Hello, everyone, and welcome to Entré Lindhagen again for the presentation of Skanska's Result for the first nine months of 2014. My name is Magnus Persson, and I'm responsible for Investor Relations in Skanska. The event today is combined here with a live audience, and it's also a teleconference call and a webcast, which can be both listened to and viewed afterwards on our investor relations website, for those of you who are not here today in person. The presentation will be held by Johan Karlström, CEO, and Peter Wallin, CFO. You will all have the opportunity to ask your questions to Johan and Peter after their presentation. And with that, Johan, please.
Thank you, Magnus. Good to see all of you here today, and I will start to present the, you know, the nine-month report here. The picture that you can see on the very first slide, that is a picture of the I-4 project that we signed up in the third quarter. One of the largest PPP projects in the U.S. history, and of course, we are very proud of that. We are doing that together with, so, you know, with partners. But our part of that business, it's a $6 billion project for us that we have booked in the quarter.
If we take a look at the nine-month report and the highlights from that one, we can definitely see that the revenue, the order intake, and also the profit has increased substantially. We also see quite a good trend if you talk about order bookings in the construction sector. We see a strong growth in most of the markets where we have operations, both in the Nordics, in Central Europe, and the US. I will go a little bit deeper into the various markets in a minute here. Operating income for the group ended on the same level as same period last year, SEK 3.5. We have also made a decision to exit Latin America.
The O&M business that we have down there is a profitable, ongoing operation, but we have decided that we will put it up for divestment, and we will start that process beginning of next year. The reason why we're doing that is that quite a small operation, the O&M business in Latin America, and we think it's important for us to focus the management time and allocate our resources to our businesses in Europe and in North America, the American market, there. That's the reason behind we have decided to exit the operation completely in Latin America.
If we move into the construction operation, you can see that the revenue has increased by 7% up to close to SEK 92 billion for the first nine months, and order bookings has increased by 19% during the same period compared to last year. There's been a strong operation and strong order intake in USA Civil, in U.K., and in Poland. And if you look at the book-to-bill ratio for the first nine months, which, where you compare the order bookings with the revenue that we have had, it has ended up with 115%, which means that we are building up the backlog, which is a sign that the revenue will continue to increase going forward.
The operating income in the construction sector or the construction stream has increased by 20% year to date, compared with the same period last year. Just so you should be aware of it, we have moved out Latin America from the construction stream, both in this Latin period, but also in the comparable year, the comparable number that we have presented for 2013. Moving over to residential development, basically is basically flat, somewhere down if you talk about the revenue and sold units. We see a slower market in Finland compared to last year.
We definitely see that the market in Finland overall is decreasing, and it's coming from impact of the slower trade with Russia, which is like impacted by the Ukrainian crisis and the sanctions that is going from EU towards Russia and from Russia back to EU, and that's impacting the trade there with Finland. But if you look at the other markets in the Nordic sector, we have a very strong situation in Sweden, and Norway is on the way up there. Moving over to commercial development, we have sold 5 projects during the quarter, and the year to date, we have sold 10 projects with very good profit. So this is some healthy business that we are ramping up.
During the quarter, we also started 11 new projects, which means that the business going forward will actually be a growing operation here. This is a very good machine and very good business for Skanska, and this is a business that we have decided that we will continue to expand, and we see more activities going forward. The book to, if I look at the pre-leasing ratio, which we compare with the completion ratio, which is a key, you can say that that's a percentage that we always compare with each other, and we always want to have the pre-leasing ratio somewhat above the completion ratio. That's a good risk mitigator, and you can see that here, that we are still keeping it on the same level.
The leasing activities has been strong also in the quarter and also year to date, and you can see here on the slide that we have signed up for 202,000 square meters, which is also an indicator that there's gonna be more value creation going forward when we divest the ongoing projects. In infrastructure development, we have not sold any products during the quarter and during the period this year. But we can see here that the value in the business of the portfolio that we have has increased by SEK 600 million up to SEK 5.5 billion.
And that is also an indication that the business and the products that we have here, once we complete them and they're gonna be divested, it's gonna be more profit that's coming out, going forward. Signed the financial close of I-4 in the U.S., and we have also reached the preferred bidder stage for the Papworth Hospital in the U.K., in Cambridge. Taking a look at some new orders in construction, here you have the big highway in the U.S. On the picture, you can see very important and interesting product in London, in the U.K., the Battersea Power Station. One thing which we have seen in the U.K. now is that the market there has really changed this year compared to last year.
We see a complete change in the market and products coming there. If you look at the order intake for Skanska, for us, we have more than double the order intake this year in the UK versus last year. It's a clear indication that there is a change in the market. Looking at the order intake and the order situation for the entire construction stream, you can. If you look at this graph, you can see, if you compare these two curves that you have here up on the slide, which is the rolling twelve book-to-bill ratio with the rolling twelve revenue. And now you can see that the book-to-bill ratio and order intake is higher than the revenue.
And it has been like that for now for three quarters in a row, which is a clear indication that we will have increase in revenue going forward. If you take a look at the breakdown of the order intake in the construction business units, you can see here that most of the operations as now an order intake that's over 100% on a rolling twelve-month basis. And if you look at the year to date number there, it's only Finland that is below 100%, which is an indication that that market is somewhat different compared to all the other markets. So it's a clear trend here now that we have an increasing operation in construction. Looking at the Swedish number, 104%, I think it's important to note that the Karolinska Hospital is in the revenue, and it's roughly around 10% of the overall revenue. So we are replacing the high burn rate on that product with new orders, and we even increasing the order backlog on top of that. So I view the Swedish operation and the overall order intake as very good, and that's clear indication for the future here. Peter?
Thank you. So why not start with the profit and loss? I'm starting with profit and loss in construction. As Johan said, the top line has grown by 7%, 4% in local currencies, and at the same time, we have seen and then have the right slide in front of me, then we've also seen the EBIT increase by 20%. We have maintained SNA at the same level, so we have an uptick in the operating margin by up to 3.3%. Again, all the construction information excludes Latin America, also in the comparable period. In the graph above, it's excluded from January 1, 2013. So let's take a look under the hood in construction. Sweden, a very strong number in the third quarter in the year-to-date numbers.
We are seeing very good trading conditions, and we have a very strong order backlog and good execution in Sweden. We have yet to change anything in the profit take on our big project, NKS, that it still remains the same. Norway, stable, I would say. Very good market there. We are improving step-by-step. Finland, despite very tough market, extraordinarily very good execution in the organization, and you can see that from very good profitability in Finland. They got good level of sisu there. Poland, also another strong performer, and again, trading conditions is improving here in Poland. Very stable organization, and we have a very good regional platform in Poland.
On top of that, now we are starting to see big projects coming online as the EU accession funds is coming to use in Poland big time. Czech Republic, as you recall from last year, it was not as fun to stand here in the third quarter and talk about the charges that we took in Czech. Now, it's returned to profitability in the third quarter, and is gradually coming up to at least a sensible level. Czech market, still weak, and there is still ways to go there, but we think that we can make it. UK, also another market which is improving. Here we have very stable operations and as we do in USA Building and in USA Civil.
If you take a look on the revenues in USA Building and Civil respectively, that you can see that the winter impact that we talked about in the first quarter, we are starting to catch up now a little bit, because, on a year-to-date basis, we are more or less flat on the revenues, while in the third quarter, you can see quite a bit of growth there. So all in all, 20% growth in EBIT compared to last year. Residential development, here we have somewhat higher gross profits. We decreased the revenue by 10%. We have 14% change in lower volume of sold profit, but then we have a 4% positive price mix, so net negative 10% in residential.
You can see that we've increased the gross margin quite a bit compared to last year. The volumes are lower, and the SNA is more or less the same, so that's eating a bit of a higher proportionate share of the EBIT. So we are still increasing the operating margin. If we take a look on the various countries, Sweden, strong market, strong organization, good execution. We are increasing profitability here. Norway, as you recall, we had a slump in the market in the back end of last year and the beginning of this, which made us cut down starting new projects. So we have a lower volume in that business now, and ramping it up now, because now the market is recuperating somewhat in Norway. They can pop champagne again, but the oil price is another story.
And then Finland, tough market, and in Finland, we have also, on very selected projects, taken hits for discounts that we are doing in selected projects. If you take a look on the number of unsold apartments, it is the major part of that is in Finland, actually. So quite low value for each and every one of the units, but that's something we are addressing. If we take a look on this graph, you can see that we are staying stable now, as we are finding the consistent path when it comes to the volume in the RD business.
Starting is slumping somewhat, and that is due to the impact in Finland and in Norway, of the weak market in Finland and the weak market at the back end of last year, beginning of this year in Norway. Sweden is keeping a very good, stable level. And coming back to all... What we have sold of the stock of ongoing in production, we have 4,500 units under production, 72% is sold. And as I've said before, it is a little bit a too high percentage, because you need a certain stock to sell in the market. Five hundred unsold completed. We started the year with 435, and it's 500.
We are targeting to reduce this, of course, but it's still in a compared to the total stock and the total sales level in the stock, we are not concerned. CD, the third stream, here we are doing great business, and we are ending with an EBIT of close to SEK 1 billion year to date. Now you can see that we are, the gains are close to SEK 1.1 billion year to date. And this is a business that performs well, also on the back of the very positive market and the market sentiment. And if you take a look on the divestments, we are actually now, in terms of value in the third quarter, close to the record you can see in 2012, and also profit is increasing.
We took the decision to invest much more money into the development businesses, especially the CD business, when we made the new business plan. This is something which is bearing fruit now. The higher investments, the higher the profits. It's not more difficult than that. This is something which you should continue to look at them at a recurring gain in this stream. The portfolio is growing. As Johan said, we started up 11 projects in the quarter, and you can see the bars behind me. This is the value of ongoing projects upon completion. You can see how much of our new projects and new future profits that we are building up all the time.
We have a very good market value of SEK 26 billion of the portfolio, and we have it booked to date at SEK 13.7 billion. Upon completion, it will be SEK 21.6 billion. Leasing is the key. Leasing is the key to start new projects, leasing is the key to mitigate risks, and leasing is the key to sell. We are doing quite a good job there out there in the businesses, as you can see from the curve. We need to continue to be good at leasing in order to continue to grow this business. Looks good. The last stream, Infrastructure Development, had another good, stable quarter with increasing earnings from the projects that we have ongoing, either completed or under construction.
So, we also, so we have a very stable, good operating income in that business. And when you take a look on the market value, you can see that that is increased by SEK 600 million. 300 of that is due to operations. We have de-risked projects, and we have also won and booked the I-4 projects in the quarter. And then a positive impact of FX, because most of the projects we have, apart from NKS, is in other currency systems SEK, so you have a translation impact there. Boil it all down to the group statement to take all the streams, then you deduct central. Central now consists of Latin America. Of the 1,266, SEK 700 million is Latin America, including the SEK 200 million in additional charge that we took in the third quarter.
If you then compare the remainder there on central cost with last year, last year was positively impacted in the third quarter of us closing a pension plan with a one-off positive impact of SEK 124 million. So you can see that we are fairly stable if you adjust for those items. Operating income for the group, SEK 3.5 billion. A lower financial items due to the fact that interest rates are falling, and despite the fact that we have increased the duration of our loan portfolio. Three point three billion in pre-tax profits and, a average tax rate of 26% puts us at SEK 2.4 billion profit for the period, earnings per share of 5.85. Cash flow.
Here we have a somewhat lower and a more negative cash flow from operations this year to date due to the fact that net investment is somewhat lower too compared to the comparable period. As you can see from the third quarter, we are increasing cash flow both from operations, since we are also reducing the negative impact from working capital. So all in all, we are quite good on cash flow, and hence, the rolling number is increasing, as you can see from the graph. Free working capital in construction. When we are growing revenue as quickly as we do now, the percentage is falling. But you can also take a look on the bars, and you can see in absolute terms that we have reduced the reduction in absolute terms of working capital.
As we increase revenues, you can, you should expect, as we do, that the working capital abates and starts to grow. The percentage will still continue to drop if we grow revenue as quickly as we do right now, because you have a lag. Group financial position. We have an equity of SEK 20 billion, a balance sheet turnover 91, a net debt of SEK 4.2 billion. But what we are looking at is operating net financial assets/liabilities. That is what we refer to when we look at our investment capacity into the development businesses at positive SEK 2.8 billion, which is quite a bit ahead of Q3 last year. And that is also depicted in the curve. Capital employed stood at close to SEK 37 billion, and equity to asset at 22%.
If we decompose and look at what have changed in the financial position, we have the cash flow, as I talked about, year to date, negative SEK 4.1 billion, including then the dividend made to the shareholders. You see a big number, because we have taken an additional hit, SEK 850 million, due to the fact that interest rates are lower, so we have increased our defined benefit obligations.
... that is embedded into the net interest. The weakening effect is also creating a situation where our large U.S.-denominated businesses is increasing, which you can also see, which has had a positive impact. All in all, SEK 5.2 billion change, that gives us a closing balance of -SEK 4.2 billion, SEK 4.2 billion in net debt. Then we add on the pension liabilities and the interest-bearing, liabilities in the co-ops, and then we get to what we track as our net, real net debt, SEK 2.8 billion positive in net cash. Change in equity, here again, the impact of the currencies and the impact of increasing the pension liabilities is creating somewhat of a negative impact on the equity. On top of that, the dividends made.
We are still at a very good level, and we have one of the nicest quarters in construction still to be made, the fourth quarter. Finally, taking a look on investments and capital employed for the business. You can see the out of the SEK 37 billion in capital employed for group, SEK 27 billion is into the development streams. And here you can see our—we are very stable on RD. But despite the fact that we are increasing the sales levels in CD, the capital employed is increasing, and this is exactly what we want to achieve. We want to keep RD at the current level, and we want to continue to increase commercial development. ID is a bit more lumpy because it's more political agendas and timelines, which depicts when we can make those investments. With that...
The market overall in construction looks stable. In Sweden, we have a very good situation now, especially on the building side, both on the non-residential and the residential side. More uncertainties on the civil sector in Sweden due to the new political situation. We are concerned over the political game that is now going on in Sweden, when they are delaying large infrastructure projects. We see several of them here in Stockholm, and there is a concern more for Sweden as a society, because we need infrastructure for the growth in Sweden and for the overall economy. Otherwise, it's gonna be hard for us in Sweden to build all the residential buildings and the homes and apartments for the growing population, especially here in the capital.
So I think that it's important for the politicians here to understand that they have to come out of this us-versus-them, like, in a game that's going on, and take the responsibility for Sweden here. In Norway, we have a strong situation in the market, especially on the civil side. A lot of projects coming up, and they have also now announced there's gonna be several projects with a PPP type of contract. In Finland, we see the impacts, the overall impact from the geopolitical situation that is impacting the overall situation there, both on the residential side and the overall market. Poland, very positive. Czech Republic is on the way up from low levels.
The biggest change and the biggest shift, if we go back one year, that is in UK. We see a clear trend of new projects coming to the market. We see it in the market. We also see it in our own order bookings. The competitors, though, they are still very hungry, so there is a very tough competition in that market. Stable market in the US. Strong pipeline of PPP projects, which is, of course, good for the construction sector, and that's, of course, interesting for us. California is on the way to come up as an important part of the US now. We see not only PPP projects there, but especially big infrastructure projects coming to the market there. Residential development, more or less the same pattern as I've just painted here. Sweden, strong.
Norway, stable, started to pick up, now when we see more consumer confidence there in the market. Finland, weak, due to what I've just explained. And in the other European cities where we have an operation, which is Warsaw and Prague, we see a stable business, and Prague is also coming up from a low level. On the commercial development side, the easy way to explain the market here is very similar in the three geographies where we have operations, in the Nordics, in Central Europe, and also in the US. Stable vacancies, and there's a growing interest and a great demand for our completed product. We are going out in the, on the transaction market with our completed products, and so it's important for us, that we see an interest there.
One could maybe think that the geopolitical situation in Central Europe could impact the interest for our completed projects in Poland, Czech Republic, and Romania. That has not been the case, rather the opposite. A lot of money and capital that used to go to Russia has now to be reallocated to other countries. So we see actually, paradoxically, a growing interest for our products and our completed products in that geography. ID strong pipeline in the US, actually more projects that we can handle and go after. And there is, of course, a strong need for infrastructure there and it can't be financed and funded in the old traditional way, so that's the underlying reason why we see more projects there.
Europe, much slower, so we allocate the resources over now in the ID organization, more towards the more favorable market in the US. So with that, Magnus, maybe we can open up for some interesting questions.
Let's do that. And let's do it this way, that we start with questions from this room, and if there is time, we will move to take questions also from the telephone conference. And when you have your question, Tobias, you're already up with your arm, please state your name and the firm you represent before asking your question.
Thank you. Tobias Kaj from Carnegie in Stockholm. I would like to start to ask regarding the construction margin in Sweden. You say that you haven't made any changes to the recognition from Karolinska Hospital, but does that mean that when you will do that, you expect a further improvement of the margin in Sweden?
We are conservative regarding the Karolinska Hospital, not Karolinska Institute, just to be clear about that. Because it's a long project, many years to be built, it looks okay, and it's gonna be a fantastic project for this, for the citizens in Stockholm. The reason why we see a good margin in Sweden, it's a stable business. They're performing. There's a lot of things that's going in the right direction. It's a stable market as well, and we see a healthy order intake. I will not make a projection and a forecast for the profits in Sweden going forward, but we always keep large projects, like the Karolinska Hospital and others, in a conservative way in the beginning of a project's lifetime.
Regarding the EBIT margin in US Civil, you saw a decline of like more than two percentage point year to date. Can you give any breakdown on how much of that is related to the very cold winter, and how much is, like, increased competition in the market or other things?
I think I've been standing here in front of you and all others and try to explain that, the U.S. Civil margin will trend down to this level that we now see. And there is always a winter impact, and I'm sure it's gonna be winter every year, even in the U.S. And so this is like in a normal pattern, that we have these type of impacts. Of course, it can differ between the years, but I think that you should expect that this is the level that this market and that business should deliver.
The fact that the decline was larger in Q3 than in the first half, does that mean that we should expect the kind of rolling 12 months level to continue to come down?
You can never look at an individual quarter. I always try to educate you and all the others that the best way to look is just like on a rolling 12-month basis, because it can move up and down. You see it in Skanska Sweden, for example, a very strong third quarter, but look more on a rolling 12-month basis. That's a better way.
One final question, if I may. You touched upon the competitive situation in the U.K., but given the strong improvement of the market condition, do you think that, or do you see any signs of less competition in that market?
No, I don't see a sign of less competition. I don't think that we should expect that, because if you have a market in Europe now, because there's like a slower market in other geographies where we are not present, but that means that companies are actually will, of course, go to markets where they see a favorable market. And we're also coming from a situation where it has not been so favorable, but that means that some of the competitors are quite hungry, and that is dangerous.
So I think that one should be very careful here of signing up new projects when the market is turning up, because you can also expect a quite a high cost increase of the underlying underlying expenses here on the project. So this is something that we're preaching quite hard in our own organization, to be aware of that. So yes, the market is turning up, but it's very competitive.
Thank you. Thank you very much.
Next question? Stefan?
Stefan from SEB. First, if you could comment anything on the order backlog that you built up, if there's any change in the turn of it?
Change of?
Change in the turnover of the order backlog, the time that you process it. Is it similar to what it was last year, or is there longer project, more longer projects versus the short projects?
... In the U.S., we see longer duration on the projects. Several of the projects that that we are signing up for now, especially the big ones, will continue and be on the production for several years. Take, for example, I-4 in Florida. I think it's like in 5-6 years that it's going to be a production, which is a very good situation, because that means that we have, like, a quite a good horizon into the future of what we have in the order booking. So, when you see an order backlog or an order intake that maybe is quite steep and goes up, doesn't really mean that the revenue will reflect exactly that pattern, because it's going to be laid out in a longer time horizon.
Duration is a bit longer on a group level as well, not only in the U.S.
Well, yeah, but especially on the markets where we see the large projects, like U.K. and the U.S., that's a typical pattern there.
Thank you. Going to the UK, it's a fantastic growth, of course, on order intake. How do you handle capacity there, your ability to deliver on that as well? And is there a limit to how much you think can take on before you see issues with, say, your own production units?
That is, of course, like a question that we always ask ourselves: Do we have the capacity? Do we have the right people for the various projects that we sign up? And yes, we have that. We have had, during some time, if you look at the history, we have had a slower order intake, so it was needed to get such an order intake for us to maintain the level, also start to build up, you know, to build up the revenue there. And the project that we have signed up in the UK, they also have a very long duration. So you won't see, like, a steep revenue that goes up like this, as you see with the order intake.
Just a follow-up on that. When you say, always get a bit concerned, when you say we have a decline, and we needed to get some volumes in there, are you very, very certain that you haven't given away margin at the same time?
We have a strong, we have always had a strong order situation and an order, I would say, like, an order backlog, and healthy order backlog in UK. We have not been under pressure to, like, kind of make sure we are signing up projects to feed the organization. A better way maybe to express it is, if we should continue on the same level, of course, we have to fill up the order backlog and for the future, for the coming years.
South America, would you, are you, do you know the size of the goodwill or book value of the operation that you plan to possibly divest?
It's zero.
Okay. And book value is very low as well?
Yes.
Yeah. And then my final question is on residential side, even though it's a small thing, but the number of unsold completed units that are increasing a little bit. Is there any particular regions or markets where you have, or special projects that you, where you have difficulties, or is it more widespread?
No, it's more market, and we are talking about Finland. All other markets is, like, kind of trending in a positive direction. Finland, we see another situation, and that's where we see unsold, completed apartments building up. And that's the reason why we now have started with discounting in certain projects, not across the board, but we target different parts there.
Thank you very much.
Thank you, Stefan. Next question.
Thank you. Albin Sandberg, Handelsbanken. I follow up on Latin America. I think you prior have indicated that it will take you until 2016 to wind down the operations. Is that still valid?
Just to be clear, so you understand here, we have, Latin America, we have two parts. We have E&C, engineering construction, we have O&M. On the E&C side, as we said in the last quarter, we have several projects that is under construction, and we will complete them according to the contracts. And there is no change there. And several of them will end around the year-end this year, but they will also, some of them will go into 2015. And we have to complete that. We will not bid for new works. The new information that we have gone out with in the market this quarter is that the other part, the O&M part, we will start a process now to divest that organization.
So we have this. It's going to be we have, like, a two ways of leaving the market, winding down the E&C and divesting the other part. And in regards to the latter process when it comes to O&M, we don't have a buyer lined up, but we will initiate the divestment process.
And then now when you lift Latin America out of construction, do you think that would cause you to change your construction margin target? Overall for the group?
No, I think that, you know, the overall target that we have of 3.5%-4%, that is like in a valid range where we should be with the ongoing business. And one of the reasons why we have moved it out of the construction stream and now keep it in the center is that we want to be clear about the future strategy, and the construction stream that you look at, that is the future, and that's where we're gonna focus the construction operation.
And my final question, Johan, I try at least, but I know you won't give too much forecasting. But normally, Q4 is a good quarter for commercial property divestments. Given how your portfolio looks like now, how's your feel for Q4?
I have always a good feeling about the commercial development operation, because that's been a very good machine. There's a lot of activities going on, both of starting up and selling products.
Thank you.
Thank you, Albin. Any more questions in the room? Niclas?
Hi, Niclas Höglund of Nordea. A couple of questions. Firstly, if we can start with infrastructure development. You had a very, well, strong quarter. Have there been any tendering costs coverage regarding the I-4? Could you please quantify that, if that's the case?
Yes, we've had what you call success fees when you close a project. I won't quantify it, but it has some impact, but not a major impact.
Yeah, okay. When you look at the surplus values in ID and commercial development, we've seen that taxes in this quarter were 26%, despite a very big contribution from gains, which normally tend to be very low taxed on. Could you please give some more light on the taxing situation on the ID projects, the M25, for example, and CD as such?
Well, all projects are in ID under operations or under the income taxes in respective country. So M25, the British tax rate, for example. So European, you can simplify around 20%, Nordic, somewhat higher, and then in the U.S., 40%. And when we say 26%, we look at the mix over the year, and we have 26% as sort of a steady rate. So we are not looking at the composition in each individual quarter, per se. We are taking an annual view on tax.
Just to clarify, if you were to sell your ID projects, ongoing, would you have to pay gains tax on that in line with what you had to pay for Autopista, for example?
It depends on how you structure and to who you can sell it to, but normally, you can structure it under the current tax legislation to reduce capital gains taxes.
So Autopista and that, for that sake, were the exception of the rule, rather than when you look at the current portfolio?
Well, we are trying to structure them so we can sell them with optimizing the tax. In that case, it was very successful, of course.
Then coming over to the CD part, you continue to run with rather high costs, and that's of course driven by that you're building up the organization. Should we expect the sort of underlying costs, excluding gains, to be around SEK 100 million per quarter? And is that included in your return on capital employed targets for the segment?
The costs are included in the capital employed targets. When you start up a new market, it will take some time before you hit the returns on the portfolio, as you build up value and as you start to divest. It took 3 years before U.S. started to come up with the sale of 10th and G in Washington, D.C., a couple of years ago. We are running with higher costs because we're building up the portfolio. With that said, the portfolio and how we can sell from the CD portfolio is also on the basis of how completed are the projects, how mature are them to sell.
So we are talking about the recurring level and all that, but it can vary between the years, depending on the portfolio. But you should expect us to continue to want to increase the CD business, and hence you will see product development costs relating to future profits.
Okay. And then, yeah, I'm happy with that. Thank you.
Thank you, Nicholas. More questions, please. John, go ahead.
Yes, John from Swedbank. You started 11 new products in CD. How many of these were built on speculation?
I don't have that number in my head, so I can't answer that. But usually we have... It depends a little bit on the market situation and where we start. In general, it's more possibilities in the Nordics to start with the pre-lease. In Central Europe and in the U.S., there you have to start the products more on speculation because that's how the market actually works. This is just a general answer now, not specifically about the 11 products.
In the total ongoing projects, do you have any figure what proportion is started on speculation?
No, it's we, we treat it in a somewhat different way. We actually have two measurements that we follow. One, which I have, which I explained for you here. We look at the pre-leasing ratio versus the completion ratio and making sure that we are ahead of that for the portfolio. So that's like in a one piece. The other piece that is called capital at risk, which we don't explain for you, what, what the limits are, but that is the total investment value times the vacancy rate. And then we have a cap on that, for the entire portfolio. The total investment value in ongoing projects times the vacancy rate, and then we have a cap. So that's a way to, to actually, making sure that, we are not going over the risk limits for, for that portfolio.
Thank you, Johan.
Next question, please. Okay, no more questions in the room, so we'll ask the operator, do we have any questions from the telephone conference?
Ladies and gentlemen, if you have a question, please press zero one on your telephone keypad. That's zero one if you want to ask a question. We have the first question from Mr. Jonas Andersson from Danske Bank. Please go ahead, sir.
Yes, good morning. The question relates to Latin America. You say that you have accelerated the process in completing the ongoing projects, but still you didn't shorten the time before you were finished with the project. On the question, you still say end of 2015. So what's the acceleration really about?
Well, we are accelerating the exit of Latin America by deciding that we will divest the O&M part. The E&C will be completed once we complete the various projects according to the contract.
Okay, so the SEK 200 million, what do they relate to?
That is... Okay, sorry. That is related to increased costs on the E&C side and closing down that business.
Okay, so something new happened during the quarter that you didn't know in Q2, then in the projects?
Yes.
Okay. Another question on the residential units. The other European result is rather weak. Is that Czech Republic or Poland, or is it split? Are both in negative territory in Q3?
Czech is doing okay, and we are winding down the UK RD business, and then we have the startup in Poland with quite a few sales in the quarter.
Okay. Thank you.
Thank you, Jonas. Any more questions?
Yes, we have another, one more question here from Mr. Tobias Loske from HSBC. Please go ahead, sir.
Oh, yeah. Yes, good morning. Two questions, please. The first one is also on the Latin American business. Can you give us, let's say, your expectations on the timing of the disposal, plus also if you can give us, let's say, some sales profit and also the book value data for the Latin LatAm O&M business? The second question is on the Norwegian market. You sounded more positive on the market. You believe that it's the residential market is turning around. Let's say, what are the key signs that you see in the market for the moment that make you more confident here?
The first question is very easy to answer because we are initiating the divestment process now, and we will not give any indication of any sales when we have just started the process. And I can say that we are foreseeing to protect our book value when we sell the O&M business. Coming to your Norwegian question, we are more positive towards the RD market. We are seeing more demand and more sales, and also sales in projects which we intend to start, because we start project with a pre-sale level of around 40% as a default level. And we are seeing that we are getting there quicker now than we used to do in the previous quarters.
Okay. And on the LatAm business, on the O&M business, are you willing to provide also the book value of the business, or also you don't want to comment?
We don't want to comment the book value, no.
Okay.
We intend to cover what we have. And as I've answered on a previous question, it is not of a material impact in the group.
Okay. All right. Thank you enough. Thank you.
Thank you, Tobias. More questions?
There are no further questions on the telephone at this time. Thank you.
Thank you. Okay, we are also running out of time, so, I suggest that, we wrap this up. Thank you all for coming here, and thank you all in the telephone conference for listening in. Welcome back when we report the fourth quarter. Thank you. Thank you.