Hi, and welcome on this rainy day to the presentation of Skanska's report for the first three months of 2015. My name is Magnus Persson, and I'm responsible for Investor Relations. The presentation of the report will be done by our CEO, Johan Karlström, and CFO, Peter Wallin. After the report, you will all get the opportunity to ask your questions to Peter and Johan. With that, Johan?
Thanks, Magnus. Good to see you here. And I know that we have some participants on the phone and on the web as well, so you should all feel welcome. The slide I have behind me here, that is like, you know, the Papworth Hospital in Cambridge, U.K. Very important project for us because it's a PFI project. So we are the investor, and we are also the contractor, of course, for the project. And the construction value of that project is SEK 1.8 billion.
If we then go into the actual report, we have delivered a good and strong result in the first quarter here, with increased revenues, and the revenues have increased by 8% if compared with the first quarter last year, and if we compare it excluding changes in currencies. And if we do the same comparison, if we talk about the operating income, the result came up with 18%.
I think that it's good that we have, we can also see that the markets that we operate in, in both in the U.S. and in the U.K., and in the Nordics, and in the other parts of Europe, most of these markets are good or stable or improving. The only exception to that is Finland, that is weaker, which has a weakening market, which is the same situation, the same type of market that we operate in as last quarter. Moving over to construction, we can see that we have an increased revenue of a little bit more than SEK 30 billion compared to SEK 25 billion the first quarter last year, and the order bookings of around SEK 30 billion as well.
And if you compare the two, the revenue and the order bookings in the quarter, we are close to 100% book-to-bill. If you do the same comparison over a rolling twelve-months basis, we have a book-to-bill of 109%. And I think that the right comparison should be to look at not only one quarter, we should look at four quarters, because it can always fluctuate between an individual quarter, and we have seen that in the past as well. But as order intake has been quite strong, I will mention, I can lift up two business units here, Sweden, of course, but also we can see a shift in the market in U.K.
If you go back some years, I'm sure that you remember that we talked about that there'd be a lot of discussions, that the politicians decided to stimulate the market. It was hard to see that, but now we see a change in the market with a lot of projects coming, and it's also reflecting in our order bookings. And the operating income, we came in with over a little bit more than SEK 600 million during the year, and we had a strong performance in the Swedish operation, but also in Finland, despite the headwind that we have in the market. The U.S. margins are somewhat lower compared to previous quarter last year, the same quarter last year, and it's due to tough winter, especially in the Northeast.
We have shoveled snow in the civil projects for $ millions. That has, like, been one of the reasons. The other thing is that we have also have shift in the product mix, which means that we have started up more new projects, and we are more cautious of profit recognition when we start projects. Peter will dig a little bit further into the situation in the U.S., when we talk about the individual business units there. Strong market in residential development, especially in Sweden, and of course, here in Stockholm, I think that there all of us are aware of that. And we sold close to 1,000 units and homes during the first quarter. The market fluctuates.
It's always going, it's like, in, in the business, in the business cycle, up and down, and now we are at the peak, here, or have a good market here in, especially here in Sweden. But we have decided that our business, that should stay on the volume that we are at today. We are, like, around 3,000 units, in the residential stream. We are focused on to bring up the profitability to the target of 10-10, 10% return on capital employed and 10% operating margin. That is what we are striving for, and we are on the way there, and the plan is to reach this, step by step during this year and next year for the stream.
You can see that we are moving up the margin, and we ended this quarter with 7.7%. Moving over to commercial development, it's a strong part of our operations, and we continue to deliver profitable projects and shareholder value by the divestment that we have landed also this quarter. You can see that the income from the divestment during the quarter has been close to SEK 300 million. We have now 40 ongoing projects in the total stream here. One key ratio that we compare is always the leasing ratio with the completion ratio of the projects.
We always want to be ahead with the leasing ratio compared to how much we have produced in the project, and you can see that they are in balance here. During the quarter, we leased 650,000 square meters, which is important for us, that we—because that's the basis for the value creation that we have in the business. Long term, this is a business that we gradually will expand as we have a very good and profitable organization and a business here based in Nordics, Europe, and in the US.
Shifting over to infrastructure development, the fourth stream, and you can see here that the value of the portfolio, the projects that we have totally in Skanska, has increased by SEK 400 million to SEK 5.7 billion. SEK 400 million to SEK 5.7 billion. And during the quarter, as I mentioned on the first slide, we reached financial close for the Papworth Hospital in U.K. Very important for us to land, you know, one or two projects at least a year in this business stream. Looking at the large orders that we have booked during the quarter, you can see it's interesting to see here that the three largest ones are coming from the U.K.
It's also a reflection of that, that the market has really picked up in that business unit. The first one is the R&D facility, the headquarters for AstraZeneca in Cambridge. Just, I think it's actually across the street or very close to the Papworth Hospital. So it's gonna be like in a lot of Skanska cranes going on in the same area there with the when the two projects are coming up. And, the next project you have on this slide, that's the Papworth Hospital there in the U.K., SEK 1.8 billion. Two projects in the U.S., you see also on the list. And, in the U.S., we always have large projects, and there is always like in a bumpy between the quarters.
So I think that especially in the U.S. operation, you should look at the rolling 12-month basis when you look at the trends there for order intake. Here you have the graph of the order intake and the revenue, and you can see the two lines here, the dark blue and the light blue. The dark blue, that is like, you know, the order bookings, and you can see that it's trending over the light blue one, which is the revenue there. When you have a gap like this here, 109%, right now as we speak, which is, that is, an indication that we will have increasing revenue going forward.
Taking a look at the breakdown between the business units, you can see here that the Nordics quite okay, Sweden especially strong, 110%. And in the quarter, we landed SEK 6.6 billion of orders. A lot of small projects and medium-sized projects compared to the U.S. and the U.K. operation. And if I go down to U.K., you can see that the order intake was extremely strong in the quarter, and over a rolling twelve-month basis is 158%. That's an indication of the underlying growth in that business unit. In the U.S., as I said, it fluctuates between the quarter.
But if you take a look at the amount of production in the column to the right, you can see that in U.S. Civil, we have the longest duration of the backlog. We have more than two years of production. And that's a typical pattern that we have in the business. Overall, we are satisfied with the backlog that we have, and we think that it's a strong indication for the business going forward here. So with that, Peter, I hand over to you.
Thank you, my friend. Good morning, everyone. Q1 is not the best quarter to present with the mix of business we have in construction, but we will do our best. I will start with the construction stream, which is also the stream which is mostly influenced by currency and the FX impact, which is translational impact because we are reporting in SEK. For the first quarter, we report a 22% increase in revenue, and if you take out the currency impact, in local currency, we are growing revenue by 6%. Operating income, on the other hand, is growing 5.6%. If you take out currency impact, it actually drops by 8%. What we're seeing is that we are experiencing some headwind when it comes to weather.
We love skiing, but not too much snow on the work site. We also are seeing some mixed impact of the portfolio. And if you look on a rolling twelve-month basis, we are faring at 3.4% in operating margin in the construction stream, which is close to the range we are giving as a target for this business stream. And, to give more flavor to what I've just said, Johan already pointed out the very strong performance from Sweden and Finland, and Norway is also quite okay. What you're seeing in Poland and Czech is a normal seasonal performance in that business because of the first quarter impact of the heavy civil construction in those units. U.K., we talked about this previously.
It's a mix of a conservative profit take on early projects, but also executing on projects taking on a much tougher market than what we're seeing currently in the U.K. Then USA Building. Here, you have multiple impacts. Impacts of the mix of portfolio predominantly, which have a huge impact on the margin in the isolated quarter. Over the year, this business will gradually come up to its level of between 1.3% and 1.5%, as you're gonna see this business perform within the construction management contracts. Then when it comes to USA Civil, we have the winter impact, and we have the conservative profit take.
But we're also experiencing increased costs in a number of projects, costs that we don't believe that we should carry, but we carry them under the contracts right now, and that also dilutes the margin somewhat. So overall, in the quarter, 2% in operating margin for the construction business. Coming to the next stream, residential development, which predominantly is a Nordic business, and then we have a business in Prague and Warsaw. This business increases revenue by 48% in the quarter compared to last year. If you look into that, 30% is due to volume, and 18% is due to price mix. Profit is up quite a bit to SEK 230 million, and increasing the operating margin to 7.7%.
As you can see from this slide, and this is why it's so important to be consistent in the way we are working with volumes in this business, is that the S&A level is more or less unchanged compared to the rapidly increasing revenue line. So presto, then you have an increase in operating margin, and this is the way we are running this business. If you look into the various businesses, Sweden, very hot market, very good performance. Here we're seeing a margin close to the 10% mark that Johan talked about, and quite an increase compared to last year. And here we are seeing a very hot market. We have good projects, good execution, and we are increasing prices.
Norway, here we are a bit more cautious because of the market, but also the fact that we have started up more projects. And in Finland, we have the headwind of the market, and we are also selling bundled deals with a discount, which dilutes the margin somewhat. During the consequences and during the market conditions, we still believe that this is a quite okay performance from the Finnish organization. In Central Europe, which is then, as I said, Prague and Warsaw, the Prague business is doing very well, and the Polish business is coming along, in its startup phase. Within this number, we have a small profit from selling the last land plot in the U.K. business, which we closed a number of years ago.
If you look on the sold and started, you can see that we're hovering around the 3,000 mark, and this is where you should expect it to be. Homes starting is dropping somewhat, but it's very important to be stable and consistent also in starting up new projects, because we don't come with new projects to the market if we are not seeing that they are attracting interest and that they are designed to cost. So maintaining a good cost level is key for us in increasing the profitability, as Johan also mentioned. The enormous interest is also carving out that the sold level in our stock is continuing to increase, and it's increasing now up to a level of 78%. The unsold completed homes is something that we keep a track of, but this is not a worrying volume for us at this level.
Coming to the third stream, commercial development. Here you see a very good operating income. During the quarter, we sold seven projects, of which one, a land plot. Only one of the projects were big enough to warrant a press release. And this business is, is, of course, flourishing on the very good and hot interest from investors into the market, and the very good quality of the projects that we have, which are attracting a lot of demand from the market. You're going to see here that the divestment level is increasing, and we are now on a rolling 12-month basis, over and above SEK 2 billion in realized capital gains on an annual basis. In the quarter, we have close to SEK 1.1 billion, with a profit of SEK 300 million, and that is a, a very good margin, as you can imagine.
For this business, and which we also gave an indication about in conjunction with announcing the Q4 results, we said that this level—this business will produce capital gains in the tune of SEK 1.1 billion, which was the average. Because of the good market, we are seeing now this level coming up, and we're going to produce more capital gains, perhaps in the tune of SEK 1.5-SEK 1.6 billion for the full year. This is done before selling and admin for this business, which tunes out roughly SEK 350 million in S&A per year. If you look on the portfolio of projects in this very shareholder-accretive part of the business, you're going to see the market value of our project is SEK 30 billion.
On the graphs, you can see the ongoing projects at end of, at the end of development, at the end of completion, and how we gradually is increasing the ongoing projects as, as part of this portfolio, and this is completely according to the strategy. Another novelty, as you will see from this chart, is the line ongoing projects in JVs, Skanska's shares. So if you take the 40 projects that Johan had on his slides, those are the projects that is included in current asset properties. If you then add on three projects, which we report under the JVs, because those are reported under shares instead of current asset properties, we have 43 ongoing projects in our portfolio.
This is a line now which will grow, and this is only the reported part of our part of equity in these projects. So Johan commented upon the 51% compared to the 48% in occupancy rate and completion. If you look on the JV line, the occupancy rate is much lower than compared to the degree of completion. Within these JV projects, we have two ongoing residential projects in the U.S. Residential projects in commercial, what is he talking about? Well, we are producing this together with partners for being let out in the market for institutional owners. And those two projects, one in Seattle and one in Boston, is not completed yet, and we are not prepared to go out and leasing these apartments until they are completed.
So you will see a lag here within these numbers. The bottom point is that you have a very good and favorable development of the value in this part as well. We are leasing, mitigating risks, and creating value. So this is a huge important factor in this business. And you can see now on a rolling twelve-month basis, how we are leasing out 300,000 square meters per year. That's the equivalent of 3 million sq ft. Same, same, but different. Last stream, ID. We are producing a very good result compared to last year, and the underlying performance in the project portfolio is the explanation for this increase. The project portfolio, not much has happened. Currency impact is the most common one.
All about two projects amongst the eleven projects is in SEK, which means that you get a lot of translational impact when you do the math. The important part is here, we have roughly return on capital employed in the tune of 17% on a rolling twelve-month basis. Now, putting it all together into the group income statement, what I've just talked about adds up to close to SEK 1.2 billion for the quarter. And then on the center line, we have included business under run off, which is including the Latin American business. Here we have, during the first quarter, taking a charge of SEK 130 million, roughly, consisting of predominantly closing out projects, of the remaining few projects, E&C projects in Brazil.
As you can imagine, the time for closing this project with a client that is under distress is taking much longer time. So we have added more costs to be reassured that we can complete it on time regarding penalties and so forth. Then that ends up to the operating income for the group of SEK 832. We have net financial items at SEK -149. This includes a one-off cost of closing out a currency hedge relating to the Latin American operations. So, then we end up at an earnings before tax of SEK 683. Then we add a 24% tax line to that, and we have a net profit of SEK 519. The tax rate is going down, as you can see, and that is explained because of a shift in country mix.
more business in low-tax areas like in Europe compared to the U.S., if you compare to last year. Cash flow fairly good to be in the first quarter. The first quarter is tough. We have had the outgoings as expected, especially on the construction side, and we are more or less flat when it comes to the net investment level in our development activities. Free working capital, negative working capital on the construction stream. The bars represent the outgoing values in each period, and you can see that we are increasing this somewhat, and but we still have a drop compared to the fourth quarter.
We are seeing this abating somewhat now, because what we talked about in the past is profitable cash-rich projects is now coming to an end and sort of going from working capital to equity through the profit and loss. Whereas at the same time, we're building up the volumes in new projects, so that is sort of meeting the outflow. So we are seeing a stabilizing effect in the working capital in construction. The line that you see continuing down is because the revenues goes up considerably, which also is affected by a mix in the contract structure. Financial position of the group, the balance sheet volume increases quite a bit, mostly due to currencies. You can also see that the operating net financial assets/liabilities, SEK 5.9 billion, is far better compared to last year.
It is a drop compared to year-end, which is due to the outgoings, predominantly in construction, in the working capital. We are fairly good and strong on the balance sheet as we try to maintain as always. If you look on the change in financial position, cash flow, as I've talked about, explains one part. Then you have a positive impact, of course, by the currencies, because we have a large chunk of cash denominated in dollars. And then we add back pension liabilities and co-op debt to get to the own fund number I talked about, which is the key ratio we look at when we look at the gearing or the lack of gearing of the group. Change in equity, again, impacted by profit, luckily, and then also by currency.
Also, here we have equity denominated in our currencies, which gives a translational impact. And if you look on the investments in capital employed, it is more or less at the same level as year-end, close to 28 billion. But here is an interesting thing. Look at the residential development line. What we've said all along, we will try to keep capital employed in this stream also at a stable level. We have gradually reduced this. In 2012, capital employed in residential were SEK 4 billion bigger. And what we've done with those SEK 4 billion is to plunk down in those money in commercial development, especially, and created more ongoing projects and created shareholder value. You can also see how the commercial is increasing, and you're going to see this trend continue.
If you look on all the development streams, they produced an 11.9% return on capital employed on a rolling twelve-month basis, and that is smack in the middle of the range we are giving for this part of the business. So, let's have a look at the market outlook and going forward here for us. Overall, it's positive market conditions that we see. Here in the Nordics, if I start there, we see stable businesses and a stable market, both on the civil side and on the building side. Switching over to Norway, it's a very mixed picture. The government has decided to spend more money on infrastructure, and they can afford it.
And on top of that, they have also decided that they will launch more PPP projects. So there is going to be a lot of investment on the civil side and infrastructure operations in the type of projects in the U.S. On the other hand, we can see now that the lower oil price has started to have an impact on the economies that, of course, depending on the oil economy, but also other related type of businesses, especially on the West Coast. So Norway is very much divided, where the civil business is going up, and we see a more weakening business on the building side, especially on the West Coast.
Finland continues to be weak, as has been so for quite some time, but we don't expect it to continue to go further down. We think that it we have now reached the rock bottom. We don't see a light in the tunnel yet, so we expect the business to continue on the low level, and the market to continue on the low level, where we have it now. If we move to the other countries in Europe, Poland continues to be a strong market, with a lot of money coming from the EU, that goes into investment in the country. We can also see an increase in the market in Czech Republic and Slovakia.
It's a smaller business, it's a smaller market for us, but we definitely see that it's on the way to start to trend up from very low levels if you go back some years. U.K., I talked about it earlier. We see definitely the trend shift in the market, especially on the public side. But also that the private sector and more has also started to pick up, and we see more projects there coming as well. In the U.S., the underlying economy is, like, good, and we also see a pipeline of projects coming both on the civil side and on the building side. We see, though, some delays with the investment decisions on the building side. We are not changing our view on the market there. It's still a stable and good situation. On the civil side, we also see a lot of PPP projects.
I will come to that in a minute. Residential development, strong in Sweden, mixed picture in Norway, depending on what geography you are, and continue to be a weak market there in Finland for the time being. We have shifted and changed our view. You can see that the arrow is green, that we have lifted up for Prague and Warsaw in Europe. Small business for us, but important, and we are on the way to build up a business in Warsaw. We definitely think that that's a market for us. Commercial development has been held by extremely strong interest for our properties when we divest them, and it's coming from the low interest rate that we have out in the outside world.
A lot of capital, especially from the pension funds, need to find places to invest in, and of course, like, our products are very interesting there. Modern, green, centrally located, long leases, and low maintenance costs for modern offices, and that's exactly the type of product we have, and we see a strong demand for those products. We are also on the way to build up a business, so they have the equal size in the Nordics, Central Europe, and in the U.S. The only exception for the strong market, if you talk about the metropolitan areas where we have a business, that's in Houston, and that is coming from the low oil price, and that has lowered the interest for offices there.
So, but otherwise, we definitely see a good market for our commercial development operation. And that is the same reason why I talked—when we talked about Stavanger and the West Coast. We don't have a commercial development operation there, but the underlying reason for, like, the weakening market there in Stavanger and the issues that's coming from the lower oil price. Overall, though, if you look at the impact on Skanska, and now I'm outside commercial development, if you look at it in general, the impact on us coming from the low oil price is more positive, even if we can see pockets where we see negative impacts. Infrastructure development, good pipeline of projects in the U.S., weaker in Europe. We see signs and that it will come some projects in Norway.
So that's basically the situation in the market. So with that, Magnus, what are we going to do now?
Now we're going to move to questions and answers.
Go ahead.
We will do this in this way, that we will start with any questions from the live audience here, and after that, we'll move to questions from the telephone conference. If there's still time left, we'll see if there are any questions also from the webcast. Any questions from the live audience? Niclas, please go ahead.
Yes, hi, Niclas Höglund from Nordea. If we can start with the U.S. on the construction side. You're talking about the weather, which is evident, and you also talk on the, on the mix in project. Could you give some granularity here? When you look at the accounting versus the sort of gross margins in the backlog, do you still maintain your view that the market is around 6% to 7% in the civil side? And do you see any recovery towards the end of the year, or should the accounting sort of delay the recovery into 2016, 2017? Thank you.
We have guided, as you know, if you go back some years, that we are coming, we are coming down from the 8-9% to, like, in a lower level, around 6% in civil, and we still have the same view of that business. And USA Building, which is a completely different type of contracts and type of business, they are trending like, you know, that we said before, Peter said before, around 13-15%. We have the same view.
There's like in the three different reasons for the margin pressure in the first quarter for the civil operation is the weather, the mix, but also that we're eating up costs on projects that we see - on projects we think that this is a cost that we should be compensated for. It's not - we don't have that in an agreement, which means that we take it in the conservative way. We're eating 100% of the cost and zero income for the additional work there.
But that is, of course, we expect that we will get some recovery for that, but that will come when we reach those agreements.
Follow up on the margin in the U.S. On a rolling twelve-month basis, you're now below the 6% level. I mean, it's tough comp. In the quarter, you're around 6.85%, so it's not a major difference. But if you look at—could you give some more granularity on the projects that you're taking costs? Because it's a seasonally low quarter, and these costs might exaggerate the sort of on the margin trend as we look at it. Is it—you talked about $1 million, a couple of million dollars. Is it 10, 20 million SEK?
We don't go into, like, in a comment on, like, you know, on the details there, like, you know, how much costs we are taking and how much we claim for, but we are talking about substantial money.
Will that continue into, during the year until you?
That will continue until we reach agreements with the clients.
Okay. And then moving over, if I may, to the residential side. You have a very, very strong sales development. Could you help us a little bit with the accounting? I mean, we are seeing that the number of units under construction have been moving up steadily, and the sales rate have been very volatile between quarters. With the, as you say, a more stable starts here going forward, and very high level of sold units under construction, should we expect more of a normalization of the sales and EBIT contribution from the Swedish operations?
I mean, I don't think that you're right when you say it's volatile, because it is, if you start a project within a quarter, we often start a project with at least a default of 40% sales. So directly on day one, when you sort of start that project, you sell 40%. That whether that happens in one quarter or the other, I mean, we are running the business on a stable, continuous level, but that could sort of, of course, fluctuate between the quarters. Accounting you raised, and accounting is, as you know, a very exact science. On the RD side, we are generally taking a very conservative view of recognizing gross margin, on the RD side in the beginning of the projects to sort of save any sort of surprises on increasing cost at the end.
Because we are recognizing the profit on each of the units we sell directly day one. So we are conservative in the beginning, and then we gradually release that as we sort of complete the project. And that might, in isolated quarters, give a kick to the margin, and it also, on the other hand, also dilutes the margin in other quarters. As I stated, what we're seeing the underlying trend in Sweden, no, no surprise, cost is pretty much fixed, both on the S&A side and on the construction side, whereas the prices is going up. So, we have a, we have a very good and conservative view on the profit, especially in Sweden.
And then the final one regarding RD, the international Central Europe line, SEK 20 million, although a small number for the group, you're talking about some gains relating to the U.K. Should we, I mean, historically, the Central have been rather poor in the first quarter. Could you give some granularity on these sort of gains related to the U.K. part?
The U.K. part is done now.
Yep . But in the quarter?
In the quarter, it's, I think it's in the tune of SEK 5 million or so. So we are talking about a group with annual sales of SEK 160 billion, so that's perhaps, something we can talk, somewhere else about. Then when it comes to this area, it's predominantly then Prague, which has the bigger volume. Warsaw, as we have stated, is in a startup phase. So gradually, the, it will increase both in terms of profitability and contribution, but it's still a small business in, in, in sort of the whole pool of Skanska right now.
Thank you.
Thank you, Niclas. Next question, Fredrik Skjerven.
Fredrik Skjerven, ABG. Starting off with the U.K., you're mentioning that the margin is negatively impacted by some delays. Can you clarify on that?
It's, you know, the margin is more like impacted by the mix of projects in the U.K. It's like, you know, all the products have been, like, you know, completed last year, and now we are starting up new products. And some of the products that we have also, like, you know, finished in the U.K., has been taking under, like in the previous time, but it was like in a pressure on the margins. We see also that on top of that, we also see some delays in startup from in some of the larger projects that we have. They will come, but there has been delays from the clients.
In Sweden, the margin shows continued progress there. Is there anything in particular impacting the quarter?
Yeah, I think it's like in a strong underlying business, and it's a lot of like in a small sources, that is like in a, that is like in adding up, to t hat portfolio. When you're running a stable business and you didn't have a, like, in a failure somewhere, that's, that's how the business looks like.
Okay, and then going back to the US. You mentioned, as you mentioned earlier, there is a lot of projects at an early stage. Given that you had such a strong order intake in the last year, shouldn't this impact continue during the remainder of the year as well a negative effect on margins due to where we are in the projects?
I think that's like, you know, the margin in the U.S. is like kind of impacting by like, you know, both like kind of the mix of the products and but also things that we just just discussed. Like, the claims discussion with clients on projects that we have not settled. So that's like kind of the major impact on, like, on how the margin will develop during the year.
Then two more questions, Johan. You're mentioning some delays in the U.S. building operations when it comes to the order situation. Why, why is that?
Maybe we should ask the clients, because, like, you know, that, that's the client's decision. But of course, like in a major investment for clients, they look at their business and their markets and see, like, should we start the investment now, or should we wait and see how their market develops? And of course, with the strong dollar, they have in some export companies in the U.S., they are now looking at will it have any impact on their business? And, that could be like, you know, one reason why, they are somewhat hesitant we have to start a project, to see how that develops.
One final question. You mentioned, Jonas, that a lower oil price is a positive for Skanska.
Overall.
Overall. Can you elaborate on that?
Yeah, because and we see the negative impact on some pockets. Stavanger and Houston, that's the two ones that I pointed out. But overall, it's actually strengthened the underlying economies in like in general, o n average, or if you put it all together in the various markets where we operate, in the Nordics, in Central Europe, in U.K. and the U.S. It's like it helps the underlying economy, and of course, if the underlying economy is like in a stronger, then it's going to be more investments, and that's good for us and good for the construction industry. So that's like in a, the, that's what we see.
Thank you.
Thank you. Do we have more questions from inside this room, from the live audience? Nothing more. Then, I would like us to move to questions from the telephone conference. Operator, do we have any questions?
Ladies and gentlemen, if you have a question for the speakers, please press zero one. It was zero one to ask a question. We have a question; it's from Marcin Wojtal from Bank of America. Please go ahead.
Yes, good morning. I have two questions. The first one, can you update us on your exit flow from Latin America? I mean, do you expect to have zero earnings contribution in Latin America already in 2016? And my second question is on commercial development. You said that you expect a higher amount of capital gains versus the previous guidance. Is it because you are planning to sell more properties to take advantage of the strong market, or you expect the capital gains to be somewhat higher? Or I guess it's probably a mix of the two, but if you could maybe clarify that.
Okay, thank you very much. I will try to answer the two questions. The first question relating to Latin America and the wind-down and divestiture of that business. We are, of course, aiming—we have a plan. We intend to execute on the plan, but we are also, of course, impacted by what's happening in the Latin American market. So, we are, of course, aiming to balance sort of the results and earnings in this business to be neutral for Skanska, at least, going forward. But we sort of can't give any guarantees because we can't control the Latin American market in a very complex context.
The second question related to the CD business, and, the reason why we are upping sort of the guidance is a mix of the two that you mentioned. Red-hot market, yields is dropping and also producing higher gains, compared to the market values that we have, in our books. We already see upping from the market values we produced at year-end, which is four months ago. And, we are also selling some more properties, in our forecast.
Okay, thank you.
I remind you, if you'd like to ask a question, you need to press zero one. Next question comes from Jonas Andersson from Danske Bank. Please go ahead.
Yes, hello there. I have just one simple question. It's on the commercial property development as well, and the SG&A cost that's at SEK 161 million in Q1. That's a bit higher than normal. And you actually gave some kind of guidance for the SG&A costs for the full year. And why is it so high in Q1 is the question?
Hi, Jonas. You never ask simple questions, you know that. Perhaps I was a bit low on the guidance, but the first quarter is influenced, of course, by developing more projects. We are on sort of full throttle in developing new projects in order to produce more ongoing projects, so we can produce more gains. But you should know that it's a growing business, and we are building it up gradually.
Yeah, I know, I know. But is this then a level we should expect it to be at, going forward since you are growing the business?
It could fluctuate between the quarters, but it could... I mean, overall, it will increase. The number I mentioned sort of is sort of gradually increasing since we are building up the footprint of this business.
Okay, perfect. Thank you.
Thank you, Jonas. Let's move to the next question.
We have no further questions via the phone, so back to you, speakers.
Okay, thank you for that. I know that we have at least one question from the webcast. Yes, question from Bo Selling, from Alecta. How much is the operating profit down in local currency in the USA Civil business? And is this drop affected by any one-offs, and if so, how big are they?
The exact number for the drop in local currency is 25% in local currency, in dollars, quarter-on-quarter. And we have talked about the impact. We have talked about the weather. Will it become winter again? Yes, it's not a one-off impact. Will we have a mix in the portfolio impact from time to time? Yes. And will we, from time to time, incur costs because we're not sure that the clients will actually sign the agreement to pay it? Yes. So, but all in all, it all boils down in one separate quarter, which is perhaps a little bit unusual. But no, none of these impacts you can refer as one-off.
Okay. There are no further questions. We would like to thank you all for being here, and hope to see you again on July 23rd for the second quarter report. Thank you.
Thank you.