Good morning, everybody, and a warm welcome to this Capital Markets Day. There's over 100 persons in this room, which we are very happy for, because it's an important day today for Skanska. We will launch the business plan that will take the company from 2016 to 2020. Before I go any further, I would like to point out the three emergency exits that we have from this room. You will have one emergency exit at the back of the room on your right-hand side. That will take you through a hallway straight out to the yard. You have another one over here, which will take you straight out to the yard, and you can also backtrack the way you came into the room and go the same way out through the building.
If something would happen, we would recollect at the fountain. That's where we would meet. Okay, I will just quickly take you through the agenda for today. Wrong button. Thank you. The day looks like this: We will start off with Johan Karlström, the CEO, who will make an introduction of the company. After that, we will have Peter Wallin, CFO, who will go through the outcome of the previous business plan. When Peter's done, Johan Karlström, Veronica Rörsgård, and Christel Åkerman will come up on stage and describe to you the new strategy, the new business plan for 2016-2020. After that, we will go into the business stream level and outline more in detail the business plan for the construction business stream and for the residential development business stream.
When that is done, we will have coffee, a coffee break, and coffee is served outside in the same place you found your coffee now when you came in. That will be approximately 30 minutes break. After the coffee, we will come back, and we will have the more detailed presentation of the strategy for commercial development and infrastructure development. And after the business stream section, Peter Wallin will outline the new financial targets for the company. Finally, Johan Karlström will sum up the day, sum up the strategy, and we will have a Q&A session. And in the Q&A session, we will have all the members of the Senior Executive Team here up on stage. After the Q&A session, we will have lunch. Lunch is served at the same place as you will find the coffee.
We'll have to ask you to wait with your questions, please. I know that it can be a bit itching for the Q&A session. Okay, with that, Johan?
Good morning, everybody. Good to see you here early Monday morning. It's not really early for us here, like, but in the construction business, we like to be up early. It's very quiet here in the room, so it looks... So I get the feeling that you that there is like in a very, like in an intense you are really looking at us here and see what what's gonna come out. But first, I just want to show you this slide here. And tomorrow, I'm going down to the Hallandsås project, started 23 years ago. And it has been like in a very long project, but tomorrow is gonna be like, you know, the grand opening, finally for that one.
Here you can see on the picture, the breakthrough when the big TBM machine, like, you know, went through. So it's gonna be good that we really put that in, like, you know, to give it to the society so they can, like, kind of start to use it and drive the trains through it. Just so everybody is, like, on the same page here, just to give you, like, a short overview of the company. We've been around for, well, close to 130 years now, listed on the stock exchange in Stockholm, and you can see that we are a global company. We operate in as several home markets, which we will continue with. I will show that on a map in a minute.
You can see that the revenue is SEK 145 billion last year, and a little bit more than 50,000 employees that we have on our payroll. But if you add all the people that is on the construction site, you have, like, in all the people that is, like, in the subcontractors' payroll, and the consultants, and the owners and so on, there is like more than 200,000 people every day on our construction sites around the world in the home market. There's a lot of people to take care of, I can assure you of that. So what do we do in Skanska? Well, one way to explain it is like the picture you see here behind me.
So you have like in a construction on the one side, and that's like, you know, where we have most of the people, of course, like, you know, the most of the revenue is coming from that side. But then on the other hand, we have the investment business in within Skanska. So that's like, you know, the two parts that we do. And on the investment side, the product development, you can divide that part into the three areas: residential development, commercial development and infrastructure development. Infrastructure development, though, is like, could be a misleading word. So just so you understand what it is, it can contain both social infrastructure or physical, like in a, like in a real infrastructure for like railroads and bridges and roads and so on.
It's more like in a way where we have concessions or a PPP project that we put into the infrastructure development part there. So all these three, they are like in a product development where we invest the money. If you take these two sides and look at the flowchart behind me here, you see the construction side on the left-hand side, and the product development, the combined one on the right-hand side. And the way we run it in Skanska, the financial model we have, the financial secret we have, is that all the thousand products in, on the construction, they generate positive cash flow. We don't tie up any capital there, if you look at it like an overall. And that positive cash flow is then used as the financing part of product development.
So instead of just put it on a bank and get zero from the banks today, we do something we understand, invest in our own products. And then, of course, we don't hire the competitors to build them, the product. So the product development people, that part of the organization, they buy construction with an arm's length distance from the construction site. And the interesting thing in here is, like, regardless of geography, regardless of where we want to drive and where we have the cash, we can use it. Because we can have like a positive cash flow, like in one part of the country or the operation, and but we can use it somewhere else in product development.
That's the reason why we focus so much on the cash flow and how much capital we tie up in the construction part. It's a very, very important, like, in a part of our business. That's like in how the whole model like actually works together within Skanska. Here you see the footprint of Skanska on the map behind me. We are not present everywhere. We have chosen our home markets, and we will stick to those home markets in the coming business plan. You can see up here that we have, like, in a one big part here in the Nordics, and that is, like in a 41% of the total revenue.
We have the rest of Europe, you see, like in a cluster of countries, like in Poland, Czech Republic, Slovakia, Hungary, Romania. And if you add a U.K. to that part, that part, like in the rest of Europe, that, that is like in a 23%. And the remaining piece, 36%, that is, is in the U.S. That is how the revenue actually looks like and how it comes out. But if you look at the EBIT, and now I, and here, the split here you see on the pie chart is not geographically, it's more like, it's like in the two parts I just described, construction versus the product development side. You can see that the EBIT is like in a coming out a little bit more than 50%.
And the numbers I show you here, that's on a rolling 12-month basis. And you can see that on the left-hand side, on the pie chart there, you have the dominant part is coming from commercial development, and it's also a growing part of the entire pie.
If you look at the GDP development within the various geographies and the countries where we have operations, and if you look at the GDP growth, how it has been the last 5 years, which was like in a during the current business plan that is ending in two to three weeks, end of this year, and the forecast for the coming business plan, the next five years, you can see here that in most countries where we have operations, it looks like the coming five years will have a slightly better GDP growth than the last five years. The only one we can see up here that is like in a trending a little bit on the other direction, that's Norway.
That's the place where they have got hurt, like, coming from the lower oil price. And we know that the construction market is very closely related to the GDP growth, slightly behind, because we are late in the business cycle, but it's very closely related to the overall GDP development. One trend which is like impact the whole society, impact Skanska, impact the construction industry, that is people are moving from the countryside into major metropolitan areas, into the cities. And if you go back, like, to 1990, four out of 10 lived in the cities. If you look just recently, 2010, it was five out of 10 people around the world that lived in the cities. How do you think it's gonna look in the future?
Here you have the projection for 2030, 6 out of 10. In 2050, it looks like the projection point at seven out of 10 will live in the big cities. And that goes for like, you know, all the, I would say, like, that, that's like in a global change, something that really happens. But it is very true also for the markets, all the cities, and all the places where we have operation. And the interesting thing here is like, you know, when you have a development like that, then there is a lot of other things that's also, like, an important. If you look at what we do within Skanska, 50% of the revenue in the construction, on the construction side, that's coming from the public arena, from the public sector.
We are doing healthcare, we're doing schools, we're doing infrastructure, we're doing a lot of different things. Which means that the public sector is, like, in a very important, if you talk about like in a, for us as a market. And you can see different things here that is also important for us when we choose places, when we choose markets, that is right for us. Political stability is also important because it's important for us that we can predict where the market, where decision makers will go. Transparency, to have, like, you know, the public finances in good order, that can actually go two ways. If there is lack of public finances, then, of course, like, in the PPP sector, can, like, be expanding.
But in general, it's always good to be in a city, in a place where there is public finances in order, so it's gonna be a lot of spendings there. But then, of course, like, in consumer confidence, and like in people, like, you know, how people are moving, and that the cities, the places we operate in, are expanding. It is also important, in the market, that we act according to the values. So we are perceived as a reliable partner, as that we are perceived among the politicians and the decision makers, that's that the company, Skanska, can actually run this business in a transparent and in an ethical way. Here, I want to take the opportunity to comment one case that was discussed in media during the spring this year.
I’m sure that several of you remember the allegation that came up in the media during spring regarding a project called R7 in Czech Republic. We decided at that time that we’re gonna start an independent, external investigation, and that the investigation was, has been run by Deloitte. They have reviewed more than 6,000 documents, looked at more than 130 emails, 130,000 emails. There has, it has been numerous interviews with a lot of people here, and the investigation has just been completed, just been completed, and they have not found any evidence of an ethical breach in connection with the R7 project.
So the investigation confirms that the internal audit that was done in 2011 to 2012 had confirmed that internal investigation, the internal audit, review, that the only error on that project was a breach against the internal rules of changing the JV share without getting approval from getting approval higher up in within Skanska. So when you look at cities, places, the market, what do we deliver here within Skanska? We actually deliver answers to the society's challenges, to the society's needs, when you see a big growth here, like in the transportation, healthcare, education, you know, in the houses, too, like, you know, all the people that is like in a move, moving in, and you need like in offices, energy, water.
That is exactly what we do within Skanska. So you can also say that we are a city builder. We are very much focused on the larger metropolitan areas and the big cities. So with that, Peter, can you explain a little bit, like, in how the outcome of the current business plan looked like?
I will do my best. Thank you very much, Johan. I'm sorry for my voice. I will be trying to do this as clear as possible, but if I burst out in coughing, please excuse me then. So a few weeks to go of 2015, and we are brave enough to state what we believe about the current business plan and the outcome of that. So we have divided this into the accomplished part and the not fully accomplished part. If we look at the first statement, industry-leading shareholder return, we think that we have achieved this one. And we are comparing ourselves with the markets in which we operate and in the sectors we are active within. And I'm going to show you a graph for that in a few moments.
Increasing investments into product development, our residential, commercial, and infrastructure development streams, that has also been achieved. The financial in the synergies in the group to expand that and increase that during the business plan period. And that is the model that Johan explained, by using the cash and the knowledge in the group in a better way to give, premium returns. We also stated that we would be an industry leader of green and people development. If we look on the green, for example, that has been a very quick and fast process in which, the demands for what we can contribute as a builder and as a developer has increased dramatically over this period of time. We have increased our capacity with this regard, and, we have today, many business units which have a lot of green proportion of their backlog.
Some business units have actually more than 75% of their backlog in green-related projects. This is a development which we continue to see, but the more developed the requirements increases, of course, and what is green today will not perhaps be green tomorrow. People development, and I feel nervous sitting in front of the HR director talking about people development. But it is the absolute most crucial part in the business to develop our people, to have new, strong leaders and managers in this business. That is the foundation to manage our projects and our business, and that is the foundation to continue to develop our business. We have seen that so many times where we have it and where we don't have it.
We think that we have developed world-class processes here, and we will continue to develop ourselves within this area, which we will hear in a few moments about. So let's see where we have not fully accomplished what we stated five years ago. We said that we would increase our market share in construction in the markets in which we operate. We have just managed to keep our market share here, over the course, if you just take the general view. We further stated that we would continue to increase our operational synergies. We have continued to bid and cooperate within the business units and business in Skanska in order to secure very good projects and in order to execute them well. But we can do so much more in this area when it comes to procurement, and productivity, and efficiency.
We also said that we would be the industry leader in safety, the well-being of our people, and for them to return safely from the work every day. This is an area which you never, ever can say that you are green on if you have any accidents or any fatalities for that matter. We have improved ourselves tremendously, but we have still enormously much to do in this regard. Ethics, another area where the demands out in society and the demand or requirements of ourselves and our employees is increasing the whole time. We can't say that we are green here either. Last but not least, risk management. Risk management is another area where we have top processes, but where we've had a market which has created even more turbulence and created new pattern of risks that we have not seen so much before.
So this is an absolute must to continue to develop ourselves in this area. So I don't know what the final score would be here, but when I went to school, a three was okay, perhaps good, but not excellent. If we take a look first on the construction growth. Behind me, you see three lines. The orange line is depicting the underlying markets in which we operate, our footprint, and the average growth rate here has been close to 5% over the period. And if you look, this is the underlying market we are comparing ourselves with. And if you look on this, you're going to see a very slow start into the business plan. The post-Lehman world and the very large monetary pushing of central banks made the economy on to a very slow start during our current business plan.
You can see how it is really taken on speed from 2013 and onwards... The green line represent sort of a like, for like comparison organically in Skanska, and we just managed to keep in line with the overall market. If you then add on the acquisitions, the bolt-on acquisitions we have done in some areas during the past five years, then we are over and above at 6.4% per annum. And if you translate this into another picture on a year-by-year comparison, you're going to find the blue bars is the market, the market we look at, the same as we saw on the orange line. But the market share is staying pretty static. It's increased somewhat, but pretty static. And we could have done more here, of course.
But another thing we see is the correlation between growing too quickly and experience issues. So this is something which needs to be in balance. Operating margin in construction. This is a target which we set at 3.5%-4% per annum over a business cycle. And, the first question I'm going to ask you, what is a business cycle today? And I would get a lot of answers, I would imagine. But, this has been our target. We have not coped with this target. We hit the lower part of the range last year at 3.5%. This is an ambitious target, but we have not coped here, and a lot of it has to do with, losses in a lot of regions, and, where we have experienced issues, and we have dealt with issues.
So we have done okay, but we have not lived up to our targets here. Another thing we have talked about, and at that capital markets day, these bars were pointing downwards because we talked about negative working capital. Now, they point upwards because we talk about free working capital, but it's the same thing. We were then highlighting came from a very high level in percentage of revenue, and we highlighted a corridor sort of sliding down in terms of the percentage relative to revenues. We have stayed within that corridor, bouncing up and down a little bit, and at the end here, now you see tailing off the very profitable and cash-rich projects and then getting growth rates and improving has increased working capital in construction, negative working capital, and then also the percentage.
But we kept pretty much in the corridor that we highlighted, which have also created possibility, possibilities for us to continue to increase the investments. And on that happy note, investments. The bars behind me represent each of the development streams, RD, CD, and ID. And the green lines represent the gross investments in these various streams over the years. And you can really see how we increased the average compared to the previous period, quite a lot. And if you look on the percentages for the various streams, the reduction in ID is really a function of currency and interest rate swaps, and the fact that we are divesting projects when they are mature to divest. I guess you have seen the press release today as well regarding Barts. Then the biggest increase, almost doubling, is within commercial development.
Here, we started up one new area during the, this business plan period in, in the CDUS, and we have also expanded within CD. Claes will talk about that. Then RD. RD is the development stream that has undergone the most changes over this period of time. We did a restructuring in 2012. We addressed the capital employed big time, and we have increased the efficiency and profitability within this stream dramatically over the course of the past two and a half years. Of course, this is also underpinned by the market, but we, we, we are in a much better shape from an efficiency and execution point of view now.
If we then look at the return on capital employed in product development, and this is a mix of the two streams, RD and CD, which we operate with our balance sheet, and then ID, when we only take out our share of the product company. So we do not consolidate the product company's debt. So it's really return on equity in this arm. So you can see how we have increased the returns in product development, and this has been predominantly thanks to improving RD and maintaining a good turnover rate in the CD stream. If we compare the turnover rate at 2010, it was 0.5. 0.5 in turnover rate in product development, and now we have increased it up to 0.7. So increasing efficiency with the capital we have and deriving more returns.
Here we have coped with the target range, apart from 11 and 12, when we were hampered by the RD stream's performance... Financial strength, as we put it, the ONFAL, Operating Net Financial Asset/Liability, should always be above zero, was the financial limitation we have put on ourselves. Again, creating a very strong balance sheet. You can see the enormously high cash heap we came from. And we have plunked this money into the development streams and made good use of it. Again, coming back to the fact that we are increasing the financial synergies within the group. So this has caused the return on equity to stay at a very good level. It's a lot of lines here, but let me try to explain them.
The light blue line, which takes a big spike when we sell Autopista Central and then come back again, it has been in, in the range of 18%-20% the whole time. If you'll take the green line, that represents a very long time period for a return, which is over and above 20%, 21%, which is a pretty good return. But the next line, the dark blue line, represents a step up from that line, meaning we have done much more when it comes to financial synergies within the group. These are very good levels, especially if you remember what interest rate environment we have been in under the whole business plan period. And also the fact that we have almost no leverage. So comparing ourselves with more leverage pairs, this is a very good return on equity.
So let me comment the financial synergies a bit here. The bars represent the capital employed in product development, the three arms, and you can see how we have stepped up that to SEK 29 billion. The preceding period before this business plan, we on average had SEK 17 billion in capital employed. So you can see how we really ramped up this business. As a share of the construction revenue, the so-called One Skanska project represents 13%. I'm sorry for you having to listen to this. Sorry. If you look on the preceding period, that was 9%. So we really stepped up here again. So how should we look at the returns, the value that we have created?
If you look at the so-called risk-free rate, state government bonds over the combined period from December 2010 to now, it's been 1% more, more or less, 1.4%. If you then look at corporate bond index during the same period, it's been 4%. The stock market has annually given 10% total shareholder return. That's the OMX 30, the biggest companies listed on the Stockholm Stock Exchange. If you look at the return on capital deployed, isolated in the development streams, only look at the development gain and value creation in the development streams, that's 11%. 11%.
Now, One Skanska means that if we then put on top the construction profit generated from those construction contracts, and the fact that the ID projects give an enormously healthy cash balance early on in the project, meaning that we can use that money in other parts of our business, that actually reduces the capital employed. The return then becomes 18%, 18%, per annum over the past five years. So that is the superior and premium return I was talking about. And that is actually beating where we were at the preceding five years in return, from a return point of view. Another way of expressing this is, on average, we've created SEK 4 billion per year, SEK 4 billion per year on this business. So this is worth looking into more.
Coming back to the first statement I gave when I gave us the green light, you can see that we are beating the 6% total shareholder return. We are at close to 12%, 11.7%. We compare ourselves to an index we call Strategic Benchmark Index, SBI, and that's a mix of companies listed in the stock markets, active in construction, product development, and representing the segment breakdown of Skanska. We are tracking this, of course, on a daily basis. Then an index which have proven much easier to beat, and that's the Dow Jones Titans Construction Index. That's why we can give the statement that we have produced good and industry-leading shareholder returns.
An important part of this is, of course, that with the cash flow generation we have in the business, with the value creation we have in the business, with our One Skanska projects, we can have a good foundation to continue to give good dividends to the shareholders, as well as maintaining a good investment capacity in the business.
... And you can see how the bars of the regular dividend representing giving us a good uptick every year for the shareholders. So with that, go on, and colleagues.
During mankind's short time on Earth, things have changed quite a bit. We have explored the world, built houses, roads, bridges, developed new societies. We have changed lifestyle. Now, for the first time ever, there are more people living in cities than in rural areas, and our world continues to evolve rapidly at an exponential rate, but also disruptively. At times, it is chaotic, dysfunctional, and frightful. So every once in a while, we should stop in our tracks and ask ourselves, where we are heading? This is one of those times. There are new expectations, responsibilities, and opportunities ahead. We move more, grow older. There are less poor people than ever before, and over 1 billion people are lifting themselves into the middle class. This leads to an increasing demand for new infrastructure, transportation, housing, healthcare, and education. New opportunities, yes, but also new responsibilities.
That's where Skanska comes in, because what we do and how we do it contributes to a sustainable future for our people, customers, and communities. We build for a better society.
That is the Skanska purpose. That is like the vision that we have in Skanska. We build for a better society. What do we mean by that? Well, you can think about it like, actually, in two ways. First, like, what is the product that we actually give to the societies? Like, what is it? Well, it is the answers to the society's needs, to the challenges, roads, bridges, healthcare, and so on, housing. So that's like one side of it. But that is not enough of what we give to the society and what we want to give to the society. No? We also want to run our business in a responsible way.
So we actually give the society a view of this is like the right way how to run a business. I'm thinking about safety for all the people, all the 200,000 people that we have out on our sites. I'm thinking about like the green aspect. I'm thinking about business ethics, which is like very, very important for us. I'm thinking about diversity inclusion, to really taking care of all the people that's now coming into the societies, and also invite them into the company, adding and getting use of them. And also the social agenda, the community investment part, which is like included in that part. That is also important for a company like Skanska, that we deliver that to the society.
Because if we do that, then we will be perceived as a partner, a player, that that decision-maker, politicians, clients, and so on, really want to be attached with. We build for a better society. When we have looked at the business plan for the upcoming five years, we have thought of like, "Okay, how will the company look like five years from now? 2020." When Peter going to stand here and talk about like what is now the outcome, and what have we achieved? And we are like in this discussing here, like in December 2020. We have something to compare with.
This is like what you see behind me, that is like in a high level, like in a description of what the company should look like, like in at the end of the business plan period that we're now entering into. You can see, like in a... This, it's not only for you here, like in the capital market, this is something that exactly the same that we drive throughout the company internally. So like what is important for us here now? We want to have like an industry leading total shareholder return, which means that the dividend part in Skanska will continue to be a very important part of the TSR.
The second bullet you have here is like a balanced value creation between the construction I've just explained for you here in the beginning, and the combined product development. What do I mean by that? Well, think about like in a Skanska, if you go back, like in five years, you look at the capital markets view on the value of the entire company.... The construction was like on that level, and then you have like the combined product development, like which was like a smaller part. Five years later, we are talking about now, it's like maybe more like closer to each other.
Five years from now, we want the value creation from the product development be on an equal way, be like an equal to the construction. Not in a way that we're going to take down the construction, so don't get me wrong here. It's more like in a we will continue to lead this, really thrive, and like in a continue with value creation on that side, but we will expand even far faster on the product development side. So five years from now, it's going to be like in a balanced company. One thing that is like in all important for us, that we see as a trend out there, that is like in a to be recognized as a partner with the customers.
What we see here is like in a lot of ECIs, early contractor involvement, has a lot of different names. Partnering is like one word used here in the Nordics, and that's a trend that's coming in. Really good for us, because that means that we can add value to the client, coming in earlier in the product lifetime. We see it's coming like in the U.K., we see it's in Nordics, we see it's like in the U.S. So that's like an important for us. To have a value-driven company, that is like an important for the decision makers, for the clients, for the employees, but also for the future employees. People want to join a company that's standing for the right values. That's the reason why it's so important.
Actually goes together with the other two bullets that you see a little bit below there. Like in a targeting safety and also the like in the ethical side there. One untapped potential within the group that is also using the whole Skanska knowledge that we have, like in the One Skanska concept. Using more knowledge within one part of the group to another part. Take the big Karolinska project that's like in a very good example of where we have like in a used a lot of knowledges coming from different parts of the Skanska world. And this is like in a, that's something that we will work much harder on in the coming five year, because we know that there is more there that we can that we can get.
You will also hear about operational efficiency, and working with like in a cost reduction and so on. So with that, I want to like in a just to touch upon like in a the top-level strategic actions that we see within the four business areas. And we will, of course, like in a go much deeper into that, like in a, during the presentation here today. In construction, we're going to have like in a, a very controlled growth. We have something that is called License to Grow, that we hand out or take away from different part of the group, depending on like in a, on what, like in a shape and performance you have. And it's actually three things that a group has to have if they should get a License to Grow.
First, the market has to be there, so it's like in an opportunity. Secondly, it's like in a do we have like in all the people to actually take on more, like? And I'm talking about senior people. And thirdly, a track record that actually show that the organization is like in a very well equipped for something more, like, more to do there, so they can expand. If they don't have these three things, then stay where you are, make sure that you have control over your business, and perform there. On the residential development side, I want to keep that on a, on a stable level.
Maybe a slight growth in markets where we see an opportunity, but like in more or less like in a have the capital employed within that part that we have today. In commercial development, we see like a more opportunities. We have a good track record for like in over many years. We have expanded into new cities, to new countries, the last five years, and even before that. And we have proven for ourselves and for the shareholders that this is something that we can do, and we see opportunities there going forward. And then, of course, on the infrastructure development side, depending on like how the market looks like, and opportunities and products coming up, we want to capture that and go for that part.
So now we are entering into the new business plan, and this is like where we are gonna start to talk about that. So I'm gonna want to invite up here on stage, Veronica Rörsgård and Christel Akerman, please come up here. And we will talk about the three focus areas that you see here, before we then move into the four business streams and the business, so to speak. But if you look at the headline, the theme for the business plan, Profit with Gurpose. What is that? Well, it's actually two parts. It's one financial word, and then it's like a more value-added or like a value-driven word.
It's the intention, because if you think about it, we think about it this way, and that is a company that focus on the right values, I just described for you, a company like that will make more money... compared to a company that's not focusing on the right values, everything else alike. And some people ask me, "Johan, how could that be?" Well, it's very, very simple. Decision maker, politicians, customers, the public, they just don't want companies that's cutting the corner and not like in a thinking about like in the environment, like in treating the people and thinking about like in the business ethics in the right way. No, you, everybody want companies that take responsibility to be successful. Therefore, it's actually things that goes together with profitability.
And the more profitable a company is, the more you can actually impact the society. So you can see that these two things are very much interlinked. And it's like, with the society we have, and with all the things that, like, we now focus upon, we can see that these discussions, they are more, so to speak, linked together. So it's not a question of either or, no, doing both at the same time. That's like the concept of, or the theme of the business plan. You can see the three, like part here, Great People, Market Making, Operational Excellence.
These three areas, we have singled them out from the detailed business plan for all the business units, because they go across all the business units, and they are so important for us for being successful. So therefore, we have highlighted them like that. So now we're gonna talk about them. And I'm actually gonna start with the market making, and then I'm gonna hand over here. I think that company like Skanska, we have been too much inward-looking at ourselves, you know, being just sitting and waiting for, "Okay, on Monday, one month from now, we're gonna hand in the bid in competition with 10 other competitors." Yes, that's a part of the market.
But there is also another opportunity to go in early, to see the need in the market, discuss with decision maker and local politicians about, okay, what type of need do we have here? Can we come up with a solution? There, a company like Skanska, we have a lot of things in our toolbox that we can add and then, that we can work upon. Just to give you some examples here, so you can like in a see of like in a... Because this is not a new thing. We already do it, but we're gonna drive it even harder to do even more of these, like early discussions with politicians and decision makers. Here you have the three examples.
To the right hand, this is an Elizabeth River Tunnel, the big PPP project in, in the U.S., in Virginia. We discussed with the client for several years about, like you know, what if you come up, if we build like in a tunnel here, under the river? We can design it, we can finance it, we can like and, of course, execute it, like in a build it, and we can also, run the O&M and taking care of like in a, the whole part there. And now we are building that project. It's like in a coming up for like in a way, as a, and as an answer for the big need there, due to the traffic, congestion.
In the upper part of the slide, you see a big project in Poland called the Dominikański in Wrocław. I have to say the right city now, because Claes Larsson is like gonna challenge me otherwise here. It's gonna be a fantastic project in the city center. We're coming up with a solution there. And we are doing a lot of that, but this is just one example of like in how we create our own projects. A little bit further down, you have the Malmö Live project in the city of Malmö. It's like in a whole block, and that consists of a congress hall, of a concert hall, it's a, like in a big hotel as well.
And that's within that block. It's also a big commercial office that is now under construction, and two residential towers that are also gonna be built. And that is like a one big block, and it was like a big deal, like when we put the whole presentation and like how we're gonna actually give the concert hall and the, the congress center, and so to speak, like to the society, and finance it with, with building rights. These type of discussions in an early phase, that's where we can create value. And for me, that's market making.
Thank you, thank you. So first of all, Skanska is certainly a people's business, and I think that's very much linked to the fact that we are a project-based and decentralized organization. So you can say that our ability to manage people in a correct way is very much linked to risk management. We think that we are in a pretty good position, as Peter mentioned, in terms of how we are managing our people. But I want to share a couple of areas where we think that we should step up and do a little bit more in the coming strategy. I think the toughest thing is really to make the clicker work here. First of all, we have a clear strategy in Skanska.
We want to recruit and promote people mainly within the company, and that, of course, puts a lot of pressure on us to be really good in our ability to both recruit and promote within the company. Given the fact that our business consists of thousands of projects, you have heard that many times, we are very much dependent on the quality of our leaders. They need to make sure that we live according to the values and the culture we have set out, and definitely, I mean, things like transparency and ethics, that Christel will go deeper into; it's a really important part of our leaders' jobs. And also things like driving health and safety all around the business. We are also; you've seen part of the ambitions, and you will hear more about the ambitions going forward.
It's of course very essential that we make sure that we have good systems and an efficient way of making sure that we recruit people, and we can promote and develop leaders that can match the growth ambitions. As you heard from Johan, that's one of the three areas that will allow a business unit to grow in a successful way. So this is both about, of course, having systems like resource planning, knowing where are we planning to grow, what kind of skills do we need in the future, but also the understanding of our leaders on how to be part of that process. The other aspects that I would like to focus on is leveraging on our expertise, or you can say, drive operational synergies or drive One Skanska. It's all interlinked.
It's really all about being even better at leveraging on the combined expertise we have in Skanska. We have some good examples. We talked about Nya Karolinska. I would say that healthcare is probably the one area where we already today are really good at combining global expertise, both to win the job, but it's also about being able to execute the jobs in a good way, of course. But we can do more here, definitely, and the part of making this happen is to move people around, to create an increased mobility, and we are working very, very hard on that aspect and will do in the coming five years. Finally, a couple of words on diversity and inclusion. It's two words, and that's by meaning.
We are working hard to increase diversity in our company, and at the same time, making sure that our culture is inclusive, which is really making sure that the people we take into the company are able to deliver and be at their best. Otherwise, there is no point in putting diversity into our company. And why do we do it? Well, there's several things that we see. We are convinced that we will be smarter in finding new solutions for our customers if we have more different mindsets and types of experience in our teams. We also see that our customers are much more diverse in many cases than we are, and we need to mirror our customers to be credible and to understand them in a proper way.
Finally, we know for a fact that talents, definitely young people now, they want to work in companies with high diversity. Then they don't want to come to homogeneous companies. That's a few reasons for us really taking this area and driving it even harder during the five-year plan. With that, I leave it to you, Christel.
Thank you. Let's see if I can master the clicker. I'm going backwards, not doing so well.
Practice.
Yeah. Ethics, it's our number 1 risk. It is what can damage us the most. And the trust and confidence from all of you that we act ethically, that trust or confidence from society, colleagues, clients, partners, that is key for us. It is that confidence and trust that was one of the main reasons why we were selected the contractor for the UN headquarters that you see on the picture behind me. As you know, there have been and are lengthy investigations of suspected ethical breaches by us in Czech Republic and in Brazil. Now, while it is disappointing to feature in those, it provides a good opportunity to identify improvements, to drive change within ethics. So let's have a look on, so what is it then we're gonna do? What is it we're going to change?...
We have made a gap analysis of our existing code of conduct from 2008 and compared it to best practice of today, and we are now closing that gap by revising our code. The work will be completed first quarter next year, and during Q2, we will start the implementation. But there are some activities that we accelerate. We drive the improvements faster. Those are related to our relationships with partners, external joint ventures, intermediaries, that could be, brokers, agents, consultants, et cetera, and subcontractors and suppliers. For those, we are now mapping what risk does that relationship pose to us? It's green if it's low or no risk. It's yellow if it is medium risk, so it tells us to dig deeper before we enter into the relationship. And then it could be red, meaning high risk, so we think several times before entering into that relationship.
Then we have also scrutinized ourselves. Who are we? How do we operate? And if I put it short, today, in our industry, we are decentralized. We love and we trust. We are not as good on controlling and follow-up. We will improve on that. Last week, we appointed a new Senior Vice President for ethics, George Fadul, from the U.S. He has spent his past six years working with ethics and implementing changes, and also following up on those. We are also looking on adding more resources for investigations of suspected breaches by us and more follow-up resources. Moving to operational excellence. Operational excellence, it's a journey of continuous improvement, where we drive to high, high—increase the standards. An important feature of operational excellence is risk management, but there are other parts of operational excellence, productivity, efficiency, and safety.
But today, I thought I'm gonna talk about risk management, focus on the construction stream. On the graph behind me, you see total losses. That means a project going below zero, divided by the revenue in the construction. It goes from 2007 to Q3 this year. You look at it, and you think it's a bumpy road. We are spending enormous efforts to drive it down, but we still have spikes, as you see. We spend efforts to minimize the span of those spikes, and we will continue our journey on risk management. So let's have a look on what is it we're going to do. Early is good, meaning we can do a lot before we bid. Now I am on the construction stream of us. And then, when we get the job, there are things we can do better than we do today.
We are living in an environment where the markets and the contracts on the market, the complexity is increasing. We see more and more design and build, PPP, OPS, et cetera. So the opportunities are higher, but it takes more from us to manage risk. So before we bid, already today, we have group-wide processes. We've had and worked on those for years, since 1999. We use heat maps to map out the core comfort zone of our business units. In which geography do they do well? What type of contract do they manage well? What type of competency when it comes to products do they have? What size is comfortable? This is a continuous journey. We update and check every year. A risk team, a dedicated team who scrutinize projects independently and make recommendations on how we're gonna bid them, upon what conditions. And then the SET Tender Board.
We meet every second week. We go through between 20, 25, sometimes 30 project opportunities, and we issue conditions upon which we will bid those. And then, if a project is large, it goes all the way up to the board. Now, this is what we do today. So what is it we're gonna do differently going forward to become better? The business units will mirror the setup we have on group level. There will be the equivalent of a Set Tender Board out in the business units. There will be the equivalent of an independent risk team scrutinizing. So what do we gain with that? We will drive risk management deeper into the organization, and we will capture more projects because the thresholds are then lower within the BU team. Veronica spoke about people. That's what we have, people.
We create magic teams every time we bid, every time we perform a job. We will have an increased focus that we have the key people in that team in place before we bid. Simply put, no team, no bid. Then we will enhance with training and development. That's pre-contract. Now, let's look at once we get the job. Already today, a lot of focus on people. Is it the right team that embark that job? Controlling, follow up on the projects regularly. We have the large and loss list. The large list, we track the economic parameters of a job. The loss list, no one wants to be there, but once you're there, you're under scrutiny. Then it is the quarterly reviews. What's gonna be different going forward?
We're looking to implement an early warning system, a system that will not only look on the economic parameters of the job. It will. We will follow up centrally any changes in key personnel on the job, because they are so important. Look much more into the progress of the job. Is the design progressing as it should? Are we starting to see more and more claims, change orders, delay? Are we falling behind? The productivity, are we getting the productivity we assumed? The aim with this is that with this information, we will have the possibility to early catch when projects are facing challenges, and then we can address it earlier. There are two key positions that are becoming increasingly important, and we will promote and grow these people, these positions.
One is contract management or commercial management, to protect our rights when it comes to delays, change orders, et cetera, in relation to the client, but also coming from the subs and the suppliers. This is a key position going forward. I said that the contracts are becoming more complex, more and more design and build. With that, we need design managers. We need to promote and grow design managers. That is key for us going forward. And also here, we see training in the core competency, learning centers, and development. With that, I would like to hand over to Rich.
So, great. Now we are looking at digging into and starting with the four streams that we have, and Rich will start to talk about construction.
Okay, good morning. Let's see if I can make the clicker work. No.
Backwards.
It's probably the worn-out button. Okay, so what drives what we do? Johan has said a few times, we're a city builder. So the urbanization of the world, the fact that populations are moving back towards the cities, is a big driver for us on potential opportunities. And that's kind of what we do. I mean, as he said, we are completely a city builder. So the urbanization of the world is a really good thing for our business. Obviously, the growth in GDP in any country is good for our business. And then, is there money to pay for it? Government funding, as Johan mentioned, half of our work is publicly funded. So what do we look like as a business?
If you look at our order backlog by kind of operation and then by geography. So if you look at it, we're about 50% building, 40% civil, 5% residential, services, small services business. It's pretty much how we're organized. And geographically, our backlog, about half of it's in the U.S. And then you can see the other parts and pieces where the backlog is. That may be a little bit misleading because the jobs are so much bigger and longer in the U.S., we tend to have a bigger backlog. A lot of the other businesses have book and burn in the same year that we do the business or we build the projects.
So a rolling 12-15 of, as of Q3, you can see where our revenues come from, and you can see where our operating margin has come from. Certainly, we've been very successful here in Sweden, and they are our business unit of the year. I saw Pierre in the room. Congratulations. So, essentially, that's how we're weighted. So what are the key actions? You've heard it already, controlling growth. One thing we've learned, if we try to grow faster than we can produce experienced people to do our projects, we find ourselves in trouble. So that's why you heard a lot about training and a lot about balancing the growth with the development of people. We're gonna stick with our home market strategy.
No matter what you do, construction's a local business. You need to know the people and the vendors, the subs in the markets that you operate. Again, you heard from Crystal, risk management, we have to be really strong at making sure we have. Sometimes it's the courage to say no. Lots of projects look really good to us, but do we really have all the pieces to be successful? We're seeing a lot more of this early contractor involvement or ECI. Johan mentioned that. That's, again, good for us 'cause we believe we can win projects using kind of our innovation and not just having to be the cheapest price. Sometimes the cheapest price is not the right price. Cross-business unit collaboration.
We have a great project that we won in the U.S., the LaGuardia Terminal B at LaGuardia Airport, which really was a amazing collaboration through three different units, our infrastructure development group, our building group, and our civil group in the U.S. And that would never have happened if those three teams didn't work together, and we need to do more of that in our business, for sure. That is. To me, that is one of the kind of lowest-hanging fruit for us to really take advantage of and be able to deliver solutions to our customers that not many companies can deliver. Always focus on managing the cash or the capital in the business. Why is that important?
Because we need to produce it so that Claes and Anders can go do development projects, and Mats can do development projects. So the more efficient we are there, the more cash we can free up to be used in the three development streams. So the U.S. Good news is we see continued GDP growth, which was a positive sign and the forecast is for it to continue to grow, so we're certainly happy about that. But what's even more exciting for us is, as a percentage of GDP growth, construction spending is increasing. So when we look at our own infrastructure, this is how we rate our own infrastructure, essentially a D. I mean, that's not a good thing, but it is, because what that means is there's a gigantic need.
There's a lot of projects that need to get done in the U.S. that are not getting done. So how are they funded? Taxes, debt, selling bonds, for the Highway Infrastructure Fund. We got some good news on Friday. We finally had the two houses to approve a bill, the first bill we've approved in... since 2005 or 2006. About a five-year bill for SEK 305 billion, which was about 15% increase, so we're all keeping our fingers crossed that the president signs it. We fully expect him to, so that would be a big positive for us. And then we have local townships, municipalities. They all have the same model as the federal government. The states have the same model, so there are several levels of public funding. And then you actually have agencies.
Anybody with a revenue stream, they can also create debt or raise money to do projects. So that's a significant piece of how our projects get funded. And then Johan mentioned. So there's a gap still, 'cause whatever we've done for the last 5-6 years has gotten us a D, and that's really, really not acceptable. It's not something we should be proud of, so we need to do more. To do more, we have to find money elsewhere. Obviously, there's tons of private money on the sidelines looking for a place to invest, especially with what banks are paying these days. So we see triple P or public-private financing as, I mean, projects, as a big opportunity for us.
What we see is a real pipeline of projects which we haven't seen in the past. So now we we couldn't even bid as many projects as there are out there to bid, so that's a really positive thing, again, 'cause it plays to Skanska's strengths, the ability to build and finance and operate and maintain any of these big projects. And you know, we have some really big early wins in the U.S. These are sectors that we're really strong in in our building business. And what you could see is a really nice growth in all of those businesses over the next business plan cycle. So that really is a cause for really optimism that we're gonna be able to continue to grow our business in the building side.
So you know, we have a civil and a building business in the U.S. We also have commercial development and ID, of course. But if you look at the differences, to take a second, in the two different businesses, civil business is a very high-risk, high-margin business. Self-performer, we direct hire a lot of the craft. Our building business is completely opposite. It's a very low-margin business. If you're turning out, you know, 1.5% EBIT, you're as good as there is to get, and it's completely opposite. You want to take as little risk as possible. So those are the two different businesses, and they're significantly different. But what's good about them, they create kind of a leveling of how we do business in the U.S.
I think one of the earlier slides, I showed that 41% of our business comes of the overall company's business, comes from the U.S., and that's the split between civil and building. It's about 26% building, 15% civil. So over the last business plan, we grew the top line significantly, actually. I think we did really well. And up until this last quarter, as you know, we were pretty happy with what we were doing on the bottom line. We did find ourselves with a couple of challenging projects, which created a little bit of a downturn. But we understand the issues there, and we are on it, and we'll get it fixed quickly. So what are the key actions?
Talent is a big one for us because, we talked about, you know, leveling how fast you grow and how fast you can produce experienced managers and understanding, I think you heard it already, the complexity of our projects and the size of our projects are gigantic. And we really need to make sure that we train our own. So we're spending a lot of time talking about structured technical training to make sure that we have the right people for the projects. And a short-term, not short-term, but a good way now for us to really measure the business and make sure we don't outpace the people is when we sit at STB, and we make sure we look hard at the available people for the project.
If you don't have the available people, you don't get to bid it. So that's a really good measure of how we're doing on training our people. We're always looking at consolidating our back office functions. There's still some work and some opportunity there, of course. Improving our risk management procedures within the business units, as Christel just mentioned, that's all ongoing as we speak. And we're gonna discontinue. We have some smaller businesses that don't really bring a lot of value, so we're gonna get rid of those. But, I mean, we're not gonna shut the business down.
We still wanna see some growth, and we see some opportunity, and we have a lot of expertise in water and wastewater, especially from our New York business, and we see a lot of that in California and Florida coming in a big way. Really good opportunities for us. The power sector, gas-fired power plants, we see a ton of those, and we are building that business slowly and carefully. Our industrial business in the Midwest has really taken off. We see a lot of opportunity in that business also. So those are the places we're looking to grow again in a very controlled way. In our building business, you know, we've seen the triple Ps of public-private partnerships really develop. That whole product line of business stream has really developed.
What we haven't seen yet is really on the social infrastructure side, you know, watching what happened in the U.K., the history in the U.K., and we see it coming. So we need to man up, make sure we put the right people in place in our building business to take on this triple P as we move into this social infrastructure piece of the business. Again, same training issue. We're gonna be on training. Structured technical training is gonna be very, very important for us moving forward. And again, we see some opportunities to strengthen our position in some of the high-opportunity markets like Texas, California, New York, and Florida. Very, very important markets to us. We see some opportunity to follow really good customers into some other markets. We're not gonna just jump in.
We wanna follow our really good customers in Arizona, Nevada, Oklahoma, Louisiana, and Colorado. And then we see an opportunity in the bundle construction that the guys here in, you know, Malmö Live and a few of the other projects have been something that's been really successful here in the Nordics. We're not really doing it in the U.S., and so we have moved our commercial president of our CDUS business into our building business, and he's gonna help us grow that business. So we're excited about that because I think there is a lot of opportunity, and that goes back to what Johan said. That's market making, and we're probably not doing enough of that. So now we have a real market maker. We've moved into that business to help us do that.
I think that's it for me, and I turn it over to Roman.
This one. This one. Okay, good. So we are moving very fast. Welcome to Central Europe. Right now, we'll talk about two our units and three countries, Poland, Czech Republic, and Slovakia. The perception is that the countries are very similar in terms of culture, the situation, the markets, which partly is right, but not always. As you see here, when we are talking about the economy situation in the last five years, we see how different we were in terms of GDP growth, and later, as the result of this, in the economy and construction activity. You see Poland, the blue one, all years in the green territory, very good, very stable. Political situation, very stable. Good market. Also good market from the construction point of view. When we are talking about Czech Republic, totally different situation.
This is a zero, so almost two years in the red, in the red territory. And you have heard a lot about this situation in the previous years. Not so dramatic, but also when we are talking about Slovakia. But I was talking about the history, what is in front of us? The good message is that all sources are saying the future and the forecast in terms of GDP, economy, and partly as the result of those about the construction activity, is very positive. You see here we are talking about 3%-4% yearly GDP. Why it is like this? Mainly based on the money from EU, which will come to these three countries. Not only to these three countries, but I am talking about our home markets.
So please remember that right now I am talking about EUR 120 billion, which will come in the time of 2015, 2020. Quite big portion of this money, directly or indirectly, will go to the construction activity. Of course, partly as the result of the situation, especially in Poland, we see very, very tough competition, which is not, surprisingly, because if the market is good, hot, and very stable, of course, everyone want to be there.... But we want to be the leader, so we want to, we need to be able to win with everyone. If you are talking, sorry, if you are talking about our, revenue and order backlog, as you see here, rolling twelve months revenue, SEK 15 billion, and end of September, our backlog is SEK 11 billion.
You see the difference, which I am not afraid of, afraid of. Why? Because mainly it's the result of our business model that we have, especially in Poland, but also in Czech Republic and Slovakia. That means we are aiming to small and medium-sized projects. This is our important business model. We want to we, which we want to deliver also in the future, also still in Poland, also in Czech Republic, and Slovakia. That means that we are almost winning every day some small project, and the execution time is weeks or a few months. Together, we are bringing to the company almost 11% in terms of revenue. On purpose, I am using the words together.
You have heard a lot about One Skanska approach, and really here we are talking many times that Czech Republic, Slovakia, and Poland, we are cooperating under the cluster project cooperation. So what does it mean? We have common project. So far, railway, road and bridges, concrete pavement. We are using our expertise, we are using yellow machine, people, know-hows, trying to utilize our power in the procurement, really looking for everything to be more competitive. Operation in terms of revenue, and especially what is even more important, in terms of money, it is absolutely clearly a result of the situation which we have seen in the market, in the slides that I was showing you before. You see Poland, very stable, also grow from the revenue perspective, but almost every year, we were...
The Polish operation was able to deliver almost SEK 400 million profit, even better in some years. When we are talking about Czech Republic and Slovakia, as the result of the situation in the market, you see, what's happened. What is in front of us? What is really important for us in these two units? Especially when we are talking about Poland, we want to be in the pyramid of the project. So definitely we will try to be even more in the regions in Poland.
This is the second bullet point, that we want to strengthen our activity in the local markets, and again, to aim for small and medium-sized projects, but also at the same time, because the money from EU are coming, and we will see more and more big project in Poland, we want to strengthen our capability, experience to win and execute the big project. At the end of the day, we want to be in the whole pyramid of the project. And also, we would like to utilize the situation in the markets and to jump to the new, partly new area for us: healthcare, sewage, trams, and this maintains roads projects, which we are, but not so strong so far, to be honest. This is the target for us.
If you are talking about Czech Republic, I was partly mentioned about it, that we would like to follow this philosophy that we see in Sweden, also in Poland. Be in the region, be local, and be sure that we have daily operation, healthy daily operation. Not forgetting about the big project, that we have already the competencies and know-how, and we would like to maintain this. But also, you have heard a lot of from Christel about the risk management, and I don't want to add anything why it is important. Only one message: market is growing. Because of this, we need to be even more careful. This is the reason that our risk management should be even at a higher level.
So some words about UK. When we kicked off the business plan for 2010-2015, we expected the market to bounce back a little bit more and quicker than it did. So it was quite slow in the start, and then it bounced back 2013. And then actually it slowed down again. And as you can see here in the right graph, the market went down by almost 25%, if you measure it as construction investment per capita. The U.K business is a little bit different compared to other business units. The civil part is approximately 25%, the building part 50%, and then the big difference is the service part, which is 25%. And that is how the market has developed in the U.K.
So the clients, they are asking for more services, more whole life service that they are needed. Coming back then to the performance. You could see that, the revenue, they were quite stable, but before this growth, they were a little bit higher or much higher. Then in the later part of the business cycle, business plan, they have grown significantly, and we expect a continued growth. The EBIT has been quite stable, which I think is a very good sign that we have been able to adapt to a market that has changed significantly, but still maintained the EBIT level. I would like to say some words here about the picture, which illustrates M25, the ring road around London, which is a PFI project. And this is a good example of when we talk about One Skanska.
Here, we used a lot of solutions to solve the construction challenges. We used solutions from other parts of Skanska, but that quite normal solutions, but that were not used in U.K., and by that, we could save a lot of money. Since it was a PFI project, we shared these savings with the client. Since we also take a responsibility for many years, they were prepared to approve them. When it comes to the way going forward, we will continue to focus on the Greater London area, the Bristol and Cambridge area, where we are very strong today. We will look into opportunities in Manchester and Birmingham. In U.K., we are not in all segments in the markets, but the segments where we are, we see a growth in those sectors.
So what we will continue to do here, that is to stay with our clients who really likes us, and continue to deliver good service to them. If you look at the risks, I would say the main risk, that is people. The market will take off, and there will be a battle to get the best people. I think we are well equipped because we have a strong foundation when it comes to the value part. So people, they really like to work for us, and our clients, they like us, so that would be a good mitigator for the biggest risk.
Thank you. Good morning. Anders Danielsson, I'm gonna talk about the Nordic construction units and also about, later on, on the residential stream, which is, it's, predominantly in the Nordics. First about the market. Here you can see, Sweden, Norway, and Finland. You can see I will start with Finland. They haven't, we haven't seen any economic growth the last 4, 3 or 4 years, so it's, in the Skanska context, the toughest market, in our footprint. Sweden... Oh, it's very quick now. Sweden, strong market, good growth, GDP growth. Norway, as you can see, in the half we have seen a big growth there as well on the GDP.
A bit slower now due to the oil, lower oil price, so some are part of the market is, slowing, down significantly. But, overall, the Oslo area and so on, it's a good, still a good market, and we expect it to recover coming, coming forward there in 2016. This is a bit messy due to the fact we have three different units, but you have, first, construction investment per capita on the bars here, and this see on the line, and it, it's on the left-hand side there, and the lines is percentage of the total GDP. And, it's a bit interesting here, if you look at Norway, the yellow part here, you can see the gap. In some years, the market, construction market in, in Norway has been twice as big as in Sweden and Finland per capita.
So it is a strong, strong, still a strong, it is still a strong market if you compare how big the population are. And percentage of GDP, it's between 10% and 12%. Here is the order backlog right now, and it's also divided on civil construction and building. And there are some differences here as well between the countries. In Sweden, the civil market, civil part is around 30%. Bit lower, actually, in Finland, and but in Norway, it's close to 60%, this is civil sector. And the building is, of course, the residential construction and all different kind of commercial, hospitals and everything. And you, I can explain this. One thing is the civil market is very good in Norway.
We can see the government is still continuing to invest in roads, railways, and that, in bridges and everything. And this building sector has decreased a bit, if you compare to the civil market, due to the fact that commercial investment is going down when the oil price is lower, and also residential development investment, it's also lower because people don't want to invest in residential right now in some part of Norway. And Finland, I would say it's historical reasons. We have a smaller, but they are performing well today on the civil side, and we don't see that many big projects on the civil sector as we do in Sweden and Norway. So that's also one explanation why the civil part is a bit lower in Finland.
Total, residential revenue, 36% of the total group. You can see it big, bigger when you look at the operating income, because we have a strong performance in Sweden. Our operations then, here can go back to, 2011, where we had some problems in Norway and Finland, because the operating income is the bar here. And then, but they, they have recovered and, are today on a steady, steady level, so there, there has been a big turnaround, work has been done the last couple of years there. Sweden, very strong stable growth on the revenue, and also very high performance here historically on the, on the operating income. So the key actions here in, in the Nordics, starting with Sweden.
We can see, as we do in many other countries today, that the ECI, Early Contractor Involvement, is getting bigger and bigger part of the construction industry. We can also see that we have, with, if we can combine all our competence we have in the group, we can be very competitive, and be able to offer the client our competence in a very early stage. We can see opportunity to grow the market share in civil in Sweden. We can see a strong pipeline in different, part of the market. We can also see, that we can drive growth in selected building, parts of our operations, such as hospital. There's a big, investment pipeline now for hospitals, which is ongoing, and we have been, quite successful in winning those work as well.
Finland, it's overall low growth and many uncertainties, of course. When has it bottomed out? When will it take off, the GDP growth in Finland? But we can for sure improve our, you know, our abilities to meet the requirements from the clients. We have a program ongoing to strengthen our operational efficiency, because it's proven the last couple of years, you can actually make money even if the market is very tough. But you have to work on what we can actually... It's our own ability to lower the costs to be more competitive. Civil, you can see the urbanization, which is a common thing in the group and in many countries, but in Finland, it's actually lagging a bit.
So we can see the urbanization is getting stronger now in Finland, especially the metropolitan area, which is growing by 20,000 people each year. And of course, as in Sweden, we can see big hospital pipeline in Finland now. So the challenge and the opportunity for us is to combine people, not only in Finland, we are working to combine the knowledge and competence from other part of our operations, especially in Nordic and also in UK, where we have good resources for that. Norway will grow, but it's gonna be different opportunities in different markets. As I said, Oslo is still strong. Stavanger, which is more oil dependent, more uncertainty going forward. And here as well, strengthen the ECI capabilities and also the risk management, of course. Going into residential development now.
We have residential development in Sweden, Finland, Norway, Poland, and Czech Republic. And here you can see the housing market prices is, the last couple of years. And it's, there has been a tremendous growth here in, Sweden, as you can see, the blue line here, and also in, in Norway. A bit slower growth than, in some of the countries, even declining prices. You can see Finland here, which is, has been on a, not as, right before, right above the 100 index, from 2005. But if you look at the Nordic housing gap, it's tremendous.
You can see that many years of under supply compared to the demand in the market, that is a big opportunity going forward, because there is a big need for new homes in the different countries. So here you can see the blue bars is actually in the Nordics, Sweden, Norway, Finland, how many housing starts per year. And the green or yellow bars here is the influx, meaning the total population growth in urban areas. And the blue one is totally for the whole country. So in the urban areas, the gap is even bigger. So if you have this accumulated, you can see how many homes that's actually missing in the market.
So if you're in the right place with the right land and the right offer to the market, it's easy to sell apartments today. Our operation. This is a model we have, an integrated model, where the construction unit and the residential development unit are working together from the very first day of the development, even when we look for land acquisitions. This has been a very good experience for us, and our target, our ambition, is to even grow that synergy opportunity we can see. And it's also, of course, a good thing for the financial model, which you see, and Johan presented in the beginning. That the cash from the construction actually generates opportunity for residential development to invest in more projects. So it's financed by the construction cash positive operation.
When the residential development unit invest in more project, they give more revenue to the construction units as well, so it's a good model. Our operation here, residential development performance. You can see the operating income on the blue bar. You can see the operating margin on the blue line, and the return on capital employed on the green line. And you all know we have our 10-10 target. You can also see here, where we... 2012 was the year we did the integration between the construction and residential development unit, and you can see the development. That's actually, in my view, prove that this is the right strategy going forward.
We have been helped by the market in Sweden, of course, but, I, I can see the big, benefits as well with the increased synergies. 10-10 targets, we are, slightly above now on, on the return on capital employed. Closing up to the 10 when we look at operating income. And our plan going forward is to stick to that 10-10 target overall. Here you can see the revenue mix between the different, units. Sweden, the biggest, obviously, and the predominant part is in the Nordic. We have 5% in Central Europe, Poland and Czech. And we have also a bit, conservative view when it comes to profit recognition. And here you can see the... This one is how many homes we have actually sold, and the completion of the project on this, schedule.
Of course, when we finish the project, our target is to have sold every apartments available. But we don't recognize the profit in the same pace as we sell the apartment. We start with zero in the pre-sale period, when we haven't started the project. But when we do start to dig in the ground, we recognized 70% of the sold apartment, the profit. 70% recognition. And we stick to that 70% recognition until 80% of the project is completed, and it's here. So that's why it goes up the stair in when it's 80% complete. Then we stick to that level until the whole project is completed. And we also, of course, have some provisions if we have unsold apartments, either on, in the ongoing project or after completion.
Key actions here, we can see more opportunity to even increase the capital efficiency even more. We can grow BoKlok, which is a concept we have, with, together with IKEA, and it's a big part of the operation today in Sweden already. If you look at sold apartments, it's around half of them. We can see that the, it's more interest from the client in Norway and Finland as well. So we can see opportunity for growing the concept there as well. Establish residential development in Europe, in a sustainable organization, Poland and Czech. Design to cost. There is an expression we use that when we start, when we buy a land plot and start to design it, we should already then have the business case ready.
We should decide on that way, which cost level can we afford to offer the market on this very site? Then it's about have the right team in place to steer the design to that cost level. Very crucial for the success of the project. We're going to stick to the 10-10 target, 10% EBIT, 10% return on capital employed.
Okay, now we will have a coffee break, and because we have kept the schedule almost to the second, we will have 30 minutes and be back here at 10:50.
Welcome back, everyone. Let's start the second half of this morning with the Capital Markets Day, and we will go right into the business stream, commercial development with Claes Larsson, and after that, Mats Williamson will present the business plan for infrastructure development. And as you know, after that, Peter Wallin will take the financial targets, and Johan will sum up the day, and we will have a Q&A session. With that, Claes, please.
Thank you, Magnus.
... So a lot of you actually visited our capital market day focusing on the seed stream in September. So at that session, I had a four-hour slide slot, now it's a bit shorter. This doesn't really work. Can someone help me move forward? Thank you. So what I will cover here is first the market, the drivers in the market, and also go in a bit on the chosen submarkets, and how I feel the market temperature today. Then I will do the overview of the operations, and then end up with some focus areas and key actions for each of the business unit. Market in the Nordic, I mean, location is everything when it comes to commercial property development. That is a given truth from the past, but it's more, I would say, evident than ever right now.
You need to be in the right location when it comes to infrastructure, and especially public transport. So we are very much targeting, for instance, metro stations, future metro stations, as good locations to develop offices in. And gladly, there is another very clear trend now, and that is that there is less talk about just lease a certain amount of square meters. Companies is much more looking into how they will work in the office. They would like to have flexible environment for different settings in the offices, like activity-based design. And this is a very good development, we think, because we like to design flexible offices, and also this is something that is quite hard to achieve if you do a retrofit on older properties. So this is a good driver for new development.
Green, still important, but I would say everything take it for granted today. Tenants and investors would like to stay in green projects or buy green projects. So I would say in the Nordics, it's a bit hard to be a leader in green and differentiate from the rest of the industry. Moving to C, Central Eastern Europe. Here, the tremendous driver is the business process outsourcing. And large international companies is targeting this market, leasing a lot of modern office premises to conduct an outsourcing businesses. And this has been, I would say, driven by Warsaw as the central hub, but lately also Kraków, Wrocław, and Tricity has emerged as second-tier cities. And in addition to that, we see a third-tier cities that is Katowice, Poznań, and Łódź.
This is a very, very strong market, and I would say that 80% of our business is within the outsourcing sector. Moving on to Prague, which is a market that has been down for a bit of time here, a couple of years. You saw the GDP growth has been not that impressive, but now it's picking up big time. Prague is a very important market because several international companies would like to have their regional headquarter located in Prague. Usually, the lease contracts are smaller than we see in Poland, but nevertheless, very important for us. We have had a very good start in Romania. We did enter the market in 2011.
We have so far delivered to the market two projects, completed and also sold, and the third one is ongoing, and we have built a good land bank for the future. The weakest market we have had in the last business plan period has been the Hungarian market, Budapest, but that is also picking up now, and we have two ongoing projects, and we see a stronger interest from the tenants. Moving to the U.S. You saw that it's a pretty good GDP development, and we see strong development in many sector, not just the tech business. And energy sector is obviously a bit down, so our current business in Houston, we're a bit cautious with, especially in the upstream energy market. We see the supply is increasing and the competition is tightening definitely.
We entered directly after the Lehman crisis, did a couple of good land banking, started a lot of projects with very limited competition. Today, it's much harder, and we need to be razor sharp on picking the right location, do the placemaking, and design really attractive products for the market. We're also here in the U.S., present in the multifamily market, which means that we are delivering rental projects to the market, where we so far has done it with joint venture with other developers. And we deliver project, and then when it's time for completion, we start leasing them. And so far, this market has been very strong developed, and we see a good future also there.
The exit market, I would say, is very strong in the Nordics, very strong in Poland and Czech, a bit more shallow in, in Hungary and Romania, extremely strong in the U.S. In most of our market, we meet a big wall of money seeking for, for, very interesting and strong projects. Now moving to the property clock here, which, is branded here by JLL. This is an interesting one, because you need to understand how to read it. The tricky part with the clock is that it can stand still, it can move clockwise, it can move counterclockwise, and it can completely shift position very rapidly. So go from 12 to 6 immediately.
Our philosophy when it comes to the clock has been, if this is a correct description of the market, we should then start our projects when it's time sort of to approach 6 o'clock. So we should be early out, because we need to deliver to the market maybe 2, 3 years later after the start. Then it's the move-in date for the tenants. And then, obviously, there is a lag of the production here. So when it comes to divest the projects and to lease them, we do it a bit later in the cycle here. And then we do the land banking on the right-hand side. When sort of rents are falling and markets are down, then land price is also usually down.
Now it's a bit tricky to see this one, because we have now put in 17 out of our 20 markets here, and you see they are all over the place, which is quite unusual. So let me give you my view on this, because I don't totally agree with this. You also need to understand the basis for how these positions are made here. I agree very much on the Seattle, Stockholm, and Boston. That's very strong market for us, good demand, and I would say there is a pressure upwards on rent. That goes also for Gothenburg and Malmö that you don't see here. Strong markets. I jump Katowice for the time being. Oslo and Houston are both, both hit by the sort of, oil and gas market.
It's more severe in Houston, I would say, but Houston is much more diversified now compared to 10, 20 years ago when they had a more deeper recession in the real estate business. I would say Oslo could go, could be at six o'clock, could be at twelve o'clock. I don't really foresee a big drop in rent levels, but we are sort of a bit cautious and would like to start the right projects in Oslo. While in Houston, we at the time being, we do not do speculative development in Houston. So I would say Houston is more in a falling phase, and I would depict Houston a bit more to the right here. Moving to Warsaw, and I'll come back to the regional cities. We can take Helsinki first.
Zero GDP growth for 5 years, of course, that, that hits the market somewhat, and we are a bit cautious also here, on, on what to do, but hopefully that market will recover within the next couple of years. Warsaw has been hit a bit by a huge oversupply, but it's a tremendously strong market, and it's a good take up. So I would say most of the supply now is, is, taken up and absorbed in a very good fashion here. We have been pretty cautious to start spec development in Warsaw the last one and a half year, but recently we pushed for a new product, as you saw a couple of weeks back, in an excellent future metro location. So we believe that the Warsaw market will be back, and it's a good time to, to start again.
Down here, we have some stable markets. I would say Prague is very good now on moving upward. Budapest and Bucharest, also strong markets. We don't see rental growth, but we see enough rental level for us to conduct our business model. D.C. is on the rise. Tricity and Łódź, I would agree on the positioning here. Coming to the regional cities here in Poland, these are all Kraków, Wrocław, Katowice, Poznań, Tricity, and Łódź, driven by the business process outsourcing. It's not realistic to find them all over the clock.
This is more, I would say, a consequence of this clock being based on statistics, and these are emerging young markets, and sort of if the first product in Poznań was on very high levels, and now when it's more mature market with several products coming to the market, there is a natural pressure downwards on rent levels. But we see this as very, very strong and interesting market. Poznań, Kraków, and Wrocław, I would actually view Katowice as maybe the least strong of the Polish sub-markets. But still, we have ongoing products in all of these markets. So, with the exception of the Polish regional markets, I agree more or less on the property clock. But it doesn't show the strength of a market, it shows the relative development of rent levels compared to recent history.
This is the snapshot of the current business activities. You see the 20 cities marked out here, mainly capital cities. We have in the U.S., you might recall, we are present in Boston, D.C., Houston, and Seattle. And in Poland, I've just mentioned the regional markets. We do some pilot projects in London and Bristol here. And then also in these grand total numbers, we have included the bundle construction activities done by Skanska Sweden, which is, I would say, a very low-risk approach when it comes to leasing risks. It's a housing for elderly, there are hotels. Usually, they are 100% pre-let, and we sell them during construction or even before construction. If we sell them before construction, they will not pop up here. If we sell them during construction, they will be part of the CD stream.
And here you can see really the ramp-up of the operation during the current business plan period. This is then showing the ongoing projects up book value upon completion. So this is how much we will have planned down when they are done, the projects. And you can see the growing importance of the U.S. operations. And now we actually have three business units that are of equal size when it comes to committed capital. Next slide here shows the journey that we have done, and what you see here is the balance sheet snapshot on each given year here. And the blue part is where we really create the value. We need to have land bank in order to start projects, and we need to have ongoing projects to pursue the returns.
Once they are complete, they have a pretty crappy return by Skanska standard, and we need to divest them as soon as possible, because otherwise we will just get the net operating income as a return on our investment. For the last couple of years here, we have been hovering around 80/20, which is probably a pretty healthy ratio. You still need to complete the projects and sometimes fix all the moving in of tenants and documentation before you divest it. But as you can see, we have also increased the divestments during construction during the last couple of years. This is a busy slide showing and tracking the surplus value we have in the business. So to take you through it here, the stacked bar represents the surplus value we have in the land bank, is the blue part.
The sort of accumulated development profit or surplus value in ongoing project is the green part, which has been increasing rapidly here. And then you have some surplus value in completed projects. And the way this work is when we divest the project during construction, you take it from the green, and after completion, you take it from the yellow, and then it will pop up as realized gain on this line. And the third quarter was a pretty weak quarter from a divestment perspective, which is quite normal. Usually, a divestment process could be up to three, four months from you start to tender until you close the deal. And since you have the summer break, we usually try to launch some divestment process after the summer in order to usually then deliver in the fourth quarter.
Or we can deliver in first and second, but usually the third quarter might be a bit weak because you don't want to have the process hanging over the summer break. So far, we have already, now someone was a bit too fast, already announced several divestments in the fourth quarter, which we'll then taken from, from the yellow and the green part here. Now we can move forward to the key actions here. Yeah, we would like to increase the investment to plunk down more of the cash generated from construction in this business stream. We need to be very cost efficient, and this goes particularly, I would say, in the market in Central Eastern Europe. There it's more a square meter game, not that much talk about activity-based workplaces.
So they would like to get in as many people as possible to be productive in the areas. And we need to have very high qualitative product at a low cost because you don't really see that much rental growth, but stable rents and a very strong demand. Consider geographical expansion. We have looked for the Tricity region quite a lot, which is Gdańsk, Gdynia, Sopot, up in northern Poland. We think that might be the next market. We're pretty much into that analysis. When it comes to growth in the U.S., we have just started by depicting a couple of cities that we will evaluate, but there are no decisions whatsoever taken yet. But we'll do that evaluation during the years to come in the business plan period. Key client management.
In many cases, we do repeat business with clients, and I will say this is a very strong drive for us down in Central Eastern Europe, where we, in several cases, have actually handled expansion from single tenants in two, three, even four lease contract within just a couple of years. So we need to be very good on the market making part here to stay close to the clients. And this is obviously a big challenge because when you're growing the business, and we would like to grow it even more, you first need to backfill what you consume in the land bank, and then you need also to buy land bank for future growth. Building up the land bank is very, very big focus for us right now.
Final slide, to define the key actions divided by the three geographies. In the Nordics, we don't plan to do any change geographies. We stay in the capital cities and Malmö and Gothenburg, as we have been done for the past year. The Oslo and Helsinki operations has been hit a bit by a weak market. We would like to grow that operations because the business activity is not sustainable on this low level. And then we need also here work a lot with cost-efficient product to be really competitive in the market, because there is a war out there for the tenants, definitely, and we can probably do much more efficient design also in the Nordics. Central Europe, keep your market focus. As I said, 80% of the business is in this sector.
We would like that music to continue playing, and we foresee a very strong growth in that sector. Then we need to work with the client, as I mentioned on the previous slides. Tricity, I very much believe in that market, so I hope we can maybe make an entry with some pieces of land here in early in the business plan period. In the U.S., we plan to continue with existing geography, also to continue on a selective basis, do multifamily projects. Today, we have them in Seattle and in Boston. We also have possibilities to do it in D.C. We don't plan to do it in Houston.
And then we have a couple of interesting potential future markets, and we have said that maybe, in the later part of the next business plan period, we might enter some of these markets, but no decisions yet made. With that, I hand over to Mats Williamson for infrastructure development.
The photo here is, the hospital that we divested today to our three pension funds in U.K., Sweden, and Norway, Barts and The London. And, I think this is a good example, of our business where we develop projects, we build them, we start operations, and, then we divest the projects, when it's, good for us. And in this case, we divest it to our pension funds. But first, what is this OPS, PFI, PPPs? And, there is a movie that we have done that explains it.
Since the mid-1600s, America's economic strength has been built upon the foundation of private investment in infrastructure due to the public's needs and fast-growing economy. Some of these projects are familiar: the Transcontinental Railroad, the Lancaster Turnpike, and the Golden Gate Bridge. These iconic projects were financed with private equity, which was essential for America as we forged such vital infrastructure. Today, we call such cooperation a public-private partnership... In everyday conversation, we abbreviate it to PPP. But what is PPP really? And why is this highly successful model that's used around the world perfect for the U.S.? Let's take it from the beginning and say that the government, which manages our tax money, decides to build a new road, school, or hospital. Traditionally, a variety of proposals are announced in order to find the best suppliers.
Consultants are first out with the design, then a building contractor is commissioned to construct the project. Finally, the operations and maintenance can be provided by the public entity, or a third-party supplier is chosen. Each company finds the optimal solution within what they do best, but they do not work together to find the best overall solution, so the project ends up being expensive and takes a long time to implement. Now, let's assume that a road needs to be built. With the PPP method, advisors, designers, contractors, and operations and maintenance providers are around a table working together from day one. They also invite along someone who can finance the project. This equity partner takes an important role in ensuring the quality of the project. Along with the client who has initiated the project, the team works up a joint solution.
If this solution ensures the project is sustainable, cost-efficient, and environmentally friendly throughout its life, they are awarded the job. This collaborative team works hard to make sure the project is on time, on quality, and on budget. After this, the team forms a new company, let's call it Road Builders Incorporated, which has a single mission: to build the road and make sure it meets the agreed-upon contract of typically 25-30 years every day. From the start of the project to the end of the contract, the client makes an annual payment, usually called an availability payment. Road Builders Incorporated is incentivized to keep the road available and in top condition, and weather conditions are taken care of quickly. Otherwise, they don't get paid.
In this model, you and I, the public, keep ownership of the road and have an insurance policy that when the road is taken back over by the client, it is still in peak condition and debt-free. Also, throughout the life of the project, Road Builders Incorporated provides hundreds of jobs to the community. Skanska believes that PPP is an implementation model that should always be considered when the government initiates new projects. We believe this is the way forward, so that crucial projects can get started quickly and delivered safely on time, on budget, and of the highest quality.
This is NKS, Nya Karolinska, here in Stockholm. In one of the newspapers in Sweden, there has been a series of articles during the last seven months about this project. The journalists, I think they have some misunderstanding of what is PPP, OPS, PFI. The risks that we are taking as Skanska in these projects are twofold. One, we do an investment, and one, second, we do the construction work. If you take the construction work, we take basically all risks that is possible to take during construction. So we have inflation risk, we have design risk, we have construction risk. I'm happy to tell you that there are no cost overruns. We are on schedule, so that's good. When it comes to the part where we invest, it also looks good so far.
There, we will have some risk when it comes to life cycle costs and operation and maintenance, but it looks good. Looking at the market, if you go some years back, our main market was in the U.K., and that was where we saw projects, a flow of projects coming. Now, as you heard from Rich, the new market that we see coming is the U.S., where the infrastructure is not in good shape, there are budget deficits, and something needs to be done. So we are in a good place to capture that market. We also see in Norway a market coming, and then it remains to be seen what the market will look like here in Sweden. There will also be a market in U.K., but U.S. will be the main part. This slide here illustrates where we are.
We have so far won two projects that are under operations in the U.S. It's the Midtown Tunnel in Virginia, and it's the widening of I-4 in Orlando. So both those two projects are under construction. We also preferred bidder for LaGuardia Airport, and we are right now bidding three projects, among them Purple Line in north of Washington. The green here just illustrates there are many, many projects to come. The tricky thing with the green ones, that is that it's extremely expensive to build these projects. And a mistake we can do, that is to try to bid for too many of them. We need to stay very focused and bid a few, and then have a high win ratio, and that's the plan going forward.
The business model here is that we identify projects, we pre-qualify, we bid, we negotiate, we build, and then the operation and maintenance part starts. And when that gets stabilized, we can divest. One thing that we can see where we have a big possibility to increase our value, that is during this operation and maintenance part. If we can be more efficient than what we have foreseen to be, and that is what we have managed to do so far. We have managed to increase the value when we divest by showing to the investor that we have the cost under control. So we see that as an opportunity in our portfolio. Looking at our portfolio, on the x-axis here, you have the time to the left, where we are under construction, and to the right, where we are in the O&M phase.
Barts is the lower blue bubble, which we divested today. The size of the bubble, that is the value that we have. So on this slide, you also see LaGuardia Airport, and sometimes PPP is called innovation procurement. One of the innovations that we did in this project, that was the satellites that we have out from the main building. There is a bridge, and you can see that there is an airplane going under the bridge. That was not the solution that the Port Authority had from the beginning. By having this bridge, we can then speed up the time where a plane is standing idle, and since our revenues here are dependent on air traffic, that's very important for us.
That was one of the reasons that we won this project, where we are preferred bidder, I should say. Key actions here, that is, to have a lot of focus on the U.S. market, but also to establish ourselves again in Norway. And then when we have won, to really work with making the operations and maintenance part more efficient, and thereby increasing the value. We think that we hope that we will increase investments during this period. One thing that we then see in U.S., that is that the equity part is decreasing. You could say in the past, it was 10% was equity in an availability project, but that is decreasing. But then on the other hand, the total investment is increasing.
If you take the combination of the financial outcome we get from our investment and from the construction part, it will continue to be good, but it will be even more important for the construction stream.
Let's take some targets while my voice is still audible. First and foremost, as you saw from the markets and the GDP growth across where we are present, we have a pretty good situation in those markets. On average, if we look across over the whole business time period, on average, we're gonna see a 5% growth in the markets. 5% growth in the markets. That does not mean that we will grow by 5%, because the conditions that need to be met is, we need to have the right people, and we need to have the right track record in order to grow the business. And that is what we mean with controlled growth. Secondly, as you have heard today, all the actions we are taking is to improve and strengthen our operational and financial synergies within the model....
That should be either due to win business and/or to strengthen the profitability of the group. Thirdly, you have heard many times today, we're going to balance the portfolio and the size between the construction business and the product development business. And what is important to recognize is when we talk about balance, we're talking from both of a sizing point of view, but also the fact that the view of the business and the portfolio of the business is we will grow value in a different pace than we will show profits, realized profits. Which means that you will need to look at our value creation more than the profit generation in the product development business. You heard Mats talk about infrastructure.
You can just imagine the long cycles it takes to come to the stage where we came today with the Barts Hospital of realizing that. And last but not least, a strong balance sheet is important, and we have a very strong balance sheet. But given the current context with very low interest rates and continued good investment opportunities, we could be prepared to put leverage on the balance sheet to take on investment opportunities. So this is a bit of a difference and a nuance compared to the current business plan. So this balance between construction and product development, I've already explained it, and we have, as you say, we have almost doubled the capital employed within product development over the course of the current business plan, and we continue to see that growth.
And the leverage part, if you look at the green line behind me, that shows the capital employed in the development streams, and the blue line is our ONFAL level, and we have been targeting to be over and above zero in the past, meaning that we finance growth by profit and working capital creation. If we then become more successful in enhancing profitability and cash flow generation in the business, as we talked about, we can use that at both increasing product development. And in addition to that, when we see the right opportunities, we can put leverage on the balance sheet to take those opportunities. We will still be a very strong company from a financial point of view. We will have a very conservative gearing in mind.
So the financial synergies, as we have increased a lot, as I talked about in the morning, 18%, SEK 4 billion in return per annum, 11% standalone in the product development arm. Now, increasing the investments will mean that we will put even more synergies into play. So let me then rephrase the financial targets, which I all know that you have seen this morning. And even though it's not any major revolutionary changes, a successful business model with high ambitious targets is not good to reuse them, especially as we are looking to be a green company. So let's start with construction. We would be looking at still achieving at least 3.5% in operating margin. And that could vary, of course, over the years, depending on the mix between the various business models we have.
But that would be our utmost target to beat that. In product development, we would be after over and above 10%. And just to remind you that, yes, we had an interval before 10%-15%, but during a zero interest environment, we have still created a lot of the return, 11% on average in isolated. So this is still going to be a tough target to meet, but a reasonable target. That in itself should then manifest itself to be over and above 18% in return on equity. And we're still going to maintain our range of 40%-70% of segment net profit. This wide range allows us to take on investment opportunities as well, given what we have, what we can do within that area.
As I stated, we are prepared to move in to leverage if and when the right opportunities arise. Okay, let's see if we can, like, sum it up a little bit here before we move into the Q&A and open up for all your, all your questions here.
... You can see that, like, that what you have heard today is that there's plenty of opportunities that we have for the combined group and for business streams in the home markets. And that TSR, the total shareholder return, is, like, high up on the agenda, and the aspiration that that's the type of company that we want to become. And the balance here, like in a between construction and product development, we want to really portray the company as like in a equal part. Not if you talk about revenue, not if you talk about number of people, and the capital will also, like, gonna be different between the two parts here, because a different nature here.
If you look at, like, in how the company will be valued from the outside, that's, like, in a where we were-- that's where we are aiming here. What you can-- here is, like, in a, the chart that you have here is, like, in a how we, on a very high level, you- we can summarize the, the, the overall strategies, for the four, business streams. If you start with the construction, and you have heard it over and over again, like, the, if the market allows us to grow, that's not enough. We have two additional conditions: tra- proven track record, and do you remember? People, correct. Like, in a really, a lot of, like, in a good se-senior people.
That's, like, that's important, because if we don't have that in place, then that's, like, too risky here. A lot of the things that you can see up here is, like, the things that we have worked upon, but you can also ensure that there's gonna be enhanced focus on risk management. And also, we will also look at, like, the trends in the market of early contractor involvement. That suits us very well within Skanska, because we have the capacity and the knowledge if we combine the resources worldwide. In residential development, to stay at the 10 10, the target there, maintain the level, like, and keep the capital employed.
But also, if we see opportunities within the market where we can grow, like the BoKlok concept, which is like in a type of homes for the low-income type of segment here. And I think that that's the type we will need that more, like in especially in the Swedish environment and the Swedish geography, with all the people coming in and the big expansions. So we see great opportunities there for that. And in Central Europe, we are focusing on Prague and on Warsaw. That's the two cities that we definitely think that we should aim for.
Prague, we have been there for quite some time, and then Warsaw is like a new city for us, and we establish ourselves there with a healthy land bank and products for the future. We will design to cost, and for us, that is a close cooperation between construction and the development, and we will increase that like in a cooperation even further. So we will not go down the route that we have seen, like, in, at some other competitors here in the market, like in a splitting it up. No, we think that, like, we can create value, but by even have an even closer relationship and closer cooperation between the two units there. And in commercial development, we have a proven track record.
We will allow ourselves, like, you know, to invest even more money and plunk down more capital employed there. Of course, like, in a focus on the cost efficiency. To be able to expand that business, we have to allow ourselves to build up the land bank, because the land bank is like in the raw material for the future. Without the land bank, there is, like, in a new fu- new, new future products. It is very important that, like, in a build it up in all the places where we have operations and the new, new cities that Claes talked about, where we want to enter. On the infrastructure development side, it's not as easy as it is in residential development and in commercial development, because here it actually has to be products.
We cannot start products ourselves in infrastructure development side. It has to be like a product out there in the market. In RD and CD, we can start if we like the market, and we have a piece of land, and we think it's the right thing to do. But in ID, we have to win the product. And the market which we see now, that's in the U.S., you heard about, and there is some products coming up in Norway. And of course, we will be a part of that. We want to be a part of that and be in that race to win some of the products over there. So, I just want to remember here, like, you know, this is the model. We preach it internally.
I think it's important that the capital market, that all of you, you understand, like, you know, the close link between the two parts here, and the importance of, like, in a working together, not only from a financial side, you see it here, but also how we can pool the resources between business unit, between countries.
... And I'm gonna end here with a very good example of that. A bridge that we built in Norway, we completed it, called Gulli Bridge, and where we have great cooperation between several units from Central Europe and from Norway. So have a look and take a look at the short film here.
Gulli bru is a bridge that is 740 meters long. It is built with what we call incremental launching. It means that we stand in one place in a factory and build the bridge, and jack it in front of us until we have a complete bridge.
The reason we chose Skanska was that we had two different construction methods that we wanted to have priced, and Skanska had a very interesting alternative.
We priced incremental launching as the only entrepreneur. At the tender opening, we were number 2, SEK 10 million too high in price.
Skanska did not have the lowest price, but we wanted to have this construction method and try out this way of building. It is unusual to build with this method in Norway.
The contract is a bit special. It is what we call a target price contract. This means that you will sit down with the customer and find savings, improvements, you can say optimizations, where we then finally share the savings.
Here we save money and time, because in the design phase, we got it down from 20 to 16 piles due to the fact that our superstructure system handled such long spans.
In this project, we really worked One Skanska. We were from different countries. We had Skanska Poland, Skanska Czechia, Skanska Slovakia, Skanska Norway, who were to work together. We use different languages, we think in a slightly different way. We come from different safety areas and safety rules, but we really found our way through the labyrinth to a success.
Skanska Poland Norway adventure is something really important for us. We utilized resources and knowledge from a one project. Our technology were used as a competitive advantage during the tender stage.
We see it as very, very good that an entrepreneur can have all the knowledge in-house, so to speak.
You learn throughout your whole life, so it's always... It was one of the biggest projects in my career. Also, not just when it comes to concrete and technology, but also when it comes to diversity.
The relationship between Statens vegvesen's project management and Skanska's project management has been at the top almost the whole time.
We have good relations with customers and implement projects, and then we move on. But then the customer's customer comes on the scene. These are the people who live here in the area, who are to use what we have built. And it is really a great pleasure to see and hear that they are happy with what we have done.
Team building, that is number one. Also, planning, planning, and even more planning. It is so important with planning. It has to do with efficient production, it has to do with safety, everything.
Yes, everyone can imagine what it is like to be a world champion in Skanska. Yeah!
Okay, we will now move into the Q&A session. For that, I would like to have all of the members of the Senior Executive Team up here on stage. We will have three microphones, somewhat evenly distributed, so if you have a question, make yourself known, and you will receive a microphone and the word. When you start, please state your name and the company you represent before you, you state your question. Okay, everyone here? Perfect. Who would like to go first? Tobias, please.
Thank you. Tobias Kaj from Carnegie. I would like to start to ask a question regarding the construction margin and, and the target of 3.5% or above. When in the previous period you've been, been below that target, can you mention some more details about where you should see the improvement to be able to reach the target? Is it in kind of all units and all countries, or are some countries already where they should be or above where they should be? And is it some specific countries you need to see the biggest improvement to be able to achieve the average of 3.5%?
Do you remember the slide that Christel showed? Like in a, like in a... Christel, you can repeat that one, like in a where you have like in a big potential if you like in a kind of close the gap, like kind of from the loss makers.
To avoid the loss makers?
Yes.
That would give us today 0.8% higher margin, just looking on a snapshot of today.
If you bring them to zero. So there is like in a... And if you then add, like in a, we should make profit on the product as well, then, of course, like in a, there is more there. So the biggest potential to get the increased profitability in construction too is to like in a have control over risk management and also the production part once we have started the project.
... loss-making project a normal part of the business in the construction operation?
You can say it's a normal part of it, both yes and no, but it's a fight you always have to fight. And I think that there is more to do there, and I think that we have explained it here. And that's like in a part of the, like, in the low-hanging fruit. So that's like in one piece. And then, Anders, why can't you elaborate a little bit, like, in regarding ECI? Because that's another part there.
I mean, ECI is also a way to risk minimize the projects, because it's normally two stage. We win the project by having the better organization, a better plan to execute the project, and compared to our competitors. Then you work in maybe six months or up to a year in extremely big projects before you sign the big contract. We announced, for example, a VT, a road project in eastern Finland recently, and that was a two-stage project. So the benefit for us is also that we get into in an early stage, so we can... We know the project before we set the target price. And that is also to me risk minimized, because we have bigger knowledge about the project, so we are more certain about the contract we actually sign up for.
So it's the downside is more limited, but also, of course, the upside as well. So you can say the spread is more narrow than in a lump sum, big, complex project design build.
If I can follow up with some questions regarding the development streams. In the past five years, you have increased the capital tied up in development streams quite a lot, but it's been mainly in commercial development where the capital employed has been increasing. Is that the same development we should expect for the coming five years?
If you look at, you're going to see the biggest growth in CD, in commercial development. That is true. Then when it comes to residential, we are today, as we talked about at the Q3 presentation, at a very low mark compared to the number of units we have on the construction. So automatically, we will see a growth in capital employed over the course of the next coming quarters as we start to complete the ongoing portfolio projects. And with the current very favorable market in Sweden, very good track record, there could be the opportunities to grow that business somewhat even further.
Regarding infrastructure development, that's probably the most profitable area in your development streams, but it's quite small in terms of capital employed. You mentioned it's a very good and interesting pipeline in the U.S. for new projects coming out, but also that the share of equities is decreasing. Is that something that will result in relatively stable volume of capital tied in that operation-
Yeah
... or is it still able to grow it?
We hope that we will be able to grow it, but I think a more realistic plan is that it stays at the same level.
If you talk, if you talk about the capital employed, if that was the question?
Mm-hmm. Okay, thank you.
Thank you, Tobias. Who would like the next, next question? Let's go with the neighbor. Jeremy.
Fred Cyon on ABG , a few questions from my side as well. Talking about the ONFAL, you're now saying that you would expect a negative one. Is this primarily due to investments within the project, the project streams, or is it also related to M&A?
It's pre- Yeah.
You can go, please.
The guardian of the balance sheet.
Yeah.
I would say it's predominantly and foremost product development.
Then on the return on equity target, you're now saying above 18%. Given that you're accepting slightly higher gearing, wouldn't that indicate that you're actually lowering your targets?
Not entirely, because, yes, we are going into higher leverage, but as we said, that when it comes to balancing the business, you in measuring return on equity, you only look at the reported profit. With a higher proportion within product development, as we stated, you will have a higher proportion of value creation before that actually come to results. So it will result at a higher return on equity, but it could be sort of a couple of years ahead.
Then one question on the Commercial Development in capital employed in the U.S. How much can you grow that business within the existing core cities?
Claes?
Not willing to give any numbers, but, I mean, we definitely see opportunities to grow the business. Today, we have, I think, seven ongoing projects, but they are quite big size, all of them. But we need to backfill a land bank. When it comes to additional markets, I would say, as I said earlier, that is probably in the back end of the business plan. If you should do an entry to a new market, maybe three, four years from now. We just now start to analyze new markets, and then you need obviously to identify land and then buy land, build an organization.
Then one final question. In the previous strategy period, you outlined that you wanted to grow your market share. It feels as though that is less important in the upcoming strategy period. Is that a correct statement?
...We focus on the bottom line, and that, and we think that, like, in increasing the profitability and increasing, like, the EBIT, that's the right way to build and create shareholder value. So that's like, kind of, the focus there. And as I said before, like, you know, you have to have the three things in place before you have a License to Grow, for a certain unit. Like, you know, it has to be the market, it has to be a good proven track record, and the people have to be there, senior people. So that's like, you know, the three hurdles to come over before we can actually grow the business organically.
But in other words, you're less. That is, less important than it was in the previous period, because then you really outlined that you wanted to outgrow.
It is more important to focus on the bottom line, yes.
Thank you.
Thank you, Fred. Who would like to go next?
Yeah, it's [Bert Gesel] from Swedbank. A couple of questions, mostly on Peter. Starting with gearing, you say that you strive for conservative gearing. Could you provide us any kind of ballpark, ballpark figure what that means?
Well, again, I don't want to sort of give any ranges on compared to what, what's a conservative gearing. But you can see that we are on an adjusted equity, that's the way we would be looking at our gearing. But I will not give a number now. But we would be foremost looking at what kind of value creation we can do, and then we sort of go sort of communicate what would happen to the balance sheet in terms of gearing.
Okay, thanks. And if the financing link between construction and development gets looser going forward, does it mean that these two legs will move less in tandem going forward? I mean, that you look forward toward stronger growth in development streams than what the cash flow from construction would facilitate.
Let me likely just say, I don't think that that's going to happen. But I just want to add, say like this, that like in a, it's not only like in the cash flow from construction, that that is the link to the development. I think that Claes and Anders, maybe you can elaborate a little bit, like, about, like, the importance of having a construction unit that can help the development, like, you know, to, to create a product as well from a design to cost perspective.
Yeah, I mean, so this model of operational and financial synergies, all the construction works are obviously bought by, by, by development units into the construction units. Except for in Denmark, obviously, since we left that market many years ago. But otherwise, it's all in-house from the early ideas of the products, buying the land, designing. We sit next to each other in the table and, and producing the, the products that are very, very strong synergies, which I see as a very strong competitive advantage compared to a lot of other developers that need to actually do a lot of work themselves, and then they go out and pursue the construction very late in the phases. And then you obviously will not have the right solutions from the start. Anders.
I have some examples of land we were not able to develop before 2012, because we didn't get the profitability on a good enough level. But after taking care of these synergies, these lands, helped by market, yes, but we have also working, by working together, get down to the right cost so we can start them. So it's a real... It's a good example that it's really beneficial.
Okay, thank you.
Thank you. Can you just pass the mic one step behind you to Johnny Forsberg?
Johnny Forsberg, Swedbank. A question on growth. You mentioned that you see a growth of 5%, and at the same time, you're saying that the construction is heavily linked to the GDP development, which on your slide looked for more like 2%-3%. Could you explain the difference between these two numbers?
I think the 5% was for the entire business, and the GDP was just for the U.S. that I spoke about. But they're not, we also said that in the U.S., a bigger piece of the GDP is going towards construction, so that could give you the difference in the percentages.
You have that difference in the factor price index as well. So it all adds up.
Okay, thanks.
Thank you, Johnny. Next question. We have one from Stefan over there.
Stefan Andersson, SEB. Two questions. Maybe to go back to getting rid of some of the problem projects, just to get an understanding on roughly if we're talking about 0.6, 0.7 in margin contribution by staying out of those projects, could you indicate how much annual revenue you had from those contracts so we can understand what kind of drop you will have from that?
I actually don't have that number in my head there, so... But I think, like, in the most importantly, like, in a part of the, of the message is, like, in a focusing on making sure that we have the right product and, like, you know, coupled with the, the right people and, and also not signing up for the wrong terms in the contract there. As like, you know, that's, that's the key, that's a key message that, and a good contributor to enhance the profitability in construction.
Okay, and then on the investing in CD then, or any, and ID, of course. I mean, how do you see the market now for buying land? You want to be more aggressive, and in many of the regions you are in currently, the land price is going up rather significantly. Are you seeing opportunities, or are you seeing this as some kind of challenge to find that land?
It is a challenge to find land in a couple of the markets, and I could mention just, I mean, Boston, Seattle is very strong markets at present, where we have had quite a healthy activity in terms of starting projects, so there we need to backfill. Prague is another on my top five list, you could say, where it's a bit tricky to find land, which also is, you could say, a hurdle for competitors to start projects. So if you can start a project in Prague right now, you are in a pretty good position. Also would like to backfill a bit more in Wrocław and Malmö, so that would be my top five pick. But it's not easy.
I would say in general, it's easier to find land in Central Eastern Europe, and in the regional cities in Poland, we are in a quite good spot. So I think the Wrocław situation we will adjust in the near future. But the U.S. is the toughest, I would say, to land bank. So you are right, we need to buy, unfortunately, some land on maybe not peak prices, but higher prices to continue to develop the pipeline. And then we just need to make the right acquisitions.
Okay, and then the final question. The recent, obviously, it seems like the government of Sweden is looking into Arlandab anan and how that has worked out. Do you see that as an opportunity that Sweden might open up for PPP, or do you don't read anything into it at all?
Mats?
I didn't get the question. The Arlandab anan?
opportunities for PPPs in Sweden.
Seems like the government has started an investigation to look into how Arlandab anan, how that project has worked, the benefits for the society and all of that. I think the idea is to open up for more PPP on the train side, but I'm not sure. So I'm just wondering, what do you think about it?
The way I read the market is that, if you see there is a window of opportunity, and that is more than half open today. And then what will happen, if it will go wide open or if it will, shut again, that's, difficult to say. But I'm optimistic that it will open up.
Well, it has been some comments from, like, you know, the finance minister, because that's like, you know, the hardest one to overcome, as always, because, like, the gatekeeper there. That they could maybe think of some exceptions to like, you know, to the traditional way. That's like, you know, what they have said. And what we try to show the market and decision makers is that the OPS, as it's called in Sweden, is not the right model for all projects, but for a certain type of projects, it can definitely be the right thing. And just to give you two examples here, the Eastern Link is one, and two additional railroad tracks to Uppsala between from Stockholm is another one.
Why are they the right ones compared to others? Well, here you have, like, you know, a lot of, like, an income to these projects can be generated, like, you know, from the traffic. Like, you know, people, like, you know, either, like, you know, driving on the roads or, like, you know, buying tickets and sitting on the trains. So that's like, you know, one thing. And then you can also see quite a good development of prices and value of the land that is, like, you know, attached to those infrastructure projects.
But I think that the most critical question from, if you talk about, like, you know, the political scene today in Sweden, is like, you know, can we generate project- can we come up with project that generate more opportunities for residential development and, and, and building of homes? And I think that that's so important now, and I think that we have to build it out, because, like, you know, the infrastructure, because otherwise, we cannot, like, you know, build enough with, with, with the residential development here. It has to be new areas. And it's a question of how long will it take to come from your home to the place where you work? It's not about, like, you know, how many kilometers. It's so, it's about, like, how long time it takes.
So therefore, I think it's, like, and it can be an opportunity for, for PPPs even in Sweden. We see, like, you know, the constraints that's now happening, like, you know, with all the, with the refugee crisis and so on. So something has to happen. I'm like a politician now.
I can add here also-
Yeah
... that in the past it was, say, 10% equity, 90% bank debt. We see a trend in our markets now that equity goes down, bank debt is significantly reduced, and then you have government funding coming in. So therefore, the cost of financing the whole project is, goes down. And then you, if you look at the benefits that the client get with price certainty, time certainty, then it starts to be very, very interesting.
Bo, please.
Is it on? Yeah. No? Bo Sälliner, Elekta. Hi. I have a question on these write-downs in the Q3. I mean, they were due to, the majority was due to customer changes. And I think you have a good opportunity now to educate the audience why a change from a customer leads to a write-down of several hundred million kronor.
Okay, great. Educate the audience now.
I think I just did this, so I did have practice at the coffee break. So let's just pick numbers to make this make some sense. You have a project, let's say it's SEK 700 million. Customer says, "Okay, I'm gonna give you extra work of SEK 300 million." Nobody... The, the- there's no disagreement that they gave us extra work for SEK 300 million. The disagreement comes in, how did that SEK 300 million impact the base job? Because it's not like you had one toilet, and now you have two. Those changes are integrated into the base work. So, what happens then is, there's not a, again, not a disagreement on how much the extra is, it's a disagreement on how much that impact is.
We cannot agree on the extra work until we agree on the impacts, because if we do, you give up your rights on the impacts. So we're a very conservative organization. We take zero revenue from those impacts and/or changes, and we have a write-down. We have a discussion with the customer, and hopefully we come to an agreement, and in the past, we always have. And we come to an agreement, and we wrap that up, and hopefully we'll see a write-up, a recovery. We completely feel like that will happen. What that number will be is a disagreement. Again, not the extra work, the impact on the base work. So that is why it's a long negotiation sometimes. And what we've seen over the last few years is customers have gotten a little tougher about that.
We used to get those agreements quicker, now it takes a longer time. But we're certainly not gonna take a bad deal because of a quarter ends or a year ends. We're gonna get the right deal, and unfortunately, sometimes that creates an impact to the financials. Hope that makes sense.
Just to, like, add to, like, the overall picture here. Like, the write-down that we had in the third quarter was, like, a, a big portion of that write-down came, like, from the situation that Rich just described. But, then it was like, cost increases that was, like, our responsibility as well. So that was, like, the big mix of two different things. Rich just went through, like, the first one.
Please.
Simen Mortensen, DNB Markets. My question goes into residential development, and especially, I remember last time you had a strategy, you included U.K. Now the U.K. government has suggested to build 400,000 homes within 2020. What is your take on that market now, and how do you see the possibility for Skanska in that market, which you, you're not active in at now?
We have decided that not all markets are for Skanska. There's a lot of markets that we have to focus, and the focus for residential development, that is, like, within the footprint that we just described, the Nordics, plus Prague and Warsaw. That's it.
Thank you.
Jonas, go ahead.
Jonas Andersson, Danske Bank. I have a question first on the dividend policy. I know it's the board, but you mentioned it here. It's 40%-70%. The 40% is a bit puzzling to me. Would you ever consider to pay out only 40% and thereby lower the actual dividend? Or what circumstances could cause such a move?
You should not ask me, because I'm not, like, you know, the, like, you know, the ultimate decision maker here, because that's, like, you know, the AGM, as you know. But I think it's, like, as we said before, it's important for us to keep a good total shareholder return. And a big part of that is the dividend, and that is, like, still a big focus.
Okay, thank you. Second question is on the commercial development. You say that it's a challenge finding land, and prices are high. Does that mean that you expect the margin to come down during this five-year period for these businesses?
I would say whenever we start a project, we have the same view on the sort of incremental profitability in that project. So I would say on project level, we will not start projects with sort of the same risk levels on lower margin. That will not happen. And the reason why we have a sort of a challenge in, I just mentioned 5 markets out of 20. In many markets, most of the Nordics, we are in a pretty good position. But when you start up a lot of projects, you, of course, consume the land bank. So if we would sit with a big, fat land bank, we would probably not be a sort of capital-efficient organization either.
So I would say that it's probably healthy to have a shortage of land in a couple of our sub-markets, whenever you measure it at a given point of time. Currently, we have four or five markets with a bit of a challenge, but we will never sacrifice the incremental profitability when starting a project. That will not happen.
Okay, thank you.
Thank you, Jonas. I think now we've had... Do we have a question over there?
Yes, Niclas Höglund here, Nordea. Just a couple of questions, if I may. First, on the early involvement, it seems like a very important part to sort of mitigate the loss-making projects. Could you maybe elaborate a little bit where we are today on percentage of backlog or within the different business streams, and what's your sort of target over this strategy period? Thank you.
We don't have a specific number here, but maybe you can, like, give us a view of how it's developing.
Yeah. I mean, it's not a new thing for Skanska. We have seen ECI projects in all our businesses. What we can see now, it's growing. And I would say, yes, it's one thing, risk mitigation, but for us, it's also increased competitiveness, because we can, when we combine all the competence we have, be more competitive than our other competitors, and actually get higher margin.
... So we have seen examples of that, when we can get a higher margin than our competitors bidding and still win the project. Now, that's a very important thing going forward. So it's a prioritized market, not only for risk mitigation.
There is one thing that I think that, like, you know, we are fully aware of, but I think, like, in it, that I think is important to note here, and that is, like, when we go into the ECI, we go earlier into, like, into the project lifetime. We need different type of people. So Veronica, you touched upon-
Yeah, the-
These things, and I think it has to be put into that perspective of ECI, the focus we have here.
Mm. Yeah, we talked about matching, obviously, the growth ambitions and the business plan with the right competency, and it takes a little bit of different skill sets, obviously, to sit around the same table with the clients and designers. So we are also focusing on growing enough people to take care of these opportunities now in the market. And then we have markets, like in the U.K., this is a dominant model, so we have a lot of resources there that have a lot of many years of experience in working in that way, while we are trying to grow the competence base in some of our other markets.
Might be worth adding, too, the way we book those projects is when we get that first phase, when we're chosen, it's a very small project. That's all we book, even though we have, you know, we're kind of the sole source bidder on what might be a very big project. So I'll talk about the U.S., you know, we've been selected on several, and it's a very small amount of money in our backlog at the moment, but hopefully it'll turn into projects, and it'll be a significant impact to the backlog.
What we have seen here is, like, and I've talked about USA Civil. If I go back some years, that model was not common at all, and now we sit on, like, in a—you can call, like, you know, the first stage of the contract. You can't see it in, like, in the order booking, because it's just the pre-construction part, but we know what's coming if we can agree then with the client on an exclusive basis on the total contract.
And then a final question, if I may, one is, of course, this day is devoted to growth and opportunities. But one of the things I'm thinking about is now that Skanska, you're focusing more on your own internal or development projects, going for synergies, while, well, some of your competitors are more and splitting up. Could you please talk a little bit about the risks that you're actually increasing the competition with your end customers, both on the commercial development side and potentially also on the residential development? Do you see any risks that you will actually grow less than the market in connection to these more competition with your end customers?
You mean that we start to compete with our customers? Or I-
Yeah, well-
I didn't really fully understand your question.
Yeah, you're growing your own internal projects-
Mm-hmm.
with a key focus while the competitors then are more building or splitting out their housing units, for example, in order to capture growth on residential developers, which are not what we used to compete with them. And at the same time, also on the commercial development side, I mean, your market share toward the Fabege or the Wihlborgs, or the other, or Castellum, compared to your market share, to your own developments.
First, I think it's important to say that, like, the reason why we're doing it is that we can see that we can create value by, like, in a combining the resources, combining the different capabilities that we have in Skanska, between construction and the various parts of development. That's the way to really be successful and win the project, and that goes definitely for infrastructure development. Without the construction arm, I wouldn't say that we could be, like, you know, successful there, so it's really crucial.
You can see what we have, like, in a done, but in the residential development, when we have, like, kind of put it together with, like, you know, the construction piece, if you go back, like, some years and look at the finances there, or the financial outcome of it there. Do we compete with clients? Yeah, to some extent. Do we see any downside of that? I don't know, like, in a where, like if take Sweden, for example, we're in the Nordics. Anders, how do you see that?
In my career, I've worked a lot of my time is here in the Stockholm area, and I see that we have a very strong operation here. And that discussion has been from time to time ongoing, but I don't... I haven't seen that as a problem, actually. Because our external clients on the construction side, they are more appreciating that we have capabilities. We are specialized in commercial development, construction of offices and that sort of thing. So that has not limited us in the Stockholm area to grow-
Mm.
in the past.
Just a comment on Poland. I think we, Roman, we have close to 10 ongoing projects, office projects, in Poland, which I think is a big boost also for the construction unit.
Mm-hmm.
Helping you into a big sector.
Roman, how do you see it in Czech Republic and Poland? Because there is, like, in a, we have not been so long, so speaking with the full model there. Do you see-
About the corporation?
Yeah, well, exactly. Do you see that the clients hesitate to talk to you on the construction side because we have the development operation?
... If I am the client, I would like to see that the company who is going to deliver the project for me are professional, are using the expertise, is able to take the risk from the construction point of view, design point of view, and really to deliver to the final project. So by doing this, please remember that when we are talking about the cooperation, it's not the target itself. The target is to deliver better project to the final clients. So I think the cooperation only is giving us, as I am right now representing the construction activity, the revenue and the profit, but also is giving a lot of to the final clients, to colleagues from the residential and colleagues from the commercial.
It's appreciated a lot in Poland and in Czech Republic, especially in Poland, where we have really good track record.
So, the short answer, we don't see a downside with it from the client side.
Thank you.
Thank you, Niclas. Let's see who would like to have the next question. Albin?
Yes, Albin Sandberg, Handelsbanken. Talk about License to Grow. I just wondered, if you split the portfolios today, who has that license and who hasn't?
It's like in a, and it's not only for like in a full country, because like in a, like in a full, full business unit, because a business unit can depends, has like in a lot of like in a various like in a profit centers. So we, we, we have it, so we give it like in a to some few that have all these three things in, in place. It would be wrong for me, like in a, to, to give you like in the detailed answer here. But like in a the, you can see it yourself if you look at the, the performance, and then you have, I'm sure that you have, your own view about the, the market.
What you can't see really from the outside is, like, do we have available people that can, like, do that part, but that gives you at least, like, a hint on where you can find the License to Grow.
Thanks. Then I have some questions on today's deal that was announced, which obviously was a good example of how you exit your holdings as well. But I think you did very well in providing us with the guidance for the full year. You didn't give any profit estimates on today's deal. Any specific reasons?
Matts?
We don't do that.
That's the only reason one need. We can perhaps give comments when we report Q4.
Then also just on how that sale proceeded, you sold it to your pension funds. Was it an open auction bidding? Any other major interest in it?
As you saw from the bubbles that Mats showed, the ID's bubble was big and it was blue. That's the reason it's still at the final stages of construction. The ID projects normally has then a two-year prohibition to sell to other than the existing owners. Since this was an arm which is owned by us and controlled by us, the pension funds, we could sell it to the pension funds via a third-party, independent, external valuation.
Okay. Thanks.
Thank you, Albin. Next question, please. Maybe someone from the back end of the room would like to, to have the word.
Okay.
Okay. If not, then, we would like to thank you very much for coming here today. It's been a pleasure to see you all. I hope you found the day informative, and we hope to see you again at one of our quarterly reports, which will be the next time we have presentations for the capital markets. Thank you, all.