we are fairly well in balance in terms of leasing and the completion rate of the properties here, as you can see, and this is something that we always strive to have in a neutral market. They should be fairly aligned, the leasing rate and the completion rate.
In a very good market, they can deviate to one side, and in a slower market, we allow them to deviate to the other side there. We also had a good leasing start of the year with 86,000 leased square meters here. So it feels like we have a very good start of the year in, in commercial development. If we take the group, then we add everything together, we have total operating income from the business stream, so SEK 650 million, and then we have central costs, SEK 145 million. In that, we also have the former ID business now, which we call asset management, included by SEK 25 million. Then we have some eliminations, and everything adds up to SEK 488 million in operating income. Then we have an increase in financial costs.
Of that, the total increase from the financial costs due to IFRS 16 is SEK 70 million. So if we were to strip that out, we would actually have a positive financial net here, if you want to do the comparisons there. Taxes are at a reasonable level, and profit for the period then SEK 355 million. Cash flow, I would argue, it's a fairly uneventful quarter from a cash flow perspective. It's a little bit lower than Q1 last year, but normally in Q1, we have some outflows from the business. So, not anything spectacular in this sense here. You also note on the dividend line that we had not yet, at the end of Q1, released the dividend in terms of cash from the company.
Construction and free working capital then represents when in time do we expect to have completed these projects. So here you can see sort of the decay profile of the portfolio that we now have, that is unsold here. And then you can see the green line, which represents the current, as of today, leasing as of end of Q1, leasing status for each one of those properties. So the conclusion from this information is basically that we have a fairly large number of properties that are completed here over the course up until Q3 2020, and the ones that is closest that have the completion closest to today are fairly well leased. You also note in Q1 2019 here, we have a leasing rate of that property, those properties of 44% only.
But I would like to add here that one of those properties is a multi-tenant property in the U.S., where we, by design, do not lease anything until that is sold. So we sell it completely unleased. So it's not because of a slow leasing activity on the market or us, it's because of the business model there. So feel pretty good about this. A word of caution, I realize that it's a bit alluring to take this and project it into the sort of gains, and when we will realize that, but it's not always so that we sell an entity exactly when it is completed. It may move several quarters, depending on the specifics of that property here.
If we take the leasing in total, we are fairly well in balance in terms of leasing and the completion rate of the properties here, as you can see, and this is something that we always strive to have in a neutral market. They should be fairly aligned, the leasing rate and the completion rate. In a very good market, they can deviate to one side, and in a slower market, we allow them to deviate to the other side there. We also had a good leasing start of the year with 86,000 leased square meters here. So it feels like we have a very good start of the year in commercial development.
If we take the, the group, then we add everything together, we have total operating income from the business streams of SEK 650 million, and then we have central costs, SEK 145 million. In that, we also have the former ID business now, which we call asset management, included by SEK 25 million. Then we have some eliminations, and everything adds up to SEK 488 million in operating income. Then we have an increase in financial costs. Of that, the, the total increase, from the, financial costs due to IFRS 16 is SEK 70 million. So if we were to strip that out, we would actually have a positive financial net here, if you want to do the comparisons there. Taxes are at a reasonable level, and profit for the period then SEK 355 million.
Cash flow, I would argue, it's a fairly uneventful quarter from a cash flow perspective. It's a little bit lower than Q1 last year, but normally in Q1, we have some outflows from the business. So, not anything spectacular in this sense here. You also note on the dividend line that we had not yet, at the end of Q1, released the dividend in terms of cash from the company. Construction and free working capital then. This is something that we have been talking about quite a lot, and as you can see here, we in the end of Q1 had a very strong free working capital position in construction still. We have been indicating for a couple of quarters that this position is probably not sustainable, and we still do not think it is fully sustainable here.
Partly because, we have, what we call provisions for loss-making contracts that artificially inflate the net working capital, but also partly because we are taking down the volume by design in construction. So the nominal value of net working capital will come down. And the 15.2% that we have here now in the quarter is, of course, I would say, one of, the historical highs here, so we would not fully count on this staying up, so high. If we look at investments and divestments, you can see here that, we are continuously decreasing the capital employed in, residential development somewhat, which of course tracks the overall market development, especially in Sweden. And we're also increasing the capital employed in commercial development.
If you take the group as a whole, we are now in a net divestment territory, where we are divesting more than what we are investing here. We had a very strong Q4 in terms of divestments in commercial development, and we also have had a significant amount of handovers in the residential development stream here lately. So that explains the green line going above the zero marker up into the net divestment territory. Financial position, on the graph here, you can now see the new KPI that we introduced at the Capital Markets Day, which is the adjusted net debt. The position we had at the end of this quarter was SEK 0.9 billion adjusted net cash then, which is, I'd say, a solid level of that.
We have indicated also that we have a target that we should not go below, below -SEK 9 billion here. Then if you look at the non-adjusted net debt, that increases significantly here, but the reason to that is the IFRS 16 lease liabilities that comes into the balance sheet by the 1st of January this year. Then equity to assets are coming down to around 22%, but this is an effect of having booked up the equity that is to be distributed to shareholders via dividend there. Finally, the PPP portfolio that runs under the asset management organization, not a lot has happened here, actually.
We have a slight improvement in the unrealized development gain from SEK 1.1 billion to SEK 1.3 billion, totally driven by FX changes, and also by the de-risking in terms of time passing in the net present value calculations here. There's not a lot of underlying operational developments in any of these projects that explains this. Okay, Anders?
Thank you. Right, let's continue into the market outlook for the coming... Starting with the construction here, and it's still a good market. It's a bit of a mix in the Nordics. If we go to Sweden, we have a slower residential construction market. The commercial market, so if you read the report there, we have downgraded it somewhat. It's still a strong market, but we go from very strong to strong market, and that's mainly due to some more uncertainty where the Swedish economy is going, if you look 12 months ahead. But overall, a good market in Sweden, strong civil market. Stable building market and strong civil market continued in Norway, and in Finland, it's also a stable market.
In Europe, Brexit, the uncertainty due to Brexit, is continuing in U.K. We can see it, especially on the non-residential market in U.K., the commercial, that the investors are hesitating due to the uncertainty with Brexit. The civil market, though, in U.K., is continued to be stable. Stable building market, but a weaker civil market in Czech Republic. Poland, stable. We can see continuous cost escalation in Poland and Czech Republic. It's still an overheated market. In the U.S., continue to be a good market. We can see the economy is growing, the infrastructure investments are, we see a very good pipeline going forward. And we also, in the segments of the market where we are operating, in the healthcare, we are in the school, and all of those investments are continuing.
But it's fierce competition. If you go to residential development, continued slow market in Sweden. We don't expect it to recover soon. We don't expect it to recover in the next 12 months. And Norway and Finland are more stable. In Europe, Central Europe, it's slowing down somewhat after a very strong period of growth. And if you go to commercial property development, it's historically high levels on the market, and we don't see any signs of slowing down, and we still see a high demand from tenants, high interest from the investors, both in all our markets, the Nordics, Central Europe, and also in U.S. So if I summarize the group, the main focus continues to restore the profitability in the construction stream.
We see the good signs the last two quarters that we are improving, and we have the ambition to long-term continue to grow the product development in line with how the market allows us, of course. And we are adapting to a bit more slower market here in Sweden when it comes to residential development. Strong pipeline in commercial property development, and it's a high activity market in many of our markets and segments. So with that, I leave it to André to start up the Q&A.
Yes. Thank you, Anders, and thank you, Magnus. I think it was very crystal clear messages, but there might be some questions anyway. I think we can start here in this room, if there's anyone in this audience. Otherwise, we will open up for participants on the webcast. As I suspected, so I think we can please start open up questions on the webcast. Thank you.
If you do have a question for the speakers, please press zero one on your telephone keypad now. First question on the telephone lines are from Miguel Borrega from UBS. Please go ahead. Your line is open.
Please. The first one is your, on your order intake. I understand that this is quite volatile on a quarterly basis, but can you give us some color on the decline in the Nordics, excluding Sweden? And then my second question is on residential in Sweden, your margin in Q1 of 4.8% is quite weak. Is there anything in here that could justify this performance, any one-off that we should be aware of? And where do you see your margins going for the remainder of the year? Thank you.
I can start with the RD question here, 4.8% in Sweden. Is there any specific one-off that can explain that? I mean, this is a project business, and we always have many one-offs, you can say, in every quarter here, but there's not like one single big thing that explains this. Unfortunately, if you put it like that, we have a portfolio where we have this level of performance in the Q1 there. Now, we have certain areas performing very well, and then we have certain areas where we need to take measures and ensure that we have a better profitability there. In terms of the order intake, I'm not sure I fully caught your question there. Your question was regarding the development of the order intake for the parts of Nordic, excluding Sweden. Was that correct?
Yes.
Okay. I mean, we don't give any forecasts for order intake nor for anything else here. I'll say we are booking at the anticipated level, given the measures that we're undertaking with our selection criteria.
Just to follow up, do you expect the 4.8% in Sweden to recover for the remainder of the year?
We are not happy with this level of performance, and we will, of course, work to improve that so we can get to our targets that we have, which is 10% return on capital employed, and 10% operating margin here, which is what we think this business should deliver long term. But given the market situation we are in and the market where we come from, this will of course take a little bit time.
Thank you very much.
Next question is from Erik Granström from Carnegie. Please go ahead. Your line is open.
Thank you very much. I have a few questions, and perhaps we can start off with Construction Sweden. You stated that the low vol-
It's still a good market. It's a bit of a mix in the Nordics. If we go to Sweden, we have a slower residential construction market. The commercial market, we have, so if you read the report that we have downgraded it somewhat. It's still a strong market, but we go from very strong to strong market, and that's mainly due to the some more uncertainty where the Swedish economy is going if you look 12 months ahead. But overall, a good market in Sweden, strong civil market. Stable building market and strong civil market continued in Norway, and in Finland, it's also a stable market. In Europe, Brexit, the uncertainty due to Brexit, is continuing in the U.K.
We can see it, especially on the non-residential market in U.K., the commercial, that the investors are hesitating due to the uncertainty with Brexit. The civil market, though, in U.K., is continued to be stable. Stable building market, but a weaker civil market in Czech Republic. Poland, stable. We can see continuous cost escalation in Poland and Czech Republic. It's still overheated market. In the U.S, continue to be a good market. We can see the economy is growing, the infrastructure investments are, we see a very good pipeline going forward. And we also, in the segments of the market where we are operating, in the healthcare, we are in the school, and all of those investments are continuing, but it's a fierce competition.
If we go to residential development, continuous low market in Sweden, we don't expect it to recover soon. We don't expect it to recover in the next 12 months. Norway and Finland is be more, more stable. In Central Europe, it's slowing down somewhat after a very strong period of growth. Now, if you go to commercial property development, it's historically high levels on the market, and we don't see any signs of slowing down, and we still see a high, high demand from tenants, high interest from the investors, both in all our markets, the Nordics, Central Europe, and also in the US. If I summarize the group, the main focus continues to restore the profitability in the construction stream.
We see the good signs the last two quarters that we are improving, and we have the ambition to long term continue to grow the project development in line with how the market allows us, of course. And we are adapting to a bit more slower market here in Sweden when it comes to residential development. Strong pipeline in commercial property development, and it's a high market activity in many of our market and segments. So with that, I leave it to André to start up the Q&A.
Yes. Thank you, Anders, and thank you, Magnus. I think it was very crystal clear messages, but there might be some questions anyway. I think we can start here in this room, if there's anyone in this audience. Otherwise, we will open up for participants on the webcast. As I suspected, so I think we can please start open up questions on the webcast. Thank you.
If you do have a question for the speakers, please press zero one on your telephone keypad now. First question on the telephone lines are from Miguel Borrega from UBS. Please go ahead, your line is open.
Please, the first one is your, on your order intake. I understand that this is quite volatile on a quarterly basis, but can you give us some color on the decline in the Nordics, excluding Sweden? And then my second question is on residential in Sweden, your margin in Q1 of 4.8% is quite weak. Is there anything in here that could justify this performance, any one-off that we should be aware of? And where do you see your margins going for the remainder of the year? Thank you.
I can start with the RD question there, 4.8% in Sweden. Is there any specific one-off that can explain that? I mean, this is a project business, and we always have many one-offs, you can say, in every quarter here. But there's not like one single big thing that explains this. Unfortunately, if you put it like that, we have a portfolio where we have this level of performance in the Q1 there. Now, we have certain areas performing very well, and then we have certain areas where we need to take measures and ensure that we have a better profitability there. In terms of the order intake, I'm not sure I fully caught your question there. Your question was regarding the development of the order intake for the parts of Nordic, excluding Sweden. Was that correct?
Yes.
Okay. I mean, we don't give any forecasts for order intake nor for anything else here. I'd say we are booking at the anticipated level, given the measures that we're undertaking with our selection criteria.
Just to follow up, do you expect the 4.8% in Sweden to recover for the remainder of the year?
We are not happy with this level of performance, and we will, of course, work to improve that so we can get to our, the targets that we have, which is 10% return on capital employed, and 10% operating margin here, which is what we think this business should deliver long term. But given the market situation we are in and the market where we come from, this will, of course, take a little bit time.
Thank you very much.
Next question is from Erik Granström from Carnegie. Please go ahead, your line is open.
Thank you very much. I have a few questions. Perhaps we can start off with construction Sweden. You stated that the low volumes in Q1 usually means that it's also a slow quarter in terms of profitability. How do you view this market area for the full year? Do you still think that Sweden is a construction unit that should deliver somewhere north of 4%? Or does this change the picture of what we've seen so far in Q1?
I can, I can start. If you look at the first quarter in Sweden, you're right, it, it is a low, slow quarter seasonal, if you look at seasonal effect there. We don't see any big changes in the performance in Sweden. If you compare to last year, we had some one-off completed project that's boosted the margin in the first quarter. Over time, we don't give any forecast for going forward, but I don't see any big changes in the performance. It's still a good performance in Skanska Sweden Construction.
Okay, thank you. And then moving on to the U.S. operations, what could you tell us about the civil operations versus the building operations in terms of profitability in Q1? Is there a big difference? Is the civil still reporting somewhere in sort of red territory, or are they back at least break even?
We don't break it up in that sense, but I can say, comment on the general performance in U.S. Civil and U.S. Building. I'm encouraged to see that the action we took over one year ago in the U.S. Civil operation started to pay off, and we start to see gradually stabilizing the performance and the operations. So, that's encouraging. Then we have those large project with that revenue that we have to work ourselves through. That's going according to plan. And so overall, I'm encouraged to see that we've continued to follow the plan we have.
Okay, thank you. And then I have two more questions. One is related to residential development in Sweden. Just to follow up on that, you mentioned that you're not happy with sort of the cost structure, perhaps, given where you're at. Does that mean that we should expect you to announce sort of any sort of cost situation for the coming quarters, or are you, at this point, running the operations as is?
Yeah, I'll try to answer your question, Erik. I'm not sure I fully understood it. Shall you expect us to announce something regarding the cost situation in the coming quarters? I mean, changing the cost structure in a business, that is something that you always need to be very attentive to when the market moves, so we are always looking at this. And I'd say, I can't see that we would sort of go out and announce something about that, but it's a work that happens in the background, but it's extremely important in order to keep the right sort of scope of the organization and size of the organization to deliver in the market that we have here. This is a work that have been ongoing for a while, and it's still ongoing.
Okay. Thank you. And then finally was sort of a little bit of a detailed question on, on CD. Magnus, you mentioned that the write-down was somewhat, had a positive effect as well, and I'm not sure I completely follow. Does that mean that without the write-down, you would still report SEK 84 million in EBIT?
That's correct.
That's correct? Okay.
Yes.
Thank you. Those were all my questions.
Just as a reminder for all the participants on the telephone lines, if you do have a question, please press zero-one on your telephone keypad now. We have a question from Marcin Wojtal from Bank of America Merrill Lynch. Please go ahead. Your line is open.
Yes, good morning. So firstly, on residential, in the Nordics, outside of Sweden, I think in my, if my calculation is correct, the margin was very strong, something like 13%. So was it like a clean margin, or you had some positive one-offs, perhaps, in that business? And number two, regarding the implementation of IFRS 16, did it have any impact on your operating profit? And could you quantify it, perhaps?
I think those two questions, leans towards, me as the respondent. If we start with IFRS 16, I would like to guide you, Marcin, to the, to the release we had in the fourth quarter, where you can see the total breakdown of the impact of IFRS 16. That was not updated with the specific Q1 numbers, but you can still see the marginal impact it actually has on the operating income. In terms of RD, was that a clean quarter? I'd say it's a fairly clean quarter. I mean, we always have, and we have discussed this during last fall, some, positive effects when we release risk reserves, but there's always some negative effects, and we'll also take risk reserves there. So I'd say it's a fairly clean quarter outside of Sweden.
All right. Thank you.
There are currently no further questions registered on the telephone line, so I'll hand the call back to the speakers. Please go ahead.
All right. Thank you for that, and thank you for all your attention, and we will be back in Q2. All right. Thank you very much.
In Q1 usually means that it's also a slow quarter in terms of profitability. How do you view this, market area for the full year? Do you still think that Sweden is a construction unit that should deliver somewhere north of 4%, or does this change the picture of what we've seen so far in Q1?
I can, I can start. If you look at the first quarter in Sweden, you're right, it is a low, slow quarter seasonally, if you look at season effect there. We don't see any big changes in the performance in Sweden. If you compare to last year, we had some one completed project that's boosted the margin in the first quarter. Over time, we don't give any forecast for going forward, but I don't see any big changes in the performance. It's still a good performance in Skanska Sweden Construction.
Okay. Thank you. And then moving on to the U.S. operations, what could you tell us about the civil operations versus the building operations in terms of profitability in Q1? Is there a big difference? Is the civil still reporting somewhere in sort of red territory, or are they back at least break even?
We don't break it up in that sense, but I can say, comment on the general performance in U.S. civil and U.S. building. I'm encouraged to see that the action we took over one year ago in the U.S. civil operations started to pay off, and we're starting to see gradually stabilizing the performance and the operations. So, that's encouraging. Then we have those large, large project with that revenue that we have to work ourselves through, and that's going according to plan. So overall, I'm encouraged to see that we've continued to follow the plan we had.
... Okay, thank you. Then I have two more questions. One is related to residential development in Sweden. Just to follow up on that, you mentioned that you're not happy with sort of the cost structure, perhaps, given where you're at. Does that mean that we should expect you to announce sort of any sort of cost situation for the coming quarters, or are you, at this point, running the operations as is?
Yeah, I'll try to answer your question, Erik. I'm not sure I fully understood it. Shall you expect us to announce something regarding the cost situation in the coming quarters? I mean, changing the cost structure in a business, that is something that you always need to be very attentive to when the market moves. So we are always looking at this, and I'd say, I can't see that we would sort of go out and announce something about that. But it's a work that happens in the background, but it's extremely important in order to keep the right sort of scope of the organization and size of the organization to deliver in the market that we have here. This is a work that have been ongoing for a while, and it's still ongoing.
Okay. Thank you. Then finally was sort of a little bit of a detailed question on CD. Magnus, you mentioned that the write-down was somewhat had a positive effect as well, and I'm not sure I completely follow. Does that mean that without the write-down, you would still report SEK 84 million in EBIT?
That's correct.
That's correct? Okay.
Yes.
Thank you. Those were all my questions.
Just as a reminder for all the participants on the telephone lines, if you do have a question, please press zero-one on your telephone keypad now. We have a question from Marcin Wojtal from Bank of America Merrill Lynch. Please go ahead. Your line is open.
Yes, good morning. So firstly, on residential, in the Nordics, outside of Sweden, I think if my, if my calculation is correct, the margin was, was very strong, something like 13%. So was it, was it, was it like a clean margin, or you had some, positive one-offs, perhaps, in, in, in that business? And number two, regarding, the implementation of IFRS 16, did it have any impact on your operating profit? And could you quantify it, perhaps?
I think those two questions leans towards me as the respondent. If we start with IFRS 16, I would like to guide you, Marcin, to the release we had in the fourth quarter, where you can see the total breakdown of the impact of IFRS 16. That was not updated with the specific Q1 numbers, but you can still see the marginal impact it actually has on the operating income. In terms of RD, was that a clean quarter? I'd say it's a fairly clean quarter. I mean, we always have, and we have discussed this during last fall, some positive effects when we release risk reserves, but there's always some negative effects, and we'll also take risk reserves there. So I'd say it's a fairly clean quarter outside of Sweden.
All right. Thank you.
There are currently no further questions registered on the telephone line, so I'll hand the call back to the speakers. Please go ahead.
All right. Thank you for that, and thank you for all your attention, and we will be back in Q2. All right. Thank you very much.