Welcome everyone to Lindhagenssalen and the presentation of Skanska's results for the Q1 of 2014. My name is Magnus Persson, and I'm responsible for investor relations. The presentation today will be made by Johan Karlström, CEO, and Peter Wallin, CFO, and you will all be invited to ask your questions after the presentation at the Q&A session. The event is a combined live press conference with a telephone conference and also a webcast, so you know that. Okay, with that, Johan?
Thank you, Magnus. Good to see you here in the morning. I hope that you have some really good questions afterwards. Looking forward to that. What you see here up on the screen is one of the iconic products and iconic buildings that we're building throughout the world, and this one is the World Trade Center Transportation Hub that we are building with the famous Santiago Calatrava architects. We are very proud of that product. If you didn't know, now you know, that this week is also the Safety Week, the annual Safety Week that we have on a global basis in Skanska.
This week is not only for all the 57,000 employees that we have throughout the organization, but it also includes the clients, the partners, subcontractors, vendors, and this is a very important focus that we have throughout the year, of course, but this is just like an special week where we put, like, an special attention to it, because this is the number one priority, priority we have in Skanska, to drive down the accident in the business. Because it's a dangerous business that we are in, to be really responsible here, and the Safety Week is one of the tools and activities that we have. So with that, maybe I can get a glass of water or something. Yeah.
So with that, let's move over and take a look at the three-month report, and I will start with the market. The overall market is improving, I would say, throughout the various geographies and the various markets where we operate. And the interesting thing is that what we can see here is that the underlying economies in Europe is actually turning into better territory. We see it in U.K., we see it in Poland, and we see it in other places. I will comment that a little bit further into the presentation in more detail. We have received a lot of questions regarding what's going on in Ukraine, and will it impact our operations in the nearby countries? We have studied very carefully.
We have looked at a lot of we talked to a lot of people, stakeholders, and so on, in our market, and we can see no impact at all on our business so far here. But of course, this is something that we follow very, very closely. One other important thing is also that the growth trend that we see in the U.S., and especially in the U.S. economy, that impacts the various segments where we operate, is continuing. So if we go into some highlights regarding the numbers, we see an improved operating income from SEK 519 million to SEK 656 million in the Q1 compared to the Q1 last year, and that, of course, is very positive.
We see what we can see is, like, in a strong performance from the Nordic units, and in construction and also in the U.K. That's very good. We can also see that there is an improved profitability in residential development. The gross margin is higher, and I will comment about the RD operation a little bit further into the presentation here, in more detail. Significant increase in order bookings, and that, of course, is positive, and we see it across the board and both in Europe and in the U.S.
We can also maintain and keep the very strong position that is a foundation for a lot of our businesses, especially in the U.S., where it's important to have a strong balance sheet if we should bid for the big, complex projects where you have to have strong finances. Looking at construction net revenue, Q1 compared to last year, and you can see that the order bookings went up 33%, as a growth rate, measured in local currency. U.K., strong, Norway, strong, especially strong in USA Building. We had a good visibility of the USA Building operation, of what was on the way in, but I was actually positively surprised myself that it was as strong as it was. I know that was a lot of things going on there.
You have been added to the question and answer queue. You can see that the operating result came in at SEK 544, which is equal to 2% in the Q1 . We have strong performance here in all the three Nordic units in construction, and I think it's really good to know now, and to see, and I hope that you have realized that Norway and Finland is now back on acceptable level and performing on the level where they should be. I think that's very good, and especially in the situation in Finland, where we have done that in a market that has been much weaker compared to the other two countries.
Strong operation in Sweden as well, and that's very important for us, that this is like in a the home turf, and we should be able to deliver, where we have such a large and strong operation. Some winter impact in the US, it was has been a long and harsh winter, especially on the East Coast, where we have a lot of activities. That's impacted both USA Civil and USA Building, so it has been slower activities. We expect, though, that the impact from the winter, that we will catch up during the remaining three quarters that we have this year. Latin America challenging. We're working very hard to bring Latin America back to profitability.
But what we do here is talking about shrinking the business, so you could expect lower revenue compared to previous years in that operation. Turning over to residential development. Lower revenue compared to last year. You can see it both on the revenue side, and you can see it also when you look at the numbers of homes that we have sold. Around 200 units less than the Q1 last year. And most of that is coming from Finland. And in a comparable period last year, it was a change of the VAT during the Q1 . So it was like, you know, a big boost for the sales in that quarter. So that was like the reason why you see the shift here.
But on the whole, we see lower volumes in Norway and in Finland, but on the other hand, a very strong market and good opportunities here in Sweden. Not only in Stockholm, Gothenburg, and Malmö, but in some of the regional cities as well. Operating income somewhat lower if you look at the kroner, but if you look at the profitability, and then when you look at the profitability, the best way is actually to look at the gross margin. And the gross margin is higher, and so the lower income is just a question of volume. So moving over to commercial development and the property side here. We have had some divestments in the quarter.
As you can see here, I don't know if you have picked it up, but yesterday we announced that we have also sold and divested this fantastic building, a part of it, where we have ourselves as a tenant, and that is exactly according to the strategy that we have. Once the project is completed and fully, and it's fully leased, and time- now it happens to be Skanska, then we divest it, which we did, and then we recycle the capital, we start new projects. So we started a couple of new projects last quarter. So today we have 31 ongoing projects with a total investment volume, as you can see here, of a little bit more than SEK 12 billion.
The key ratio that we follow here, I'm sure that you are aware of that, but I think that you should take a look at that. That is, we compare the pre-lease in these ongoing projects with the completion ratio in conception. We will always want to be ahead with the leasing activities versus the completion ratio, and you can see that we are that here. That's a very good mitigating factor in how you make sure that you have the business under control. On a rolling 12 -month basis, you can see here that we have leased 347,000 square meters. In the last quarter, it was 33,000. Infrastructure development, the net present value in the portfolio, SEK 5 billion.
We have also announced that we have been selected as the preferred bidder on a mega project in Florida. Very important for us, as it is in the PPP sector, and it's also in the U.S., where we want to expand. It's a big project. The construction value will be around $2.3 billion, and then we have 40% of that. So now the activities is now taking place to go from preferred bidder to financial close, and we expect that to happen during the second half of the year.
Take a look at this. These are some of the larger orders that we had landed during the Q1 , and you can see here that it's two hospitals in the U.S. on the list, one in Florida and one on the East Coast. And then we have two other projects you can see in New York, and there's a lot of activities there that we're really glad for. And interesting also is to see that the infrastructure projects is in Norway. It's looking at coming through the pipeline here. And one of them we landed during the quarter, and we have also announced the other day another project which will come in the Q2 . There's a lot of activities going on on the infrastructure side in Norway now.
So take a look at the order booking and the situation. In the quarter, we had 121 in book-to-build, if you took 121% book-to-build, which means that we are building up the backlog now, in the quarter. And on a rolling 12-month basis, we're now back to 100%, which is, of course, good to be. So let me comment the breakdown of the order situation and the order bookings between the various business units. 97% in, on a rolling 12-month basis in Sweden, I view that number as a very good number, because you should be aware of that, a big portion of the revenue is in the Karolinska project.
So we are more or less replacing the burning of the backlog with new orders, including that mega project. So I see that as a very strong number, and I also can see that it's a good market going forward here. Norway, Finland, good order intake, and surprisingly high, I would say, in Finland, despite the situation, that it's a weak market. Norway, I would say that we could expect to have good order intake because we know the situation on the infrastructure side, that there's a lot of investment and funding coming in from the government here. Poland, we definitely see now the projects coming from the EU funding coming into Poland.
And the underlying economy in Poland is positive, and we definitely see that it has an impact on the climate there and the spendings on the construction side. Czech Republic, it's—I would say, if you look at the isolated quarter, it looks good, and it is a light in the tunnel that we start to see. But I don't want to say, it's too early before we want to say that this is a trend. Because we know that there's been a long period of, I would say, like a problematic situation in the market, both in the construction market, but also on the political side.
They have a new government that looks stable now, and we see some activities, but I think that we should wait one or two quarters before we call it a positive trend here. But, it's definitely a small light in the tunnel here, and wait and see until we change our view about the market going forward. U.K., as I said, we have been cautious about changing our view in the past regarding U.K., but now it's clear. We see that the underlying economy is on the way up. We see the projects coming in the market, both on the building side and on the civil side. And, we are very well positioned.
We have a strong position, fantastic brand name, and we will take part of the opportunities now that is now arising in that market. Building in the U.S. has been very strong, and it's these sectors where we have operations, commercial offices, healthcare, aviation, and high-tech buildings and some others, we are, I would say, very well, well positioned in these sector. That is, we see growth in these sectors, and especially now the aviation sector, where it has been under investment for many, many years, and we see several mega projects coming on that side. USA Civil, and you can see, like, the number here is low in the quarter.
USA Civil is the unit where we always have a lumpy lumpiness between the quarters. I'm very confident that we will catch up with the order bookings during the remaining part of the year here. The markets in the pipeline, we see a strong growth there, and we see several mega projects that we will be active in and also compete for. We have the I-4 that I just mentioned, and we have some other projects that are in the pipeline. So I'm very confident about the civil sector and the order bookings there for the full year.
Latin America, on the other hand, on the other side, this is a weakening market, and we don't want to expand that business, because if you have some problems, then why expand the problem? There we go in the other direction, we will be very restrictive about the new bids, so I think that you should expect that business to shrink. That's part of the turnaround plan that we have there. So all in all, I'm confident, and I think that we have a very good situation going forward regarding the order situation, which is the foundation for the future in construction. So with that, I hand over to Mr. Peter Wallin, our fantastic CFO.
Thank you. Good that you remember my name, Johan. Good morning, everyone. So here we have the numbers now for the various business streams. I'm gonna start with construction, as always. Revenue increased by 1% in local currency to SEK 26.9 billion, and we are showing a gross income of SEK 2 billion, which puts the gross margin at 7.3%, which is a slight uptick then compared to the previous year. As you all know, Q1 is the most boring quarter of all the quarters for a business in our, in the Nordic hemisphere. But, we are quite happy with the results still. I'm gonna go through the various markets. Starting with Sweden, where we are doing, a good business, 2.1% in operating margin, and no, we haven't moved the profit take on NKS.
Norway, Finland, as Johan alluded to, acceptable margins now, and the teams there are doing a fantastic job. As we're gonna see the year progress, we are quite looking forward to see what the teams will do going forward. Then we have two negative results in Poland and in the Czech Republic, and you might think that they shouldn't have so much winter impact if the Nordic doesn't have so much winter impact. But this is the pattern, the activity pattern in the market, which creates a negative dent into because we have full cost for organizations and machinery and equipment. These businesses are operating well. U.K., starting talking about the businesses operating well. They are doing a fantastic job in the U.K.
As you know, the market has been quite tough, and now it's opening up, and we are doing a good job, and we are well-placed to take on the improvement in the market here. USA Building took a quite severe hit in terms of both volume and EBIT in absolute terms because of the weather impacts, actually from north to south. If you also compare to the previous period last year, we had a number of very high-burn projects that has now been completed. That sort of creates a situation that the volume and EBIT on a percentage basis have moved down. Civil, top line is growing by 10%, but margin is then moving downward somewhat. Here we have taken some costs for the winter in the quarter.
As we have stated before, the super high margins we have seen in this business is sort of going down towards the 7% mark that we have talked about, 6%-7% mark, which is where the market is at the moment. So there, there's a combination going on here. Latin America, negative number. We are quite conservative in how we are taking profits in some of the projects, and we are incurring additional changes to the projects. And until we have gotten those completely approved by the client, we take the full cost for them in the results, and we are not taking revenue until we can actually send an invoice. So that's why that explains some of that numbers you see there.
The business is under severe pressure right now in order to revamp it into a profitable business. Going into the second stream, residential development, well, here you can see from the top line, slumping by 23%. Sweden growing, Norway, Finland decreasing quite a bit. Johan has explained the reason for the Finnish movement down. The Norwegian market is somewhat weaker, so we are very conservative with starting up projects until they hit the presale levels. Which means that on a gross margin basis, and I repeat this again, the gross margin is what you should look at if you look on how successful we are in the profitability in the business.
The selling and admin percentage will move up and down, because the selling and admin costs are more or less fixed each quarter, and the percentage over the revenue sort of could shift dramatically, and that creates a situation on the EBIT percentage. But we are very happy with the progress we're making here. Over the various market, the Swedish organization and the Swedish, good Swedish market is creating a good boost to the bottom line, and we see an operating margin here of 8.3%. Norway down in absolute terms, but still, quite a good margin, you can see. And in Finland, the margin is going down because the selling and admin there is eating a very big chunk out of the gross margin because the sales volume is dropping.
Other European countries now consists of the Czech business, which are doing very well, despite a tough market. You have an upstarting Polish business, where, we will start up, new projects during the year, pending that we can get and hit the pre-sale levels. And then you have a UK business, which is on the run-off. So this business should be easing in more and more into the black. If you took look on the, the sold, pattern, we are staying more or less stable here now, as you can see. We are not intending to grow the business as such because of the capital constraints and return constraints we have put on the business. We see better return, potentials in other parts of our business.
Homes in construction, as you can see, almost 5,400 units, of which 69% is pre-sold with a binding agreement. That is a bit too high. We would really love that number to come down a bit, because it means that you don't have enough inventory to sell. So we will hopefully, on the back of improving markets, stop or start up more projects, because when we then hit the pre-sale levels, it mean you also automatically have a sale in the quarter. The third stream, commercial development, it's a good activity in this stream. We have done a few sales during this Q1 .
What you might find it's a bit interesting is the fact that why do you only show SEK 135 million in gain on the close to SEK 950 million you have sold properties for? If you, if you looked on one of the pictures that Johan showed on the CD side, you had a project called the Watermark Seaport project in Boston. This is a project which we have owned and developed, and we have now sold that project into JV with an external party, which means that we have reported the full revenue as the project stands today in, in the revenue line, but no profit. The profit will come when we have developed the project and then selling our share in the JV.
I will have to explain why the margin is so good, but that explains why the margin is so low now. Underlying, we are around the 20% mark, and I'm sure you're going to be curious on how we're going to mark the project we announced two days ago as well, but that's going to hold up until July. Divestments, this is a business which is a lot of activity in. We are doing close to SEK 7 billion now on a rolling 12-month basis in sales, divestments, with an average of SEK 1.2 billion-SEK 1.3 billion gain. So this is a very high activity part for our business right now, and on the back of growing the investment base, because our cash flow, as you know, is also investment into future profit.
So this is something which we are increasing all the time, and I'm going to show you that on a very interesting slide here. If you'll take a look on the... This is the value of ongoing projects at completion on each of the various quarters. So you start up in 2003, quite low values, and then you have the Lehman crash. Remember that? And then it just starts to build up, and exactly as we have stated in the strategic plan, growing our product development businesses. So now, the ongoing projects and is growing all the time. And it also means profits going forward will increase over time.
We have close to SEK 4.4 billion excess value of the portfolio right now, and we see a strong interest from both investors as well as tenants, which puts me into the next picture, the leasing. The leasing increasing on a rolling 12 -month basis. Q1 is kind of soft, but we see a huge interest of leasing our projects. So this is a number which is important in order for us to start up projects the way we're doing. This is a mitigations, of course, of the risks, completion versus rented percentage of the ongoing project portfolio, as Johan has talked about as well. Coming into the fourth and last stream here, ID. Very steady business.
We have not sold any projects in the quarters, but as you can see from the line, income from joint ventures, that is where the income is creating in ongoing projects, in one projects. Here you can see that it's increasing. We have a nice portfolio now, and the Midtown Tunnel in Virginia, USA, is increasing its revenues now, so that is part of what is increasing the EBIT in this business. Since we haven't sold anything, and it's only one quarter moved, not so much has happened with the value either, other than we have a very good and conservative way of appraising the value in this business. Normally, we sell a bit higher than we are internally valuing the business.
So if you package it all together, and then you have the sum, you count to SEK 873 million per stream. Then you have central, which is all the central functions of the group, SEK 181 million, which is an increase over the Q1 last year. In the Q1 last year, you had one sort of a positive impact from a pension adjustment, which hit the number somewhat, which explains part of the difference. And then I know that it's impossible for the poor analysts to say what the elimination is going to be in the quarter, but you can see how much it increases. And the more we have in ongoing projects, new ongoing projects, the more this elimination from a negative end will, will increase, because that means that the construction profit of projects we still own is something which we reduce here.
When we sell those projects, it will go the other way around. Operating income of SEK 656. We have a reduced net financial items at SEK -62. Despite the fact that we have extended the duration on, on our loan portfolio, we are decreasing the interest rates. This is a good time to be borrowing money from that point of view. Income after financial items, SEK 594, and now we are back to the 25% tax rate, 25, 26, as we have talked about, as you can see, putting us at a net profit for the period, SEK 445. Cash flow, SEK -3.3 billion in the quarter. Normal patterns in the Q1 . Working capital leaving us, which we got in the Q4 , you're going to see that on the next slide, on top of which we have net investment.
So Q1 last year, we've sold a number of properties which we got them the money for during the Q1 , 2013. Surprise, surprise, we are also getting SEK 900 million in the Q2 this year for properties we have sold and reported in the income statement last year in the Q4 . So, so this is the way it works. But on a growing way, gross, we will continue to increase our product development, albeit not increasing residential. Talking about then the working capital in construction, you can see the bars, which is highlighted as dark, moving downwards, and a very huge swing between the fourth and Q1 , always, as you can see.
Dramatic changes this year, and I would say that it was expected quite a bit leaving us, so it's nothing strange here. As we are growing the revenue, the red line will continue to decrease somewhat, but the bars will start to increase. In absolute terms, working capital will start to increase. If you think about it, if the market improves and the type of contracts you see out there in the market changes to the design-build projects, this is going to be benefited positively, and especially if we can continue and win the PPP projects. We are in a good financial position. One target we have is the ONFA, operating net financial asset/liability, which we now have at SEK 3.3 billion.
We have an equity to asset ratio of 25%, which is quite good. The changes, of course, predominantly are due to the cash flow of SEK 3.3 billion. Because of the low interest rate, we have also increased the liability from pensions by SEK 300 million in the quarter. On this, the additional SEK 300 million then explains the difference in the net cash position we had at year-end, moving down to negative SEK 2.6 billion. Change in equity, not much has happened apart from the pension and that, so more or less equal to what we ended last year with. We are continuing to invest in our development streams.
If you look here on the RD line, you can see that RD has moved up SEK 600 million between the Q4 and the Q1. As we talked about in the Q4 presentation, we are now moving the remaining part of the best premium locations here in Stockholm, from which we held centrally in the excess land bank, back into the Swedish business, because now the Swedish business can really take care of this land, and we have also developed additional building rights on it. That increases, that explains the increase on the RD line. We will maintain this level on RD now, and we will increase commercial and infrastructure development. With that, Johan Karlström? Our very good CEO.
I think that we have touched upon the market and during the presentation, but let me summarize anyway. Overall improving in construction, and we see a positive picture in the Nordics. A little bit divided, though, between some of the markets. On one hand, we have Finland, weaker economy, and we see we expect a weaker and a weakening construction sector as well due to that. In Norway, it's divided. The public sector investment invests a lot on that side, but it's weaker on the more on the private side. Sweden, I will say overall stable. In Europe, strong in U.K. and in Poland. We maintain the view of Czech Republic.
Maybe there's going to be something here later on this year, a change. In the U.S., really good to see that the good market continues. But I think it's important to make a comment here regarding the civil sector. It's fewer projects, mid-size, smaller ones. So the whole market has like, you know, tended to, like in a move towards mega, complex, large design- build type of projects, and we see more of PPPs and different type of financing financial components involved, which is exactly what is good for us because we are one of the players there. But it has also meant that several of the smaller companies now JV with big international players to also to come into that segment.
So that means that even if it's a lot of product there, it has also moved in several competitors to that market. Latin America remains weak. The residential market in the Nordics, strong in Sweden, somewhat weaker in Norway, and in Finland is definitely the weakening market coming from the underlying economy. We maintain the view regarding Prague and Warsaw. We have some smaller businesses there, stabilizing in Prague, and we also have some positive views about the Warsaw market, but we still maintain the overall view about the combined situation for these two cities. Though, we have changed the view since last quarter regarding Central Eastern Europe.
And that's coming from especially about the situation in Poland. We are active in six cities, including Warsaw, and it's a high activity there. A lot of requests for tenant from tenants regarding different space, office spaces. And we also see a growing interest from investors in that market as well to buy our offices once they are completed. Very important, though, that it's like in a very good locations and, and, so, so... But that is, of course, the product and the segment that we target. Continued high interest in Sweden and in, and especially in Sweden, both on the investment side and, and, and on the, from the tenants there.
And, in the U.S., in the four cities where we have operations, we see vacancy rates coming down, and we also see an interest from investors to buy the assets from us once we go to the market with them. On the infrastructure development side, basically no change since last quarter. A lot of activities, a lot of products continue to come that we see in the market in U.S. Very thin pipeline, including U.K., in Europe. So with that, Magnus, should we go over to some Q&A section here? Yep.
Yes, and we'll do it in this order. Let's begin with questions from the live audience here. You will have to talk or state your questions into the microphone, which we have over here. Please say your name and the company you represent before stating your question, and then we move over to questions from the telephone conference and the webcast, if there is time. So, Eric?
Thank you, and good morning. Erik Rönnqvist from Carnegie, here in Stockholm. Let me just start off with a few questions within construction. Could you mention something about the U.S. energy sector? I know that you did mention it in the report once again, that there are some delays. Have you seen any change there during Q1 in terms of the order pipeline?
No, it's basically the same view as we had previously. It's a market, a part of the market in the U.S. that we are definitely interested in, and we are on the way to position ourselves into that one even more compared to what we have had. We see products coming, but we see some delays there, but it's like a, it's on the way, but it's a wave of products that will come.
Thank you. Then just moving towards the Nordics, again, strong showing from most of the Nordic countries, especially obviously than Sweden. In terms of your competition here in the Nordics, we noticed that the latest project you took in Norway was together with the JV partner, which is rather international actor. Could you say something about the competitive landscape? Perhaps not so much in Sweden, but especially for Norway, where the infrastructure pipeline is so strong.
Yeah, we see a lot of players coming to the market, especially into Norway, where there is a big infrastructure program, both visible, but it has also been announced by the government. Several of the international players from Europe, they are there. We see more of the big companies coming to the civil sector, and I think that the reason why we see them there, it's easier to move capacity and move into a new country and a new market on the civil side. It's more difficult on the building side, because you need to understand, you need to know the subcontracting market, the local circumstances, and so on. It's trickier on the building side than on the civil side.
That's the reason why you see more of these international players, more on that side. On the building side, though, it's always coming up new players in the market. The competition will be there. It's gonna be tough. It won't be easier going forward, and it's, that's the situation. I think it's actually a healthy situation. And, so that drive us to be even more competitive going forward.
But has it, in your view, affected bid margins in any sense in terms of, of the civil sector, the fact that you have more competitors now? Or is it basically just the backlog that you're building now does contain healthy bid margins, and then hopefully then operating margins as well?
We focus on the total cost. The bid margin is just a fraction of the, of like, you know, the total price. And it's much better to attack the 95% instead of the 5%, which is like, you know, the profit part there. So that's how, what we work on. And the good part with like, you know, with the market now with the big civil sector coming in, is that it has moved from smaller projects already designed by the client, over to design-build projects, more complex. Which means that the competition is not only about just price, exactly what somebody else have designed. We can come up with, like, you know, alternative solutions in the design.
So we can compete not only on, like, you know, with the price tag, but also with a smart, technical, and alternative solution. So that is good. So that has, like, kind of moved over to that. We see more and more design-build projects, both here in Sweden, I'm talking about civil now, and, and in Norway.
Okay, and then the final question, I guess you will get this, every quarter now for a while. It regards Sweden. Is the share of the volumes in Q1 that stem from NKS at a similar level as we have seen previous quarters, or has that changed to any extent?
It's a similar level, and the activity there is very high there right now, and it's like, it's at its peak, I would say, yeah. The current cost.
Thank you, Erik. Next question?
Hi, Niclas Höglund, Swedbank. Maybe to follow up on NKS. Could you comment what we read in Swedish media about some postponement and some delays on the piping side?
The project is going well. We are following the schedule. Several of the phases we are actually ahead of the schedule. We will deliver it on time to the clients. And it's like in a gradual handover of different phases. And what you read in the media, it's more like... It's an election year this year. So that is like, you know, maybe the reason why you see it there. I think it's important to state that there has been no cost increases for the client whatsoever in the contract that we have. Then the client have ordered additional scope. But and of course, we are happy to deliver that.
But it has been a confusing and a conflicting message in the media here, and I just want to be clear about that. It's gonna be a fantastic project once it's completed for all citizens here in Stockholm.
If I may also have a question on Latin America. You're taking down your exposure, you're being more selective in the market, but these ongoing projects, these SEK 50 million losses in the quarter, for how long will we, sort of, should we expect that to continue?
How long is a string? We are working very diligently, of course, with reducing and mitigating risks in the projects we have. But when we see increased costs, and when we see an unsecure situation in taking costs, not sure we're going to get the revenue, we are taking the costs head-on, and that's the way we have to deal. And I think it's fair to comment, if you look on Latin America, it's two streams of the business.
You have the operation and maintenance part, and then you have the regulars type of construction contracts. The O&M part is very stable, whereas you're gonna find the most tricky part in on the construction side. So we are working very hard with the situation. We are ramping up our risk management and control of the projects, but it's, we have to take the costs when we see them.
Then my final question on that competition in the U.S. You were talking a little bit on the fierce and high competition, and then that margins will eventually come down to more normalized level in the U.S. Could you elaborate a little bit if the competition has increased even more than already in this Q1 , or is it unstable, stable, high competition?
It is. If I compare the situation now with, I would say, like in four or five years back, then you see a different pattern, a different situation, especially in Northeast. But the situation that we have today, the current situation, we have lived with that situation for several years now. So there is basically no change. We talk about the competitive landscape.
Well, you have a rather low order intake in civil, and we've heard that it's tend to be a little bit lumpy. So you shouldn't say—we shouldn't expect you to have difficulty to finding projects to that can meet your your return requirement at this point. It's more about the timing of the project, so?
It's about timing of the project and we know that the product is now like in a, you know, have like an a tendency to be larger and larger, which means it's gonna be even more lumpier, you know, between the quarters. And I'm very confident that we will catch up the order bookings.
Thank you.
Questions? Any more?
Hi, Jonas Andersson from Danske. I had a question or two questions regarding the U.S. First, if we look at the sales, it seems like building has been impacted by the weather, but not civil. Is that the wrong interpretation?
It's both yes and no. Building, because building has been impacted by the harsh weather. I just want to make a comment before I go to civil, on building first. And the comparable period last year, the Q1 last year, we had a very intense period of, again, several mega projects that were, like, on the way to be completed. So we had, like, a big burn rate on those, and with a good result. So it's a mix of the comparable period, but also the winter impact. The winter impact has also impacted U.S. Civil. But as we have, like, in a growing revenue in U.S. Civil, if you then compare, like, you know, the year-over-year, maybe you don't see it, but it definitely happened.
Okay, thank you. And just one more question regarding the potential acquisition in the U.S. Can you elaborate on the situation? What's on the price tags? Are they coming up, or are there any companies for sale?
There are always companies for sale, if you're willing to pay a high price. We're constantly working. We're looking at, you know. We're following our strategy. You're gonna be the first one to know, together with everybody in this room, when we have something to announce.
Okay, thank you.
Stefan Johansson, SEB. First question, you mentioned that you had the opportunity to pick and choose a little bit where to invest. You, when you say that you don't want to increase on the residential side because other projects are more interesting. So can you possibly just elaborate on which areas that you see that there's more opportunities in?
Yeah, well, the areas is definitely CD. And CD now we have sort of the three hubs operating on a very good level, and we see a lot of opportunities in all of those three hubs. But perhaps you're gonna see the biggest growth in the U.S., where we have a lot of product leads in the four markets we are in. When it comes to ID, it also becomes lumpy. For example, this I-4, when it's financially closed in the second half of this year, then we're gonna book the contract in the order order intake on the construction side. The investment you will not see until 2017, 2018. So it takes some time to grow that part.
Yeah, and seems like in some regions there is definitely improving markets, as you mentioned. Is that also visible in the bidding processes? Are you seeing, should I say, less competition in the pricing, so to speak, in some of the regions, or is that too early from the small improvements that are present?
We see no change. We talk about the competitive landscape and the competition. There's a lot of players out there, and I don't think it's gonna be easier.
Thank you.
Thank you, Stefan. Any more questions from the live audience? If not, let's move to the telephone conference. Questions.
Thank you. Ladies and gentlemen, if you have a question, please press zero one on your telephone keypad, and you will enter a queue. That's zero one if you want to ask a question. We have the first question from Mite Ann Kim from Standard & Poor's. Please go ahead, madam. Hello, Mite Ann. Ann, your line is open. We move to the next question that's come from Mr. Tobias Loskamp from HSBC. Please go ahead, sir.
Yes, good morning. I just have two questions. The first one is whether you can comment on how much of capital you are willing at max to contribute to the CD business? And the other question that I have is, given the, let's say, rather small size of the Latin American business, which you now want to shrink, I mean, are there some thoughts about exiting the market, let's say, disposing of the maintenance activities and maybe closing down the construction activities or selling it, given that it's relatively small but takes up probably more management attention than it should?
Okay, if we take to the first part, which is how much do we willing to contribute to the CD? Well, we would be willing to increase that quite a bit, and you will see that we all will increase that quite a bit. The issue with the very high activity on selling, you might not see all of that increase in the capital employed because it, the products leaves us quite quickly. But we have very well-defined risk metrics. CD is operating well under those risk metrics, so we are willing to invest quite a bit there. The second question, coming to Latin America, Johan, would you like to take it?
Absolutely. If I understood the question right, from you, was that should we exit Latin America or not? There is a full focus right now to turn the business around. A part of the turnaround plan will be to shrink it, to focus on the part of the business that is profitable, that is healthy, to run down that one, and we have no plan to exit now.
Okay, thank you.
I remind you that if you want to ask a question, you have to press zero-one on your telephone keypad. That's zero-one to ask a question. We have the next question from Mr. Martin from Bank of America. Please go ahead.
Hi. Yes, good morning. I have just one question. It is on Czech Republic. Given the improving outlook that you mentioned in your presentation, do you expect Czech Republic construction to be profitable in 2014, in terms of margin?
The negative number that you see in the Q1 has the same pattern as Poland, because it's like in a, that is like in a, how you can call it, like in the culture, in the business and business environment and, and in, and in the construction industry. It's actually low activity there during the Q1 . I question, why should you shovel more snow down there than in the Nordics? I can't understand, but that's just the way they do it here, there in that, in this industry. So the, the... Yes, we expect both Poland and Czech Republic to go, to come back, for the full year to positive numbers.
Okay, thank you.
There are no further questions on the telephone. Please go ahead, speakers.
Okay, then that's it. There are no questions from the webcast either. So with that, thank you, all.