Okay, good afternoon, and welcome to this presentation of Skanska's nine-month report. My name is Magnus Persson, and I am succeeding, starting today, Pontus Winqvist, in the role as responsible for investor relations in Skanska. Pontus is moving on internally, and will take up the role as CFO for our infrastructure development business stream. The event here today is combined live, here in the room, obviously, with the teleconference call and also webcast. The report will be presented by Skanska's CEO, Johan Karlström, and CFO, Peter Wallin. And you're all very welcome to ask your questions to Johan and Peter, but please wait with the questions until after the presentations are finished. Johan?
Thanks, Magnus. Good to see you all here. I know that we have a lot on the webcast, and, but it's always good to have some faces in the room, so we have an audience to speak to as well. My first slide here, you see the breakthrough of the second tunnel in the Hallandsås project, which was, you know, that is a project that we have built for many, many years. And, finally, we have also finalized and, or at least, the breakthrough in the tunnel, so we can walk through it today.
It's gonna some work that remains, that we will complete, and then we will hand over to the road and railroad authorities, so they can do the finishing work, and finally open it for track traffic. So with that, moving over to the nine-month report, and I want to give you some highlights here in the beginning, before we dig into the numbers. What you can see in the report is that we have increased the revenue by 4% if you... in the three quarters compared to the same period last year in Swedish krona, and 7% if you take a look at the local currencies.
We increased the order bookings, and the EBIT is also up. So I think overall, it's a stable report. One thing that I think is very important for us, and that is that we have improved the result in the residential development operation. You know that we took a charge 1.5 years back, and we restructured operation, moved it together with the construction part, the residential and commercial constructions. They are in the same organization, working closer together, and now we start to see impact from that change.
In Czech Republic, we have taken a charge of, in total, SEK 220 million, and that is coming from a depressed market that we've seen some years, and we have written down assets and projects according to what we think that their level should be. And we expect that the market will continue to be depressed and at a very low level in the years to come. In commercial development, there's a lot of activities. We have started up new projects.
We also have high activity on the divestment level that you see in the report, and maybe you have also seen that yesterday we went out with an further divestment of one of the big offices that we have built in in Warsaw, in Poland. When you look at Skanska overall, we are in several countries, we are in different sectors, so I think it's a well-balanced, and it's a, you can say that it's a risk-mitigating type of asset or share that you see when you look at Skanska.
Also, when you look at the market, I will talk about the various market a little bit later on here, but it's a mixed picture, but when you put it all together, it actually balances out each other, so it's a stable outlook for the overall market. Moving into construction, you see that the revenue went up 6% the first nine months this year. And the order bookings have also been good, especially in the Nordic region, in USA Building, and I think that to that group, I think that we should add Poland as well. And I will show you in a while the breakdown between the various business units, and I will give you some further comments there.
The operating income, you see, it's basically at the same level as previous year, and it's we have also eaten the SEK 220 million in Czech that I mentioned. One thing that is also extremely important for us there, and that is we can see now that the profitability in Finland and Norway is on the way up to the level where we expect it to be. We are cautious in the profit takeouts to—I think it's important to be conservative, but even with the this conservatism that we have in the profit recognition, you can see that the level is on the way up, so we will hope that we will finally reach the level where we should be.
Talking about the profit, I think that we have to mention also the U.S. operation. It's a very strong operation that we have in both USA Building and USA Civil. Very good organization, profitable operation, rock solid backlog. Here you have a little bit of a breakdown of some orders, some of the larger orders that we landed in the quarter, and you can see that several of the big orders is coming from the U.S. And that is typically the pattern, that a lot of the large orders is coming from that unit. Looking at residential development, you can see that we have increased the revenue quite a lot, and it's coming from increased sales of apartments.
You can see here that both homes started and sold is around 500 more than the same period last year. And that, of course, increases the revenue. Looking at the operating income, you can see a big difference here, and the biggest contribution to the bottom line here, that is the Swedish operation. We have been helped by a favored market, and that has helped the sales, but we have done an enormous hard work internally to structure it and make sure that we get the synergies out of the combined business here, construction and the residential development. So we are driving down the cost, and you can see the impact here. We have the target that we disclosed, that we have disclosed to you, and that is called 10-10.
10% EBIT margin, 10% return on capital employed. We are not there yet, but we are on the way up to that target, and it will still take some years until we are there, because we have some projects in the pipeline that we have to work through, until we will reach the target. Commercial development, high activity, fantastic business, long track record of profitable divestments. And you can see here that we have divested basically the same volume as we divested last year. And you can also see that it's more or less the same profit that is coming out from that business as last year. We also started five new products in the third quarter, and already in Q4, we have started more products.
So, I think that you should expect Q4 and the coming year, or years, that we will continue with new startups and new divestments, and we are on the way to build up the business to a higher level in the company. One ratio that is very important to follow when we look at the business here, and all the ongoing projects to mitigate the risk, that is to compare these two percentages that you see here. If you look at the combined portfolio of the product that we are building right now, we always start the leasing activities as directly as we have decided that we start with the construction.
And you can see here on the slide, that all the 28 ongoing projects, we have a 68% pre-lease, and the completion rate in construction is lower, it's 60%. So we always compare those KPIs, and we will always want to be higher up with the pre-lease than the completion rate in construction. It's a good risk mitigator. We leased 93,000 sq m in the third quarter, and you see the number for the first nine months. This is a very good number. We view the market as quite okay, good, in the various operations, in the various metropolitan areas where we have operations today.
Infrastructure development hasn't happened so much in the last quarter. We maintain a very good net present value of SEK 4.6 billion in the operation, and we haven't done any divestments here in the third quarter. But as we continue to build the products, we create further value here for divestments in the future. This slide is something that I think is important that everybody understand. It's showing the Skanska model, the financial model. In the green box here, construction, we are running it with a lot of prepayments, so we get a big pile of cash from the construction units. So we are sitting on a positive cash flow.
We are using that positive cash flow and invest that into new projects in the development arm. We get a profit out of the investment, and on top of that, we also have a profit in construction when we build it. So we get profit from that flow in two boxes, both in the development, with the return on capital employed that we plunk in there, and of course, we use our own construction business. Today, we have 12% of the overall revenue; it's coming now from projects that we are now building, coming out from that positive cash flow, flow that we are creating ourselves in the construction unit. And you can see the breakdown a little bit further down here, how it develops between the three streams there.
Moving over to order intake, you can see how it looks, you know, several years back here in the history. And I think that the important lines to follow, that is the two lines that you have there at the top, and that is order bookings and revenue. And if you look at the order intake versus revenue on a rolling 12-month basis, you see that we have a 97% order intake there when we talk about the ratio Book-to-Bill. Which means that we are more or less now filling up with new order in the same way as we are using and reducing, and we are building up and taking off from the backlog into revenues.
You can see the numbers a little bit further down there. Talking about the, the order intake, you see the breakdown here between the various business units, Sweden, Norway, Finland, very good, order intake, I would say. When you compare and look at, you see the Book-to-Bill ratio on the rolling 12 months basis out there to the right, Sweden, 96%. And I think that, you know, the SEK 21.1 billion that we have, landed in order in Sweden, it's a very good number, given that we have a high revenue level coming out from the, all the big projects that we have, especially from the Karolinska Hospital. So more or less replacing the backlog, with new orders, even on that very high level.
You see good order intake in Norway, Finland, Poland. We see more projects coming to the market, and they are developed through the EU funds. Czech Republic, I would say a very weak market, depressed. The political system there is unstable, and in the near future, I don't think that we should expect the market to turn around. U.K., we start to see some light in the tunnel there on the private side. I will come back to that. And in USA Building, we have had a very good order intake there, and we see activities in several of the sectors we are strong in. Healthcare, a lot of hospital-type projects. In the aviation areas, that is airports, you need upgrades, new terminals, new security system, and that drives a lot of investment there.
Another sector which is active also in the US market, that is what we call high-tech buildings. That is different type of facilities for the IT industry and their need of new buildings. In USA Civil, we have lower order intake versus the previous year. But if you look at the $9.5 billion in order intake there, that is around, that is 94% Book-to-Bill, if you look at year to date number. And so the comparison with the previous year is tough, as because we see at that time, we had the big Midtown Tunnel, which was a mega order that came in.
Latin America, it's a lower number, and it's both coming from that we are cautious to take in projects, to make sure that we know what type of projects we are taking in, in the new backlog. And it's also a reflection of the market. Raw materials is down, and that means that the mining sector reducing their investment, and we can also see lower activities in the energy sector, especially from a big client like Petrobras. And that is the two niches we are active in, in Latin America. So overall, we had an order intake, a Book-to-Bill ratio of 97%, if you look 12 months back, which we are confident with, even if we have differences between the various units. With that, Peter, over to you.
Thank you, Johan. Good afternoon. I will talk about the profit and loss, to start with. So let's start with construction. Top line, as Johan said, grew by 2% in SEK and 5% in local currencies. The operating income was at the same level as last year, even though we have taken write downs in the Czech. I will comment those a little bit more. So we ended the period of nine months at roughly the same operating margin, 2.8%. So coming into the various countries, we are very active within construction. Sweden, we are still seeing a very good stable Swedish market, and margins are stable. If you look on the margins compared to last year, it's a tough comparison...
We had very successful ending on some projects in the previous year. At the same token, we have started up some really big projects on a conservative profit take this year. So it's still going very well in Sweden. Talking about something that is going very well and coming to Norway, we are once again improving gradually, sequentially on our turnaround plan in Norway. The team there is doing an absolutely fantastic job, and they are going from clarity to clarity. And the same goes for Finland, because apart from Norway, they don't have the benefit of a very good market, and they have done a fantastic job as well. So it's very, very good job from those two teams. Then coming into Poland.
Now you can see Poland without the famous road projects we have been talking about so much. 2.9%, we do expect a little bit more because 2.9% is the first tough start in the first quarter with a very big, heavy civil business, as Poland has. Now, coming to Czech. We have taken a net charge of SEK 220 million in the third quarter. That net charge is close to SEK 300 million in write-downs of assets, and to some extent, also restructuring charges. Assets, meaning fixed assets in terms of manufacturing facilities, write-downs in terms of, plants where we are operating, and write-downs of goodwill. Nothing you can do twice, and they, they do not impact cash flow. We have also written down some projects to adapt to the cost level.
So we have done that because Czech Republic is now one-third what it was five years ago, and the market has been extremely tough over a long period of time. And it's like, losing your income and having to move to a smaller house. You have to cut it down sometimes, and that's exactly what we've done now. Coming into U.K., tough market, even if it's improving somewhat. Great job by the team there. Good market, good margin, given the market, and it's also very stable and good risk management there. Another business where we have a good order of our books is USA Building. It's a tough comparative quarter for USA Building because they ended some very profitable projects in the third quarter last year.
So the 1.5% margin you see here is very representative of overall of the business right now, doing well. For USA Civil, they also have a tough comparison quarter, but they are doing great, as you can see. They are at the same level as last year over the accumulated period. Now, last but not least, talking about Latin America, where we are still experiencing some losses. And those losses are incurred because we are accelerating some jobs, and we are still not received a final confirmation of the additional works, and therefore, we do not take those revenues to income. So when we are agreeing, we will take those to income, but now we have only portrayed the costs for those accelerations.
So that's why we are hampered in the third quarter by the profitability in Latin America, and that leads to the 2.8% accumulated margin. Talking about something much more fun, residential. Here, we have a top line which grows 18%, 18%, compared to last year. Big growth. It's actually 26% growth in terms of number of volume of units sold. So and those units are actually cheaper, so you have a negative composition effect there. But, as Johan said, despite that, then because of the efficiency program and restructuring we started there, we have been able to improve the gross margin again. Remember what I said last quarter, look at the gross margin sequentially in percentage terms. This is the ninth quarter we are improving the quarterly gross margin.
We are also pushing down the selling and admin costs, which means that we are expanding operating income quite substantially, as you can see. So we end at the 6.3% operating margin. Taking a look at the various countries, of course, Sweden has been helped by the very favorable market we have here. Despite the fact that we are selling cheaper apartments in composition terms, we are still increasing the gross margin, and the efficiency rate is going up. And what happens then is that your return increases as well. So it's a good combo. Norway, tougher market. Here, we really want to see the presale levels being met before we start projects. So that's holding back the sales somewhat compared to last year. But you can still see the margin going up.
And Finland, which has quite a tougher market, but they are also increasing the operating margin. Then under other European countries, you can find the one project we have in the U.K. going on right now, the Polish business is starting up, and the Czech business. The Czech business is doing well, despite the fact that the Czech market is good. And the Polish business is starting to come up over sea level, because it takes some time for it to start up a business and get up into the black. So if you take a look on the total number of sold, 2,642, that's, remember what I said in the second quarter. We will not push out projects in the markets too quickly.
We want to make sure that we can do this efficiency improvements that we have showed, that we have, done in the numbers now. And therefore, I repeat what I said then. We can do tops 3,500 units for the year at the most. And that means when you have the sales corresponding to that number of units sold, your, your selling and admin is the same each quarter. So the impact on that, on the operating margin, might dilute the operating margin optically. So think about that. If you take a look on units in production, we increased the sale rate to 64%. The number of unsold is 396, which is an increase compared to Q2. It's a decrease compared to Q4 last year.
But the increase to the second quarter this year is completely due to the fact that we've completed so many projects this quarter. So it's now old projects, and we are selling from that stock throughout. Coming to the third stream, a good stream, commercial development. We are at almost exactly the same level in profitability as last year, SEK 569 million. And we seem to be sending out press releases about new deals all the time. Do expect them to continue to come. So you can see that the sales level we are at now is actually SEK 6.5 billion of sales value on an annualized basis, and close to SEK 2 billion in gains. That's something to look into when you look your forecast for this business.
If you take a look on the portfolio, the mix here between ongoing, because starting up ongoing is future profits. And during this quarter, we have started up six projects, and we have completed and even sold some of the projects already that, that has been ongoing. So the churn rate is quite quick. That's also good for the return, as Johan talked about in terms of the financial synergies. That means that we can start more projects and even dividend some money out to the shareholders. And this is built upon the premises that we can lease the projects we start. A very strong leasing activity in the third quarter, and it's also a very good sign that it's, it's possible to get tenants moving in, and investors like long leases. This is a good sign.
The fourth stream, infrastructure development, Johan said that there's nothing much happened, and I just want to say that they are working like crazy to put these numbers together, and they are doing a great job at it. But what we're talking about, we don't have any new deals coming in and any exits going out. But the portfolio is giving us a good return. So thank you for that. And the portfolio, if you look on what we've done, the FX difference in currency is zero. So if you account for the projects we sold earlier in the year, SEK 200 million, roughly, we have actually increased the development profit by a SEK 100 million, because those SEK 200 million is here in the pocket.
So it's a good development in this portfolio. As it gets maturer, value is created. So wrapping it all up, we get to SEK 3.9 billion from the B- the streams. Then we have central at SEK 402 million, which sounds like a very good number compared to last year. It is a very good number, but to some extent, it's due to positive one-off impact of closing a pension plan, which is in IFRS terms known as curtailment. SEK 124 million positive is embedded in this central line. Eliminations lead to the operating income of SEK 3,489 million. Net financial items increase compared to last year.
To some effect, it is due to the fact that we have been working with an average net debt, which has been higher, but also the fact that we have higher service costs for our the defined benefit obligations. All in all, we have a SEK 2.4 billion net profit, 581 SEK per share. The tax rate is 27%, and this is an uptick compared to earlier. This the only reason for this is the profitability in the US businesses is increasing, and the tax rate is higher there, so it's a blended impact. Looking at the cash flow, cash flow from business operation is improving as well. SEK 600 million negative, compared to SEK 4.9 billion negative.
The reason for this is, first of all, much more positive net divestments, more positive cash from the business, and then as a headwind, we have a little more working capital outgoings in the third quarter. Those working capital outgoings is to some extent due to construction, with the prepayments going down, and to some extent going to handing over apartments in RD, because then we lose the prepayments, and it goes down to divestments. So it's a technical impact. Then we have the dividend, and we net end at the cash flow net of SEK -3.5 billion for nine months. Looking at the free working capital, the negative working capital in construction, this continues to go down. And as you can see, in the graph here, the third quarter continues to go down in most cases.
Then we have a big uptick in the fourth quarter. Quite normal from a seasonal point of view, and as we are increasing our revenues in a quite good percentage fashion, given the current market, then the percentage of working capital divided by revenue, that goes down. But that is as is, as expected. It also depends on the mix of projects we have, whether they are big design build projects and PPP projects compared to cost-plus projects. Looking at the financial position for the group, we have total assets which are more or less equal to last year. Equity is going up, and interest-bearing debt is going down. Our way of looking at our investment capacity is looking at our operating net financial assets/liability, ONFAL.
ONFAL SEK 1.2 billion is at the same level as the second quarter last year. We ended last year at a little more than SEK 4 billion, and we do feel very comfortable with this level at the current state of the year. So taking a look at the change in the financial position here, we have the negative cash flow of SEK 3.5 billion going out, negative. Then, as a positive change, the increased interest rates in the environment right now, because of everything looking a bit brighter, is actually lowering our defined benefit obligations, our pension liabilities. And that is a positive impact on our net debt. So that puts it down to SEK 4.1.
To get to the ONFAL, which I talked about, we then only add back the pension liability and the liabilities to the co-ops. Because the co-ops liability, when we hand over the keys to apartments, the liability disappears. Change in equity. Increased profit also increases equity. That's an interesting notion. So that is what's happened this year as well, and it puts us at a good equity-to-assets level and a very conservative gearing. And looking then on the capital employed in our development streams, you can see that we are at almost the same level. So we are at a very good level now, where we can both harvest on the good market as well as building up future profits. It's a very good time to be in here.
we have reduced RD somewhat compared to year-end, and it becomes even more if you also take into consideration that we created something called excess land bank when we did the restructuring of the RD. So it becomes more markedly that we have reduced our RD exposure overall and increased the CD, commercial development.
Do you want your notes?
Absolutely.
Yeah. Taking a look at the market and the future. Starting with construction. It's a mixed picture. Different outlooks in different region, different countries. Starting with the Nordics, we view the Swedish market as quite favorable today, and the building sector in Sweden has started to be more active, so we see more progress there. In Norway, there is a lot of discussions now of increasing the infrastructure program, and it looks like it's gonna be even more investment now in that part, which, of course, we welcome.
But on the other hand, we are not the only one that can see it, so there is, of course, a lot of competitors and heavy competition from international company that's now moving into that country. Talking about the market, let's move into and discuss the other European countries. And talked, mentioned earlier about Czech Republic, and our view about how weak it will continue to be. Poland, on the other hand, we have an opposite view. We see now that a lot of EU fund is now channeled into that market, and the sector there, and the road authorities and railroad authorities, they're very good at handling these EU funds and have shovel-ready projects.
We can already see these projects coming from the new EU fund, and we have requests, and they're, well, working on the bids from that. We expect the volume to increase going forward. We're talking about the market now. U.K. I think that we should mention, talk about it in two different ways. We have the public sector and the private one. On the private side, we see increased activities, especially in London City, the City of London, with several of the typical office buildings and the high-rises there, and more discussions now about products there. So we can see a slow pick-up there in that market. Latin America had weakened, both in the two sectors, the mining sector and the energy sector that I mentioned before.
In the U.S., we see that the civil market, the public civil market with large infrastructure projects that is our target continue in the same way as we have seen before. On the private side, in the civil sector, and now I'm talking about the energy type of projects and industrial investments, we see now a hesitance from the owners of these big facilities, like a power plant. There is a little bit of a wait-and-see mode, if they should start the investment now, or if they should wait. We see a postponement of the project, and they are waiting now for more clearance from the political sector. So that is, and I will say, a new thing that we have seen in the market.
All these projects, both on the public side, but also on the private side, will come, and it's more of a questioning of a timing there. So we are still very positive in the long run regarding the USA Civil sector. In USA Building, there is a lot of activities, healthcare, aviation, data center, high-tech buildings, corporate headquarters, these type of projects that we focus on. And we actually see an increased activity there in those markets. Residential development, Sweden improving, especially in the large cities, Stockholm, Malmö, and Gothenburg. And it's expected to continue on a quite a good level because the underlying demand in Sweden is strong. We are building too few homes in Sweden compared to what is the need.
In Norway, on the other hand, we have seen a leveling off, if you talk about the prices, and it takes longer time to sell an apartment in Norway today, because the consumer confidence in the market has gone down. So the private individuals, the families, they have a tendency to wait and see, so we have now slowed down somewhat the activities in Norway. Finland is basically the same situation as we talked before. It's the market is slowing down. And in the other European countries, we have operations in Warsaw, and we expect that the Polish market there in the capital will continue to be good, and therefore, that's the reason why we are building up a new operation there in residential development.
Czech Republic, it's a small business for us, but it has stabilized on a very low level, and I expect it to remain on that level for some time. Commercial development, we see more activities, especially here in the Nordics, and that is on the transaction side, but it's basically domestic investors. The strong krona drives the international players in Sweden in other directions. So, but among the domestic players, we see more activities and more appetite to buy premises. And that is very good for us, because they're looking at modern, energy efficient, green, center-located premises, which is exactly the niche that we are facing, and that we are targeting.
We have a lot of activities in Poland, as you know, and we continue to see that market as very good. U.S. is now the market that we are ramping up our business in. It's a good opportunity, there's a lot of opportunities there. There's more opportunities in the market than we can handle. We have now good activities in Boston, Washington, D.C., in Houston, down there in Texas, and in Seattle. And we see, we think that there's gonna be more opportunities for us going forward in these four cities on the commercial development side. Infrastructure development slowing down in U.K., fewer products coming out through the PFI system.
But on the other hand, we can see a shift over to the U.S., where there is more infrastructure products coming out with the PPP type of contracts. So the focus for us going forward here, you have on the very last slide that we have in our presentation, is if you look, start to look at construction here, it's very much about U.S. We see a good opportunity there to build up our business in the long run. And of course, to turn around operation and adjust the cost level in Latin America and Czech Republic down to the activity level, where it should be. We believe that the Swedish operation and the Swedish market, it's good, and we should continue to take advantage of that.
And the efficiency program and driving down the cost and the design, increase the design will continue there. In commercial property, in the commercial development side, the greatest opportunity for us from a market perspective, that's in the U.S. That's not the—it's not the market that stops us there. It's more like, you know, what appetite we have and what speed we can build it up. But we want to be cautious because we don't want to build it faster than we have management to handle all the product that we see in the market. Sweden is a little bit the other way around. We have a strong operation. We have a lot of good managers. It's more of a question to find the land, the deals there. So it's like the opposite challenge there.
But overall, in commercial development, it's a very good activity where we're ramping up. And in infrastructure, it's about refocusing into U.S., where we see product is coming. The common theme here, if I look across the various boxes here, it's a lot about U.S. So if you look at Skanska now and compare it with how Skanska will look like two years, three years down the road, the U.S. operation will be a bigger part of the pie, and we are preparing ourselves for that. At the same time, the Nordics, the other European countries, will continue to be very important for us. But, the expansion and the future for us is very much in the U.S. So should we move over to questions, Magnus?
Yes. Let's move to the Q&A. And, we will do it like this, that we start with any questions here from the live audience. And, after that, we move to questions from the teleconference, and finally, from the webcast. There should be a microphone available for anyone in the live audience that wishes to ask a question. Any questions from the live audience?
Tobias Loskamp, HSBC. I have a first set of questions on the RD, RD business. Firstly, the U.K. market, have you exited or already, or are you still in the process, and are there some charges related to that? Or do you expect charges here? And then if I look at the Nordic market, it seems that you will be ramping up now houses, housing starts in Sweden, while maybe Norway and Finland is slowing down. So do you need some of the land bank that you put aside for sale? Do you need it again now to develop projects? And how are you progressing with the land bank sale?
Starting with the U.K., we are completing the project that is in the pipeline, but we will not start new ones. We see greater opportunities for our investment in the development operations elsewhere. The cost to complete it, it's already been taken. Maybe you can take the Nordics.
I will, I will try. Good questions, Tobias. Starting with your last question, the land bank sales. We are currently at SEK 1.3 billion in balance of excess land bank. And if you look into the land we transferred into the excess land bank, some of it needed further development in order to be marketable. So we have worked very actively in order to make it marketable. So don't expect that to be the end number. Very active development going on there. And we are quite sure about that in the resizing we have done of the Nordic businesses has been very much to adapting the level to the land banks it needs. So we don't think that we will need to keep anything in the excess land bank to a greater extent.
Okay, then on the commercial development business, I mean, your comment suggests that, or do you expect still in Q4 to see a good year-end development as we've seen last year, so that also the ROCE targets will be comfortably met in the CD business?
We will continue to start new projects, and we will continue to divest projects. But, you know, it's quite big deals, and of course, it can be a little bit lumpy between the quarters. But as we gradually are building up a bigger portfolio and a bigger business, the frequency of the divestment is going to come, like, closer and closer to each other.
Okay. Thank you.
More questions? Nothing more? Okay, let's take questions from the teleconference call.
Thank you. If you would like to ask a question, please press star one on your telephone. Your first question comes from Peter Chigalski from Skanska. Please go ahead.
Yes, thank you. Peter Chigalski. First of all, could you maybe comment? You were very confident in conjunction to the Q2 report to reach a 4% margin in Sweden? Then secondly, maybe you could also say a little bit more on Poland. The margins looks weak, even looking back before you had the large positive project. Is it only just an impact from start up, or is there any problem projects? And then finally, could you maybe comment a bit on RD and you know, possibilities to start projects, especially in the Stockholm area, where it seems like some of your competitors has problems?
Let me start with the Polish question that you have there in the middle. The Polish operation is a very solid operation, and you know that there's a lot of civil activities there which are very slow in the beginning of the year. We expect that the business in Poland will, when you look at it, for the full year, at the end of this year, that it's gonna look good. I don't think that you have to be worried about the margin in Poland. The first part of your question, I think I missed, but maybe Peter, you picked it up.
It was I who stated in the second quarter that our view of the Swedish business is that it is a 4% business. That is still our view of the business.
Then there was a question about, if I understood you right, about the residential development projects here in Stockholm.
Yeah.
We view the Stockholm operation and the Stockholm market is good. And, what we have now is, like, you know, we are building a capital base, and that is consisting of the land bank and, of course, of the ongoing project of a certain size. And then, we have projects in the pipeline coming out, and which is planned. And we have to have a long horizon here, because it takes five years from we buy a piece of land until we can start a construction, which is, I think that's one of the problems we have in Sweden, and we talk a lot with the politicians about, like, gonna shorten that. But that's a little bit of another story.
But we need a long planning horizon here, and this is not only in Stockholm, but in all the cities and the markets, submarkets here in Sweden. Therefore, we are building up, we have like in a pipeline of projects and, which we are confident with. It's hard for us to suddenly just ramp up it quickly, because we don't have a lot of projects that are sitting and waiting for that.
Okay. Thank you.
Thank you. Your next question comes from Niclas Höglund from Swedbank. Please go ahead.
Yes, good afternoon. A couple of questions, if I may. Firstly, if we start with Latin America, you were mentioning that you take a lot of costs, but no income in the quarter, which explain the losses in the third quarter. Could you give us some flavor on the magnitude, if you were able, will be able to recover some of these costs within, in what kind of magnitude should we see them?
I will not go in and talk about the sizes here and the actual product. The market there works a little bit different compared to other ones, to the other markets we operate in. In this mega project, there is a lot of change orders and costs for new design, which we complete. But there's, at the same time, a big discussion very often with clients, and now we have learned a lesson that we are taking the full cost for it, and until we have a written agreement, what the income part of it will be, we wait with the income, until we see that we have a formal contract on that side.
That's the way we treat it.
Okay.
So, which means we do it in the most conservative way we can do to be on the safe side.
Okay, then just to follow up on, is Latin America a 4% company or country?
I think that we hope that it's gonna be, but it's gonna take several years to be there.
Okay. Then moving on to the U.S. civil market. You're mentioning the energy sector slowing down, or at least not as booming as before. And you're also talking about delayed projects, probably in the market. Have you had any delayed projects in the quarter?
Yeah, when we talk about the delays in project, it's not project that has been delayed that we have-
Right
... booked. All the projects that we have, we have in the backlog and booked, they are fully funded and, and they go as planned. What we see is project that is out there for bids, that we are in final negotiation to be booked in the future. The clients there on the energy side, they have been more hesitant, you know, to actually start the investment due to some uncertainties regarding the regulations and-
Yeah
... the restrictions that they have to live up to.
Okay, and then a follow-up. Can you mention something about the energy? How much is that of the current backlog or sale?
It is a minor part of the backlog because the absolute majority of the backlog or the business that we have that is the public sector of the civil business, which is ordinary infrastructure like roads, bridges, tunnels, and mass transit type of projects. But we are targeting to move into the energy sector, and we have taken some projects there, but we see problems with the decision process from the clients on that side, and that is what we want to share with you.
Okay, excellent. Then moving on-
I want to clarify. On the public side, the ordinary civil project, the infrastructure part, we don't see that delay.
... Great. And then moving on to Sweden, could you elaborate a little bit on the current status in the NKS project? Is it still diluting your margin?
NKS, the NKS project is going according to the plan. We are very, we think it's gonna be a very good project. At the end of the year, it's gonna be 2,000 people on the site, so a lot of activities there. But the biggest part of the project is actually left to build. Even if you can start to see the shape of the building, and it's several years. So we are very conservative on the profit takeout until we are coming to the, I would say, to the end of that project. So it's diluting the margin in Sweden, yes.
Okay, and then my final question is, if I may, on your central cost, the closing of the pension plan added SEK 124 million in the quarter. Could you elaborate a little bit on the-- if we should expect higher service costs going forward related to pensions? Or if or anything else that might drag performance or related to the pension plan?
It's a good question. If you look on the service cost itself, it's made up of two main parameters. It is the opening balance of the net pension liability and the discount rate used. Depending on the level of discount rates and the level of liability, that also gives you the service costs. So, now, the liability has shrunk quite a bit, with SEK 1 billion year to date, and the discount rate has gone up somewhat, but then that should equate to a somewhat lower service cost. But that is still pending on what the year-end situation will be.
Okay.
No more questions.
I think we'll have to move to the next, to the-
Thank you very much.
The next listener.
Thank you. There are no further questions from the phone lines. Please continue. We have-
Do we have any questions from the webcast? Nothing more from the audience here. Tobias?
I have a question on the, on the Polish market. I mean, the EU Cohesion Funds, I mean, the, I think the budget has been set right now. When would you expect that the projects will actually start and impact your sales positively? Will it be early 2014, or will it move into 2015? And also, can you comment a bit on your feeling for how the competitive landscape has changed following several bankruptcies and also other contractors being more selective after they got their fingers burned? Thank you.
Okay, very good question. We now have a project that we are bidding for. We're working with the estimate to hand in the bids here in the fourth quarter, coming into the market with funding from EU, from the new trans- from the new part. So it's right there. We are working on it, and I expect that the winner of those project will start to produce them during the first half of next year. But of course, it's gonna take some time, it's before you really see the ramp-up in the market and the revenue stream coming, because it's always slow in the beginning. So you will see it there coming, of course, first in the backlog, in the order book.
But that will come in. You will maybe start to see the first one coming in Q1 and then Q2, and so on. The competitive landscape in Poland has been extremely tough. Several of the large competitors are in bankruptcy or in Chapter 11. They have big problems. I hope that they have learned a lesson, not going for bigger projects that they can handle, and that they're going for margin, the margin requirement, which is healthy, because it's good for us as well, there. I think it's a big lesson learned for many of the players there in the market. I think that we have been good in handling it, there.
So our strategy in the Polish market now, that is both to target the bigger projects coming in from EU, with the new EU funding, but at the same time, we are building up a regional operation, a regional business, because there is a lot of activities with middle-sized type of project throughout the Polish country. And you know, Poland is not just, not only Warsaw, it's a lot of large regional cities. So you can compare it with the operation we have here in the northeast in Sweden, with a lot of operations out there in the various municipalities and so on. And that is the type of movement we are building up that we are doing in Poland, which will strengthen us and build us even stronger for the future.
Thank you.
Okay. If there are no more questions, then we wrap this up and finalize the presentation, and thank you all for coming here.