Hello, everyone, and a warm welcome to this press conference concerning the nine-month and third quarter result for Skanska. My name is Magnus Persson, and I'm responsible for investor relations. The live event here is also a telephone conference call, and it will be webcasted on our external website, so that you are aware of that. The presentation today will be held by Johan Karlström, CEO, and Peter Wallin, CFO, and you will all have the opportunity to ask your questions to Johan and Peter after the presentations. With that, Johan?
Thank you, Magnus. Good to see you all here. If you take a look at the picture behind me, you will see like in a part of Stockholm, how it's gonna look like some years ahead from now in the future. And this is like in a big transportation hub that is of desperate need for refurbishment, and it's called Slussen. There've been a long debate, many years, in the political arena, and finally, they have decided that now we, the project's gonna, like, kind of go ahead. And we in Skanska, we have landed several projects on that, on that, the whole program for around SEK 2 billion, and we will start up the project more or less immediately.
For sure, we will hear more about that project as the project starts up and continue. With that, I want to bring all of you into the nine-month report and some highlights that I want to share with you here first. Some weeks back, we went out with charges in the U.S. construction operations that, like, that impacted the overall situation and the profitability in the construction stream. But if you look at the situation in construction outside the U.S., we have a very solid and strong performance in all the other operating European units we have there. I will comment that a little bit further down in the presentation.
We also have a very strong performance in the project development side with all-time high number of ongoing projects in Commercial Development. And that is, of course, like in a very important part of Skanska, where we create a lot of shareholder value. Favorable market, and therefore, we see that this is a strategic decision from Skanska to continue the operation there. Strong financial position, Peter will comment that further, and you can see that the bottom line for the nine months is more or less the same as last year's, slightly below. Another key ratio that we follow very closely, that is the return on capital employed for the combined project development business, and you can see that for the nine months, it's close to 15%.
The market outlook, I will comment a little bit further here, but I think it's important for everybody to understand that we maintain the same market outlook throughout the geographies and the markets we operate in. That is despite the little bit gloomy picture that we see on the macro side, with slowdown coming from China. But despite that we see around us, we still see a good market and a favorable market position for the construction operation and the Project Development parts we have in Skanska, in the geographies we operate. So moving into construction, you see the revenue is up. In local currencies, it's flat, but it's up around 12%, in Swedish krona. The order bookings is down.
The right comparison, if we should look at, like, if the order bookings are good or like, you know, if it's lower, the right comparison there should, you should always look to the book-to-bill ratio, the revenue versus the order intake. Are we building up the backlog, or are we eating from the backlog? And that is, you can see on a rolling 12-month basis, that's 96%, so it's slightly below, and I will go into the details there in a minute. And the operating income, it's SEK 2.5 billion, and we have a very solid performance coming from Sweden and from Finland. And it's interesting to see that despite the headwind that we have in the market in Finland, we have been able to build up a solid performance there.
And that is, I think it's a strong, strong indication of like, you know, what we can do when we are working with all the tools that we have in the toolbox, with residential development, commercial development, in construction. And that also have a good positive impact on the construction operations in a market like that, that you see here. Another thing that, I want to highlight here, and that is Czech Republic. We used to have it on the other side, like, you know, that we, that it used to be a problem for us here. Now, the situation has turned. It's a favored market, and we can see that, the profitability is on the way up. So I think it's good for us to actually point at that, the turnaround that we are in that business.
The write-downs in the U.S., you have on the next slide. We made a provision or a charge in the third quarter of SEK 630 million, and you can see the distribution here between U.S. Civil and U.S. Building on the slide here. It's primarily coming from cost overrun and cost increases in 6 major projects in the U.S. the reason behind the cost increases is partly coming from change design and change situation and situations that the clients are responsible for. In these mega projects, we always, when we see a change like that, start a negotiation with the client, what should we be compensated for? Do we have any problems here? No. Okay.
What should we be compensated for? But what we do here is, like, you know, we always take the full cost of what we see, but we take zero income, zero revenue from the client until we have a commercial agreement. That means that we're eating all the cost, and then when we reach an agreement, then we take that in. The projects that we are talking about are mega projects. They are long, if you talk about the time, and the completion date varies between 2017 and up to 2019. It's gonna take time before we settle these discussions with the owners, and they will come gradually as it's gonna be, like, in several projects we are talking about.
Another situation in the U.S. is also that there's a tougher environment, tougher climate. It's tighter budget from the client side, means that there are, like, in a tougher discussions with the clients, and that we see overall. On top of that, there is also a competition in the market. The market is favorable in the way that we see a lot of projects coming, both in civil and building, but there is a lot of players, both domestic players in the U.S., but also European large construction companies with a U.S. arm that is now focusing on the U.S. operation, as it has been a slowdown in the southern part of Europe for quite some time.
What we will do now, on top of, like, you know, the discussions with the owner to try to recover and get back the money that we think that we have the right to, is that we will slow down the growth and focus on the bottom line, and also that strengthening the organization and the risk processes when which projects we should go for, and make sure we have the right people and the right circumstances there, that's gonna be a good project for us. Moving over to residential development, it's a very good market, especially in Sweden. You can see on the numbers here, that we have increased the revenue and the number of homes that we have sold.
You can also see it on the started side. We have started more than 1,000 units compared to the same period last year. The operating income has nearly doubled compared to the same period 2014. We have a strong performance in Sweden and in Central Europe. There is a good market in Sweden, so that's like, you know, one of the underlying reasons why the numbers are, like, you know, as good, where especially coming from the Swedish organization. But it's also so that we have turned around our own business, so when we have a good performance there and the house is in order. The situation in Norway is somewhat mixed in the market.
We see a slowdown on the West Coast, the economy that is related to the oil sector, and we can also see that they start to impact other part of the mainland economy in Norway. Finland is a weaker market, and that's coming from the situation that is like, you know, the underlying economy in Finland is much weaker compared to Sweden. So in the Nordic area, there's like a quite big difference between the markets here now. I'm sure that you all have heard about the 10-10 target, that we have preached, both out to the market, but I would say, like, also internally, and we can, you can see that we are almost there.
The return on capital employed, we are overshooting, and you can see that operating margin is on the way and on the way up to the 10% that we are targeting. Moving over to commercial development, during the nine months, we have divested SEK 3.3 billion of projects. And you can easily calculate the gain here. It's SEK 1.1 billion coming out from the SEK 3.3 billion of divestments. There is a favorable market now for divestments in the low interest rate environment.
And that means that our products, newly completed projects, low maintenance cost on it, and long leases, that is the type of product that the capital market is really interested in, to invest in. So there is a huge demand for our projects. We have fewer sales in the isolated third quarter, and that is just a timing question. You will see more divestments coming in the fourth quarter. We have a record number of ongoing projects, 48 projects today. I don't think that we have had more ongoing investments in the city units before. The total investment value of the 48 projects, you can see it's like in over SEK 19 billion.
One key ratio that we followed, that I talked a lot about, is like the pre-leasing of the portfolio versus the completion ratio of the project, and we always want to have them balanced. What you can see here is that the pre-leasing is slightly below the completion. One of the reasons for that is that we have several projects in the U.S. in the residential rental residential sector that is near completion, and we don't lease them before, until we have, like, we have more or less completed the project. So that's one of the reasons why the key ratios look like this. You can see how much we have leased during the first three quarters.
Infrastructure development, very good portfolio of projects that we have, and you can see that we have increased the value of the business with SEK 600 million. We see a lot of activities, a lot of projects in the U.S. There's more projects out there than we can go for. When we go for a bid in the PPP sector, we have to select them very carefully, as the bid cost is very, very high. So we carefully select the projects, and then we work hard on, like, in some few deals here. So, and that is like in the situation in the U.S.
There's more projects than we actually go after, which is a good situation for us because we can pick and choose the one that we think are the right one for us to bid for. The most important thing that we have now in front of us, that is to bring the LaGuardia Airport from the preferred bidder stage into financial close. There's some ongoing discussions there, and it's going according to plan, and we expect to reach financial close during the first half of next year. Here you see some of the major orders that we landed during the third quarter, and Slussen, the transportation hub I showed you on the very first slide, that's like in the SEK 2 billion here.
We have an office in the U.S., and despite the slow market in Finland, you can see that there is some activities there as well. But otherwise, it's actually reflecting the overall situation in the market of the type of order that's that you see on this short list. Book-to-bill 96%, and you can see at the very bottom there, on order backlog, we are maintaining more or less the same backlog that we have of around SEK 170 billion, which is a strong and good backlog, going forward, for the operations that we have. And on the breakdown that you have on this slide, you can see here that.
And I think that, take a look at the third column, that is like in the rolling twelve, book-to-bill. That's like in the, I would say, the most interesting comparison here. And here you can see the 96 for the whole portfolio. And if you look at the European part, if I comment, these business units and countries first, you can see that they are a little bit below or above, 100%. So we have a good situation there. And out there to the right, you see how many amounts of production we have in the backlog. Take a look at the US operations, they have a lower number, and it always shifts between the quarters.
In the U.S. Building, year-to-date number, we had a big cancellation of close to SEK 6 billion-close to SEK 7 billion of cancellation of one project that we have, like, that we have taken out from both the backlog and as a negative order intake. So that's one of the reasons why the book-to-bill ratio is lower. The duration of the backlog, you can see it's like seven years here, especially in the U.S. Civil situation. So that's one of the comments I want to make here, and I'm gonna hand over this magic little tool here to my famous CFO, Peter Wallin.
Well, thank you. What can you do with that kind of introduction, right? Okay, thank you very much, Johan. So let's talk about the income statement, shall we? Then we have to start to look at the top line. The top line increases by 12% in the first nine months, flat in local currencies. And if you look on the first half of the year, the Q2, you saw that we had a growth of 5% in local currencies. The deceleration is very much explained by the cancellation of a major contract we had in the U.S. building operations, as you can recall, in conjunction with the Q2 report. So that takes away some of the growth rate, which is underpinning the business. Gross income, SEK 7 billion, and operating income, SEK 2.5 billion.
This is, of course, very much impacted by the writedowns we have taken in the U.S., in the total of SEK 750 million for the first nine months. So we end the third quarter with an operating margin of 2.4% compared to last year at 3.3%. Coming into the various businesses, Sweden, again, a strong quarter, strong market, strong execution, excellent performance across in this business, with a very strong building market as well as civil market. Norway, a fairly good and stable margin. Here we have more to do in terms of increasing profitability in this business. Finland, poor, weak market, excellent execution, and you can see the margin is hovering around the 3.5% mark.
Poland, also a very stable performance, where the third quarter is then starting to head up. As you can see, strong execution, good market. Czech Republic, Johan has talked about. This business is both having a good market as well as good execution, and we are building up sort of the strength in this business as we go forward. The U.K. is showing a somewhat weaker margin, and the reason for that, we have talked about previously. We're starting to see the signs from a very weak market in the past, but we also have big projects in startup mode right now, where we take a conservative take of the profit out. And last year, we are starting to wind down very profitable projects. So it's a combination in the portfolio here.
Building and Civil, we have talked about very much about, and just want to make sure that the message had got home. We are taking the full costs of the design changes to the completion of the contract into this specific quarter. We will we have not taken anything into the income of these design changes until we get the commercial agreement with the client. And the reason for that, if we stopped the project and went for an agreement, we will be totally late with the project, and then we will have a different position in our hands. So this is the way to deal with the situation. And we are, of course, seeking to be reimbursed by the changes driven by the client. Resi, residential, very good performance.
If you look on the top line, it's more than 40% up, 44% up. Volume is up 34%, and the price increases, thereby, you can see in the difference between the volume and the increase in SEK. The operating income, as Johan said, has almost doubled compared to last year, and we are ending with an operating margin for the three quarters of 9.3%, very close then to the 10, one of the 10-10. But on the second 10, we are exceeding, and I will comment that a bit further. If we then take a quick look at the markets, you can see the strong performance in Sweden. Yes, we are benefited by a very strong market, but we also have an excellent execution here in terms of projects.
Design to cost, and then keep to the design when launching the project is absolutely key here. That is why we are talking about we are not ready to launch a project until we have defined the product and the cost. Norway, here we have a very mixed situation in the country, predominantly then driven by the oil prices reduction we can see in the marketplaces. So some market has cooled off completely, whereas other markets are stable. And here we have a portfolio impact, is that when, when we are starting up new projects in the areas where the market is still doing quite well, as in the Oslo area, for example, we are taking a cautious profit take in the beginning of the projects. So that explains the margin difference there in Norway.
Finland, we are improving the margin, stable position, and we are just muddling through the current market conditions, as best as we can, and we have a good team here. Central Europe, you see very good numbers compared to last year, to say the least. This is the combination of our Prague business and our Warsaw business. And the Prague business is operating on an excellent level, whereas the Poland business continues to be in a ramp-up phase. So, we will still expect to see some quarters before we are increasing the Polish business, because it all depends on when you can start projects, et cetera.
The organization presently in Warsaw is bigger than the current volume, but that's because we have established a going concern level, so that's why. Still, a very good result in the Resi stream. Looking at the started, we have increased the started, and very interesting, if you look on the graph behind me, you can see that we ramped up the started quite a bit. But everything we have put on the market, we have sold, which means that we will continue to really work with the cost side of the project and continue to drive up the revenues, the prices. If you take a look on homes in production, this is which you can see we have close to 5,600 units in production.
We have sold 75%, and if you look on that number specifically for the Swedish business, that is 88%. We need to drive and continue to launch new projects in order to post sales. We have also decreased the unsold completed homes to 308 units. Very small if you compare to the total bulk of the business, and this is predominantly located in two parts of Norway, where we have completed the projects, and also in Finland. We are continuing to have this under control and selling this stock of apartments. CD, Commercial Development. Very good performance overall in the nine months. Isolated third quarter, we have not sold as many projects as we have done in the previous two quarters. There is a fourth quarter remaining, as you all know.
Otherwise, you can't talk about quarters. We will have a very good volume in the fourth quarter. You can see also that the prices, if you compare the gain of the projects we have sold, the margin is considerably higher compared to last year, and that is because the prices in the market are increasing quite a lot. We have previously guided for capital gains before selling and admin of around SEK 1.5 billion-SEK 1.6 billion. Given how we see the market right now, we are expected to beat this number for the full year. If we could be in line with last year's result, which was a high top-end result of SEK 2 billion in capital gains.
Another thing then you will need to remember is that the selling and admin, because we are growing the businesses, especially in the European business and in the U.S. business, the selling and admin is increasing also. But the bottom line impact is increasing profit from CD continuously. And you can also see on this bar that the bars represent the 12-month rolling divestment proceeds, and the green line depicts the profit, and the volume is much lower in the third quarter compared to the third quarter last year, which then creates a dip. We are at the 32% mark when it comes to margin, if you compare capital gain to the divestment proceeds.
And if you take a look on the portfolio, the bars represent the ongoing projects and their book value at completion. There you can see how much we are driving up this business compared to the past, where we took a reduction after the Lehman crash, and in the current business plan, we have increased this activity quite a lot. And the ongoing projects here is depicting our own ongoing projects. And then on top of that, you have three JV projects. So here you have a little bit of differences when it comes to occupancy rate and degree of completion.
The conclusion is the same as Johan said, and one thing you need to remember, as we are driving up the European businesses and U.S. businesses quicker than the Nordic businesses, this will impact this ratio as well, because in the European and U.S. context, you can't do a pre-leasing until you have started the project. So you will be a few months, a year into the project before you can do the lease. So you will sometimes see this move in quite quickly. But we could be in a position where the completion degree exceeds the occupancy rate for quite some time. This is a new graph. We find it very good because we've done it ourselves.
And one thing you can see here is when the bars here, this is the unrealized value and the line is the realized value. You can see how it dips in the third quarter, rest assured that this is also designed for that we will divest projects in the fourth quarter. We have already announced a big Polish package to be divested in the fourth quarter, SEK 1.5 billion in divestment proceeds, and that is promising. Leasing, key to mitigate risks and create value. The business is operating high here again, 241,000 square meters for the first nine months. It's a good number. Then the last and fourth stream, infrastructure development, operating very stable where the portfolio of projects is doing quite well.
You can see how this number grows, and now we are landing at an operating income of SEK 405 million. The portfolio continues to grow. During the first nine months, we have grown the value, excluding FX, at SEK 400 million for the first nine months. That equates to 8% for nine months. So this, this is good. And this is also a sector which is attracting a lot of interest from pension funds, et cetera. So this will continue to drive the view of the values in this business. We gather all the streams, the whole shebang, and, unfortunately, we have a negative number, which is the central. The central consists of central costs, as well as the, what remains in Latin America.
In the third quarter, we have been forced to take a FX devaluation of the proceeds from the Argentinian O&M. So we concluded a deal regarding Argentina, and then we to the seller had to take a certain exposure to what was happening between the U.S. dollar and the Argentinian peso. What happens? Well, the presidential discussion in Argentina starts to flourish during the period where we're gonna where we've done the deal, and we're gonna close the deal. And that, of course, creates a situation where the peso tumbles compared to the dollar. So we had to take up part of that slack, and that is what has happened in the fourth, the third quarter in terms of Latin America. Other than that, it's not much movement into the central cost.
The operating income after that accounts for SEK 3.4 billion. In the net financial items, we have a number of one-off impacts regarding close of hedges and mark-to-market changes. When we have completed the sales in Latin America, and we completed the ongoing E&C contracts in Latin America, you will see interest net and FX impacts sort of be reduced considerably. Because the interest rate differential between SEK and the Latin American countries is around 19%, 19%. So don't look at the negative interest rate as that level, it's a completely different level here. Because of the lower U.S. proportion of the profit, tax rate has decreased considerably.
So we are at the 21% mark for taxes, and, this is a level which you could expect for the rest of the year as well. Next year, when the sun shines and the U.S. starts doing better, tax rate will be going up again, if you just look at that line. So then you will be back, be back at the 24%-25% mark again in terms of tax rate. Just to keep you hint on your Excel models. Cash flow is always good. We had a good quarter in terms of, working capital improvement, a good cash flow from construction, but we had not as much divestment gains from the development operation, so that's why it looks like the, the cash flow has, has worsened compared to last year.
Then we have already announced deals in the CD part of—which will come into fruition into the cash in the fourth quarter, SEK 1.5 billion. Then the Polish package, which we announced after the close of the third quarter, you will have an additional SEK 1 billion. So sorry, so you will have SEK 1.7 billion plus SEK 1 billion, SEK 2.7 billion, which will impact cash flow already known into the fourth quarter. Free working capital, sometimes it happens, sometimes you actually can see what we have been mentioning when talking about this slide. You're starting to see the absolutes go up in terms of working capital, not much influx from FX this time. And then you have the turn also in terms of the relative proportion, so flattening out. So this is, this is something which we expect.
As long as we increase in local currency, we should be able to have an unchanged or increasing absolute terms. But from a, from a percentage point of view, it needs could be staying at the same level. The financial position is strong, and it will strengthen into the fourth quarter considerably. Fourth quarter is the best quarter in terms of proceeds from the development businesses, as well as a strong cash flow in construction. So, in terms of the change in the financial position, the cash flow impacted, of course, the first nine months at SEK 4.6 billion. We have decreased the pension liability because of increased discount rates in the Swedish context by SEK 200 million, and then you have some FX impacts.
We thereby end at SEK -3.4 billion in terms of net debt, and SEK 3.6 billion positive in own fund. Equity unchanged if you compare the two numbers, and in between, we have done the dividend and increased the profit. So they all are awash for the first 9 months of the year. And, investments in capital employed, we are increasing capital employed in SEK 2 billion. You can see that we are increasing commercial development and decreasing residential development. And here is the explanation I wanted to come back to the, as I mentioned in the P&L of residential development.
You can see how low the capital employed is in residential development, and that means that we are selling resi as quick as possible when we launch the project, which means that we have the P&L impact. But then we will actually need to build it as well. So you will see the capital employed in resi increase as we are putting this money into work in the residential part to complete what we already have sold. Commercial property development, on the other hand, here we have a number of projects done on the basis of the guidance I have given you and what you have seen from the press releases. You could expect this to decrease towards the back end of the year when we are settling the deals already made, and the ones we expect to be made.
With that, Johan?
Thank you.
Fantastic CEO. Yeah, here we go. There you go. The market outlook that you now have here behind me is like the same as we had previous quarters. We maintain the same view. In general, a favorable market situation across the board, in all the geographies that we are. And you can see that, like, in it, it's quite a strong situation in Nordics on the building side, in Sweden, a little bit more mixed in Norway. On the civil side, we see a lot of projects, but there is tougher competition because we see more international players coming in. It's easier to move resources on the civil side and go into other geographies, and that's a very clear trend.
U.K. and Poland, we have a strong market, and in Czech Republic, it's like, you know, it's improving. It's on the way up. And in the U.S., we see a lot of projects on the infrastructure side coming out as with traditional procurement models, but also coming out with PPPs. We see a lot of projects in aviation, like in the sectors that we operate in. But there is a lot of other players out there. We are not the only one seeing that strong market. Very easy to just to explain the residential development market. Sweden, strong. Norway, mixed. Talked about the situation between the West Coast and the other part of Norway.
Finland, weaker, but they... We have a feeling that they reached the rock bottom, and we're, like, kind of waiting to see, like, you know, the first signs of some recoveries here. In Europe, we have Warsaw and Prague, that's like in the two positions, so the two cities we operate in there. And if we see a good situation and a good market in both of the cities. And in commercial development, there is a huge appetite for our products, and a good market for divestments across the board. We see also good opportunities to lease the products out to and find tenants there. And in infrastructure development, it is the US market we focus on.
There are some projects that will come in Norway and maybe in other places, but otherwise, it's very slow in the PPP market. So with that, Magnus?
Okay. Let's move into the Q&A session, and we will do this in the following order, that we start with questions here from the live audience, and after that, we'll take questions from the telephone conference, and if there are any from the webcast. When you state your question, please also state your name and the company you work for. Niclas, please go ahead.
Yes, good morning, Niclas Höglund, Nordea. Firstly, you didn't talk about the full year guidance, which you sort of raised in when you re-released the profit warning. You just said that you maintain it in a comment to the news agencies, while you today also talk about a higher contribution from gains. So just to clarify, this SEK 5.5 billion-SEK 6 billion is with including SEK 2 billion, or up to SEK 2 billion in gains from commercial development. Is that-
That is correct. So we've maintained the guidance of 5.5-6, as we stated, like, in two weeks back. And, just also to clarify, that's within that number, we see a higher volume coming from the commercial development side.
Okay, yeah. And then, some follow-up on the operational side. Looking at the U.S. operations, with this, well, 1.5 week more after the writedowns, could you give some more flavor to what the type of products there are, where are you seeing these costs or this productivity risks? And if when you look at the backlog, where should we be worried for this sort of high competition in the market? Where could we see these, well, these customers raising or changing the products going forward?
...In the U.S., we have hundreds of projects, if you add them all up on the Building and the Civil side. The big part of that is also like in a mega project, really big ones, complex ones. It is like in the big mega projects, that's. They are very complex. There's always a lot of changes quite often. The client changes the design, want to do something else, or the circumstances is different compared to what was expected when the project was bid. You can see, like in the distribution between U.S. Civil and U.S. Building of like in the write-down, these complex, difficult projects is more on the Civil side.
That is also the nature of the business, because if you look at like in the return, it's like in U.S. Civil, it's a high risk, high return if you look at the margin. In U.S. Building, it's like a low risk, low return type of operation. So that's like the. That's one of, you can say, like some sort of a guidance on where we see, like challenges here. So that's it, like more on the Civil side, and it's also in the mega projects where these things can occur.
And then just to follow up on that note, you previously talked about a sort of an underlying profitability in the U.S. Civil of, well, declining to around 67%. In light of this changing or tougher environment, these climates, and competition, should we expect that to fall even further if we include these productivity losses that you-
You can get a hint of, like, you know, the underlying profitability, because that's easy if you just move back, like, the provisions, then you'd, like, see what the other part of the business is like in producing. But we... It's gonna be a tough—it is a tougher climate and a tougher competition out there in the market. And we are not guiding in a certain percentage for any of the business units that we have in construction.
Thank you.
Thank you, Niclas. Next question?
Thank you. Erik Granström, Carnegie. I just wanted to come back a little bit about the construction sales. In both Q1 and Q2, construction overall turnover increased substantially quarter-over-quarter, and now it was basically flat. And if you look at the countries, for example, Norway stands out as having clearly lower volumes than last year. And Peter, you were talking about the fact that you had a cancellation of an order in Q2 as some sort of reasoning why that may. Could you just give some more explanation as to how we should think about that?
Because I think that was, at least in my part, that was a bit surprising that volumes dropped so much sequentially, especially given what the kind of volumes that we've seen both in Q1 and Q2.
Hmm. When the specific comment in the U.S. of this project is because it was a very high burn rate in terms of production. So that, of course, creates a very strong impact momentarily. And then in other parts, as you mentioned, as in Norway, for example, the business has shrunk over the past 12 months. So that's reasoning. But just when something like that happen is to highlight the way the mechanics work. If you lose a high burning project, that gives an immediate impact to the revenues.
If I just want to comment, just to comment Norway, we see a mixed—we have a mixed picture in Norway today, where the part of Norway that has been depending on the oil, we have seen a slowdown, but now it's moving into the mainland, mainland economy as well. So there is like in a mix between geographies from that standpoint. On the other hand, there is also a mix in the other dimension between the private side and the public side. The public side, there is a lot of investment because the politician decided to go for a lot of infrastructure, infrastructure investments. But in Norway, we can more or less see all the international players come to that market because of that situation.
Because it's a lot of mega products and infrastructure, and that is easy to move in. If you compare it with Finland, it's a slower market, but it's not like in a lot of mega products there, which means that you don't see a big of international players coming into the Finnish, Finnish market.
Okay, thank you. And then my final question is regarding CD and specifically perhaps CDU, and that's: do you feel that you have enough building rights right now in CDU in order for you to start the kind of projects that you want? And also, if you can give some rationale behind the changes that were announced today with regards to management leadership changes in CDU and building and why your personnel sort of seems to be moving around a little bit.
Sure.
Thanks.
If I start, like, in with the building rights first, that part of your question. Yes, we have a lot of interesting projects in the U.S., and we believe very much in the U.S. market, and we have, like, in the four cities there where we operate. But as we start project, of course, we always have to fill up and buy more land, because that's like in the raw material for the future. So it's a constant, like, in a discussion about filling up the land bank there. The changes in the U.S. is like, gonna have been planned for quite some time.
And, we always have the philosophy that it's good for management development, in general, and for the top managers in Skanska to move around. Mats has done a fantastic job of building up the CD operation, Mats Johansson, there. He started up 2008, and he has, like, in together with his team there, turned it into a really successful operation. Shawn Hurley, the new business unit president, he is the one that's run—has run the Boston operation, so that's like, and he just moving up one step within that organization.
Okay. Thank you, Eric. Any more questions? Albin, please go ahead.
Yes, Albin Sandberg, Handelsbanken. The comment you made, Johan, about the construction order backlog around SEK 170 billion, is that, is that the steady state level we should expect from you going forward now?
I think that what we focus on is like into maintaining the order intake to see the balance between the burn rate, the revenue, what we produce, versus the order intake. And it can always fluctuate and go up a little bit down, but that's the real comparison. That's the key ratio to look at there. And then, of course, the backlog, it's like an indication how much, how long is durations, like in. You can see that in the Nordics and in other parts where we have a lot of smaller products, like in the churn rate is faster. And in units where we have big products, then you have like a longer duration.
So that gives you a picture of like how we have to act up and down with the organization, volume-wise.
Would you say you have become more cautious on take-
Sorry?
Would you say you have become more cautious taking in new orders after the recent developments in the U.S., for example, or is it unchanged?
Yes, we are more cautious, there, and making sure that we select, the product that we go for more carefully, and making also sure that we have absolutely the right team available, because that's the critical thing in a business like the construction: Have the team in place before you actually go for the project. That is one of the lessons learned.
Just looking at the residential stream, you are a bit cautious on Finland, yet the startups are quite high in Finland this quarter. Any specific reasons or?
I think it's more of a timing issue, like in a when different type of products is, like, gonna coming to the market. And we look at all the products in Finland, like independently, in a way that we look at the micro location. Do we believe in the micro location there versus the competition around another competing products? And when the products are, like, in ready to be launched, and when we have all the permits and design completed.
We also see how the sales is going up in Finland as well, so a lot of the stock that is started is already sold.
I just want to add there, when we have a market situation like in Finland, where it's not like in Sweden, either, we have a more cautious look at, like, you know, what should be pre-sold before we actually start the project.
Then maybe you will come back on that on December seventh, I believe it is. But one of our colleagues here in Sweden, NCC, decided to possibly split its residential division out of the company. Do you still think that Skanska Residential is doing better as part of the Skanska Group than on a standalone basis?
Look at the performance. When we have it, like, in a closer to construction, we can use the synergies. We're working as a seamless organization, both with the construction and the development and the design. That's the key for us, and the strategy going forward. There is absolutely no other strategies like in that we have, and I don't want to comment other competitors.
I understand. Just one final thing, also on Latin America, thanks for specifying, the write-down there, Johan. But, you are coming closer now, I guess, to this remaining run of projects. How confident are you now on the completion? Have we seen the worst now, so-
We have some-
No surprises?
We have some few products on the E& C side, engineering and construction, like in the big products. And we are, like, as we have said before, that we are closing down that operation. We're just finishing these products. They will be finished, like in a execution-wise, this year, all products. And we always take, like, you know, the full cost of what we see there. So we are coming closer and closer to the very end.
Great. Thanks.
Thank you, Albin. Do we have any more questions in the room? If not, let's turn to the telephone conference. Operator, do we have any questions on the line?
Thank you. Just a reminder to participants on the phones, if you would like to ask a question, please dial zero one on your telephone keypad now to enter the queue. Once your name is announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial zero two to cancel. So once again, that's zero one to ask a question or zero two to cancel. So far, we have three questions in the queue. The first is from Tobias of Carnegie. Go ahead, sir. Your line is open.
Yes, thank you. Tobias Kaj from Carnegie. I would like to ask a couple of questions regarding the residential development. If we look at the Swedish part, the EBIT in relation to number of sold units increased from SEK 180,000 in Q3 last year to SEK 340,000 in this year. Do you see this as a sustainable level, or have you seen any specific project with extraordinary high profitability in this quarter?
Hi, Tobias. It's a bit of a different portfolio mix if you compare the quarters. And you have perhaps more greater city-type projects this quarter around compared to last year. And as we also keep reminding, we are in a very conservative profit take in the beginning of the residential projects also. So you will, well, you will, when these projects exceed the hurdles in terms of construction and sales rate, have a higher profit take. So you get the kick of that as well.
The main target for us, as we have stated, is to design to cost, to be able to capture the good increases of prices that exists in the market right now by defining the cost and the product before we launch it. That is the number one priority.
Okay. And also, regarding you, you mentioned something about that you have seen an effect in the market in Norway on the West Coast, where the oil industry is big, but that you also saw some other effects in the mainland. Can you give some more details on that?
Well, it's clear for everybody that, like, you know, the oil economy has impacted the West Coast market, and especially the private sector. Private individuals, families, they hesitate, like, you know, to buy a home in Stavanger, which is like in a very oil-dependent city. We see some examples of that also in Bergen, like, you know, which is also on the West Coast. When we see the mainland economy like that has been impacted, that's a more like in a general term. It's not only related to the residential sector. We see it like in also like in overall on the private side.
Has no impact as what we can see on the public sector, because that's more politically driven.
Okay. Thank you.
Any more questions?
Okay, our next question comes from Jonas of SEB Bank. Go ahead, your line is open.
Yes. Good morning. Jonas here. I have a question on the residential business. You have said before that you aim to keep that business size-wise on the same level. But now, I mean, starts are up 60% nine months year-over-year. And is that still the intention to keep it unchanged? Or and also, on what level? Is that the capital employed you are referring to?
You see some fluctuations if you talk about the starts, that goes up and down much more, like in between individual quarters and between years. Primarily depending on, like, you know, when the product will come and be ready to start there, and that can always differ. I would say, like, you know, we want to keep quite a stable volume and size of residential operation. You could maybe see a slight increase of activities in the Swedish market because of the very strong market situation. But on the other hand, we need to understand that the average time from that we buy a piece of land until we can start a project is seven years in a market like Stockholm.
So we have to really plan long term, and we cannot base the volume on exactly how the market looks today, because we have to maintain a very steady volume year after years there. But it can always fluctuate between years, depending on how the market looks like.
So you will not buy new land, you will just try to sell as much and start as much as of what you have? Is that it?
We will always fill up the land bank, and we try to be contracyclical there and buy when the market is down. So, like, in a buying land can vary, depending on, like, you know, the market situation also.
Okay, thank you. And a second question. I know it's not you that decides, but the dividend, how should we treat the one-off in the U.S.? Is that business as usual, or will the board take that away when they decide the dividend?
That's the board's decision. But if you look at the balance sheet of Skanska, it's a very strong balance sheet with a healthy when we are in a healthy situation. We will come back and talk about the dividend once we are coming closer to that.
Perfect. Thank you. And the last question, if I may: Can you just elaborate on the strong margin in Sweden? Is that seasonally in Q3, or is it a new higher level that we see on the margin there?
We have a good situation in Sweden. There is a good market and also a very good performance in the Swedish operation. But on the other hand, we are closing out some really big projects from the past. But it's a very stable organization with a good performance.
Thank you.
Thank you, Jonas. We are now a couple of minutes past 11 o'clock, and we have time for one more question, I think, before we close this conference. Any more questions on the line?
We have one further question on the line. It's from Martin of Bank of America Merrill Lynch. Go ahead, sir, your line is open.
Good morning, it's Martin Wästall from Bank of America Merrill Lynch. Just two very quick questions. One is on your Commercial Development division, where in your quarterly report, you provide an estimate of the market value of the assets. I would be interested to know if you have been able to sell assets above that estimate of market value this year, and if you could maybe provide an indication, a rough indication of what has been the average premium to your own estimates this year?
Yes, I don't know whether you started now on the conference call, but we did give guidance on that just to be straight. And that guidance is that to expect to achieve in line with last year's gains in CD, which means around SEK 2 billion. And the margin in the first three quarters equated to 32%, 32%. So the markup is somewhat higher in the tune of 35%-36%.
All right. All right, and if I could have one more question, just to follow up on Latin America. Could you just remind us what is the total amount of losses and negative impacts that are included in the nine months in central costs, which I guess are non-recurrent for next year?
That is also part of the report, and I'm gonna look into the report, and... Let's see now. So many numbers to remember, you know? So it's roughly SEK 0.3 billion, oh, SEK 300 million, in around that number.
All right. Thank you.
Thank you, Martin. Thank you all for coming here, and we hope to see you again in February for the fourth quarter and the full year report. Thank you.
Thank you!