Very welcome, everybody, to this Capital Markets Day for Skanska 2014. My name is Magnus Persson, and I am responsible for investor relations. Those of you that went to our project visit yesterday, we really hope you had a nice time, and that you learned a lot about the way we execute our business. We value safety very high in Skanska, so before we do anything else, if you look up on that side or on that side, you see red signs. In the event of an emergency, follow the red signs, okay? In the event of a different type of emergency, it's also roughly the same way. The day today will look like this. We have a number of presentations.
We will start with an introduction of this event and a follow-up of the business plan by Johan Karlström, CEO, and Peter Wallin, CFO. That's an hour. After that, we will have Rich Cavallaro, who is responsible for our U.S. Civil business unit, and also coming in as an EVP for Skanska USA, at the January 1st, 2015 , to go through the market and operations in the U.S. Then we'll have a break, 30 minutes, and after that we will hear from Mike Cobelli, who is then assuming the responsibility after Rich over U.S. Civil, and he will talk about this business. Then we have Amando Madan, SVP for North America Infrastructure Development, to go through ID.
Then we have lunch, and please be back here then at 12:30 P.M., because we will start again with Bill Fleming, who is a Business Unit President for U.S. Building. And after that, Mats Johansson, Business Unit President for Commercial Development, USA, will go through this business. At 1:30 P.M., we will have Q&A, and this will be a full hour of Q&A. The reason for this is that we would like you to wait with your questions until that specific hour. So let's try to not do questions right after each speaker here. After the Q&A, we will have coffee and a little bit of mingling activities outside here, and you will get the chance to talk to almost everyone in our senior executive team and ask your questions and so on.
So, at 2:30 P.M., the sort of Capital Markets Day event will end, and then it will be coffee and cookies. With that, Johan, please.
Thank you, Magnus. Here's the remote control. Very good. Good to see you all here today. It's gonna be an interesting day, and I hope that you can, like, and I think about some really interesting and good questions and keep them for, like, in the afternoon session there. Looking forward to have a dialogue with you about that. What I'm gonna do here in the beginning, before we, like, open up for more speakers from the U.S. operation, where we're gonna have a, like, in a deep dive into various areas, I will give you a brief overview of Skanska, but also point out the direction where we are going overall, but also where we're going here in the U.S.
I'm sure that most of you are familiar with Skanska, but just some brief comments about that. You know, we've been around for quite some time, as you can see here, turning 127 this year, and we are quoted on the stock exchange in Stockholm. But we also have the ADR program here, since a little bit more than a year here in the U.S. Thousands of projects. You know, we're really spread out. And that is a little bit, you know, well, one of the characteristics of the company, and close to 60,000 employees. Here you can see the footprint of Skanska, and you can actually divide it in basically three equal parts.
The first one is the Nordic part, which is a little bit more than one- third, and you see the countries where we operate there. That's where everything started in Skanska. Then we have a cluster of countries in Central Europe. It's Poland, Czech Republic, Slovakia, Hungary, and Romania. It's an interesting part of the world. It's happening a lot today, and that part of Europe is now, like, in a moving and developing and really becoming a integrated part of Central Europe and the European Community. Then, of course, U.K., very important for us as well. There's a lot of things happening now. I will come back to the market situation in all of the markets as well here. And then, of course, the Americas.
The dominant part there is the U.S. operation, which we're gonna have a deep dive into today. Another way to divide the company or another dimension to look at that is the various streams that we have. A lot of people, they think about Skanska as a construction company, and of course, that is right. Absolutely. And you can see that that's the upper left corner there. That's the construction part, but we also have three development operations where we invest the money. And what we do in Skanska is that we actually separate these businesses completely in the group. So we have one operation is construction, and then a completely different part of the company is doing the development. The construction, they do the job for development, but it's an internal client.
I will dig a little bit deeper into that later on. Then the development business, we can then divide into three pieces: commercial development, which is like ordinary offices. We have a residential development, primarily in the Nordics, Building homes for families, and then what we call infrastructure development. But infrastructure development here, that is PPPs, concessions, or in the U.K., it's called PFIs. It can be both, like in a Civil infrastructure, which we see here in the U.S., but it can also be social infrastructure. You don't really see so much about that here in the U.S., but primarily in the U.K. market, as that is hospitals and other public facilities, like schools, prisons, and so on. There are two underlying trends in the market that really impact us, that I want to touch upon.
The first one, that is that people are moving to cities from the countryside, throughout the entire world, but also definitely in our markets. That means that there is an increased demand for infrastructure, public facilities, schools, healthcare center, sports arenas, especially here in the U.S., offices, and so on. And that is exactly the focus we have. So Skanska, you can say, like we are like a city builder. We are involved in all the things that is, that's gonna be built in, like, in the major metropolitan areas. And the underlying trend will continue, and that is, like, in a good, because that's enhances the market and the business for us.
The other trend that we see that definitely have a huge impact on us, that is the green trend or the environmental area trend that we see around the world. What is that? What we can see is, like in a, there is an increasing demand for energy-efficient solutions because of the increased cost and the scarcity of energy. And that drives questions about, can you deliver more energy-efficient Buildings, facilities, and so on, and that is something that we definitely want to capture upon. And we see that's coming in all the markets where we operate, to a different degree, though, but it's definitely a very clear, clear trend.
What you see here on the slide is, like, in a different type of projects that we're doing today or just finished, that is, like, an examples of where we capture and when we are involved in and Building things that is supported by these trends. Another way to describe the company that is, like in a, what is the fundamentals? What are we standing upon? You know, one way you can say that, you know, the company is actually standing upon, like in a, three different legs. The first one is, like in a, what we call positions. Positions, that is, like in a, both the geographical footprint that we have, but also the various sectors.
One important thing here, that I think that's you should be aware of, that is in all the markets where we operate, geographical markets, it can be a country, it can be like in a larger metropolitan area, we want to be a major player, one of the leading players. What we call it? We call it a Home Market Strategy, which means that we only focus on these areas where we can have, like in a, a local presence and be there for the long haul. We never go out for project export. We did it in the past, it's not the right thing for us, and it's a very difficult thing in the market as it requires a lot of, like in a, there is a lot of risk related to that.
So we have, like, a Home Market Strategy, and we also focus on various sectors in the markets, and we definitely want to have a leading position there. The other leg that we're saying, that's like the people part. And it's just amazing to see how many, like, good and experienced and skilled people we have in the company. But we also, in all of the places where we have operations, we are local. So here in the U.S., of course, we are Americans, in U.K., we are Brits, in Norway, we are Norwegians, and so on. So because that's the way the market operates. The market is local in construction, and therefore, we organize in that way, and we are a local player with local people.
But at the same time, as we have like local people there, we use like the skill set of like special knowledge that we can transfer across the various locations and geographies, so we can deliver really good and complex and demanding projects. And then, of course, standing on a strong balance sheet is important for us, especially here in the U.S., where we see a lot of large, complex projects, and we can only bid for them if we have a strong balance sheet and we have strong finances that are actually supporting this. I want to go over the business model we have in Skanska.
Very important for all of us to understand here, but it's also something that we, like in a, everybody in Skanska has to understand this one, because all of the Skanska employees have a, like in a, piece in the puzzle. So if you look at the green box here to the left, that's like in the construction operation, the thousands of projects we have around the world in our various markets. If you look at them all together, we run them in a positive with a positive cash flow. And that cash flow can ask, or is also like in a larger than the profit at the end of the projects.
And the reason why we can, like, kind of end up with that and have that situation is that we get prepayment from the clients before we have to pay out to subcontractors, vendors, and to the labor. And what we do here is, like, you know, we have an incentive scheme throughout the entire, like, an organization, from the top, from myself, the whole way down to the project director, and it's had two financial components. One, of course, is like in a profit on the project, but also cash flow on the project. It's so important. The cash flows then on the project, if you aggregate it up, what do we do with that? We do something we understand. We build our own projects. So that is like in a financing source for the project development that you see here, the three streams.
So that's the reason why it's so important to focus on it in the construction so all of the people, you know, project develop, the project directors, they understand that cash flow, if it goes down, then it's actually gonna be like in a constraint for the project development. So the more we generate, cash we can generate, the more we can have on the project development side. And then, of course, it's not Balfour Beatty or NCC or Turner that is Building our projects for project development. Of course, we do it ourselves. So here you can see, like, the arm's length distance we have between the two profit centers in Skanska. So we have, like, an internal contract there. And the internal contracts coming from the project development is around 12%-13% of the overall revenue.
So the cash flow is from construction. We get a decent return on project development, and we measure that on return on capital employed. But then it also generates up to, like, 12%-13% of an increased revenue in construction. And then, of course, they should have their margin, and we measure on EBIT margin on that side. So you can see how the cash flow actually goes around and in Skanska. And here you can see the targets, the financial targets we have for the group on these two different type of businesses. Project development, measure on return on capital employed because there we deploy the capital, and we have a target range of 10%-15%. And in construction, of course, you can't really measure on return on capital employed.
There, we measure on EBIT and send 3.5%-4%. We are on the return on capital employed side, we are just in that range. On the construction side, we are below that range, and Peter will talk a little bit deeper into that. But it's very easy to see in Skanska if you look at the... Because we are so transparent in the throughout the construction stream, that it's actually coming from some losses in Latin America this year and some failures in other projects. But the underlying profitability in the business is in that range, and that's the reason why we definitely believe that that's the target that we should maintain.
If you boil it down, then you have the return on equity, 18%-20%, which is the overall financial target for the group. So let's see if we can switch to. There we go. The current business plan that we launched in 2010, that is for 2011-2015, the five years, we are working in that period. We are following basically the line then and the strategy that we laid out when we decided about where to go. We have made some adjustment on the plan due to the situation in the market, of course.
But the overall view of it, where we're gonna go, is, like, in a increase the construction operation, focus on cash, deploy it in the development operation, so we get a competitive return into that business. These three focus areas that we also have addressed, that we definitely think that is important for us to be successful with this plan, which is a little bit outside the strict financial, you know, focus areas. That is risk management, which is a big part of our job, to reduce the loss makers and take away the risk in the projects that we are hard time to handle, to actually increase the profitability. Another area, sustainable business.
I touched upon the green side, which is definitely demand from the owners and the clients, the clients today, but it has also... The whole sustainable area has also evolved into other social aspects, which I'm gonna touch upon. And then, of course, safety is another focus area for us that is very important, and it's actually two aspects here on safety. First, is more like the human aspect, to take care of all the people that we have on our work sites, 60,000 employees. But if you add up all the subcontractors and all the people on our work sites, we have 250,000 people every single day on our work sites.
That's an enormous responsibility. And I personally think that this is something that, like, I should like, spend a lot of time thinking of how can we make sure so nobody's hurt here? So that's like the human aspect of it. The other part of the safety is that, there's a lot of clients now in the market that is focusing on it as well. And if you are not good at the safety, we are not even allowed to bid. Take, for example, the energy sector here in the U.S. If you have a lousy performance on the safety side, you are not invited. So it's good for the people, but it's also a requirement for the business. The business we are in construction, it's a risky business.
There's a lot of risks, and I'm sure that some of you realized that yesterday when you visited some of the projects, that yes, there is a lot of things that can happen here, that can go wrong. And if you think about construction, is it about avoiding risks? No, it's not. It's not. The construction operation, to be a contractor, that is one way to explain it, is that we should take on risk, but only risk that we understand, only risk that we have knowledge about, and we can manage. Because if we avoid all the risk, we push it either up to the owners or down to the subcontractors, then we don't add any value. So I think that is important to understand that one.
So the risk and opportunity part of Skanska that we focus quite a lot of, that is like what risks should we actually take on? That's a big part of our daily work. In the bid rooms, in the discussion about what projects that we should like go for, what conditions can we actually accept? Do we have people that can directly understand that? Is this a reasonable risk that we can take on? And that is like that's done there, and then it goes through the entire organization. It's like the whole way up through the organization and to the regions, to the business unit president, and the whole way up to the top management. I personally, together with the top management team, we spend a lot of time discussing the mega projects.
Do we have the right focus here? Can we handle it? And I'm 100% sure that the enormous focus we have put on that has increased the profitability in the group. We should have had, you know, more failures in the group if we shouldn't have had that. And if you look at the first year in the business plan from like in 2011, 2012, 2013, been a quite a rough time out in a lot of our markets, and we can see that several of our competitors have like faced a severe problem here. Are we perfect? No, absolutely, absolutely not. I think that we have also a possibility for improvement in this area. Maybe I should do it like this. Here you go. Some words about the sustainability agenda.
What we now see is that the social aspect has been an increasing, interesting area in several of our markets. Just to give you an example, this is the Vivalla project in Sweden. We are renovating an old residential area. We employ 80 people exactly from that area. They have never worked before. Most of them are immigrants to Sweden, and it's like in a, we are helping the local society to actually solve the part of the social problem there. And that was a requirement from the owner. It's like in a, what is the cost? And how many people can you actually employ in the project with this background? That was the two components to win the project. So it's good for the society to have the focus, but it also enhances the business.
This is now a trend that we see in several of the markets, that the owners actually open up for these types of, like, components when they select companies like us. The green part, which was like in the first part of the sustainable, like in an area that we started to focus on, you know, several years back, is more or less a must today. It's like they expect us to be really good at green and energy-efficient solutions. In several of the markets, and I'm sure you're going to hear from Bill Fleming later today, how he worked on it, and if we don't have these experts in that, we are not even allowed. We are not invited.
That's part of the requirement to actually be there and compete for a project. We want to be, and we are one of. We are either the leader or one of the leaders in all our markets in the green area. Here in the U.S., we started an initiative last year about safety. So we asked all the construction companies to actually go together in a Safety Week to focus on it, and it's all of them responded in a positive way, and it has been a great success, and it has actually helped to enhance the business in this respect. So what has happened since we were in the capital, and we had a capital market here?
I think, I actually think we were in the same room two years back when we discussed it. So I'm going to touch upon a part of like, you know, the various things that has happened during the two years since we had the discussion here. We see, if I start with construction, we see a strong growth in U.S., and we see now that U.K., the U.K. market, is definitely picking up, and that's positive for our operations. We had problems in Norway and Finland, if you remember that. That has been with us for quite some time, and which we have now sorted out. So they are like on the way or they are at normal profitability levels. The market, though, is like in a different shape.
I'm gonna come back to that, but like in our own operation, it's like we are standing on firm ground again. Then we have really refocused the operations in Latin America and scaled it down to a minimum here. In Sweden and in Poland, we have a very stable platform, and we think that that's gonna be a good contributor for the business going forward. One thing that we have changed during the business plan period have been the how much capital we allocate to residential development. So the size that you see today in Skanska, the size of the residential development businesses, that's the size where we're gonna be.
So we're gonna stay on that level until we have reached the performance that we have set up, which is like a, which is the 10/10 target. What is that? 10% return on capital employed, 10% EBIT margin. So that is like in what we are aiming for, and we will maintain, like in a, the, the capital there in the same level, so we will not increase that operation. So what we have done instead, we have put even more focus to increase commercial development. The part of the development operation, which is performing very well, I would say.
Started in the Nordics, we exported it to Central European, the central European cities in a successful way, and then during the business plan period, we have also exported it here to the U.S., and Mats Johansson is gonna talk about it in depth later on here. So you're gonna hear much more about it, but it's been a very successful journey, and of course, we allocate the capital to the part of the business where we have the best return. It's like, it's simple like that. Commercial development is, to some extent, easier to allocate capital to versus infrastructure development. Because commercial development is like if we have the projects, it's up to us to a big degree, I would say, to start a project, if you like the risks. On the ID side, it's a competition.
It's like usually the politicians and the owner that have to decide, "Yes, it's now a project, and now we're gonna compete for it." On the commercial development side, we are the clients. It's like there, we can like go for the business in a like, to a greater extent, and it's easier for us. But in the infrastructure development, we have now allocated resources more over to the U.S. because that's, it's here we see so many projects coming in. So of course, like shifting the geographical focus there has been very important for us. So very quickly about the market. We see an underlying demand for infrastructure projects, I would say, throughout all the countries and all the markets where we operate in.
But there is a lack of finances from the public side. You just can't finance all the projects in the old traditional way through tax money, and that's where PPP is coming in, and especially, we see that, especially here in the U.S. So that's like in one trend. Another trend, which I think it's equally important to understand, that is, clients today, they have now opened up for more early involvement with contractors like Skanska. We are in early phases. They have discussions with companies like Skanska, how to actually develop and finalize the project, technically, logistically, and, you know, through. We can be there and, like, actually price the various alternatives to maximize the value for the client.
We see it here in the U.S., and now it has started up on the Civil side, and I'm sure that Mike's gonna talk, Mike Cobelli will talk about that. We see it in U.K., we see it in the Nordics, and that is an advantage for a company like us because we have a lot of skilled people. So if we can be there in the early phases, we can add value for the client. I think it's a very positive trend. We also see a focus on cash, greater than ever, from the client. Peter gonna dwell upon that in a minute here, talk about it. And then, of course, if I switch over to residential development, people move into the cities, which is good for the market and for the cities where we have operations there.
We see the same trend, basically, in commercial development, increased interest for offices. One thing that I think could be worthwhile to mention here is BPOs, and what is that? That is like, the easiest way to explain it is big, like in a, you can say, like in back office functions for larger cooperations that are outsourcing their, like in a, the back office functions to separate companies. These companies, the back office companies, if you call it like that, they now allocate a big part of their business into the regional cities in Poland. Skilled people, cheap, hardworking, and good language knowledge. They are now a very important market for us when we talk about tenants into the facilities we build for commercial developments. They're asking for, like, a very efficient Building.
So a lot of, like, you know, what we build there for commercial development, we lease to that type of to that sector. And in infrastructure development, increased demand here in the U.S., and we see PFIs in Europe. So my last slide here before I hand over to Peter, that is, why focus on the U.S.? Why are we here today, sitting here? Well, it's actually very simple. The U.S. market, we have a positive view on the situation and the market outlook here in all the various sectors and the segments where we have operations. And this is the place for Skanska's growth in the future.
We will not go with our business to, like, in a new strange, geographies, new countries. There is enough opportunity within the current footprint that we have, and especially here in the U.S. And we are a major player. We are here, we are local, we definitely understand the circumstances, we understand the culture, and so on. There's plenty of opportunity here. So it's gonna be a focus here, and the plan is that, Skanska today versus tomorrow, it's gonna be tomorrow, it's gonna be U.S. part is gonna be a greater part and a bigger part of the overall operation than it is today. So that is, like, you know, the overall theme and the direction for the group. So with that, maybe I should hand over to you, Magnus, or-
Yes, I think it-
I don't know if you want to make some commentary before.
Yeah, I think it would be good if you could maybe elaborate a little bit on, we are saying that we are aiming for leading positions in our home markets.
Mm-hmm.
Now we have a lot of focus on the U.S., so how should sort of the audience here see us in a leading position? What does this mean?
Well, that's a great question. I think that you can, you can think about, like, in a leading position, like, in, in a little bit different ways here. First, you can ask yourself, like, you know, what is a, what is a leader? What, what is it? Well, the way I see it is actually a leader, that is somebody that other follows. Doesn't necessarily have to be, like, you know, the, the largest one, but it has to be a major player that other companies look at, and, and follows. And therefore, we want to be, like, the first on various trends in the market, which we think is important for the business. So that's like in one thing.
And leading for us, if I move over a little bit more to the financial side, that is we don't really focus, okay, what's gonna be, like, you know, the revenue? It's, like, you know, maximizing the profit. So, like, you know, being the leader on that area. But of course, the top line had to, to some extent, follow the bottom line, because otherwise you can't really expand it. But the focus in there, in our business, it's very dangerous to actually just to focus on the volume. So some words about, like, you know, how we think about, like, you know, a leading position and there. So Peter?
Yes, sir.
Here's the magic tool.
Thank you. Good morning, everyone. So shall we start this great journey into all the slides and charts and the numbers? So top line was not important, but let's start with some slides covering just top line. On this graph, you're gonna find the, the business plan period, and you're also gonna find how we have compared on the growth trajectory compared to the general market we are in. And how we have computed this is that we have looked on the geographical footprint we have and weighted the revenues accordingly. And as you can see, sometimes we are performing better than the market, and sometimes we are not performing as good, and we're stopping at the end of June, so the last reporting date here. Perhaps a little bit more interesting is to look at from the start and the outset of this business plan period.
And now, I hope this is early in the morning, so you are prepared that the blue line is now green, depicting the markets and the forecast for the market. And the orange part is the organic part of our revenue. And you can see that we have outperformed and outpaced the market from the start of the business time period. We do that even more if you then lay out the acquisitions that we have done during the period. This is a function of us being in a very good sort of mix in terms of markets and sectors, and also that we have been having a very good geographical exposure, given the start of the business time period, which was very much into the European crisis, especially around the Mediterranean countries, which we are not present in.
Another thing we've talked about is market share. So the blue bars here represent the total market, and the orange line represent the market share. And the market share is what we do, actually do in the various markets. So for example, in the U.S., we are not active on the residential side, so hence, the residential market in the U.S. is not part of this. And you can see how the market share is increasing gradually. We wouldn't like to see, and you wouldn't like to see a sharp increase in the market share, because that is taking on enormous volumes in a very short period of time. And growing it is, in this business, something which you need to do in a very controlled way.
So from an operating margin point of view, we ended now rolling 12 months at 2.7%. And to be clear about this, this has not been according to the target margin that we have had. The range has been 3.5%-4%, and we have not met that range in either of these years. We ended 2010 on a very high mark, as you can see, of 3.9%. The mix of the business then, very much PPPs and very much Design-Build , profitable products taken with very low competition, and then also in a period when we had reduced the size of the business very much after the Lehman crisis in 2008.
So, now we have increased the business, the procurement models are looking somewhat different, and it's been a buyer's market out there. And then, of course, we have also incurred some write-downs in some of the businesses. Over and above, as Johan said, the risk management procedures we have in place have improved profitability over time, and now when the market is picking up, we are seeing more and more of the two-stage bids and the Design-Build projects, and also the PPP projects, especially here in the U.S. We talked about our development businesses and how we intended to ramp up investments here. And here we have really made it big time, as you can see, amongst our three development streams here. And we have increased capital employed quite a bit as well.
Here is the allocation over time, important to keep track of, because here we are allocating from RD, residential development, over to the commercial development, and at the best pace we can do into the infrastructure development stream as well. Let me take some numbers on the One Skanska model that Johan Karlström talked about when it came to the financial synergies in the group. We took, Johan talked about that we steer the various businesses within construction and development as standalone targets for each of the group, and that is in order to not suboptimize any of the businesses. And then, as you can see here, we have, if you're starting with residential development, this takes the average return on capital employed and construction EBIT over the three years.
On average, we are around 11%-12% of the group's total turnover into these One Skanska projects. Residential development also includes some of the one-off items we took write-downs in 2012. Actually, just before we stood on this very same stage two years ago. The residential cap return on capital employed is not good, and this is something which we have addressed, and I will be coming back to that. But then you also need to put on the EBIT, the profit, operating profit we do on the residential part on top of that, compared to the capital employed. So on a group point of view, we get to 5.7%. Commercial property development, much more stable, much more successful, and growing. Here we have done close to 11% return on capital employed.
Do the same math with adding on the EBIT, and you get a 12.3% in total. Last but not least, but very profitable, infrastructure development. Here we have a staggering number of 73.4%. And just sort of pulling back, infrastructure development, we are on a 50/50 basis in most of the projects, so we do not consolidate the full projects. In residential and commercial, it's the full balance sheet is on our balance sheet. So this is more or less return on equity in these projects. Then, also very profitable construction contracts add on a massive return on capital employed from the construction side. So all in all, it is a +100% return business. And now you understand why we are very interested to increase this business.
So if you add it all together, on the pure development side, we've had a return on average of close to 14%. Adding on the EBIT from construction adds another 6%, then giving us a close to 20% in total return on capital employed. It doesn't end here. You know why? The huge positive net cash we get from the ID stream.... actually would lower capital employed, if you look on that by close to SEK 5 billion. So and if you then make that math, you increase this by an additional 5 percentage points. This is a great model. So how does it stack up to over this past three years average of government bonds that, with a duration to five to six years?
or the total return index of the Stockholm Stock Exchange, adding on growth in shares plus the dividends made by the companies there. Those averages 3.2% or 7.4% respectively. Compare that to the 19.5%, and here we haven't done the doping with the prepayments and the net cash we have in the ID projects. We are out overshooting the returns quite a bit. And this is with a poor performing residential stream, which we are improving. So this is a great business, and it adds a lot of shareholder value. So on a general moment, just take a look on the return we have on this capital employed in the development streams on average. We have a return target of 10%-15%. It's a wide range, also reflecting the various business models, as I touched upon.
And you can see that we are just within the range or just under the range of lately. And, since then, we have published a lot of very good press releases of sales on the commercial side, so I'm, I'm hopeful. But this is a quite tough target; on average, we have been below 10, and the reason for that is the RD part in, in 2011 and 2012. So let's take RD. And, when I stood there last time, we have just done the restructuring of the Nordic businesses. On top of that, we have a startup in Poland. We have an RD business in the Czech, and we had a startup in U.K. We decided to pull out of U.K., and RD Poland is still in, in a startup mode.
It takes a number of years to build up a new development business. But their Mats Johansson, he is fast-tracking that to a large extent. So if you look at... Take a look on the return on capital employed in this, you can see how this bottoming out in 2012, one of the reasons I mentioned, because of the one-time charges we took that year. And now we are coming back up. It's not at the level we want to see. So as Johan pointed out, we want to come up to 10% operating margin, 10% on return on capital employed, at least. And to do that, we need to hit around 16% gross margin in the RD products. And that's why I'm always nagging about the gross margins when we do the quarterly presentations.
Because you're going to find fluctuations on the EBIT line, because the number of sold apartments in each quarter could vary, and hence, the turnover in those quarters could vary, but you always have a fixed SG&A. But if you look on the gross margin percentage, that never lies, unfortunately. But it's a good steering tool for us. And I know that most of you also know the DuPont formula when it comes to return on capital employed. So here you can see the capital employed in RD, and you can see how we are curbing it and right-sizing the business to a sustainable volume. And we are also then decreasing the orange line here, as you can see, the land bank as proportion of capital employed, i.e., idle capital not giving any return currently. And the green line is increasing.
As the DuPont formula says, when we hit 100% here, and we have 10% in operating margin, it's going to be 10% at the capital employed line as well. It's magic. So capturing what we did and what we stated in the Nordic residential development as such, we right-sized the business, we've reduced SG&A as a percentage of revenue by 2.5%. We have thus far increased the gross profit margin by 3.5%, so in total, an expansion of 6%. We reduced the land bank by SEK 1.3 billion.
Then you say to me, "Well, you said SEK 2 billion." The remaining balance have been plunked back into the residential business because we have increased the number of Building rights or improved on those plans, which makes it possible to sort of pull it back into the business. Makes sense, also, when the business are in order. We strengthened the project management, made it very clear of the roles and responsibilities. We are not done at all. We need to hit 10-10, but we are well into our plan. Talking about the Skanska-wide commercial development part, and Claes is looking a bit nervous now. This is the book value and the mix of completed products compared to ongoing products over each and every one of the quarters. It's the same trick here as with the residential.
The more working capital, the more ongoing products we have, the less idle it improves the return in this business. And then if you take the various parts, the geographical parts, you can see here that the green part, which Mats will talk about in, in a brief moment of time, or Mats, as we say here, the green part is increasing at the fastest pace of all of this. So, we are very happy about that performance from, from a CD U.S. point of view, but also in a way that we can balance the portfolio and the opportunities we see in the various markets. And as Johan alluded to, when it comes to Poland, Poland has also offered great opportunities on the widening on the regional part.
So CD is predominantly today a Polish development business, and that's great because Poland is performing excellent from a macro point of view. So it's a great portfolio play going on here. Looking at the return targets, 10%-15%, just to stop to reflect that when you put up absolute return targets like this, it also needs to reflect what's going on in the environment. We have a situation with close to zero inflation, and the interest rates is just extremely low because of all the efforts going into making the markets very liquid right now. So one way of looking at this is to look at the spread over the risk-free rate. And we have divided this into two areas.
Prior to 2009, where we had a mix of properties that we had completed a long time ago, which were sold, and thereby sold by a greater profit. Then a pure development arm, and the development period from 2009 and onwards. If you take a look on the spread here, the spread is very stable and very good over the risk-free rate. And that, I think, is impressive. So even if you see that 10%, we're just hitting 10%-11% in the commercial part, looking at the spread, we're doing a great business here. And the turnover rate and the capital efficiency here is very good because we churn the capital very quickly. And now, Amando, I will not destroy your fun here, but just talking very briefly about infrastructure development.
U.S., of course, is in focus. Having started as a predominantly a U.K. PFI business growing into Europe, and then finally making it big time into the U.S., has made us sort of shift resources in terms of covering the U.S. market. What has been a bit of a surprise is, first it started out with huge infrastructure projects, which were market risk related, i.e., where we, as an investor, could take on risk in terms of traffic, volume, and price. But today, the predominant source of business is actually availability business. And it's great from one point of view, is that it doesn't require as much capital as the market risk projects, and we get a lot of construction for the same amount of money, but we can't grow investments at the same speed as we could do on the market risk projects.
So it's a little bit of both here. Amando will speak more about that. The PPP model has proven effective, and I'm not just talking about making us rich from that point of end. It's also making sure that you push risks in a good way between the construction and the development, and the state, actually providing the concession agreement at the start. It is politically sensitive, as Johan has alluded to, and it's not up to us to start the projects, unfortunately. And it also takes a lot of sort of longevity into the business. You do need to look very long term, because this is very much front-loaded in terms of bid costs and design costs, et cetera. So you're here for the long run, and you need to see a pipeline in order to commit that cost.
And with the stock market turbulence and everything happening, this is a perfect asset class for pension funds. Long-dated duratio n and very steady returns. So that is also one thing we see on the secondary market, which have been very much maturing over the past five years. So the inevitable question: How are we doing on the working capital in construction? When we presented the business plan, we talked about an increasing volume in construction, and we also then alluded to that the working capital in relation to revenue would drop as a percentage, and you can see that on the shaded corridor. We have increased top line, as we have shown, but we have also gone through a more prolonged and deep softening of the market than we had expected, to some extent.
We ended just before 2010 with, as I said, very much design-build projects and PPP projects, where you had a lot of prepayments on our balance sheet, and very profitable such, which is also part of the working capital. We are very much focused on continuing to be selective in terms of projects, so that we would have an improved cash flow position. All of us in the company is incentivized of making this happen as well. But it's been a tough market, and now when we see the market turning up, we could have more levers into actually creating a better cash flow profile in the companies. The percentage, percentage itself will depend on the growth rate on the top line.
The working capital is something which we are focusing very much on in terms of the absolute change. So, we have a pretty good backlog, and we would be hope that the bars would be flattening out. I don't mind too much if the orange line goes too deep, because it's the real cash I'm interested in, and I know that it's the same for you guys. The way we measure our financial strength is looking at what we call operating net financial assets slash liabilities. As a conservative measure, we have said that this needs to be over and above zero. We have then plunked and invested a lot of money into our development operations, which we do not leverage, apart for ID projects .
So this is quite a conservative measure, and the reason why we do this is in order to stack up good in going for big projects on the construction side, but also the fact that we will have the opportunity to move opportunistically either into the development areas or when we are looking into growing the business in terms of acquisitions. And as a CFO, I don't want to see this too high either, because it means that we don't get the returns we otherwise could get, as you saw on the development part. Return on equity, the blue line here, has fared quite well over and above the hurdle, if you look on average over the business time period at 23%.
We are now at 15%, but it's a number, 18%-20%, that we still think is a good measurement and a good realistic target for the business. And with good cash flows also comes good dividends, and this is something which we have done over many years. And we have a range of 40%-70%. Last year, we did 74% as a percentage of the profit that year. And that is also due to the fact that some of the writedowns we did in 2013 was non-cash related. We have a good engine, we have a good business, and with the One Skanska model, we also have a good opportunity to continue to grow our dividend capacity. Thank you.
Thanks, Peter.
Watch my driving. Well, good morning, everyone. Try to bring a little energy. It's been a long morning for you guys already. Okay, so I'm Rich Cavallaro. I am currently the Business Unit President for our Civil operation here in the U.S., Civil and mechanical operation. As of January 1st, 2015 , I'm going to take on the role of U.S. head, and be responsible for the U.S. business. Been with the company 18 years and happy to be here. Good, good place to work. So we talked a lot about the stream. So in the U.S., we only have four of the streams that Johan's been talking about. We have our Building operation, our Civil operation, and our commercial development, and infrastructure development operation.
What's really important about that, though, for us, is we have a toolbox full of tools many of our competitors don't have. The ability to have those four units really be integrated and work together gives us the opportunity to deliver solutions to our customers that not everybody else can. And that's really important. The PPP model, there are only a handful of companies that really can deliver that, soup to nuts. And that's because of our internal relationship with ID, of course. And on the Building side, we're building, you know, building buildings for ourselves. Again, that's from the integration between the two businesses. And the Civil and Building business do tremendous amount of work together, and again, we can offer solutions to our customers that other companies can't.
I think we've just scratched the surface with that. I think we can do, we can do a lot more, looking at solutions for our customers. 2013 revenues, roughly $7 billion in the U.S., represents about one-third of Skanska's, overall revenue, 9,600 employees, and 39 offices here in the U.S.. In our ranking, we're number 4 in the, in the country, overall, number 2 on the Building side, and number 3 in, the heavy Civil business, which includes our mechanical business. So how did we get here? They were incorporated in 1971. Actually, I think the first project ever done was here in New York. It was a tunnel project that Skanska was brought in for its tunnel experience.
In the 1980s, they started buying up companies one at a time, and you can see we grew from a very small $50 million-a-year company to $7 billion in roughly 30 years. I think that's a tremendous accomplishment. I can say, too, what's happened over those 30 years, we were a bunch of siloed companies that we kind of bought up, and we've learned how to really integrate the business and squeeze the synergies out of the business over the years. And that's a big part of that, how we got from $50 million to $7 billion. Here's how we look across the country. We're essentially have the bulk of the country covered.
We have 39 offices here in the U.S., and I think for any single mega project in this, in this country, we could, we could fly in, and we could take it on and deliver it. So, 150 employees have relocated, and you'd say, "Well, why is that important? Why do you care?" Because that really is the lever that makes the strategy work that we've taken on. So we bought all these businesses over the years, and they all had kind of different lists of services. They did different things. Well, it's pretty easy to see if we can take all those services and put one big list and be able to execute them everywhere we had business, we could take market share with the expertise we already had in our company.
That's a function of really being able to move expertise or move people. So that really was a big deal for us, and that's taken a lot of traction in our company. You know, our Building business started with the center of excellence. I mean, we can attack a hospital anywhere in the country. Our Civil business has a strong transportation group here in New York, and we've been able to transport that to the West Coast. And again, that seems pretty simple, but it's all about moving people. So at the end of the day, construction is a service business. Anybody can buy concrete, anybody can buy big yellow machines, but without the right people, it doesn't work. Anytime we fail, it's usually because we have the wrong people.
So we have a strong focus on our people, from retaining employees through performance reviews, leadership training, succession planning, mobility. We do a lot in this arena, and we spend a lot of money doing it, and it's money well spent. The single biggest, I think, barrier for us to grow further, and you're gonna hear a lot about us growing in the U.S., and I'm confident we can do that, is gonna be having the right people. So we're aggressively out there in the colleges and high schools, talking to young students and making sure we get the best of the best. And then we have internships. We're active in ACE Mentorship.
You can see we're really out there working hard to find the right people to make sure that doesn't stop us from achieving our goals of growing the U.S. operation. So you can see the numbers. You know, over this four-year span, we're essentially growing at a pretty good clip, 13%. And the bottom line has moved with it, which is terrific, actually, a little bit better at 16%. The operating margin, I mean, that to me, the fact that it's flat is actually right because there's a couple things happening, right? There's only a couple ways to really impact that. You gotta be the low-cost provider, and I think we are. We certainly can deliver economical cost.
G&A is G&A, but the market sometimes just determines what you can, what you can put as gross profit on a job. So that's kind of dictated by the market. For us, it's about managing risk. The biggest influence on that number will always be if we have bad jobs. And Johan talked a lot about our operational risk assessment and how we manage our risks, and I think the company does a really good job of that, and that's why that number's always gonna bounce around, but it should always stay in that spot. Bookings. Bookings for us are very lumpy because, you know, we get one of these mega projects, and boom, you get a big number, and then you don't see anything for a while.
But all in all, if you look at our backlog, you know, we're, we're sitting at, you know, 1.5, 1.3 times, on a book-to-burn. You heard a little bit about this before, and it's, it's completely true here in the U.S. also. You know, the, the, the younger generation are moving back to the cities. You know, I have one-- I have several of those millennial children, and they all moved back, and they live in Manhattan. So, people wanna move back. That's a great, that's a great trend for us because, I think Johan mentioned this also, but at the end of the day, we are city builders. We feel really good about our ability to build in, in, in, very tight quarters in the big cities.
If you look at the things that... If you have people moving back to the cities, what do you need? You need mass transit, bridges, you need all those things listed. And essentially, every one of those things, one of those opportunities you see on that is stuff we're good at. Other than housing, I could say every other one of those things we cover, and we cover well. So I think it's a great opportunity for us. I think energy efficiency are huge right now in the country. There's no question we're a leader in green here in the U.S.
We're actually even, we're very strong on the Building side, for sure, and I think we're gonna be the leader on the Civil side as we push into the next generation of green as we're taking a leadership position there, too. The whole shale oil conversation is one we've been talking about a lot, and we certainly like to-- This is a great opportunity. It's a huge piece of business that we only have a very small piece of, and it's a place that we are completely dedicated to doing more in, and hopefully, we can find an acquisition in this space that will help us grow that business. We, you know, we bought a company in this space.
Just a few years ago, I guess it's 2.5, three years ago, to help us. But we see great opportunity in the downstream market for us, because that's a place where any process that is an energy hog, due to the really cheap energy in the U.S., will probably come back to the U.S., and those are things that we know how to do, manage big labor forces and complicated projects. So we see great opportunity in that space for us. I mean, the takeaway from this slide, essentially, is if you look at the construction spending as a % of GDP, it still has not recovered. It's definitely on an upward climb, which is a positive. So if you look at the space that we operate, it's roughly a market of $580 billion.
You take out the things we don't do, and we're roughly 7, so we're 1.2% of this market. What a great place for us to grow. I mean, we're here, we're strong. Is it unreasonable to think we couldn't take a bigger share of $580 billion? I think it's very probable. So the blue lines essentially represent our Building business market, and the yellow would be essentially our Civil business or transportation business. And you can see that the prediction from FMI is that we're gonna see nice growth in both those markets at 5% and 6%, and that's certainly encouraging for us.
So if you take those bars and you break down the blue bars, so you look at the markets that are kinda in there, what's really interesting is the markets that see the biggest increase are healthcare and education. And those are the ones that Bill's team is absolutely rock solid strong in and industry leaders in, so I think that bodes really well for us. Again, if you look at the Civil business, transportation is where we're really strong there. You see those bars on an upward climb. That's good for us for sure. And power and manufacturing, power industrial, the whole world sees what's happening here. We certainly know we need to be a bigger part of that, and we're focused on trying to get there.
Building it organically through what we already have in the Northeast and the Midwest, and what we're hoping to do in the acquisition arena. So what do we see? There's tons and tons of need in the infrastructure. I mean, our infrastructure is really in bad shape, and there's not enough money. So there's a lack of financing for public projects. We don't have a real transportation bill, which we'd love to see happen anytime soon. But it also turns into an opportunity for us because what's filling that gap is the triple P projects. And I think Moody's predicted that the U.S. would be the largest user of triple P, and I absolutely can see that and believe that. And not even just on the infrastructure side, as much as on the social side.
We haven't seen a lot of it yet, but it's coming. PPPs will be a significant part of how we finance projects here in the U.S. I think the lack of clarity on energy regulations actually kind of paralyzed that community, a lot of the power generators, because they didn't know what to do. You know, do you shut down your coal plant? Do you build a new gas plant? You know, how do you manage it without knowing exactly what was ahead of them? It kind of paralyzed them. It actually stopped them from doing almost anything, which was a real negative for a short time. So that once those regulations are completely clear, we're gonna see a bigger move there and more money be put into the, especially the gas generation.
I think gas generation is a duh for the industry. You know, obviously, cheap gas, natural gas booms are driving a lot of those projects. As I mentioned, any process that uses a lot of energies and energy hog, I see, like, fertilizer plants, pulp and paper, steel mills, will come back to the U.S., because we'll overcome the labor differentials. A negative is the fierce competition. You know, when Skanska got here in 1971, we essentially were the only ones here as a huge international player. Now we see everybody. The Spaniards are here, the Koreans, the Germans, the Chinese. So we're seeing much more competition in that higher echelon space where we compete than we've ever seen before.
But we've been here longer, and we have a more stable foundation, so I think we have competitive advantages, advantage. We talked about our customers. Our customers, for years, always just picked a low bid. We see a major change in our customers looking more for best value procurement. So that's really good for us because we bring a lot of value that many smaller firms can't. And we have, you know, we have our Five Zeros that we live by, and I think it's very important. Our ethics, our safety, our quality, those are the things that are very important to us, and our customers, some of our customers are actually willing to pay a little bit more for it. Material prices remain stable, so that's another positive.
We don't see any of the spikes that we saw way back, way back when. We see that the Building business, I think, Bill will talk a lot more about opportunities, a lot more opportunity out there in the Building, in the Building business. And commercial development, you're gonna hear a lot from Mats. He's done an amazing job here. Certainly, he has hit the cycles perfectly, and he's got a great new story to tell. That's all from me. Thank you very much.
Okay.
I'll turn it back over to Magnus.
Thanks a lot, Rich. In vintage Skanska style, we are beating the schedule and just earned 50 minutes. There's a break, and we will... Please go back here at 10:30, when we will continue with the presentations. Testing, testing. Okay. Welcome back after the break. I hope you had some very nice American coffee and a couple of cookies, and that energy level is on top, right? Let's welcome Mike Cobelli up on stage. He is entering into the new role as BUP, Business Unit President over U.S. Civil, first of January next year. So welcome, Mike.
Good morning, everyone.
Good morning.
As you said, I'm Mike Cobelli. I'm the incoming Business Unit President for Skanska USA Civil. My current role, which I've had for the last four or five years, is Chief Operating Officer for USA Civil. To give you a little bit about myself, I'm actually in my thirtieth year here with Skanska. This is actually the only job I've ever had coming out of college as a graduate engineer, and it's gonna be a pleasure for me to talk about the company a little bit. It's something that's been such a part of my almost entire adult life, so look forward to telling you what, what I know. Okay, just to give you a little background, an overview of the company.
We're revenue of the USA Civil end of what you heard Rich talk about as, USA Inc. is, $2.2 billion in 2013. We have more than 6,500 employees in over 13 offices, around the nation. We're headquartered here in Queens, just across the river. And our preferred delivery method for our organization is a lump sum, bid kind of project, where we give an owner a guaranteed price for a guaranteed schedule. We, we like taking that task on because it, it does bring higher margins. It has higher risk, but it is a higher margin type of business. And the bottom line you see here of what we do is really where I see the strength of our organization.
There's not a lot of organizations in the U.S. that have this kind of diversity of what they do. We can do almost every aspect of a project, from mechanical and water and things like that, but also high complex structures, signature bridges, tunnels. We're actually one of the largest tunnel contractors in the U.S. now with our work in New York and our work in Los Angeles. We have specialty companies, precast companies. We have a deep foundation company here in New York that we can take that expertise and let alone do good things here in New York, spread it around across the nation. So this diverse portfolio of expertise is really our strength.
It lets us be able and in command of our own destiny on our projects, and gives us an opportunity to chase the market and what the market will give us. What is this strong market? We have the expertise to be able to go and chase it. To that end, here's a snapshot of our 2013 revenue. You can see this pie chart is bigger in some areas, smaller in other areas, and you can see in power and industrial where our percentages are. I'm going to talk about that a little bit further on how we're going to grow that. But the beauty of this pie chart is it can be whatever we want it to be by what the market gives us.
We're not stuck in one aspect of any kind of work. If the market is mass transit right now, we have the expertise to make it a bigger part of our chart. If water becomes what the market is out there saying is available, we can make that a bigger part of our chart. So again, our diversity of our expertise really is the strength of our company, coupled with our geography. So what you have here is just a real quick snapshot of our diverse geography and diverse project portfolio that we have. In the upper left is our Elizabeth River Tunnels down in Virginia. That is our first PPP project in the United States. We like to call it immersed tube.
We don't like the term sunken tube, but we don't like to use that term, but it's a nice immersed tube tunnel in Virginia. It's around halfway done, doing very well, but this is being done with our sister company, our sister developmental company, and I'll get on that a little bit also, a little bit. But it's a great project that really not a lot of companies within the United States would have been able to take on. On the upper right, you see the Expo Line out in Los Angeles. Again, a core project for us, an urban inner-city light rail project, where we take our expertise of being able to manage real dense urban environments, both utility-wise and owner-wise, and bring our expertise and very successful project for us out in Los Angeles.
On the lower left, you see Newark Energy Center. You're gonna hear me talk a lot about our power and industrial capabilities. This is a, for those of you who don't know, it's a large project. It's a 550-megawatt power plant in New Jersey. It's one of the 15 large power plants we've done in the last 10 or so years. This is what's called an EPC kind of contract, which is engineer, procure, construct. So we have a design partner, and we design the project, we build the project, we start it up for the client, and we hand it over to the client. So again, a lump sum, hard bid, EPC kind of contract, right core in our wheelhouse. On the other right, some is 86th Street Station.
Again, this is one of our many projects we've had here in New York on the heavy Civil underground, with all the expansion of the subway lines here in New York. But again, this just demonstrates it doesn't have to be above ground, it can be underground. And here we have a large cavern and Second Avenue Subway, bringing a higher quality of life here to the transit public in New York. This chart shows our revenue growth for the last eight years or so. And you can see in the last four or five, we've had some pretty positive growth. This is by plan. This was what we intended to do. And you can see we're developing on our plan.
I have all the confidence in the world that this positive trend will continue. This chart is of our EBIT chart, our profitability. You can see, again, some real good, steady growth. Actually, in those four or five bars with the real positive numbers, you know, we extremely outperformed the market with those, with the profitability of our organization. We're a very healthy, profitable company. We took a little bit of advantage in those years of... The current market is very competitive, and I'll get into that a little bit, but five, six years ago, it was a little less competitive, and we were able to get some real good work with very high margins. Couple that with some excellent execution, and we gave results that far outpaced the normal heavy Civil market here.
Now, you see the last, the last bar is down a little bit. Some of that is a fraction of the winter effect, as we call it, and that, you know, those of you who lived here in New York over the past winter or anywhere else in the United States in the past winter, you know it was a tough winter. So construction just generally is a little slower in the first quarter and a half than it is in the rest of the year. But it's also a function of the increased competition. You know, as we finish up the really highly non-competitive-type projects we have been Building, we're into the more competitive ones that are in our book of business, and we're just normalizing the margins a little bit.
But again, still a very healthy company, still top of its class as far as margin production. Order bookings, as you heard Rich say, it's a little lumpy as you get large projects coming in, coming out. But again, I'm very happy with our results on order bookings. And by the way, I can say it, you know, and these numbers, specifically the Q2 rolling 12, don't have the I-4 results in it. They also don't have a couple of other things which we've announced over the last third quarter. So I am very happy with our order bookings moving forward. And again, I feel while lumpy, it's gonna be a very positive trend for us. Same with our backlog. Again, this number for June 30 does not have I-4 in it.
But again, I, I think there's gonna be some real positive, continuing growth in our backlog. And for a company to have 18 months to 2 years of backlog from what their revenue is, is a sign of a very healthy company. So you know, we, we set out a path in 2010, 2011, of strategic, profitable growth. So how did we do? You know, you heard Johan say on a, on a global, but how did we do on a, on a USA Civil aspect? And I'd like to, I'm here to report, I'm very happy that I think we really hit what we said we were gonna do pretty well. You're gonna hear a phrase, everything we do, everywhere we are.
You saw that diverse set of expertise that we have, and the key for our growth was being able to take that expertise to where the market has the work. So if we have a real good tunneling expertise in New York, and there's a great tunneling program out in Los Angeles, we take that expertise, and we bring it to Los Angeles, and that's what we're doing. And, and now it's almost seamless. You saw Rich's chart about the mobility of the people around the nation. So it really has allowed us to go where the work is and take advantage of the markets where the markets are strong. But also, I don't, I don't want to leave it just to the U.S. Everything we do, everywhere we are, you know, I, I have at my disposal an unbelievable set of expertise around the world.
So when there was tunneling work just starting in New York, I was able to go to Norway and Sweden and bring experts to New York to help us with the work. Same thing with strategic big bridges and signature cable stays. You know, I have at my disposal the ability to get some expertise that's world-class around the world. Geographic growth, I'm going to show a little chart in a little bit that shows, but we've lived up to what we said we were going to do. We wanted to have a larger geographic footprint, and we've gotten it. We've gone where the markets are strong. New delivery methods.
You know, a good majority of our work is hard bid, Lump Sum kind of work, but we've been able to grow, and a real large part of our portfolio now is Design-Build , PPP, and what I like to call beauty contest jobs, which you get to leverage your brand and your expertise and your experience, and an owner will bring you into his job early, let you help him develop it, and then give you the opportunity to single-source price it. So while competition is greater than it's ever been in our industry right now, we're morphing towards new delivery methods that allow us to go to our strengths, our brand, our expertise, our experience, and emerging markets. You're gonna see me a little bit come up with the power and industrial.
I really, really think, and I know you, you all know about it, and you've all heard it before, but I really think the power and industrial emerging markets are gonna be very, very good for Skanska Civil . So if I sat here in 2008 and gave you this presentation, this is what our chart looked like of where we did our core work. So these are colors. You can see it's a little disjointed. It's heavily weighted to the coasts, but it's. We recognize that there was, for us to be what we wanted to be, we need to have a larger geographical footprint. And that's what we've done. So this is where we were in 2013, with our more offices, 13 offices.
I count these as core regions where we can do anything that any owner puts out. You're gonna ask, "Well, okay, there's some that aren't blue. What are we doing in there?" We are continuing to look at organic growth. We're continuing to look at strategic acquisitions, but we're also... For example, Texas is not blue right now, but we are, we are proceeding in Texas and going after several pursuits right now. I like to say we're, we're in a very attractive partner to, with our set of expertise and what we do and our financial wherewithal, that we are being invited by the local partners on these big jobs to come join them.
You know, that's a really important thing for us, that we can then go into these markets, start organically growing with a strong partner, and build our business from there. Same thing in Montreal and Canada. We have been invited to these places, where we don't have a core business yet. Okay, so again, everything we do, everywhere we are, why is that important? Again, if I was standing in front of you in 2006, you look at our backlog chart, you would be very right to say, "Hey, you got a lot of eggs in one basket. What happens to the Northeast market? If the Northeast market goes, then that's how Civil goes." So we recognize that, and our strategy was to change our pie chart and make it much more diversified.
That's where you see where we are today. The good news is, it didn't get diversification through reduction in the other areas. It got diversification through increasing our business in the other areas. So again, we're proud of that, and that's part of everything we do, everywhere we are, is go where the work is and be a strong local player. Just to give you a quick snapshot of some good things that have happened in the very recent times, the last few months. If you start on the west, we have been awarded and started construction on what's called a Regional Connector. It's a tunnel job in Los Angeles. Los Angeles is a great market right now.
Los Angeles has found a way to do dedicated funding that one of the pipeline of projects out in Los Angeles through dedicated funding of taxation of a sales tax has created a great market. So this is one of the first projects where the Expo is one of another project, and we really see a great market out in Los Angeles. Moving to the Midwest, you see we have a cogeneration plant that again our strategic acquisition that we did a few years ago and our continued growth. It's a representation of some results. For those of you who are local to New York, there's what we call the K Bridge, a bridge between Brooklyn and Queens.
Signature cable stay structure that you're gonna see on a lot of covers of magazines, I'm sure, in the near future. And lastly, but the big one, the big dog, is I-4 Ultimate in Orlando. Let alone one of the largest PPP in the United States, one of the largest transportation projects ever in the United States that we are the managing partner of. So again, it's been some good wins. A lot of work goes into these projects. Some of them take two years or even longer, but as we've been very successful. So what looks at for the future? Again, our diversity of expertise and our diversity of geography allows us to go after what we—what is good, where it is. So you can see this pie chart.
It's a pretty diverse pie chart, but you also see the power in the industrial are greater percentages than what we currently have as a revenue. So again, a strategy. Something's there, let's go grow and be able to build it. So you hear me talking about this, and I'm sure this isn't new news to you. You know, the, with the energy revolution that's going on out there, the cheap shale gas and shale oil has revolutionized, will bring back a lot of the manufacturing and power and things that, you know, much more so than they were in the, in the, in the near past. But just to give you a quick education, there's the upstream side of it. That's where they're actually drilling for the oil and drilling for the gas and doing the fracking.
While that's a big part of the new business, we don't see that, but that's where we wanna focus. We wanna focus on the other two on the right, which is the midstream and the downstream. The midstream is actually taking the fuel, whether it's gas or oil, from the point of extraction to some end user that was gonna use it. So it's pipelines, it's rail lines, it's any other kind of form of energy transfer. And then there's the downstream, which is the heavy industrial, the petroleum, the power, that the end user of this cheap, readily available energy that is creating this boom. And let alone is it creating new boom, it's creating replacement boom. So a lot of the existing power, that's in the Midwest and other areas is coal-fired.
With the new regulations and the cheapness of this new fuel, they're retiring those plants. So energy use is on the way up, and if you retire a plant, you have to replace it, let alone increase the growth. So it's a great, great market that we see that's coming in for the, for the power. And here's just a representation of it. The power itself is the green, but you can see that the emerging market opportunities are, you know, from 2013 to 2020 are significant. And this is, this is one of the major strategic plans we have, is to be a major player in this market. So just in closing, you know, you've heard me say, you know, we, we do everything we do everywhere we are. That's, that's kind of been our mantra.
What we've emblazoned on the back of everyone's business card is, you know, be mobile, be able to go where the work is. That's right now, there's I don't think there's a important infrastructure or power project anywhere in the nation where we don't feel we can have the reach to be able to get it, either by ourselves or with a partner. Build backlog and organic growth. I think we've done a great job of that so far, and I think that trend will continue. Shift not only from doing low cost, but to using our strengths of brand, not, to sell to the owners what we do. The owners really are listening to it.
Couple this alternative kind of procurement with the PPP opportunities that you're gonna hear shortly from Amando, it's a really, really exciting time, I believe, in the heavy Civil group. Take advantage of the energy boom, as I said. So, hope that wasn't too much in a short period of time, but I appreciate you listening. Thank you.
Thank you, Mike.
Hello, everyone. My name is Amando Madan, and I'm a senior vice president at Skanska ID. I've been at Skanska for about 11 years. It's hard to believe, for me at least. When I joined Skanska, I didn't have this gray hair, so I can thank Johan, Peter, yeah, definitely Mike, Rich, others. But anyway, just hearing what Mike said, I think it's great to work at a company like this. And frankly, Skanska ID, who's done basically all of our bid work, or at least definitely the vast majority with the Civil guys, the Civil group. Them being so well positioned in the market and being able to do so many things, and so many things well, absolutely helps the Skanska ID business. So who are we?
Relative to Skanska, we're a very small group in terms of people. There's about 110 of us worldwide. Basically in the U.S., the Nordics, and the UK, with a small presence in Latin America still. In our history, we've done 31 projects in nine different countries, and you can see what our current portfolio looks like. The first three, roads, hospitals, and wind farms, really are our core portfolio. The other two, street lighting and schools, we either have a very small percentage or are simply just managing the asset after having sold, sold down. You can see on the right what our geography looks like in terms of projects. So our business model is really three phases.
So we have a project development part of our business, an asset management type of our part of our business, and then a divestment part of our business. The vast majority of us work in project development. And we're a diverse group of people there, so we have skill sets ranging from finance, commercial, legal, technical. And the purpose of that part of the group is really to win these projects and invest in them. And clearly, that's being done with the Civil group generally, but also the Building group as well. The asset management part of our business really is adding value once we've reached financial close. It's managing the asset, producing value through efficient, effective management.
And then finally, once we think we've reached the point where we've added the most value possible, we'll look to divest, and there's a group that focuses on the divestment. These aren't siloed groups, so the asset management group is helping us win bids, and we're helping them with some of the contract issues and that sort of thing. And clearly, we're all helping the divestment group as well to get the highest financial gain when we're looking to sell. When you look at our portfolio, these really are the nine core projects that I mentioned a couple of slides ago, and the bubble size represents the size of the project relative to...
You see there, as of June 30th , 2014, the portfolio value was approximately $790 million. And that does, you know, that June 30th number does not include I-4. And you see kind of the breakdown, social, transport, and energy. These projects are clearly moving from left to right and through the through time. So, Skanska ID in North America. We've heard in a couple of different places, from Peter and, and, and Johan, et cetera, that the North American market is the number one market for Skanska ID.
Rich alluded to the Moody's report, which came out, I guess, about a month ago, which basically, I think the title of the Moody's report was, you know, The U.S. Market Poised to Be the Largest PPP Market in the World or something like that. As the European market in terms of PFI, PPP or PFI kind of slows down, the U.S. market is really picking up. So we're very, very excited about that. We're currently active in roughly 10-12 states, and when you think about the U.S. PPP market, it's easy to think about kind of the U.S. as a monolith, as kind of one market, but you really should probably think about it in terms of 50 individual countries, and with their own legislation, with their own needs, their own wants.
And when these states are active, they have legislation and are active, and the Civil group or the Building group also has a presence there, is when we would be interested in those particular projects. We're headquartered in Alexandria, Virginia, right outside of D.C., and we have a diverse team. So I mentioned before, diversity around expertise, finance, legal, et cetera, but we're also very diverse in terms of men, women, different nationalities, and that sort of thing. We had a very, I guess, kind of cracked into the market in a big way in 2012 with the Elizabeth River Crossings project, now known as Elizabeth River Tunnels, which at the time, I believe, was the second-largest greenfield PPP project in the United States.
It's now been moved down to number 3 because we just reached financial close about a month ago on the I-4, which is the largest greenfield PPP project in the United States. When we look at the market in a general way, we see, relative to a couple of years ago, really new states coming online actively looking at procuring projects via PPP. We see new sectors, so transportation has been the sector that's been most active, but we're increasingly seeing an interest in social infrastructure, which we've seen in other parts of the world.
Generally, when transportation in other parts of the world has kind of led off the PPP market, and social infrastructure, in many cases, has come second or third, and we're now starting to see certain states show an interest in social infrastructure, which we think is generally bullish on the market. There are 33 states with PPP legislation, however, not all of those states, in fact, many of those states are not active. So once the procurement model has been tested in other states, we think there's a lot of opportunity for these states, which have not been active, but do have PPP legislation to actually begin to procure projects that way as well. We see several attractive projects coming to market.
We're currently bidding several projects, and I'll show you a slide about that in a couple of slides. And there's growing intense competition, so we've heard about that from Mike and from Johan and Peter and others. But I will say that this is a little bit of a double-edged sword. So there is a positive aspect to some of this increased competition, because generally in the PPP market, there's a shortlist process, so you have to kind of winnow down the seven or eight or whatever number of teams that are interested down to three or four. So I think from our perspective, the big fear when we're competing, when we're on the shortlist, is really a bidder doing something crazy.
And when you have bigger consortium going after the projects, you often squeeze out maybe the littler, the smaller and the perhaps more aggressive or companies that aren't used to taking certain risks or are used to taking certain risks, however you want to see it, they may get squeezed out. So often we're competing with very formidable competitors, but we don't think that they're crazy. So I think that gives us some level of confidence, at least, that it will be kind of a normal procurement, if you will. There are certain aspects of PPP which remain controversial. This is not politically 100% accepted. We'll talk about that in a couple of minutes.
You see there some of the market leaders, which are Virginia, Florida, Texas, California, Colorado, and Indiana. I think it's important to note that with the exception of Texas, those are all markets where we have a very strong presence on the Civil side, and on the Building side as well, including Texas, on the Building side. Rich alluded to the fact that we still don't have a funding, transportation funding, that if you will, that puts us on a long-term path for success.
So, on the one hand, that probably affects our Civil business a great deal, but it also creates somewhat of an opportunity, frankly, for the PPP side, because with kind of uncertain funding, people look for alternative means of getting their infrastructure built, and some of those alternative means obviously involve PPP. From a federal perspective, there's growing support, really from both sides of the aisle. And this is, I think, kind of an interesting phenomenon that's happened. It definitely happened in the U.K., and it's happened to some degree here in the U.S. as well, which is you have kind of one party which is philosophically in favor of PPPs, and once-- and one party which is philosophically against PPPs.
It's often the case that when the party that's philosophically opposed comes to power, PPPs start happening because they need to get some, they need to get it done, and the party that's in opposition doesn't have kind of a philosophical ax to grind. So here in the U.S., the Obama administration has actually been very supportive of PPP. Now, PPPs don't happen at the federal level, but they've tried to put out guidelines in support of PPP, et cetera, and the opposition party isn't particularly opposed. So those types of things often help the PPP market, and we've seen that kind of on a state level as well. Maryland, where we're currently procuring a project, kind of a similar phenomenon is happening.
But not all things are rosy. There does remain reluctance and a lack of will or a lack of drive on the part of many politicians with respect to PPP. We've talked about some of this in other presentations, but what are the PPP market drivers in the U.S.? There's a national infrastructure crisis. I think, you know, we had on the slide up here, I think it was Mike, that $500-something billion dollars are being spent on infrastructure in the U.S. yearly. When you just take a look at, for example, roads and bridges, I think that the number is probably around $100 million.
The Federal Highway Administration has mentioned in a report a couple of years ago, really, that number has to increase from $100 million to about $190 million over the next 15 years, yearly over the next 15 years, in order to kind of address our, just our highway needs. So there is a large infrastructure deficit, and I think this is one of the things that's driving people towards PPPs. There are large budget deficits as well, which, if you will, help at least in a movement towards PPP, and limitations on public debt. When I say limitations on public debt, you-- that would seem odd in the U.S., which we continue to have higher and higher public debt. You would think there's no limit.
What I'm referring to here really is, at a state level, many states are constitutionally prohibited from from pushing debt either beyond a certain amount or, or actually, you know, running deficits. So they are looking for alternative means of providing infrastructure, which doesn't involve debt. Leveraging limited public funds with private investment. So the way the, at least transportation here in the U.S. generally works, is we have a gas tax that is collected at the pumps, and that's sent basically to Washington, who then redistributes back to the States. That's that gas tax system is having a lot of problems because cars are becoming more efficient. So for the same number of miles traveled, they're collecting less gas tax.
As a result of that, less money is being transferred back to the states to provide for their infrastructure, but people are driving pretty much the same or sometimes even more. So the infrastructure needs are going up, or at least staying the same, and they're going up to some degree, because a lot of the infrastructure was built in the 1950s and the 1960s, and it's now 50, 60 years later. But at the same time, the source of that, of the ability to kind of upgrade that or improve that, is going down. So they're looking to leverage the money they get back with private investment, which is where PPP comes in. Growing urban population, which we've talked about before.
The last one is slightly curious, which is that there is to some degree a growing support for user-based tolls. So I think it was Peter that mentioned that we see a trend away from kind of market risk projects and towards availability-based projects, which may fly kind of in the face of this, which is kind of a growing support for people paying tolls. What we're seeing, though, is that the states themselves are willing to take on, are willing to toll the passengers, or I'm sorry, toll the cars. But they're not passing along that risk to us as PPP developers. So, for example, on the I-4, it is a toll road, but we're being paid an availability payment.
So they are going to collect the tolls from the, from the drivers. And the reason that this is positive for PPP, frankly, is because, because of the deficits, et cetera, that I was, that I was referring to before. This is a new source of revenue that, that can, that can actually, get this, get these projects built, even though the, the risk isn't being transferred to us, it's, it's being kept at the state level. So looking at the I-4, which has been alluded to before, this is a, a 21-mile highway, tolled, managed lanes, really down through the heart of Orlando. So this is, you know, structures, complicated construction being done in a, in a busy area of, of the United States, of Florida.
It's a $2.3 billion total project value, roughly seven years of construction and a 40-year concession. Skanska ID and John Laing are 50/50 on the equity side, and there you see the breakdown of the construction side. When we look at the infrastructure, the ID, if you will, portfolio going forward, this is probably the—if you would have asked me to come up here a couple of years ago and say, "Talk to me about the portfolio of projects," there would have been a, well, an uncomfortable silence. I may have said, "Oh, you know, the future looks good, but it's been looking good for the last five years.
But I can't tell you about any projects that are going to happen anytime soon." And here, today, what I can tell you is, I don't know if any of these projects are going to happen anytime soon, but there are identified projects that people want to do PPP, and this is what they've assumed to be more or less their timeline. So we don't know if it's going to be these projects that are bid in the next two, three, four years or other projects like it. I suspect that some of these projects will fall off the map, some of them will turn just design- builds, but other projects will be added to this. As you can see, the dark blue are projects that we've won.
LaGuardia on top, we've submitted a bid, and we're pending announcements. We're cautiously optimistic, but who knows? And we're currently bidding three additional projects, the Purple Line rail project in Maryland, the New Bridge St. Lawrence in Canada, and the Houston Justice Complex, which is a social infrastructure project, which has some questions around whether or not it will go forward. But we're shortlisted and cautiously optimistic there as well. And then, as you see, there's a bunch of other projects that could happen over the next three years or so, four years.
When we kind of tally those up and the numbers along the left-hand side axis, the Y-axis there, are purely indicative, but you know, we're talking about $20 billion worth of projects over the next three or four years, which could go PPP. We don't know if we're gonna be bidding them all. We don't know if they're gonna actually happen as PPPs, but there's at least an identifiable pipeline going forward. So in summary, we've had two really big wins in the last three years, which gives us a lot of optimism.
There is an increasing momentum of PPP nationwide, we believe, and right now, we're at a little bit of a crossroads from a political perspective, so there's elections happening now in November. And those are generally gubernatorial elections as well as Congress. And that's put a little bit of a damper on PPP, well, frankly, on a lot of things, because people don't want to start announcing projects if they're not sure they're going to win. So we expect over the next six months, people will start rolling out their plans for their new term. But despite that, we think that there's kind of growing momentum for PPP nationwide, globally. There's a real pipeline.
We expect to be bidding two or three bids per year, or at least we hope. And that wasn't, as mentioned before, that wasn't clear a couple of years ago. New states and new sectors, increasing competition, which has its pros and cons. Obviously, I think more cons than pros, but it's not 100%. And, given that we're waiting on LaGuardia, there's the possibility of one more win to announce this year, but we'll see. Great.
Okay, thank you, Amando. Let's just break my own rule here for a second and ask a question before you leave the station-
Absolutely.
If that's okay. What do you think about the sort of prospects for PPP procurement within social infrastructure, which was not sort of a big part of this?
Yeah. It's a good question. So, in other parts of the presentation, we talked about kind of bringing—Mike, Mike was talking about kind of moving talent from one part of the United States to other parts of the United States or bringing it over from Sweden or Norway. In the PPP space, we have that ability as well, because Skanska has done a lot of social infrastructure work in the U.K. So from our perspective, we'd love to see social infrastructure happen in the U.S. and work more closely with Bill and his group, who, by the way, you know, I've talked a lot about kind of working with the Civil group, but on LaGuardia, they are front and center there.
So from our perspective, we'd love to see social happen, and we think we would have a great edge given our expertise from Europe. Unfortunately, though, the traditional areas of social infrastructure in other jurisdictions, so like hospitals, universities, et cetera, in the U.S., aren't public, right? So there are public hospitals, but the vast majority are not-for-profit, private hospitals. So it's not clear that those would be procured in a PPP setting. But there are certain things that could be procured in a PPP, from a PPP perspective, such as courthouses, certain universities, and certain hospitals.
But the opportunity in terms of how big they got in other parts of the world to how big they may get here, I think is probably not clear or probably a little bit... I'm more pessimistic about that. However, as I said, we have strong capabilities there, and we see a lot of jurisdictions trying. So they don't know how to do it, but they want to do it, and they're trying to make it happen via PPP. What we don't know is whether or not they're going to actually succeed, but if they do, I think, again, we're very well positioned.
Okay. Thanks a lot. Thanks for a great presentation. Now, when I stand up, as usual, there is food. This time it's lunch. You will find lunch outside these doors. It may be a bit delayed because we are again beating the schedule, but please be back here at 12:30 for the next round of presentations. Thank you.
... She thinks in no time flat, she'll be clearing the stars. With her emotional rescue love that she'll leave torn apart. That girl thinks that she's so bad, she'll change my taste for joy from sad. She says she keeps the upper hand, 'cause she can please a man. She doesn't use her love to make him weak, she uses love to keep him strong. And inside me there's no more doubt that it won't be too long before I tell her that I love her, that I want her, and my mind and soul and body need her. Tell her that I love you, that I want you, and I need to do all that I have to to be in her love. I've been hurting for a long time. You've been playing for a long time. You know it's true.
I've been holding for a long time, and you've been running for a long time. It's time to do what we have to do. Oh. That girl, that girl. Yeah, yeah, yeah, yeah, yeah. That girl knows every single man would ask her for her hand. But she says her love is cut too deep for them to understand. She says her love has been crying out, but her lover hasn't heard. What she doesn't realize is that I've listened to every word. That's why I need to tell her that I love her, and I want her, and my mind and soul and body need her. Tell her that I love you, that I want you, and I need to do all that I have to to be in her love. Tell her I love her, that I want her, and my mind and soul and body need her.
Tell her I love you, that I want you, and I need to do all that I have to to be in her love. That I love her, that I want her, and my mind and soul and body need... Oh, go, go, go, go! I love you, and I want you, and I need to do all that I... Oh, oh, oh. That I love her, that I want her, and my mind and soul and body need her. Tell her that I love you, that I want you, and I need to do all that I have to to be in her. That girl! That girl! That girl. Oh, that girl. That girl, that girl.
Let me tell you about a girl I know. She is my baby, and she lives next door. Every morning before the sun comes up, she brings my coffee in my favorite cup. That's why I know, yes, I know, hallelujah, I deserve it so. When I'm in trouble and I have no friend, I know she'll go with me until the end. Everybody asks me how I know. I smile at them and say she told me so. That's why I know, oh, I know, hallelujah, I deserve it so. Now, if I call her on the telephone and tell her that I'm all alone, by the time I count from one to four, I hear her on my door.
In the evening when the sun go down, when there is nobody else around, she kisses me and she hold me tight and tell me, "Daddy, everything's all right." That's why I know, yes, I know, hallelujah, I deserve it so.
... Now, if I call her on the telephone and tell her that I'm all alone, by the time I count from one to four, I hear her on my door. In the evening when the sun go down, when there is nobody else around, she kisses me, and she holds me tight and tells me that everything's all right. Well, I know. Yeah, I know. Hallelujah, I just love. Oh, hallelujah! Don't you know I just love her so. She's my little woman who waits all the time. Babe, Ow, she's a brick house. She's mighty, mighty. Just letting it all hang out. Oh, she's a brick house. I like her laid back, matter of fact, ain't holding nothing back. Oh, she's a brick house. Well, put together, everybody knows this is how the story goes. She knows she's got everything that a woman needs to get a man.
Yeah, yeah. How can she lose with 32, 36, 24? Back to stay, and what a winning hand? Oh, she's a brick house. She's mighty, mighty, just letting it all hang out. She's a brick house. I like her laid back, and that's a fact. Ain't holding nothing back. Oh, she's a brick house. Yeah, she's the one, the only one, built like an Amazon. Mm. The clothes she wear, the sexy way, make an old man wish for younger days. Yeah, yeah. She knows she do and knows how to please. Sure enough to knock a strong man to his knees. 'Cause she's a brick house. Yeah, she's mighty, mighty, just letting it all hang out. Hey, brick house. I like it laid back, and that's a fact. Ain't holding nothing back. Oh, chick a dow, chick a dow now. Chick a dow, chick a dow now.
Shicka-dow, shicka-dow now. Shicka-dow, shicka-dow, shicka-dow. Shicka-dow, shicka-dow now. Shicka-dow, shicka-dow now. Shicka-dow, shicka-dow now. Shicka-dow, shicka-dow. Brick house! Yeah, she's mighty, mighty. Just letting it all hang out. Oh, brick house. Yeah, she's the one, the only one, built like an Amazon. Yeah. Shicka-dow, shicka-dow, shicka-dow now. Shicka-dow, shicka-dow, shicka-dow now. Shicka-dow, shicka-dow, shicka-dow now. Shicka-dow, shicka-dow. Shicka!
Looking out on the morning rain, I used to feel so uninspired. And when I knew I had to face another day, Lord, it made me feel so tired. Before the day I met you, life was so unkind. You're the key to my peace of mind. You make me feel, you make me feel, you make me feel like a natural woman, woman. When my soul was in the lost and found, you came along to claim it. I didn't know just what was wrong with me, till your kiss helped me name it. Now, I'm no longer doubtful of what I'm living for, and if I make you happy, I don't need to do more. 'Cause you make me feel, you make me feel, you make me feel like-
... What you've done to me. You make me feel so good inside. Good inside! And I just wanna be- Wanna be. Close to you, you make me feel so alive. You make me feel, you make me feel, you make me feel like a natural woman. Woman! You make me feel, you make me feel, you make me feel like a natural woman. Woman! You make me feel. Do you remember the twenty-first night of March? Love was changing my mind. Tonight, while chasing love away. Our hearts were ringing, and the key that our souls were singing. As we danced in the night, remember, while the stars stole the night away. By August the winter, holding hands with your pop to see you. Only blues are enough. Remember how we knew love was here to stay? Now December, found a love to share. Remember, only blue talk love.
Remember, two of you sharing today. And we were falling all, do you remember? Falling all, living in the present. Falling all, living in the time again. And we were falling all, do you remember? Falling all, living in the present. Falling all, living in the shining time. The bell was ringing. Uh-huh, our love was ringing. Do you remember every cloudy day? Yow! And we were falling all, do you remember? Falling all, living in the present. Falling all, living in the shining time. And we were falling all, do you remember? Falling all, living in the present. Falling all, living in the shining time.
Looking back on when I was a little nappy-headed boy. In my only worry was for Christmas, what would be my toy? Even though we sometimes would not get a thing, we were happy with the joy the day would bring. Sneaking out the back door to hang out with those hoodlums till the night. Ooh. Greeted at the back door with, "Boy, son, I told you not to go outside!" Try your best to bring the water to your eyes, thinking it might stop her from whipping your behind. I said, "Those dang girls, come back for more. Why did those dang ass girls have to go? Why did those dang girls come back for more? Why did those dang ass girls have to go? 'Cause I love them so.
... She tells me, "Why don't you playin' doctor with that nurse?" Said, "Don't tell her I give you anything you want, you're so wise at work. I'm gonna give you money for something too. You trade yours for candy, I can talk you through." Smoke your cigarettes while you're posting that thing on the wall. Open the door! She took candy to the principal's office down the hall. You go up and learn that kind of thing is right, but while you are doing it, it sure got me started with those things, girl. Just like before. Why it's those things, yeah, sure how you go. With those things, girl. Just like before. Why, it's those things, yeah, sure how you go. Yeah, yeah! Thank you very much. Oh, sometime... Sometime you know that I get a little worried now, now.
Well, but I don't care, I don't care because it's all, whoa, whoa, it's all right now, now, now. Yeah, hey, it's all right. I want y'all to know that I've got a woman way over town, yeah, been good to me. Yes, I have. I got a woman way over town, now, good to me. Oh, I know. She give me money when I'm in need, yeah. Oh, she's the kind of friend indeed. I've got a woman way over town, now, oh, good to me. Yes, I have. She saves her lovin' early in the morning just for me. Oh, yeah. She saves her lovin' now, early in the morning, just for me. Oh, I know. She saves her lovin', just for me! Oh, she can love me tenderly. Oh, I've got a woman, now, way over town, now, oh, good to me. What I say?
She's gotta love me both day and night, never grumbles or fusses, always treats me right. Never running the streets and, leaving me alone. She knows a woman's place right there now in her home. Got a woman, yeah, over town, now, oh, good to me. What I say? I've got a woman way over town, now, good to me. Oh, she's my baby. Don't tell me thing, now. Hey, yeah, I'm a lover man. I've got a woman, now, way over town, now, oh, good to me. Yes, I have. She's all right, she's all right, she's all right, she's all right. She give me money when I'm in need. Yeah, she's the kind of friend indeed. She saves her lovin' just for me, and I know she can love me tenderly. She's there to love me now, both day and night.
Never grumbles or fusses, oh! Treat me right. Never run in the streets, leaving me alone. She know her place is in the home. She's my baby, she's my baby, she's myyy baby! She's my baby. Don't you understand where I'm at? Ha, ha, ha, ha, ha, ha, ha, mm, and love a man. All right! All right. All right, baby, all right now. Yeah. I know she's all right. Well, oh, oh, no, no, no, no. She's all right, yeah, she's all right. I, I, I got a woman. I want you to know she's all right now. Now, oh, ba-ba-ba, ba-ba, ba-ba-ba, oh. She's all right now. She's all right. Oh, yeah! Oh, yeah. Oh, yeah. Oh, yeah. Oh, yeah. Ohhhh. Oh, I know, I know. Yeah, I know now, that I feel. Yeah, I feel good. That I feel, yeah, I feel good.
Sometimes I feel, oh, all right now. I feel all right. I feel all right. I've got a woman, I've got a woman. She make me feel all right. Early in the morning, early in the midnight, every day, every night, in my room. Well, in my bed now, she make me feel all right.
... Okay. Welcome back, everybody, after lunch. I hope it was a tasty one. We will now have Bill Fleming on stage, who is the Business Unit President for Skanska USA Building. And immediately after that, we will have Mats Johansson, who is Business Unit President for Commercial Development, USA. Bill?
Thank you. Hope everybody had a good lunch, and they're wide awake. Anybody here last time, I was here, I just thought I'd let you know, I stepped right up here. I'm not using the steps 'cause the steps fell over last time, and I almost killed myself, so... Good afternoon. My name is Bill Fleming. I'm the Business Unit President for Skanska USA Building. I've been with Skanska now 28 years. I thought I was gonna beat Mike, but, he got me beat 30 years, so I've been here a long time. I started with the first Building acquisition that Skanska made in the United States. We bought a company, or Skanska bought a company called Sordoni.
It was about a $75 million-$100 million operation, and over the years, this has grown to close to a $5 billion operation, so quite a good growth story. Today, I'm gonna talk to you a little bit about our business, some of the numbers, but really, I wanna stress how we work, because our methodology to working in our business sector is slightly different than, say, the Civil business or the ID business, and it creates a lot of great opportunities for us. With that, let's jump to the next slide. Again, a little bit about our business unit. We do about $4.6 billion in revenue last year. We have about 3,000 employees. We're primarily located around the U.S., but our headquarters is in Parsippany, New Jersey.
The reason we're in Parsippany, New Jersey, is we were primarily a pharmaceutical construction company in the 1990s, when the pharmaceutical sector was doing a lot of research and development growth, and then manufacturing facilities. We still do a fair amount of life sciences work today in New Jersey and around the U.S., but our headquarters really grew up there, so that's where the bulk of our people are, although we have operations throughout the U.S., which I'll show you in a minute. Our delivery method, again, slightly different than the Civil business model, is really a low risk, low return, high return on capital employed. So we generate a lot of cash. So that's real important to know that we operate very uniquely in our business. So much of the Building sector is done this way.
It's not done via lump sum, fixed price contracts. It's built through relationships, which I'll walk you through in a moment. We try to operate in sectors where we can differentiate ourselves. You can see the sectors where we primarily operate in here. Healthcare, we are the third-largest hospital and healthcare constructor in the United States. The education market, which, again, was a big piece of our portfolio. I'll show you a pie chart in a moment that shows you the amount of educational work and some of the key clients we work for, both in the K -12 sector, which is kindergarten through 12th grade, but also in higher education, which is universities. We've had a lot of success in the mission-critical or data center and high-tech market.
Although that market's changing, that's a very profitable sector for us, and we see that continuing to grow. We've worked in the government sector, and we operate there, but we do that to help level out our business through recessions. It's not our primary business sector, but we do do some federal work, primarily in the D.C. market. We do corporate office buildings. I mentioned before, life sciences, which is primarily pharmaceutical work, and we have a lot of specialization in pharmaceutical work. We've done manufacturing facilities, biotech facilities, research facilities, and we like to leverage that specialty where we can, and I'll talk a little bit about that later. The aviation sector, which is a very specialized sector, we are particularly bullish on, and we have a great expertise there. You heard Amando talk about our proposal for LaGuardia Airport is pending.
It's a very large project, but today, we are operating in the Tampa Airport. We're doing a large facility there. We're doing baggage handling and security upgrades in Tampa, which, again, is very specialized. We're doing a new airport in Greenville, South Carolina. We're working at LAX, so that sector is very good, and it's very active, particularly as the market, the United States economy is moving forward. Lots of people need to move, and they need to move through airplanes. And then lastly, sports and entertainment, I call it. And as people have more disposable income in the U.S., they like to go to football games, basketball games, go to casinos, those sort of things, and we operate in that sector. We've done, I think, six NFL stadiums and a few arenas. Those are the sectors we primarily operate in.
We're not a residential builder. We don't do high-rise construction for condominiums. We do some apartment rental construction, but it really isn't the main sector we're in. These are the sectors we like to operate in, and the reason we like to operate here is it takes knowledge and specialization that not every Building contractor has. So we like to leverage our expertise across those sectors. If you look at the market sectors and how our revenue divides out, you can see that about 25% of our work is healthcare. And again, we are one of the largest healthcare constructors in the United States, and we see that trend getting better. People are getting older in the U.S. The healthcare system has recovered from the political changes out in the environment, where the government changed the reimbursement mechanism.
But healthcare is still a driver in the U.S., and we like being in a strong position. I mentioned education before. About 20% of our volume is done in the education sector, and that population is growing, too, so we still see it there. High tech, which is primarily data centers and semiconductor manufacturing facilities, operates about 14% of our revenue, and that's a very good sector for us as well. And then commercial and life sciences, you can see the sectors there. So, these are expandable as the economy changes and it shifts, but one thing about our business model is clients like to see people with that expertise on their projects. So slightly different than the Civil group, where you can move people around from product to product.
It's harder to take somebody who's done an office building and move them into a healthcare facility to do construction. Clients want people that understand their language, so we have to have a vast group of people that understand that product type and, and even have a lot of experiences. We operate in a number of offices. You can see here, primarily up and down the East Coast and the West Coast, some in the Midwest, but our primary revenue is, is derived up and down the East Coast and, and on the West Coast. We are very strong in Texas, which gives us an opportunity. We're working with the Civil group now to try to figure out how do we find projects that the Civil and the Building group can do in the Texas market.
So as you can see there, we have four large offices, and we do about $500 million a year in revenue just in the state of Texas, which, we've done that primarily through organic growth. I'd also point out that we're in California, in really San Francisco and Los Angeles, the two biggest markets there, and we have done that through complete organic growth. And I think this year or next year, we may be, when we combined the Civil and the Building group together, the largest contractor in that state. And that's a real success story in the fact that we both really did that, Civil and Building, organically. So we're real bullish on the economy there and our opportunities in that sector. And I think overall, we have about, 31 offices, if I count correctly.
I did wanna touch base on our business model a little bit to make sure that you guys are all clear on our business and how it may differ from other construction approaches. As Mike alluded, much of their work has been fixed price, take the drawings, figure out how much it's gonna cost, figure out how to build it, type of work. The Building business or the CM business in the United States is completely different than that. About 75%-80% of our work is delivered through a negotiated approach, and that negotiated approach takes a different expertise, where you have to show your value added. So it starts with the opening game, where we have to identify clients and their spending habits. We have to identify, their business planning.
We have to get in front of them and understand where they're going and what their delivery needs are, and we call that the opening game in contracts. Then we move into the middle game, where we have to build a relationship with that client and let them know that we have expertise to deliver what they need that's different than everybody else. So I call this the courting phase, where we get to know people, they have to know us, and we have to deliver the value added. It takes a lot of work to get through the opening game and that middle game so people understand what Skanska has and why we're better than the competition. We have a lot of tools in our toolbox, and we have to just sell those to the client.
Then we have to grow that relationship so when the RFP comes out, we've somewhat pre-sold our position, so they're not just choosing us based on the fee that we present or the cost. They wanna do business with us. They wanna be with us because they like our people, they like our approach, and they're comfortable that we can deliver what they need in their vision. That's really important to get through those first three phases. Then the last phase, which is real important also, is the next phase of it or the next game. Make sure that the client's happy and have them as a repeat client. 75% of our work is done through repeat business, which is important because we wanna get with a client, we wanna win a client, and then we never wanna leave that client.
That's the recurring revenue model that I think is important in the Building business, so it's not one-off. That's a little bit about the process of how we work. When we are selected for a project, and I'll show you in a moment how the selection, not how the selection process works, what our selection backlog is, and it's significant. We get selected, again, based on oftentimes our reputation, our brand, our ability to execute that product type, sometimes on our fee, and then we move into helping clients in pre-construction. So now we're using our expertise to help them figure out what their budget should be, what they can afford, what's the image of that, what's the risk of it, and we work in a pre-construction phase. As we move into construction, then we're in a different part of the project.
That's the ongoing development of the entire project. So we'll do subcontracting. 85% of our work is subcontracted out, and our risk review process is we don't do a lot of self-perform work. Again, slightly different than the Civil guys. We do some self-perform, but the predominant amount is subcontracted out, which is de-risking the entire project by getting subcontractors to take that risk from us. So we do a risk management process, but we're subcontracting the work, we're procuring the work, we're developing a health and safety plan around the execution of the project, we're developing the quality plan to make sure that it's a quality project at the end, and then we do closeout and commissioning of the project. So again, slightly different.
We're developing early on with the clients, what their needs are, and working with them all the way through the project to the end for a fee and for a cost of our staff, primarily, subcontracting the bulk of the work. I mentioned repeat business is really important to us. About two-thirds, or 75%, is repeat work, and our goal is always to have that client and never leave them go. Here's some great examples of some clients we've worked with. On the higher education side, we've been at Duke University and Harvard for many, many years. We're working in NYU on about four projects now, downtown New York. Merck, we've been there since 1981, working in multiple campuses, both in New Jersey, Georgia, California. Intel, which has been a client for ours, since 1995.
We work in New Mexico, we work in Phoenix, we work in Portland, Oregon. They've actually taken us on consulting assignments overseas because they want our expertise, where we don't take any risk, but they want to pay our services just to give them advice. So we've been to Israel and Vietnam, helping them. So you can see that clients come and trust us, and we want to stay with them forever, an important part of our business model. Here's an example of a few key projects we've been working on recently. The first upper left picture is a large project on the West Coast we're working on. It's an office and research facility. The next one is a project we did for Mats in Seattle. Stone 34, it's the Brooks Running Shoes headquarters.
I think we just finished up that project. In the lower left, you can see the Florida Polytechnic Institute. It's difficult to see from that picture, but that is a Santiago Calatrava Building. And Santiago Calatrava is a world-famous architect that's working not only there, but at the World Trade Center, signature architect. That is the first Building in the next campus in Florida. I think it'll be their 13th campus, and it's going to be a polytechnic institute, so they wanted a very signature Building to illustrate the technical nature of Building. So that's in Lakeland, Florida, right outside of Orlando. You can see here the Prudential Office Tower. It's a $500 million headquarters for Prudential Insurance Company and Investments in Newark, New Jersey. And it's moving into the second phase of that.
Then, Nemours Alfred I. duPont Hospital. The DuPont family left a large trust fund, which has to go back into healthcare, and this particular client does healthcare projects. We did a new children's hospital for them in Florida. This is a children's hospital in Wilmington, Delaware, and we're doing two other facilities for them in Florida right now. So a good example of a repeat client that we never want to let go. Just talking about the numbers real quickly. Similar to, I think, what Mike illustrated, we've had a real good growth strategy. Here you see our revenue and gross profit. The revenue in the green, obviously, and the yellow is the gross profit. About 9% compounded annual growth, really through the recession, or what I call the depression in the building industry .
We came down from a high in 2008, and obviously, that's when the market crashed, and we came down slightly. But as other contractors were losing 30%-50% of their annual revenue, we were actually taking on work and growing because we were in the right sectors, and we were delivering for our clients. And this year, in the first two quarters, we're down slightly. Primary reason for that, again, as Mike illustrated, is weather. We had a particularly difficult weather here in the Northeast, and it impacted our revenue slightly, but we're gonna recover from that and next year, keep growing. And our earnings are pretty steady. It's not real lumpy. It's pretty steady. Again, low risk, good returns, and average returns. And here you can see our EBIT. It kind of follows the same trend.
Again, for the Building business, it's the margins are not quite as good as they are in other sectors, such as Civil, and our average margin may be 1.3%- 1.6% EBIT. That is a very, very good margin in the Building business, where it's low, low capital needs, and it's easy entry into the market. So we think we're well above the competition and doing a great job in comparison to them and delivering good, good results. Order bookings for us, you can see here, we're on a good trend on order bookings. I think that's about an 8% or 9% increase this year in Q2. So we're on target to book about $5.2 billion worth of work. One thing I'd mention, these are contracts signed.
The next slide I'm gonna show you is a combination of contracts we've signed and then projects we've been selected on that we're working to move to order bookings. And that's this particular slide. So you can see through June of this year, about $6 billion in backlog, contracts signed, and about $3.8 billion-$4 billion in projects we've been selected on that we're working in pre-construction, that we're gonna hopefully move to order bookings in the future. So if you add those two numbers together, a very, very significant amount of work that we're working on. It's close to $10 billion, which is a very good number, and we're quite proud of the fact that we continue to grow our order bookings and our order backlog.
Our book-to-burn rate, which is how much you're booking versus revenue that you're burning off, is somewhere in the 108% range, which means we're building backlog faster than we're burning off revenue, which is good for our business. We've had a number of significant wins to date. We probably work on 300-400 projects at one time. I would mention, we will do projects as small as $500,000, and we'll do projects as large as $4 billion. So we have a lot of projects that are ongoing all the time, but here are a few significant ones. Up in Boston, the Watermark Seaport Plaza, it's a $126 million office building that we're working with Mats on.
Here in New York, we're rebuilding the Rockaways boardwalk from the damage of the hurricane, a very significant project. We've won some work at NYU. As you can see, we're doing an innovation center for the University of Connecticut, and we're building a new hospital at Stamford, which we've booked $150 million approximately this year, but that's a $300 million hospital up in Connecticut. Very significant healthcare win for us. Down in Florida, you can see on the lower right, I would say we are the predominant healthcare builder in the state of Florida.
We do most of the hospitals that are down there, and some significant ones that we've won and booked this year are the Children's Hospital in Fort Myers, the second phase of the Shands Cancer Institute, which we built the first phase a couple years ago. Client was so happy with us, didn't even put it out for negotiations, just gave it to us to build the second phase, and that's about a $225 million cancer center. And now we're working down at Broward Health's center on a children's hospital, $47 million of a, about an $80 million hospital in Miami or Fort Lauderdale. I'd illustrate LSU Engineering building. It's not a particularly large award there, $54 million, but it is our second project in the state of Louisiana.
We did a large hospital replacement down there, a $900 million hospital. But the significance of that is that the hospital, it was their first attempt at construction management in the state. We delivered so well, and they were so happy that they adopted that procurement model for the entire state. And the second project they came out with, which is this engineering building, we won. So again, we're—we like to be innovators, leaders, as Johan put it. We helped them understand a better procurement method, and now we're excelling in Louisiana. In Texas, you can see we've, we're probably on about our fourth project at Texas A&M. We've done a number of facilities there and an office building down in the Houston area.
And then out on the West Coast, we have office buildings and hospitals that you can see we've done. So we're growing quite a bit in California and the Pacific Northwest in Seattle and Portland. We've had very steady operations there for a number of years. So we've had a number of key wins. Those are just a few. We've had, as I showed you before, a lot of order bookings this year, and we continue to execute on our strategy. So here's a little bit of a view of what I see in the marketplace. I mentioned before, education's strong. Aviation market is particularly strong, and that's driven what I call by the ticket tax.
Every time you get on an airplane, I believe it's about a $6 charge that you pay to the airlines that has to go back into construction. They can't take that $6 and use it on anything else. So it's a recurring revenue model that there'll always be aviation work. The other good thing for us about the aviation sector is it's very specialized. You have to have experience doing airports, security work, and baggage handling facilities to even get to the table to talk to them. We have significant experience doing aviation work in all those areas, and so we are a player in the aviation market. So as I see that grow, I'm real bullish on our ability to deliver aviation work. Markets that are coming back a little bit more, I mentioned before, the sports and entertainment market.
As people have disposable income, as the economy has gotten better, they spend money on sports and entertainment, so we're gonna continue to excel there. Healthcare is coming back, as I mentioned before, and we're continuing to grow there. Corporate offices are now coming back as the economy expands and people need office space, and older buildings need to be repositioned, either to make them greener or to have better space optimization. The government market's stable. We are not a big player in the government market, but we play in it because it's in Washington, and we like to use that because when the recessions hit in construction, the government is always spending money. So we dabble there, and that's stable. Then two markets that are slowing down or are not particularly strong are the mission-critical market and the life sciences, and those markets are repositioning themselves.
There's a lot of money being spent on data centers, but the delivery method and what's happening there is not exactly how it was done before, so it's slowing down for us and repositioning, but I think it'll be stronger in the future. So that's a little bit of a view of the marketplace. Our pipeline is very, very strong. Here, you can see it's about $40 billion worth of projects we've identified in the sectors you can see there. Again, our primary focus has been on education, healthcare, transportation, which is a mix of aviation and some work that we do with Civil jointly. And then hospitality is coming back. So a pretty good mix there.
As different sectors move up and down, we try to figure out which one is going to be the best for us and make sure that we move into it where we can. But $40 billion is a very significant amount of work, and our hit rate being in the 30% range, being selected, you can see that we have a good opportunity for $10 billion or more worth of work. So an exciting pipeline and a lot of growth here in the US. Our strategy, really simply, has been we are not a low-cost provider, but we are a low-margin business, so it requires operational performance. You have to execute. You cannot have problems in the Building market, or your margins will erode very quickly. So we like to really excel at risk management.
We do a lot of peer reviews, where we bring in the expertise from either other business units or other places in the country to review our project execution and our strategy, review our pricing, and make sure that we have it right before we commit to a contract or submit a bid. So risk management is big, as you've probably heard before. One Skanska, I think, Rich and perhaps Mike both mentioned. When we put the Civil and the Building group together, there's no other contractor that has the ability of what we have together, and we've had some very significant wins together, and we're pursuing some really exciting projects out there right now, LaGuardia being one, the Purple Line, which the Building group is part of down in D.C.
So we really look for projects where we can add the two business units together and optimize them, or even the third, where we can add ID, which is LaGuardia Airport. So that is really a focus of ours moving forward. Organic growth, you can see where we've done organic growth. We are not going to grow by acquisitions. The Building market, we're fairly well saturated on all the coasts and, and to a certain degree, in the Midwest. So we don't see a need to acquire companies to grow in the Building business. Doesn't mean we won't look at opportunities, but we think with our footprint, we don't need to do that. We just need to grow our market share in the places we are and then grow these few offices. Texas is a very good opportunity for us. It's a huge market.
We don't have a giant share there. California, we can continue to grow. The Phoenix market is actually coming back, and most of our competition left Phoenix. We came in as they were leaving, so we see great opportunities in Phoenix. We're in Chicago primarily because of aviation work, and we'll look for other opportunities in Chicago. Ohio, there's not a lot of large, sophisticated contractors, so we have a great growth spurt in the Southern Ohio area around Cincinnati now. South Carolina, which is a very strong industrial market, we've won work with Boeing down there. We have work at the airport in Greenville, and the South Carolina market, based on the economy, is going to continue to grow manufacturing. So we think that's a good position to be in.
Then Pittsburgh, which is seeing a resurgence of growth, a lot of it through the fracking business, we'll see some growth there. So we're going to look at projects in the Pittsburgh area. Then we want to diversify our contract types so that we can find ways to get better margins. So we've done design-build projects. We continue to look for design-build opportunities. We look for harder, more complex projects where we can use that expertise and leverage it. Public-private partnerships, we're starting to see that in the social infrastructure sector. We just submitted an RFQ for a new campus in California, about a $1.5 billion project, if I'm not mistaken. We have the Houston Justice Facility, about a $500 million justice facility that we're looking at right now in Texas.
So we're starting to see the public-private partnerships materialize in the Building sector. We actually have done program management, and for those of you who don't know what program management is, where we become the owner's representation, and they pay us a fee for that. And we've grown that business pretty significantly over the last few years, where we're selling our expertise to an owner, and perhaps somebody else will build it, to show them how to deliver their program. So we're doing that a lot in the school market. And then green retrofits. We are one of the larger green contractors in the U.S. We can show clients how they can energy optimize their buildings.
We have significant pre-construction expertise to do life cycle costing of upgrades to the Building, to show them what the investment would be, what the payback would be, and help them deliver on energy performance. And I would say that we're one of the leading green constructors of buildings in the United States right now. And we do a lot of it in LEED projects, and we have in the neighborhood of 200 or 300 LEED certified professionals on our staff. So we're very well positioned in the green, in the green sector.
Then lastly, one of our strategies was to take the expertise we have in certain market sectors, such as healthcare, sports, mission-critical, aviation, and to a certain degree, federal, and take that specialization and make sure we understand where the market's going, what our staff needs to do to understand that product type, and help to sell to the client where the market's going. For instance, in the healthcare field, we developed here in New York City the Patient Room of the Future . You might say, well, we're a construction company. We're not in the design business of understanding where a patient room needs to be. But with our expertise in healthcare, we worked with designers and some equipment manufacturers to show owners, this is how you can optimize your healthcare room in the future.
This is how it'll affect your staff and your operating costs, and we're using that expertise in healthcare to promote our ability to be a leader in that particular field. The same with aviation, understanding where security trends are going to go, how baggage handling is going to work, how are people going to move through airports is important. So we developed these centers of excellence to not only help the clients, but to train our people internally on what they need to know and communicate to them how to deliver that product and use that strategy to win, to win market share. And that's worked well. So our strategy is built around those, what I call four pillars. So in summary, I would say our order backlog is very strong. Our view of the market is very good. Our revenues are increasing.
Again, we had that slight hiccup because of the weather, but they're, they're increasing. We're maintaining profitability. For the CM business, we're a very profitable unit. We have a focus on people development because people is what we need to grow. We sell expertise, so we really have to focus on finding diverse people, growing them, and making sure that we can utilize that asset to execute more work. And again, I have a very positive outlook on the market, and I think we've been delivering on our strategy now for a number of years. So we're going to maintain our strategy, keep moving forward and taking more work out there. So, with that, I'm going to have my favorite client, Mats Johansson, from CD, come on up and talk about the commercial development market. Watch the steps.
Yeah, I will do that. Thank you, my favorite contractor. Thanks. All right. I will try to wrap up this overview for you over the, the different, businesses here in U.S. I actually thought I should start giving you the bottom line on my presentation because I was standing here for two years ago at, some of familiar faces. At that point, I think the message from us who works with commercial development was here that, we were still a startup, but we tried to show you, the market, that this model works here, and I think we have sold our first product at that time. Now, I think the bottom line is that this is really more stable business. It's a stable business here to stay for a long period of time here in U.S.
We are on our way to achieve our targets or what we said in our 2011- 2015 aspirations. And on top of that, it's a pretty positive outlook going forward. So if you remember these three things, then you can probably forget the rest of the presentation, but that's really the bottom line. If you wanted to put the CD business in context of the whole CD footprint, this is the CD footprint in Skanska today. And I think the conclusion here is that what you heard that Johan and Peter talked about, that we said that we should increase this part of Skanska, and that has been done. And it's a bigger part of Skanska.
It's we have never put that much money into the CD business as where we are today. And you can say that from, I will say, from a capital allocation perspective, we have three similar big units today, the Nordics, the European business, and here in U.S. But I will also say the difference is that if you look into our capabilities and organization and so on, I think we are still the little brother among the three. And who knows how that will look like in five years, but in terms of number of people and number of projects. So a little bit short about who we are and what we are trying to do. As most of you know here, it is a pretty new unit within Skanska. I can't probably say that anymore.
It's five years now, a little bit. We started in 2009. It was a perfect timing, and I will say a brave move at the time to enter into, you know, these very mature markets, which is really the case here in the U.S., whatever you are doing, and normally very competitive. And do that with a strong, as a strong company, with a strong financial capability, in a tough market. And we did that, and we're able to get into four markets, which we still are into today. It's Boston, Seattle, Houston, and Washington, D.C. We are today approaching 60 employees on the people on the ground, as with construction and development, is really pure local business.
We need to be obsessed to have people who knows the streets and the markets and everything that's happening to do the right things in development. We have a small team here in New York, kind of aligning on a Skanska USA headquarters basis, you can say. And that's really what we are trying to do, trying to be out there finding fantastic sites for office. And we also have, as we said, that we should do, start stepping into multifamily rental apartment properties. And by saying that, I want to underline that it's urban stuff that we're mostly focusing on, and we will not become. I will not say never, but I can't see that happening, being a full-scale residential developer in the U.S. meaning of it.
So we are mostly having, and as I will show you, a portfolio of office projects, but we also think that the segment of multifamily rental apartment projects is something that is where we can be really, really good and are good at. So if you take a look at the four markets that we are into, and back in time, we took a bet on these markets because we tried to understand what was happening after when the recovery starts. And we put a bet on tech, we put a bet on life science, we put a bet on energy, and we still felt like it can never be wrong to be where the U.S. government is. So that's really what we did, and I think that has shown to be pretty successful.
I think we can say that all of these markets have been leaders, together with a few others, in terms of job creation and positive development. So to give you a very 10,000 feet level view of what do we see if we start with the office markets. And of course, every market is local, but if you try to see it from more from a U.S. perspective. We, as I said, we took the bets on these industries, and I think you can see now that also the job growth starts to happening also outside energy and tech, which has been a lot of discussions here the last, or progress, I will say, the last couple of years. And you see also that even sectors like the financial sectors and so on starts to recover.
The Q2 this year, I will say in relative terms, because it has been pretty weak, but it was really the highest net absorption numbers on the U.S. level, for the office sector, which shows good signs. We can see in some markets, and the markets we are into, and another handful of market, that the supply of new developments is increasing. But, and it's also kind of connected to, I would say, in a very few market where you can see speculative investments happening, which means there is much more confidence now from a macro perspective on what's happening in these markets, and from lenders and equity investors. But I will also say that I don't see I feel like the market is very disciplined still.
It's still very focused on supply and demand and so on, which I think it's great. If you look into companies, I mean, in these markets, most of the markets, maybe with an exception of Houston, it's mostly companies who are there or started up in the city. It's not like we maybe can see in Central Europe, when a lot of new companies is moving into the market. But in that perspective, I think it's. Of course, you can say that we compete with the office stock or older buildings and so on.
But, mostly from a retention perspective, I will say that, and from a cost perspective, that, companies has been very, very focused on efficiency, keeping down, lowering their costs, but in the same time creates interesting and, and, work environments for their employees. Sustainability is a big part of that, too. And that's why we see that there are a lot of companies out there who's, who's, favoring new developments compared to, relocating to a Building from 1973, who is dark, ugly, and all of that. I don't have to have a sales speech now, but it's a big difference between. You should always choose new development. If you look at the market, then if you look at the... This is sometimes what the, the, the real estate community loves to look at the property clock.
And then in theory, the property clock, you should kind of move clockwise around through these different quadrants here, and where you have a market that's peaking, and then it goes into that rents starts to fall, and then it starts to bottoming out, and then starts to rise and so on. I mean, in reality, I think some of these markets are actually going, could go the other way around, too. But as you see here, the markets we selected are really well positioned at the moment. For example, the Washington, D.C. market was up there for 2011-2012, which was actually absolutely the leading market, I will say.
It took a hit when the government starting to cut down and so on, because it's still very government-focused city, as we all know, and it kind of moved back a little bit in the clock. But it's again, kind of starting moving in the right direction. If we look into the multifamily market then, which is, for us, really urban multifamily projects. This was really the first asset type that most investors were kind of for, I think for four years ago, starting to see that this is what we should put our efforts and our capital into. And the reason was, of course, all the aftermath from the recession and that people who should lend money could, should probably haven't had the capability to lend money.
And it kind of, together with demographic changes and urbanization that we talked about, this was something that they say that here is actually a huge demand for. And I will say this has been fully available capital today to start this type of project, both from the equity and the lending side. But I will also say here that I was probably, for two years ago, a little bit more nervous about this sector in some of the cities around the U.S., and especially the ones we are into, that it should be oversupplied. But it has been a very strong demand, and I can also see, which I'm really happy to see again, that I think that the financial market is still very disciplined out there.
So when you see signs of oversupply, it's getting harder again for players in the market to finance their projects. So I'm pretty bullish on also the multifamily here, the next two, three, four years. So as an organization, I mean, I'm not going to show you all these charts here, but I think the conclusion here is that it has from all different perspectives, gone pretty well so far, as I said. I think we will hit and achieve what we set up as an aspiration in our business plan 2015. It is a more stable organization.
But I will also say, like, due to the fact that we have bigger, and I will show you some of the product, bigger product, less projects than maybe some of the other development units, it will still be a lumpy, curves when you look at them or, or, going forward. Because as you know, when we are selling one or two properties or three, we, we will take out the, the results from it, and then there could be years when we don't have that much to sell. I think it's also the same thing with the leasing, results, as we could be favorable to do some early leasing. But when you're done early leasing, and you have a product under construction, you will, you will get, to fill up the Building pretty late in the process.
So that could be in one or two years when in certain products, it will not happening that much of leasing. So, I guess you all know how this business works, but it is more lumpy than, for example, what Bill showed you in a more process or a streamlined business, like construction business. So of course, the success so far, because I can talk about nice pieces of land and fantastic markets and everything. If we don't show you any gains, it's pretty useless, I guess. So, we have been pretty successful with the first couple of investments. I will say, they say that real estate is everything about timing. This is really everything about timing, and it has been some really fantastic results.
So the first four, we've the first one we sold from the left there in 2012, then we sold two properties 2013. We sold early this year this other in Arlington or in Washington, D.C. area, and we have actually out on the market at the moment first Building up in Seattle to be sold also. And after that, we kind of gone through the whole development cycle in each of these four cities. So our 2015 strategy then was really, I said this before, we know that this is a really local business. We know that we want to be selective, we want to focus also what we know from other markets.
We wanted to be urban as much as possible to take advantages of the market situation. We said, "Let's do office, and then let's explore urban multifamily projects that we have been doing." We felt like... I mean, I think honestly, our biggest competitors in the local marketplace is probably the two or three guys, who is the local developers, who knows every person on every street corner, and they are getting matched up with some opportunistic institutional capital to invest and develop with. And I don't know, I... Yeah, I can probably say it like that, that there is a lot of guys out there, which is very much about them, very egocentric. "I'm the developer, I'm doing the Building. It's a statement of myself," and so on. And it's we try to be different.
We try to be really obsessed with the teams of people that we bring in and that we have, that everything we do is really of a deep understanding of who is going to be our tenant here, and what is the requirement from the institutional investment market, and so on. So even if we are a kind of a short-term behavior of to satisfy you guys, for ROCE, that type of stuff that Peter talked about, we need to, you know, to do this as fast as possible. We still wanted to do what we are doing with a long-term thinking, and sustainability comes in there. I think we have done statements that we heard from the institutional market, who's been viewing our Buildings and stuff, that they're impressed about the quality and the design, and so on, that we've been doing.
And also, which I think it's really the legacy we also have from the Nordics and in Europe, is really, like, focus on kind of, you know, efficiency on top of all of this. Because if we should catch tenants, we need to compete with these old dog Buildings, but we need to show them that we can help them also, not just giving them fantastic environments to work in, but also to lower their cost. We said that we wanted to leverage the Skanska synergies. I think we today have a great collaboration with Bill and his organization. I think we have used and invested in the same way as we have been doing in the CD business on the other side of the pond.
But we also wanted to explore some alternatives to, especially in the multifamily segment, to both risk mitigate a little bit and partner up with people who knew that business may be initially better than we do, and we've done that. So in a few of the projects, two projects we have today, we have also equity partners on board. But the rest of the project we have invested with hundred percent, so to say, yeah, equity. Maybe it's, if it's leverage, as you know, it's a leverage on the Skanska AB level, not on a project level. So our portfolio, lot of numbers, I think, and really the takeaway is that we have a pretty—I have two slides here, pretty good portfolio in all phases.
The ongoing part here is the dark, I'm sorry, the orange is the completed, the green is under construction of office, and then we have also multifamily under construction. It shows that we have a pretty stable land portfolio for the next, I would say, three, four, five years here, which feels really, really good. A different way of looking upon this, too, is just to... Here you have- you see how fantastic, transparent we are, even down to the square feet number, you can see all the projects that we have in different phases. I think the good thing is to see that we have filled up at least, yeah, we shouldn't have that many completed projects.
But we have land bank, we have under construction, and we have sold projects. And to move this forward, that's the magic to be successful in this business. So to show you some really cool projects, at least I think it's cool projects, I hope you feel that, too. So from the left, 101 Seaport in Boston, this is as close as you can get to the financial district. If you fly into Logan Airport and you take a cab in, you can't miss that we are putting a huge footprint in that city. And, I mean, the market talks about Skanska there, both from a Civil Building and a city perspective, that has never been the case historically. We are really a big player jointly in the Boston market today. We have three sites there. One is ongoing, the 101 Seaport.
We have a Watermark Seaport, which is a multifamily project, and we also have a third site there, 121 Seaport, that we feel really bullish about. The third one here is 400 Fairview. It's a project in Seattle, right down at where everything, I will say, is happening, Lake Union area in Seattle. Just on the other side of the street, you have Amazon's growing campus and so on. And in all of these projects here, we've been very, very successful last year with some bigger pre-leases and still have some leases to do, but we have taken down the risk dramatically in this project. West Memorial Place One is out in the Energy Corridor in Houston.
Also feel very good about that project and the timing of that project, and you can all see when we assume that they will be completed. Some of our future prime projects I mentioned in the middle there, the 121 Seaport, which I think will be a fantastic project. We have another project that we have secured earlier this year, which is even, I don't know if that counts, but it's even closer to the White House than our first project, 10th and G, where it's on Pennsylvania Avenue. It's just where the World Bank is. It's a fill-in project. It will just be great. And we also have a fantastic project in really the core of the core in downtown Houston, a bigger project.
And this is everything in square meters for the Europeans, and the Americans just multiply by 10.756, or something like that, and then you get the sq ft. But it's great projects for the future. Just to say a little bit short about challenges and opportunities, I should probably if I start with opportunities, I think we have had great momentum in these markets. We went in as a construction company and are both now a construction and development company, where I think people like to work with us. The city respects us, we get things done, and we show that we are a player who wants to be in the markets long term. Another, I think, great thing is the very, very strong exit market. It's almost, I would say, used to it, too good.
I think it will continue for actually a longer period of time, but there's so much capital who is looking to get into U.S. There is more capital into the real estate sector, that I think we will see a strong exit market here for several years, going forward. I mean, when we have selling projects, and we have done our job, and they are leased and everything, we have, we have 70, 80 different investors who wants to buy a small freaking office building in, in Seattle, for example. And, and in the end, we have... They are bidding, like, five, 10 guys of getting it done, you know. And, and so I'm really enjoying it. I know that it could look different around the corner, but for now, that's fantastic. Challenges, I think, of course, it's increasing competition.
It's a fact that it's much tougher to get land. It's different levels than it was 2009, 2010, 2011. It's. There are more people who can do that. I think when we get to more little bit bigger thing and more complex things, then we have an advantage. But with smaller sites and smaller projects, there, if we were three players fighting for a site two, three years back in time, that could be 10. Eight to 10 guys who's doing it right now. But on the other hand, as I said, I think almost two years ago, I'm not afraid of more competition as long as we are in the market, as we are a player in the market, which we are.
You know, when people can see, in this country especially, it's like you are no one before you show that you're actually doing everything. Because everyone is so good to marketing everything, so no one believes you until actually is doing something, you know? So but it's continuing to do, finding the right deals, you know, being selective, being disciplined in what we are doing. And I put this—yeah, we say that internally, hockey stick leasing, and it's more like I think we have to have some patience. We can catch big elephants out there early on before we started the projects. I think it will—it's rare. If we believe that it's the right timing in the market to start projects, then we will do that.
And I think we have to be prepared to see that. I mean, we work really hard with that, but leasing will come, you know, in the end of completion of the project and maybe the first year after stabilization. That's just the nature of the market and how the market kind of works. So in summary, for me, I think, again, this is established business. Some good performance so far. We have a good portfolio going forward. We have been really trying to be a bit different in the local marketplace than everyone else. I think it looks pretty favorable going forward here in the next couple of years. So with that, I'm done, and I... Yes, Magnus?
Thank you, Mats. Excellent. We are now approaching the final part on the capital market side. And it will be first Johan Karlström will go through, look a little bit in the crystal ball and go through, you know, what does it look like for Skanska going forward here? And then after that, it is Q&A with Johan, Peter Wallin, and Richard Cavallaro. In the Q&A, though, before you start, Johan, you can take this, please state your name and the company you represent when you ask your questions also, so we know who we're talking to. Okay, Johan.
I just want to wrap up here with one slide before we open up the floor here. I'm sure that you have a lot of interesting questions here. But I think it has been obvious and clear throughout the various presentations here, that we believe in the U.S. market. We think that there is a good opportunity for us here for an expansion. And that if you look also outside the U.S., it's that the U.K. market is picking up and the Nordic market is, I would say, overall stable. We have decided that residential development, we're going to stay with the volume we have until we have reached the target of performance that we have set up.
I think it's also clear for everybody here that we are now devoting the capital expansion, you know, into the sectors where we have the greatest return, which is commercial development. Now we will have three equal units in commercial development. But if you look at the, like in a really, in the long-term perspective, I think the greatest opportunity for us to actually expand from a market standpoint, that's here in the commercial development as well. So it's a lot of things that's actually pointing towards the U.S., both in construction, in commercial development, and the PPP market is definitely opening up now, and we think that we have an opportunity and a possibility to combine the resources in a way that's gonna be in favor for us. So I think I'll stop there.
Then I think the way we can do it here is, like, you know, the three of us are going to be up here, but just so you know, Bill and the rest of you that have been presenters here, you can't sleep because some of you, maybe we can, like, kind of like if the questions are too tricky, we just hand them out to you guys. Yeah. So should we, Magnus, should we then start or?
Absolutely.
Yeah.
Go ahead.
So go ahead.
Any questions?
I think that you can be like the
I can be the master of ceremonies here.
Yeah.
Please raise your arm or your hand or wave any other, any other way if you want to. Simon, please.
Simen Mortensen, DNB Markets. My first question goes to regarding the working capital, Peter started off to, and the negative trend we've seen there. How comfortable are you with the current development, and is that in any way correlating with your own increased activity in CD and ID?
Yes, if we start with the definition of the working capital in construction, it relates only to construction and has nothing to do with the stock that we have built up and so forth, just to be clear on that. And, you are right, the more we do in C & R into the development streams, the less positive cash flow, because that will be moving money from one pocket to the next. Am I concerned about the working capital trend? No, I'm not. We have a very healthy backlog, but what I can't tell you guys, because you want to know the quarter is going to turn, and that's nothing that you will hear from me.
So just to sort of wrap up the message I tried to get across is, the line will probably continue to decrease, i.e., the working capital compared to revenue as a percentage, whereas the bars will continue to flatten out and turn up.
... That will create cash flow.
Okay. Second question is on that note, if I do have the opportunity. You want to grow within ID and CD, and as you say, you won't have that much increase in the working capital. Will you use debt to increase your activities in CD? Will you borrow money to do investments in ID, CD?
Well, you could go. Yeah. Okay. Absolutely. Thank you very much. That is how we measure the ONFA, as I came back to being at sort of above zero. I would say that, as Mats alluded to, the capital markets and the funding market has improved dramatically over the last two years. And from that point of view, I think that we would be comfortable of actually going beneath zero from that point of view, in order to fuel growth as well. So that's a little bit different compared to a few years ago. But another thing that, if you just, I can expand on that, you know.
We are also looking at other type of structures that, you know, we can set up as the same type of situation. Exactly as we have in ID in commercial development, where we have a JV partner, which means that, you know, the debt is not coming into our balance sheet. If we look at, like, in a delimitation anywhere we want to have the net debt or the ONFA. So that's just another way to have the debt outside. So that could be like an additional alternative.
Thank you.
Thank you, Simon. Tobias?
Yes, Tobias Kaj from Carnegie. It's very obvious that you think that the growth outlook in the U.S. is very interesting. You think that you have delivered in terms of growth in the U.S. in the past as well. But you also showed that, like since 2010, you have outperformed the market by some 7% in the U.S., which means like 2% per annum. Is that roughly what we should expect going forward as well, your ability to grow faster than the market in the U.S., some 2% per annum, plus maybe some acquisitions?
I think that, what we've done in Skanska is that, we have looked at the markets and also the shape of the business. And, what you see here now, when we talk about the operations that we have in the U.S., we have an operation that, you know, has very good track record. They have the house in order, they have a very clear strategy, and this is-- and we want to, we want to grow the business. So I think that you should expect that we grow the business faster than the market, because we want to increase the market share in the operation here. What's going to be then the percentage? That I...
We can't give you that, but what is clear, the sectors, how we're going to do it, and then how it will actually turn out and be, if you talk about the order bookings and so on, that's really hard to predict in numbers, and I don't think that's the right thing for us to kind of go up with those numbers. But the strategy is clear, that we want to grow the business faster than the market.
The possibility to grow is kind of defined by you finding the right people. Has that changed in any way in the last couple of years? Is it easier to, for you to find the right people, or is it-
You mean here in the U.S.?
Yeah.
I think that, Rich, you may, you can take that one.
I can say that we are a very attractive employer. We've had no problems finding people. I mean, our model has always been to grow our own and kind of Skanska, you know, teach them the Skanska way. We're going to have to go away from that a little bit and bring more senior people in, because we're trying to accelerate the growth a little bit. But we do a really good job of training, and our HR is top-notch, so I'm confident we'll get them taught, but we have no problem attracting people to our business right now.
One interesting thing, and that is maybe you know that we have a shareholder program in Skanska for all our employees, that we are like in a-- you have the possibility, if you are an employee, to buy shares, and then the company is matching it, depending on the performance of the unit you belong to. And that has been a very attractive, I would say, tool in several of the markets, because it's very competitive out there to get the people in. And the participation in this, we call it the SEOP the shareholder program, is actually the highest here in the U.S. It's actually higher here than it is in Sweden. So I think that has been a great tool for us to both attract but also retain the people.
If I can continue and ask, regarding the profitability, and if you look at U.S. Civil over maybe a couple of years, the rolling 12 months margin has dropped some 100-150 basis points from kind of the very high levels a few years ago. Is it possible to say how much of that is related to, you know, the cold winter we have seen this year, a tougher competitive situation in the market, and the fact that you have actually moved some 150 employees to other places in the U.S. to be able to increase your volumes?
There's a couple of things going there. I mean, first of all, you know, you know the model as well as anyone. Generating cash is the key. So for us to generate more cash, we needed to be a bigger business. That meant taking more projects, and the market ultimately decides what the gross margins can be on these projects, 'cause if you don't bid those margins, you don't win. So we're generating more cash. On a percentage basis, we are being skinny somewhat, and that's the reality of it. You just can't do any better in the market. But at the end of the day, we're generating more cash today than we ever have, and I think that's really important to the model...
So in terms of percentages, I'm not gonna give you those, but that's essentially why you see the downturn. And I know Johan's been saying this for years that we could not stay at those levels we were at.
With increased competition, should we expect to see this trend continue with declining margins?
We will be as good as anybody else in our space.
Okay, thank you very much.
Thanks, Tobias. Okay, more questions. Niclas?
Hi, Niclas Höglund , Nordea. Okay, firstly, some follow-ups maybe from two years ago. You haven't talked so much on the Design-Build part of the sort of concepts in the U.S., which at that point had come down a little bit. In my notes, at least, it said it was around 15% two years ago, down from 25%, and you were sort of expecting it to come back up to 20%-22% again, i.e., driving the U.S. and Building margins, strengthening sort of the group outlook on profitability. So where do you stand today?
I think that what we can do is like in a, we can have like in a, like in a comment from both sides, or both Civil and Building. If you start,
Sure.
Rich, and then, Bill, you can comment the situation in USA Building.
In the Civil, mechanical business, we have a complete morph towards Design-Build . If I looked at our backlog today, I don't remember the exact number, but it's something in the order of magnitude, 65%-70% of our existing backlog is some form of Design-Build . So the market has moved in that direction in a big way. So that's what's happening to us today.
What's the delta there from, from two years ago? Were you-- are you on the same high level or?
No, no, we're definitely much larger. We were probably... Again, I'm guessing a little bit what the number was a few years ago, but we have significantly increased. When we use the backlog as our... I'm not looking at what we're delivering today, but when I look at the backlogs, it is significantly increased, probably in the order of magnitude of 30%-40% of our backlog is higher than it was two years ago.
Rich, correct me if I'm wrong, but is that also, like, in how the market has started to operate-
Yeah
here? So it's not that we are like in a, like in a only picking those products. We, we, we see a trend in the market that it goes towards Design-Build , big time.
Completely true.
Mm-hmm. Bill?
Two things from U.S. Building's perspective. First, our volume is down in Design-Build , but I think that's an outgrowth of the economy. So when the economy turned down, owners turned to a delivery method where they thought they could optimize price. We see that swinging back now. However, we're a little opportunistic, and we look at Design-Build , because there are people in the Building sector that will take Design-Build opportunities for the same margin they will take a construction management opportunity. So we don't want to play in that sphere. We think the added risk, we should get a better return. So we're quite selective on the types of Design-Build uild projects we look at, and that's another reason that we see a slight downturn in our volume as far as Design-Build . However, I think the market's starting to pick up.
Owners don't have time to take the long procurement process. They want speed of delivery of their product, so we're seeing more turn to Design-Build . So you, you'll see that uptick as we go forward.
Okay, but this means that you sort of increased your risks to some degree on the Civil side, and the same at the same time as sort of margins have been come down, partly then because of the higher competition. When you look in the sort of project pipeline going forward, should we expect that risks from a Design-Build perspective also increases at the same time as you sort of reach stability on this 67% profitability?
I actually see that as not a risk. I see it as opportunity, quite honestly, 'cause, you know, when we do those projects, we clearly understand the risks of design growth. We're—it's, they're priced accordingly. So if we can be really smart and save that design growth that we expect, then we bring better numbers to the bottom line. And that's a lot of what you've seen in the past. The guys have been really creative at holding on to what we thought we'd spend in design growth. So that, to me, that's a gigantic opportunity for us. That's a piece of money that's in our projects that we'd want—we'd like to hold on to, even though we expect to spend it.
Okay, on Building, could you please remind us what's the difference on profitability on the Design-Build versus the more normal Construction Management type of business for you? Where-
I think, I think we shoot for margins that a re, probably twice as much as they'd be on a typical, construction management at risk contract.
And the trend-
And then you talk about the growth margin.
Gross margin, yeah, exactly.
Okay. And the trend is still to increase that part over the next three years and to get paid for that additional risk?
Yes.
Okay, thank you. And then follow up also on the Civil side, two years ago, you were talking about, well, my memory, my note says an exclamation mark, but that you had around 10% corporation, Civil and Building. Could you update us where you are today?
... I could say we're miles from that. I mean, we have used this model, and the best one, I think Bill mentioned it, was LaGuardia. I mean, we certainly didn't win the project yet, but we had the three teams in there, Building, Civil, and the ID folks. We took them out of their workspaces, and we put them in a separate Building, so nobody had any hat on but a Skanska hat. And I have to say, that procurement effort was one of the best I've ever seen. I hope it turns into a victory for us, but I can tell you that we've come a long way on learning how to work together. But there's the many examples. We won a hospital in Indiana that...
We're in Indiana with the, with the new company that we have. Bill has great hospital experience. We put them together. We won the University of Indiana hospital project. MTA 7 line here. Any, any Civil project that has a big Building component, a lot of most of the time, Bill is in those jobs, helping us get the best cost we can to win. So I think that we're miles from where we were.
Last question, Niclas.
10 is up to 20 then, what?
Maybe bigger.
Miles.
I don't have the number at my fingertips. Maybe bigger than-
Then my final question for now. Being out to Newark and seeing the sort of power plant, it sounds at least exciting to get a feeling on the EPC side of the business in the Civil area. Could you give us some flavor on how much that is EPC today in the order backlog, and how you see the pipeline going forward?
We don't have a lot of EPC projects. A lot of projects are getting procured, what we call EPC Lite, where the owner's buying the equipment, and we have back-to-back guarantees with the equipment suppliers.
Yeah.
That really doesn't. It's not really a true EPC, because, you know, the equipment supplier is responsible for his equipment. We're responsible for putting the pipes together. So we don't, we don't have a lot of real true EPC contracts because owners don't want to give us the markup on the equipment. They want to buy the equipment themselves. So, so there's probably a true EPC, very little in our backlog, but EPC Lite, maybe $300 million.
We are not really going for, like, in a, a full risky EPC contract. There's a little bit like, you know, other players that's playing that league. We think that the like in a, just like in a below that level, you know, especially on the energy sector and in the industrial sector, that's the place for us, or what we call like in a light EPC. Because that's like in a, the risk is like reduced a lot when you go, like, in a down one notch there.
But just on the EPC Lite concept, is the new Newark facility an EPC Lite for this?
Yeah, it is.
That's still pretty good profitability, I was told. No numbers given, though.
We're very happy with the way that job is progressing.
Okay. We're looking forward to it. Thank you.
Thanks, Niclas. Okay, next question.
Jonas Andersson from Danske Bank. You are looking for acquisitions and in the energy market. Could you elaborate on how big such an acquisition could be? I mean, what kind of turnover are you looking for, and what is the capacity you have for such an acquisition?
You're absolutely right that we have, we're focusing on. I would say, if you say the energy market, it's not like in a completely correct, because I think that, you know, what we are looking for is a player that has capabilities to play both in the energy sector, but also Building the industrial plants, you know, manufacturing facilities, that is actually gonna, like, have the advantage now with the lower energy that you see here. So it's wider than just the energy sector. We are constantly looking at the market. We maybe looked at over 100 different companies, but they take some time to find somebody that really wants to dance with us.
And the size?
Depending on, like, you know, what we find there, but we think that we need, like, a footprint that is big enough that we can, like, move into that market. We have own capabilities in that market, but we can see, like, a different type of sizes there, and depending on, like. It's more a question of, like, you know, is it the right fit? To talk about. We are talking about the culture, the actual capabilities, the location. It's a lot of things that has to, like, you know, be correct there, and we are very picky.
Can you use anything of your experiences from Latin America? I mean, apart from the products that went wrong, you have a lot of expertise in the energy sector and so on.
We see very little opportunities to actually get the leverage from the Latin American market.
Okay, thank you.
Thank you, Jonas. Stefan?
Stefan Andersson, SEB. On the comments that, I think, it was Peter made on the financial target, the margin in the construction business, you're saying that underlying you are already at that target. History showed us that shit happens, Peter, rather constantly over time. Would you say that you're optimistic to have a better performance with less mishaps going forward? And maybe explain a little bit why you think that. Or should we view this target as being a target, you know, adjusted for such mishaps?
... It's an ambitious, do you wanna answer?
Sure.
No, the dream, it's a dream. It's a question from hell. I would say when you set up a target, you need stretch and for the target being ambitious. If we would have come to the capital markets in December 2010, and said that we want a margin target of around 3%, then being at 3.9% would have made that target look stupid. I would say that 3.5%-4% does include mishaps, not to the magnitude of the mishaps that we have recorded, however. But there is also a sort of change of mix in the portfolio. Bill showed how successful USA Building has been, and that has blended the margins of the construction management being below the average.
So, so that in itself is not doing a poor business, it's just a change of, of mix. So you have a little bit of both. But I would say, we will have to deliver on the target we have set for, for this business plan period, and it includes some mishaps, I would say.
Then to follow up there, I mean, you started to get some growth going and rather successful there. If you had to choose, normally one have to choose to deliver more growth or to be certain to reach the that target, what would you choose?
I would choose. If the growth is equal to earnings per share, that is what I would choose.
Thank you. And then-
Just, just, I kind of just expand on that. Coming back to the shareholder program. The shareholder program that, like, you know, all Skanska employees have the possibility to be in, is measured on EPS growth.
And then my final question, we haven't touched Europe a lot, but if you could maybe elaborate on the European markets and developments on those, maybe the ones that stands out. I'm kind of impressed of what you've been doing in Finland, considering that Finland is a very weak market at the moment. Is this temporary, or are you just outperforming at the moment? Maybe something else, if you have anything to add on any countries that stands out in Europe.
U.K., good. If you talk about, like, you know, the market there, and if you look at a little bit back in time when we had a recession, and it was, like, in a really problematic situation there. We have, throughout the entire period, had a very good performance in U.K., which actually showed that if you have the house in order, you have the right product, you have done the risk management in the right way, then you can sustain. Then you can have a good performance, even, you know, during quite problematic time from a market perspective. And that is actually what we see in Finland today. We've turned the business around.
We know how to run an operation in construction, and we have injected, and there were some people that, like, you know, went there, like, and turned the business around, and refocused there. And I think that going forward, the market will continue to decrease because the overall Finnish economy is actually trending in the wrong direction. We have a recession there, and it's coming from, like, in a problematic situation with the trade that is now weakening between Russia and Finland. So I don't think that we should expect that the market to turn up in Finland, but our backlog and our performance and what we're doing there is in quite good shape. Sweden and the Swedish market is quite stable.
It's gonna be interesting to see what's coming out now after the election, and if it's gonna be some change here about, like, you know, the some of the big infrastructure programs. So that's could have, like, in a short term, a little bit like in a change of how we're gonna view, especially the Civil part of the market there. Norway, extremely strong Civil markets. They are putting a lot of, like, lot of infrastructure product into the overall market there. They are launching a massive program, and on top of that, they will also go for PPPs in Norway. So that's very strong.
On the other hand, that means that there's been a lot of international competition that actually moving into that sector because they see that that market is, like, you know, is moving on, on the infrastructure side. Consumer confidence that was low in Norway have started to come back, which is good for the private and especially for the residential sector. Poland, very good economy. Their underlying economy and stable political situation, and, they've also negotiated, I would say, record EU fund that is now have started to be allocated into that market, which is good. Czech Republic, which we have been very negative about many, many years, there have been an unstable political situation. The economy has gone in the wrong direction.
It looks now that we see a light in the tunnel and the market start to stabilize and maybe start to pick up. So slightly better, but of course, there's a long way to go in that market, down there. On the other hand, Czech Republic is like in a minor part of our operation. So that's a little bit an overview of how we view and see the European operation.
Thank you very much.
Thank you, Stefan, for those questions. Chris? Oh.... Hello?
Chris Sheridan with Handelsbanken. I know that within your framework, you have, you know, you have two slides here. You have one with your reported backlog, another was pipeline opportunities. I think the number was SEK 40 billion, and I think you mentioned you expect to get typically about 30% win rate. I know you also, in some projects, have been selected, and you know you've been selected for projects, and yet, because of the way the project is scoped out, you don't actually have the firm orders in hand that are in your backlog. But you kind of have a pretty good idea what the money is going to be from those projects because you've been selected. Is that number within that pipeline pie chart, or is it, yet again, a different number that we don't see here?
Maybe you should,
Talk about that Bill's chart.
Yeah, I think it was your chart, Bill, so maybe you can answer that specific question.
I think I understand your question. The pie chart with the $40 billion is nothing that's in our selections or in our backlog. They're projects we're pursuing.
Okay, and then follow up on that then, in terms of the selections, you obviously have a pretty good idea of what those are and what those could represent in terms of, of revenue. Is that something you are willing to indicate sort of where that stands or at least where you are?
Um-
A level below which you're unhappy, a level above which you're pretty happy and comfortable in terms of, you know, are you unhappy if it's less than 70% of your reported backlog, that kind of thing.
We have a criteria to move a selection into order booking, and that is we have to have a signed subcontract. We have to make sure funding's in place, and construction has to start within 12 months of signing that. So many of those selections, we're unsure of whether if we can work the budget out, if the owner wants to go forward with it. So we don't really represent that those are gonna move into order bookings until we're absolutely sure. But our past trend has been that a fair majority of those move into order bookings. And it's just because of our business model that we track those, too. Because the gestation period from when we're selected till we get a contract is someplace between 12 and 18 months on a large project.
We have to work very hard to move that to a contract. That's why we track that.
Just as a follow-up on that, as you heard, we start to have like in these type of early contractual involvement of two-stage processes, also on the Civil side. But if we have been selected on the Civil side, we don't put it in the order bookings. So on top of the numbers that you saw here earlier, we talk about the backlog. We also have quite good visibility of projects that we've been selected on. But we never moved them into the order bookings until we have a final contract and an award.
Understood in terms of reporting it in the backlog, but I guess, have you ever given sort of a, an indication of where that overall selection number stands in relative to the backlog?
No. Uh...
It's a relatively new phenomenon on the Civil side, so we don't have the history to say, you know, 70% of those convert to some number. We're actually at the point on our very first one, just converting some early contracts, so we would be hard-pressed to throw a number at it and wouldn't count it in any way. But we do know it's an opportunity that we are the sole source bidder. We're working with the owner. Hopefully, we can make his budget work. If we do, we're gonna get a contract.
But it's an interesting trend that we had. We see more and more of these projects, and I would say, like, in these type of contracts, here in the U.S., we see it in the U.K., we see it in the Nordic. And I think it's to our, you know, to our advantage because we can add a lot of value there to the client, and of course, it's good for us as well, as we are the only one once we are negotiating the final price for the contract.
I will say our expectation is they're all gonna go to contract.
Thank you.
Thanks, Chris. Albin.
Hi, Albin Sandberg, Handelsbanken. I was wondering a little bit on the upcoming investment into the U.S. Is that fully financed from the U.S. operations, or are you moving cash flow from other parts of Skanska into U.S.? And if so, does that have any tax implications, or, are you fully free to move the cash flow how you want?
Well, fully free is a term which could be bent, but we can finance what we have in scope right now within the context of the cash flow that the business either has or is producing. When it comes to acquisition, it could be a different case, of course. But, predominantly, we do have the sourcing of our own cash flow in place.
That would also cover the kind of vision we've seen here now in the next few years?
Yes.
Then I wonder: you used to talk about your success on ID projects and the fact that bidding costs are so high. How do you view that now? Or are you in any way saying no to ID projects because the associated costs are too high? Also, in terms of the LaGuardia project, is there any negative outcome should you not win it, or how would we see that in your financials?
Well, I can start, and you can come in. We don't really say no because it's more like which one do we want to go for? We don't go for all projects. I think it's very important that we select the projects where we have a good chance to win. And we have to have quite a good hit ratio because the bid cost is so high, so we can't, like, have like a low hit rate there. So that's like we pick and choose where we have like the best opportunity together with the construction unit or together with Building.
...The answer to your question, will we see anything negative from the reported numbers in Q2 if we lose it? The answer is no. We do not start recognizing any income until we have actually been awarded the project. And to Amando's point also with regard to the increased competition, the good point about it is that you have more knowledgeable partners to work with, which you need in providing the services under the P3 model.
And more knowledgeable competitors.
Unfortunately, yeah.
Yeah, but that means that they are not coming in with like in a stupid low numbers.
Great. And one final question from me is, we're talking about before your, your reputation on the market, you work with repeat clients and so on. There has been some media attention regarding a Brooklyn project, which, if I understand it right, is now on hold. Just if you could give us your view on, on that project and what you see coming out of that?
Yeah. The contract on the project has been terminated. We are in a dialogue and a discussion with the owner how to sort out the situation.
Do you see any negative future impact because of this?
We have, we will see how the outcome of the project will come, but, yeah, we think that we have, that we have a quite good situation, regarding that, that discussion and the dialogue that we have to go through.
Okay. Thank you.
Thank you, Albin. More questions? Second, second row here is-
Yeah.
Guillaume Baron, Societe. Your note on Mexican market is booming in terms of energy, and also the auto companies getting huge investment, new plants in Mexico. It's not a market that from the U.S. you want to consider?
No, we will not consider Mexico. The reason for that is that if you go over the border into a new jurisdiction and a new local market, you need to understand the local circumstances with authority, with the subcontracting market, with all the vendors and so on. It's just a completely new landscape. Our market is very local. We have to be able to understand all these things, otherwise, we will end up in trouble. The answer is no.
Thank you. More questions, Tobias? I see you waving.
Yeah.
Tobias Kaj from Carnegie again. I would like to ask a question to Amando. In the past three years, you have been winning three PPP projects in U.S. How many projects do you need to win per year to be satisfied with the development?
Well, well, the first thing is a correction. So we've won two within the last three years . So I think you said three, but, the, the one that we hope to win is LaGuardia, and we don't know. How many to be satisfied? That's a difficult thing to answer. I think we would, we would take a lot. But I think when we look forward over the next five years, I think, and you guys can correct me, but I think our business plan suggests two more or something like that. So I think it's a fluid target, because it depends on the size, it depends on the amount of investment that would be required in the particular project. So it's a hard thing to say.
Another way to... It depends a little bit how many projects we will bid, and the hit rate had to be somewhere between one to two, one to three. One out of two, one out of three . So depending on, like, you know, the flow of the project and how the pipeline of project that you just to sort how that's gonna pan out.
And if I can ask one question for Mats as well regarding the commercial development. I mean, you indicate that we will see more investments in U.S., that the share of investments in U.S. within commercial development will continue to increase. If we look at the kind of expected EBIT margin, so to say, on the divestments in a project, how can you indicate something? How much higher does it have to be in U.S. than in Europe? I mean, you have you pay more tax on the capital gain in U.S. than in Europe, for example. It seems like the leasing is done later in the project, normally in U.S. than in at least compared to in the Nordics, which of course increases the risk.
So is it possible to quantify how much higher profit in % you need in your divestments in U.S.?
I mean, I will say that the market will dictate that, and I think that you have to look at it more from over a cycle than just from year by year. It's, of course, a fact that some of the stuff we have so far done, it will be short term, hard to repeat, you know? But, what should I say? What-- Of course, there is tax, as you are saying, some negative tax implication in our business compared to the CDN and the CDE business. But, I mean, we are also here in these markets, because we felt like we have a saturated situation in some of the markets that we've been for 20, 30, 40 years, and we can't do when you want to grow. That's why we are here, so to say.
I don't know if you guys have a better answer to that question, what in terms of margins and-
I think we have a common model within the CD, which dictates and in terms of leasing and exit risk, etc., and how you pan out. I wouldn't say that we have a U.S. markup for the tax, per se. So but we look very much into what kind of value creation we can get from the land. So there isn't a specific number.
Regarding the tax situation on capital gains in U.S., do you see any change there in any way? Is it possible to do kind of
I should have asked Obama. He was here yesterday. No, there is no change compared to what we see. We can find different structuring, but ultimately, that could also inhibit our ability to sell products early on after completion. And there is some other complexities as well to consider. So I think that right now we are at around 35% mark on tax, and that is the sort of the going concern rate for the Civil business in the U.S.
Okay. Thank you.
Let me also add that with three full-fledged businesses, all the four, the three streams here active, we also have the ability to have a very tax-efficient structure overall, compared to just having 1 stream. Okay, thank you, Tobias.
Morten with Nordea. I have a question on the dedicated funding in L.A. Is that solely city taxes?
Could you repeat the question?
Oh, oh, I know.
Are you talking about Latin America or Los Angeles?
She's talking about Los Angeles.
Los Angeles.
Oh, yeah.
That was Measure R, a tax that the city of Los Angeles put, and the people voted for to fund their expansion of their subway program. It's just completely dedicated to that one project.
Nothing from the state?
Nothing. It was completely done by the city.
It's a great role model for the rest of the country.
It absolutely is.
Then I wanted to have you expand on your market strategy for the oil and gas opportunities, where you're looking into midstream and downstream. You mentioned that you want to work with owners where they buy the equipment, but you do back-to-back LCs with suppliers. Maybe expand on that.
A couple of different questions there, so let's start with the first one, right? You know, you saw some slides. I think Mike put up a slide that power industrial market is gigantic, something $130 billion. And we have a capacity in the Northeast and the Midwest, and we're doing a bunch of that work. But so much of that work is relationship driven. It's, you know, private customers and owners. So it's not like you can just go out and steal talent and easily jump into these other plants. So we know that, you know, the acquisition way is the way for us to go, and that's what we're trying really hard to do, because you buy those relationships. And capacity and people, of course.
So that's really the big focus. Obviously, a big part of what's going on in that sandbox is in the Gulf Coast. So that's kind of the strategy, is to find that guy to help us give us more capacity, and the more capacity we have, we'll be able to take more market share. The power business. Honestly, on a gas-fired power plant, the performance risk is a very, very low risk. These units have been used for years and years and years. They know exactly what they get out of them, so that is not a big risk. If we were taking performance risk on a coal-fired plant or a nuke or something like that, that would be a huge risk.
So we basically say to our customers, "If you're going to take the equipment away from us and take the markup away from us, then you're getting back-to-back guarantees. You don't get the big wrap you'd like around the whole thing. Give us the equipment, we're happy to do that on a gas plant." So that's kind of the little dance we do with customers. But, so, so that, that's kind of where we are with, with the, what we call the EPC Lite wrap.
You're a good dancer.
I think I got all your questions.
Yeah. Thank you.
Thanks.
Thank you. Niclas?
Thank you, Niclas. Nordea again. Firstly, we haven't talked about the bonding capacity. I mean, we all know that the capital markets is pretty okay, but in order to take on these large products, you need bonding capacity. You were at--had SEK 7.5 billion two years ago. How is the sort of capacity today, and how much is utilized?
The capacity is around the same number.
Okay.
And we have plenty of room to increase within that capacity.
Okay.
As well as we have guys lined up around the block offering us additional capacity.
So no problem at all?
Not in today's market.
And then my second sort of follow-up is on the capital structure. I think it's very interesting to hear that you're considering joint ventures, and you're also considering, well, to finance part of the growth via the debt. Should we... How should we look at the opportunity on extra dividends or changes in the capital structure, given the opportunities that you're now seeing?... Is that an option?
As long as we can have both, of course, which we have done over many years. We have been able to sustain a certain very systematic increase of the dividends according to the profitability, as well as manage to grow the investments and to use the capital in an efficient way.
Extraordinary dividend is more like in a correction of the balance sheet. That's like in a dividend from the board, and as long as we can offer the shareholder a great return on the capital that we have, and we can put the capital in place, then I don't see that it's gonna be extraordinary dividend.
Is there an opportunity then to narrow the sort of dividend policy? It's pretty broad range, although quite generous, on the upper end-
Mm-hmm
of that range.
That's maybe a question for the board. But if I can give you maybe some reflection upon it, I think that the board's view is that, you know, if you have like, you know, the dividend level, like, you know, on a certain level, they want to like, you know, either stay on the same level or like in a slightly increase. So I think that's more of like, you know, a steering factor than just like in the range there.
Not a step up, then?
I said, like in a-
Yeah
... it's either, it's either like an increase or like, you know, keep it at the level. That's like, you know, the how the discussion goes.
Okay. Thank you very much.
Thank you, Niclas. Next question? Simon.
Yeah. It's been repeated several times today, the nice, profitable growth is the strategy for Skanska. Although we also have a date mark for it, it's 2011-2015, and now it's Q4 2014. Could you think about what your plans a bit for the future are? And-
Absolutely. We are working big time with the business plan for 2016 - 2020. That's like in a big part of the work that we do today. And one year from now, we will have a Capital Markets Day and tell you all the details in that one.
Thank you, Simon. Okay, more questions? Jonas.
Yeah, Jonas Andersson, Danske Bank. Just a follow-up question on the commercial development. I mean, you want to put more money into office projects and so on, and would you consider more cities to expand into, or are those four enough?
I think that, if you look at the development operations that we have here in the U.S., is that we are a player now. We have a footprint in the four cities. I think that there is an opportunity for us to actually expand the business in commercial development within these four cities. To go to a 5th or a 6th city, then you add more, like, more startup cost. So I'm not sure that is, like, you know, the smartest next move here, because we can, like, increase the operation just within the four cities there. So what's gonna happen then, like, in two years down the road or three years down the road?
I don't really know, but that's a little bit like, you know, the discussion and the plan that we have. But depending on how the market turns out and the future expansion of the development operations looks like, I wouldn't rule it out, but I don't think that that's gonna... I don't think that that's, like, you know, the natural next step for increasing the business. I just want to expand a little bit, like, you know, on the previous question regarding the business plan for the future. You're looking at me now? Yeah. And you know, a company like Skanska, you...
It will never be that we completely change the direction of the company, like, you know, pointing in one direction, and then the next business plan, they're pointing in a completely different direction, because this is a huge, huge machine. And I think that it's very important to have, like, you know, a steady course and a steady strategy here. So without really talking about the next business plan, I think that, you know, the current strategy that we have, that is like, you know, very much how we see the view today. But of course, it's gonna be more nuances and to that, of course.
Jonas, did you have something more?
Yeah, I have a follow-up question. You are in New York. We are in New, New York.
Sorry, yeah.
We are in New York right now, and why don't you do some commercial development here? You have the office and so on.
Great question. That, you know, you must have asked me that question many, many times. Let's see if you can come up with my answer now.
No, I mean, we had New York as, when we looked at different cities here, five years back in time, and I have always huge respects for every city because it's so local, and you have to understand all the conditions in the city. I think one of the things with New York, and if you then talk about Manhattan, is the project sizes. Even if we are showing now that we are doing bigger projects than we normally are used to from on the other side of the pond, I mean, do you want to put one egg, the, all the eggs in the same basket? Or I think that's one part of it.
Then I will say also that every market is so local, and on top of that, you have this sexiness of New York, if I say like that, that every optimistic developer or a more investor wants to have something in New York. So I think to who we are and our capital structure and the type of project and, you know, I think there are other markets that are out of interest for us. Was that the right answer?
That was a very good answer.
... Thanks, Jonas. More questions? It's allowed to ask, you're allowed to ask questions even if you're not sitting on the second row here. Nothing? Okay.
We're done.
Okay, Niclas, take the last one.
Okay.
So it's all Niclas Höglund , Nordea. It's a very rosy picture for the U.S. market. Good growth opportunities. But really, what can you do better? I mean, oh, you can't change the weather. That's probably one of the reasons why the margins are a little bit lower than it should have been otherwise. But you also had the project write-down in the second quarter. So really, what can you do better to get us really excited?
Well, you're asking me?
Yeah, please.
We can always do better. There's no question about it. We're growing, we're putting new project teams in place, we're bringing people up. You know, there's some bumps and bruises along the way, and we're training all those people to take on these big, complicated projects. So for sure, we can always be better. I would say that the one thing that I don't know what it is yet, but I can say that I started by saying we have all these different tools in our toolbox. I don't know that we're offering anything to our customers, anything different than anybody else. And I think there's a lot of smart guys in our organization are gonna figure out what that is, and we're gonna be able to deliver it for them.
Because we can do so many different things, from maintaining Buildings and operating Buildings or any facilities. So that to me, that's a big push for us to figure out. You know, it's kind of like the cell phone. Does anybody really care about what the price of the phone is? No, they want that bill every month. Or GE sells gas turbines, but they found out the real magic is in selling spare parts or maintaining the units over a long time. We need to find that magic, and I think we're gonna, that's gonna be a big push for us, to kind of have think tanks and try to offer something to our customers that we're not offering them today, that nobody's offering.
Yeah, and if I just kind of expand on that, you know, we talked a little bit about the trend here in the U.S., that we now start to see on the Civil side also requests from the owner, from the client, to they really want to have a competent contractor very early in the process. And that was not the case, like, and if we go back some years. So we, on the Civil side, we maybe... We have to maybe even better to explain in this type of, like, in a beauty contest, like in how good we are, what capacity we have, and so on. Because it's just another type of competition. It's not just a price tag, it's a lot of other things.
So here, I think it's very important for us to really step up here. So that's like in one area where was definitely to see that we have to, like, in follow and really step up to the market trends. Another area where, which we're discussing a lot internally in the company, and that is, I think that we can do even more together, like in a between the units and between the capacities that we have, between Civil and Building, which we call, like, you know, the One Skanska concept. When we can, like, really combine the resources, find the complex projects, which is like, you know, we have, like, in a very difficult components there, and we can, like, add value there and pool resources es from various places. That's the product where we really make the money.
We see it in Europe. We have a lot of examples from Sweden regarding that one. Development, we have, we have together with different part of all of the construction units.
Would that accelerate your growth opportunities, or will it?
I think that, you know, all. And I can, like, make a long, long, long list of, like, you know, things that we, that we are, like, addressing, that we are working on there, but and that is not kind of part of the plan, but because, like, if we want to expand and grow the business here, then, of course, we have to do all these things. We have to go to attract people and develop them and making sure we are not, we are not growing faster than we have capacity and we have the people, because that's the most dangerous thing. You take one more project than you should, and you didn't have the competent people there, then you are, then you are, then you have, like, you know, signed up for trouble.
So you really have to, like, you know, making sure that we're good at, like, you know, developing people, competent people. Okay, heart of the answer.
Thank you, Niclas. This is it. Let's wrap up. On behalf of all of us here, thank you all for being here, joining us with this Capital Markets Day. I hope it was productive, and you got a lot of good information, and hopefully, we will see you all somewhere in the world on another Capital Markets Day, sometime in the end of next year then. So, thank you all again.
Thank you.