Welcome to the presentation of Skanska's Q3 Result. My name is Pontus Winqvist, responsible for investor relations here in Skanska. The presentations will be held by our CEO, Johan Karlström, and our CFO, Peter Wallin. The presentation is a combined live presentation here in Stockholm, a webcast, and a telephone conference. After the presentation, there will be possibilities for questions. So with that, I welcome Johan up on stage.
Thanks, Pontus. I'm gonna bring my glasses with, my glass with me. No water. On the screen here, you can see, one of the projects, that we are working on in Skanska. That's, one of the subway projects that we have in New York, the 7 Line. Very good project for us, and now we have landed, an extension of that, which is worth SEK 2.4 billion, which we actually have booked in the third quarter. This is the type of market we are in New York, and, we really like that—these type of projects. So with that as an introduction, I want to go over some highlights, for the third quarter.
And here you can see that we have increased the order bookings. It's we have a positive trend which we have seen during some quarters, and we also view the opportunities that we will continue with that positive trend. We're delivering according to the business plan that we presented a little bit. Well, it was around a year back for the capital markets. In the business plan we had strategic investments as one of the main ingredients, and that was strategic investment on the product development side, we will continue with that, and also some bolt-on acquisitions, and we're working hard on that. And we have, as you have seen already, acquired a company in Finland in the beginning of the fourth quarter.
We're also taking the opportunity to divest the completed projects, where it's time for divestments. You can see that we have increased the activities there, especially on the commercial development side. We see opportunities now in the market. There is a lot of projects in the construction sectors, in all the countries, in all the geographies where we have operations, and there is a lot of activities in the bid rooms, and we can see some of that are coming in as order bookings. In commercial development, there is today a situation, an interesting situation with the financial crisis that we can view in Europe now. It's actually an opportunity for the commercial development side because there is a flight to quality.
There is a flight over to find more secure investments with good return. And the project that we have now in the commercial development side, that is exactly the type of products and projects that is so to speak interesting for those investors. On the challenging side, we have the building operation in Norway, which we're working hard on, I will come back to that, and also the Swedish residential development unit here. Let's move over and take a quick glance at the numbers, if we talk about the year- to- date, slide here that you see. The operating income is SEK 7.7 billion, compared to SEK 4 billion, and there you know that we have included the Autopista Central divestment in the second quarter.
The cash flow, SEK 1.4 billion, more or less in the same range as last year. And revenue in construction is up 7% if we take a look at it in local currencies. The operating margin, somewhat lower than last year, and you will see, we will dwell more on that when we're looking at the breakdown of the various business units, somewhat down from last year to 3.3%. And the order bookings in the third quarter is up 26% in local currencies. And now we have a backlog of 15 months of work, worth SEK 147 billion.
The book-to-bill ratio, which I think is a very interesting ratio to follow, it's actually, if you look at the order bookings, one of the most important one to follow, that is now in the third quarter, 113%, and that's an indication that we're gonna build up the backlog for further growth in construction. So take a little bit of a deeper dive in construction. Talked about the order situation, that has improved. The market, it is a mixed picture here between the various markets, where we see an improving trend, in at least the short term, in the U.S. And we see that the Nordic is more stable.
I will come a little bit more into it when we're gonna talk about the market outlook. So speaking of the rest of my comments to that slide. If you look at the performance in construction, the units that have good performance, if you talk about, you know, what we presented in the second quarter, had continued the same trend. The U.S. operations, both U.S.A. Building and U.S.A. Civil, performing very well, in the market and execution of the various projects. The Polish operation, extremely well, and there we have a very profitable a large civil project that we are on the way to complete.
Sweden is also one of the stars, if you talk about the performance, and the organization that we have here in Sweden is very stable, and I think it looks promising there. On the weak side, we have the turnaround situation in Norway. In Norway, we have some of the building regions that where we have made some mistakes, 2008, 2009, where we took on some middle-sized project that was priced in the wrong way, and now we have to pay the price for that. What we're doing now is that we are cleaning up that, changing management, closing down some of the local offices. It's important to know that the other part of the Norwegian organization, the other part of the building, plus the whole civil side, is performing well.
I'm fully convinced that we will turn the Norwegian organization into a profitable unit. In Finland and Latin America, we also see some write-downs. The Latin American disappointment is a write-down in a completed project where we had a discussion with the owner regarding a claim. In Finland, as I mentioned earlier, we acquired the Soraset company, which is a company specialized in the civil business. We have been small or weak, have a weak organization and weak business on the civil side in Finland. But going forward, we believe that the civil part of the market in Finland is very interesting. With the combined unit of the acquired company, including what we have, we see great opportunities.
On the slide here, you see some examples of the orders that we booked during the quarter. Several of them are in the U.S. We are, so speaking, looking at that larger products in that market. The first one is a university building in New York. This is a key client for us. We have done many projects for them, and it's very good to see that we can, so speaking, continue the relationship with them. You see two examples of subway lines in New York. Both of the orders that you have here is, so speaking, an additional package to projects that we're already doing on the subway lines.
We're building two large subway lines in New York right now, and it's good to see that we can land, you know, several of the packages that is coming out there. In Bergen, Statoil is spending some of their money. They are pumping up from the ocean, from the Atlantic Sea, and some of that will actually go our way, so we will build a new office building for them there. And on the slide, you can see the old Skandia headquarters at Sveavägen that we are now renovating. Some examples of the projects. Residential development, development, 4.3% operating margin, which is lower compared to previous year. We have had cost overruns in some of the Swedish projects.
The problem, so speaking, there with cost overrun is, you know, it's in Sweden. And then, of course, we have, so speaking, lowered the profit in those projects. In the market, we also can see a slowdown. People are more of, you know, the consumers, the buyers of apartments, they are more hesitant, you know, to decide about buying an apartment. Takes longer time to sell, which means that we are starting fewer projects, so we will slow down the pace of starts in the residential development. And that is especially in Sweden. We see some of it in Finland. Norway, it's another picture. It's a good market there. They have found some more oil sources, and we see more opportunities there to sell apartments.
So we will adjust the overhead according to accordingly to the market situation, especially in Sweden. We acquired some land in the U.K., we announced it earlier, outside Cambridge. In the beginning of the last quarter, we have closed the deal of a piece of land in Warsaw as well. In commercial development, in the third quarter, we divested properties of totally SEK 2 billion, with a gain of SEK 600 million. In the beginning of Q4, we have continued the work to sell completed projects up to SEK 1.3 billion. The niche that we are in, modern, green, energy efficient buildings, city centers or good locations with long leases, that is exactly the type of product that investors are now looking for.
We see a window of opportunity now, given, so speaking, of the financial turmoil that we have, we can see an increased demand for our products, and we will continue to sell the completed products and projects that we have. If some of them going to be closed before the year end or, beginning of next year, it depends a little bit, you know, how the discussion goes with, with the market and potential buyers. We have, a record number of ongoing projects, that we are investing in and building on, and building up the, the projects on. 26, with a total value of a little bit more than, what, SEK 8 billion.
That is a sign that we are gearing up for future value creation, because once these are completed, we will sell them and turn the capital around and start up new ones. In infrastructure development, is a long, a little bit longer lead times in the projects. The activities, so speaking, in a quarter, so speaking, is a little bit less compared to the other streams. But I can assure you that there is a lot of activities in the bid rooms now. We see we have sold 50% of the highway that we have in the northern part of Chile, the Antofagasta Highway. We invested in that project when we started, when we went for it, we went in with 100%.
But the strategy for us, that is, that we should not consolidate the projects, which means that we have to be sold down to 50%. The construction, we are doing 100% of. So we are talking about, so speaking, of the investment side here. And the money is in the pocket. Midtown Tunnel, a large project that we worked for many years in the U.S., outside Virginia or in Virginia State. We have reached commercial close, and we are now working hard on to close the financials. And we expect to reach that during the first half of next year. If you take a look at the order bookings in construction, you can see here that the book-to-bill ratio is around 100%.
If you look at the three first quarters, and if you look at the rolling twelve as well. So it's like kind of hovering around 100%. But if you look at the isolated Q3 number, it is 113%. And if you look at the graph here, the yellow line... Oops, now I did something. I put black. I thought it was- There you, I'm back. Okay. I thought it was a pointer. If you look at the yellow line here, you can see that it's like in a trending up, which is a good sign. And we have the feeling that we are in a positive momentum that we can continue that trend.
If you look at the breakdown of the order bookings, which you have here, and I think that the most interesting column, that is the book-to-bill ratio on a rolling twelve basis that you have in light blue there in the middle. The three Nordic business units, all over 100%. And you can also see that in U.S.A. Building and U.S.A. Civil, the order situation that we have booked, so speaking, during the three first quarters, on a rolling twelve basis, has also been over. The countries where we see the biggest problem with the governmental spendings, Poland, Czech Republic, and U.K., you see that there is so lower order bookings there compared to what we have used from the order books as revenue.
U.K., we see some light in the tunnel of, more projects coming to the market. Czech Republic is more problematic. It's a political turmoil and some uncertainties there. And they have, also problems with, so speaking, of the public spendings there, and they have to cut down the, the, the investments on that side. The Polish operation is, we are very positive regarding the Polish side. The reason why it's, below 100% is that we're like in running, we are more or less, you know, completing one of the mega projects there, and the revenue is extremely high on that project, which means when you compare it with order bookings, you will get a picture of, of, of, on the rolling twelve basis that the, that it's under 100%. With that, maybe over to you, Peter.
Thank you, Johan. I'm going to start going through the numbers, and we start with construction. The construction had a turnover of SEK 81.7 billion, which equates to a 7% growth in local currencies. Operating income stood at SEK 2.7 billion. In the operating income compared to the previous years, the currency makes the profit SEK 220 million lower. The operating margin was 3.3%, and if you look on the isolated third quarter, it was 4.2%. Looking into the goodie bag of construction, highlighting some of the positives to start with, Sweden is operating on a very good level, as is Poland, of course, standing out with a fantastic operating margin of 11.4%. Then we are performing very well in the U.S. businesses as well as in the U.K.
You can see the large negative swing on Norway here of almost SEK 400 million. SEK 100 million of that difference comes from a positive one-off effect last year we had of a pension one-time effect in Norway. We've sunk roughly SEK 90 million in additional reserves on project losses, estimated project losses. And in Finland, we have also incurred some project write-downs, and in Latin America. In total, in the third quarter, we've sunk probably in the tune of SEK 230 million. Going into residential, we had a turnover of SEK 6 billion, compared to SEK 5.2 billion last year. And as those of you who are reading this report very thoroughly, notice that the JVs are being gross accounted for this year, and that has added almost SEK 900 million to the top line.
So all in all, you can say you were flat compared to the ninth month previously. Operating income stood at SEK 258 million, and giving a quite low operating margin of 4.3%. The selling and admin is carrying quite a high weight, as you can see, compared to the net sales. And our way of accounting this from a segment means that we take the sold units and multiply by the price we sell them for, and the same goes for the profit. That is, a very transparent way of showing the performance of the business, although times like this, it hurts. Going into the various market of residential, you can see that the weak spot in terms of absolute and also reduced profit is in the Swedish business, as Johan has been talking about.
You can also see that the expansion has a negative, and that's the new markets we are looking into, i.e., U.K. and Poland. If we look on the homes under construction, we had roughly 5,000 homes under construction, of which 62% were sold with a binding agreement. Only 170 were in completed unsold apartments, having a book value of SEK 350 million, i.e., SEK 2 million per pop. We've started, during the period, 2,357 homes, and we've sold 2,314. In the third quarter, isolated, we've sold 617 compared to 709. And if we look on how this translates in unsold, you can see that the completed unsold is not very high, and the total stock of unsold also, has also reduced from the previous quarter.
Taking a look on the sold and started on a rolling twelve-month basis, you can see that the started is falling a bit here on the rolling twelve-month number, and we are hoping to turn that around. However, given the very tough conditions in the market, and given that we want to achieve the pre-sale levels, it will be very, very hard for us to live up to what we've performed last year in number of started and sold units, and thereby also affecting the sold numbers. Coming into the juicy bits of the commercial property development, we had a revenue of SEK 2.5 billion and an operating income of SEK 560 million, of which SEK 554 million was related to gains on properties sold.
And out of this SEK 2.5 billion, SEK 2 billion, then if we go to the sales is related then to SEK 1.4 billion up in the third quarter. Out of the SEK 2 billion, we have had settled roughly SEK 1.2 billion during the beginning of November now. And in addition to that, as Johan has mentioned, we have actually signed contracts amounting to SEK 1.3 billion in addition. We can say that the sales have been done 10% above the estimated internal market value. Again, strike emphasizing the enormous demand for this kind of properties. If we look on the portfolio properties we have, you can see the completed properties have a carrying amount of SEK 4.5 billion and a more estimated market value of SEK 6 billion.
And in the ongoing projects, the record number that Johan was talking about, we have an estimated market value of SEK 10.3 billion. Very important numbers to track. We track them, is the occupancy rate in ongoing projects and the degree of completion. These should be in sync with each other, and we think they are. So one of the key targets for us is continuing the good leasing done during the first nine months into the fourth quarter as well. Coming into the fourth and last business stream, infrastructure development, the number, the numbers are extremely big, given the sale of Autopista in the, in earlier in the year now. And as Johan said, we have had a SEK 93 million in additional gains on selling the 50% stake in Antofagasta. The cash flow on this sale was SEK 600 million.
So it's been quite good for the net cash situation. Now, coming into a very technical and complicated matter. As you know, we do the internal market valuation of the properties we have in the portfolio. And that portfolio of infrastructure project had a gross value of SEK 4.8 billion at the end of the third quarter. We then take away the remaining investment, the present value of that, coming to a net present value of the project of SEK 3.9 billion. And the carrying amount we have is SEK 2.6 billion, giving a SEK 1.3 billion unrealized development gain. So in these projects, in some of these projects, we have financed them with variable rates. So what we do in order to not have any cash flow exposure is that we swap them to fixed rates.
And what happens, the other side of this Greek drama coin, when the long-term interest rate is slumping, is that these are recorded and marked to market and gives a loss. That loss is taking over other comprehensive income in the equity. So in order to understand what will happen to the equity on various levels in our P&L and down to the last time, we have put this into two layers. One showing the EBIT, namely SEK 1.3 billion, if we were to sell all the projects up front. And then you would also get add back the losses taken on this interest rate swap. It is called, in accounting terms, cash flow hedge, but again, it does not change any cash flow whatsoever, and that's why we've hedged it.
Those of you who would like a technical explanation further, can talk to me after this presentation. Going into infrastructure then, and seeing the change, compared to the year-end, you can see that the net present value has increased from SEK 3.5 billion - SEK 3.9 billion. It's a 12% increase in value. And boiling it all down, the income statement, and taking all the streams and deducting the costs of the central, et cetera, gives us a group operating income of SEK 7.8 billion, compared to the SEK 4.8 billion we had the previous period. As you can see, the net profit equates to an EPS from a segment point of view of SEK 17.20 per share, and the tax rate is quite low, given that we've sold Autopista Central tax-exempt.
Since we are also selling the commercial properties in the Nordic countries, with very little or no tax impact, this affects the tax rate. Going forward, you should estimate the tax rate in the tune of 20%. Balance sheet, my favorite subject. We had an asset volume of SEK 80 billion and an equity of SEK 19.2 billion. The net cash stood at SEK 2.1 billion, and the capital employed at close to SEK 30 billion. The increases compared to the year-end and decreases in net cash is mainly due to investments and dividends and also pensions. This will not be the last time you hear me talk about pensions. Looking at the very important thing for us, that's the working capital in pensions. And cash flow and construction, forward and slip.
It remains at a good level, both on an absolute terms and on relative terms. And what's happened, if you look on the cash flow in the interim report, is that in the construction stream, we have some very profitable and very cash-rich projects. We are where we are now settling with subcontractors, et cetera, that leads to an outflow. And that is really the client's money that we have had on our books for quite some time. And what also happens is that some of the losses we have provided for, unfortunately, is absorbed with those losses becoming into fruition.
On the positive side, you know that invoicing in the newly awarded projects, they will start off be visible in the books, and fourth quarter is one of the best quarters for construction in cash flow terms. Group change in equity. If we look on the change in the opening balance of 20.8 billion, we have dividended out SEK 5 billion to shareholders, SEK 2.6 billion in an extraordinary dividend, and SEK 2.4 billion in the ordinary dividend. We have then the profit for the period, SEK 6.5 billion, and this is IFRS. Then large differences here now is, first of all, the pensions. The pension obligation is estimated by actuarial assumptions and discounting them back to today's present value. As you all know, when you lower the discount rates, you increase the value, or in this case, a liability.
We've lowered the discount rate by roughly 80 basis points over the year, and of which 50% in the third quarter. So all in all, undermining then the change in equity by SEK 2 billion. And in addition to that, we will have the impact on equity of the interest rate swaps I was talking about earlier, giving us a closing balance of SEK 19.3 billion. Looking into cash flow, we were at roughly the same level in cash flow from the business and change in working capital. And, the big thing here is, of course, then the dividend, which gives a negative cash flow of SEK 5.2 billion on operating side.
Looking at what has been happening between the SEK 9.9 billion in net cash, which we started the year at, we have the cash flow of SEK 5.2 billion, and then the change in pension liability, it was SEK 2 billion in equity, SEK 2.3 billion increase in liability, and that's the tax being sort of taken off when you count it into equity. SEK 1.7 billion of this was incurred in the third quarter. So if you take the beginning, what we started this quarter at was SEK 4.5 billion, take out pensions, and then a little negative between cash flow from business and the net investments we have made in the product development. One thing that we are measuring is an internal set target, which we call investment capacity.
That investment capacity is measured by looking at net cash and adding back the net liability from pensions and the net liability from loans to co-ops, to housing companies. And that is the internal target, which we think this is what we can invest in. We can maximum or minimum go to zero in this capacity threshold. We were at SEK 8 billion, SEK 8 billion, because this is what we see is the real net cash situation, because the pension is an interest-bearing liability, but it, it's an accounting exercise which doesn't translate into a debt right away. So SEK 8 billion should be compared to SEK 8.7 billion last year, and if you look on year-end, we were at SEK 12.3 billion.
Coming to investments and, divestments, the big one on the investment side, you can see we've plunked down SEK 8.3 billion of the first nine months, and the net investments stand at positive SEK 2.1 billion. In the positive side, you of course, have Autopista Central accounting for SEK 5.4 billion. So excluding Autopista, you have SEK 3.4 billion. We are investing, as we have shown, on the value creation, and, we have also announced an additional sales of commercial properties and not yet settled in the third quarter in a total of SEK 2.5 billion. So as a hint, I can say that we will have quite a positive carry from the development streams in the fourth quarter, cash flow terms. Johan. You want your paper?
Yes. Okay, good. So let's take a look at the market and see what we have in front of us, starting with construction. I can ensure you that there is a lot of activities in the various bid rooms that we have in all the countries and all the business units where we have operations. A lot of projects to go for, but we are not alone. There is also activities in the competitors' bid rooms, so fierce competition.
Some improvements, though, if you talk about the picture of the market in U.S. and in U.K. In U.K., we have portrayed a quite negative picture in the previous quarters, coming from the cut in the public spending and the review of the PFI model that they have in U.K. We can see some projects coming now to the market, with after so speaking the review that the governments have has done of the PFI models. We can also see that up in Scotland, for example, there is also some projects in the PFI sector that could be of interest for us. In the U.S., we are looking at some niches.
As you may know, we are more get to infrastructure, to education, different type of school works and universities. We are very much into the healthcare and hospital sector and also data centers, and we are not at all into the housing sector, which is very volatile in the U.S. And in the sectors where we operate, we actually see some a lot of projects coming to the market there. Norway is actually the best market for the time being. A lot of positives and optimists in the country, and we see that there's a great opportunity for us to land several big projects.
In the other part of Scandinavia, I should view it as, we've gone back to a more stable situation, for large civil projects and healthcare, also for healthcare buildings. The weakest market is the Czech situation and the Czech market. Residential, Norway, very much as the overall construction. We see a clear slowdown in the consumer's behavior in Sweden, especially in Sweden, and also to some extent in Finland. Czech Republic is a weak market, and in U.K. and Poland, we have acquired some pieces of land, and we see opportunities there for some further investments.
In commercial development, we have invested a lot in new products, and we see also that there is an increase in demand, as I've talked about earlier, about our modern products, modern offices that we have in city centers. We will definitely take advantage of the situation in the market and continue the divestment of the completed projects that we have. We also see stable or falling vacancy rates, both in the European markets where we have operations, but also in the U.S. In the U.S., we have operations in four cities: Washington, D.C., Boston, Houston, and Seattle. That's, so to speak, the four cities that we have decided to target.
We've been there now for a little bit more than two years, and next year, I expect to see the first projects coming to the market for divestment. In infrastructure development, more or less the same picture as before, the only change in the market situation is in the U.K., that I've already touched upon. In Latin America, there is a lot of projects. It's more also speaking a question, which one should we focus on? So if we wrap it up here, what's important for us going forward now, given, so speaking, the situation?
There's a mixed picture in the market for us, and there's a lot of activities, you know, in the early stages of projects, so make sure that we build up, you know, the backlog and land more projects. Intensive work with the turnarounds. This is something that is very high up on the agenda to make sure we turn around the unprofitable business and unprofitable regions that we have in Norway and Finland. We were lowering the activities in residential development.
We will not stop projects, but, you know, with a slowdown on sales, it will actually, so to speak, take care of itself, if you talk about the starts, because we have a pre-sale hurdle, and we wait to put the shovel in the ground until we have reached that hurdle. And now we see that it's take longer time to actually come to that hurdle. We will continue to take advantage of the favorable market of our products in infrastructure development, but primarily on the commercial development side. So with that, we are through the presentation, Pontus.
Yes. Then it will be time for questions, and we will start with questions here from the audience in Stockholm. Please, before you ask the question, tell your name and what company you are representing. Please, any questions? Jonas?
Yes, hi, Jonas Andersson, Nordea. I have a question regarding the residential business and the cost overruns. Isn't it normal that the construction part will take the cost overruns and not the, residential development business? And that's the first question. The other question is, I've seen that you have given some kind of incentives in some projects that you get, one year, you don't have to pay the rent in some projects. Is that also burdening the result, such incentives?
If I take the first part of the question, the cost overruns that we're talking about, the residential development, that's, you know, the cost overruns that should be taken by, by the residential development units. Not everything, so speaking, should be passed on to construction. So that's, so speaking, that, that's the part that hurts the residential development side.
Why, why isn't it passed on to construction?
Well, the cost, it's more, so speaking, the cost for design and for other parts, and for the sales process, and some part of the product cost that actually goes there. The other part is taken care of in the construction unit. The other question, I couldn't really get it.
Incentives.
The incentives,
Yeah. The incentives, we've actually not started the incentives yet. That's much more described in media with bikes, and beds, and stereos, and whatnot, but we haven't started it. If we were to do so, we would account for it, but you can say that giving a free period where you don't have to pay sort of the service charge in the co-ops is a very inexpensive way of reducing some of the uncertainties for potential buyers. So that's a very good means of achieving a higher pre-sale level. And the fourth bicycle, of course.
Okay, thank you. A follow-up question: Will, will there be any costs for scaling down the residential SG&A?
What we will do here now, we will follow the market very closely to make sure that we have the right size, so to speak, of projects started. A little bit dependent on how the market will pan out, and the possibilities to start products, we will adjust the organization accordingly.
Okay. Thank you.
Thank you, Jonas. Do we have any more questions here?
Up there, Alvin.
Hi, Alvin from Handelsbanken. I have two questions. One is on the pension. Will that end up in you having to increase some cash in, in assets, or is it pure accounting? And the second question, when you have a dividend policy of 40%-70% payout ratio, is that based on the IFRS EPS or the segment EPS? Thank you.
Okay. Pensions, I can't escape. No, it's an accounting exercise. The legal debt is something else. So it's an accounting, doesn't lead to a cash outflow, from that point of view, no. Payout ratio, it's segment.
Thank you.
Thank you.
Here in Tobias.
Yes, Tobias Kaj from Carnegie. Regarding the construction margins in U.S. building and U.S. civil, have you had any positive impacts of, for example, completed projects or something like that, that is boosting the margin, or is this an underlying profitability level that we see?
We are completing projects every quarter. But, I cannot see that we have completed more projects this quarter than other quarters. But in general, I can say that, you know, we will, as we go here now, continue to complete projects that have been taken in the favorable times in the past. But we are positive regarding the order stock that we have in the U.S. in general.
In U.S. Building, you have increased your share of design build projects, which normally runs on a higher margin. Is that something that is expected to continue, or have we now, you know, reached a higher level that we will continue to operate at?
I think that this is something that we are focusing all the time, and I think that we have reached, so speaking, the design build portion in the portfolio for U.S. Building. And I think that we will continue, so speaking, more or less with the same share or the split of the overall business there in with design build.
If we look at the losses in South America, comparing to Norway and Finland, where we have seen problems for quite a few number of quarters, actually, this is maybe more unexpected, at least from my perspective. What can you say anything more about those write-downs? Is it the risk that we'll see like four or five more quarters with losses in South America like we have seen in Norway and Finland, or is this more project specific?
The write-down, without an S, in Latin America, it actually from one project, and it's more or less a completed project, and it's a discussion with the owner regarding a huge claim, which we settled, so speaking in a way that we didn't expect.
Okay. Thank you.
Thank you. Yes?
Johnny from Swedbank. In Finland and Norway, how long do you think it will take to turn around that business? That's the first question.
If you start with Norway, Norway is like, you know, what we are facing right now, that's a mistake that was done, like in 2008, 2009. In some of the building regions of middle-sized projects that was taking in, so speaking with two tough margins, and also they expected that actually they could, you know, build it with lower cost. It was a discussion regarding where would the subcontracting market go? And it turns, so speaking, the other way compared to what was expected. What we're doing right now is, like, we are cleaning up those and making sure that we have the right processes in place, the right management.
We are changing management, and we're also closing down some of the local offices in Norway. Every quarter, I can assure you, we take upfront exactly what we see here. I hope that this is, so speaking, the end of it. There is no guarantees, but we are working really hard, you know, to turn the business around, to make sure that we go into profitable territory. In Finland, it's a much minor part of the business, and you can see that. Take a look at the numbers there. We have the same process going on there as well, and we also change a little bit on the management side there.
You couldn't give us a timeline here, when will we be back to more normal levels in-
Well-
terms of operating margins in those countries?
The other part of the business, in both Finland and Norway, that's, you know, they are performing on, so speaking, expected profitable level. So the project that we have written down, we write them down, we take all the losses, so which means that we will—we have to complete them with zero contribution to the overhead, because it's zero gross margin. So given that no further, so speaking, bad stuff surfaces, then the other part of the business will continue to show profit, and a part of it will actually continue with zero losses, and zero profit as well, because it's more or less dead volume, as we call it, with no contribution. So we hope that we can, so speaking, turn into profitable territory, so.
Okay, and may a last question then. Last time you were a little bit concerned about the midterm outlook for the U.S. Could you comment on any changes there?
Well, I would say, I would, so speaking, put it in a, in a perspective of, like, you know, what the, the visibility that we have when we looked at the product that is coming to the market, is a couple of quarters ahead. Because we see, so speaking, what's going on with the owners and the governmental sectors and what's, what's happening in the, in the various states. And the pipeline of project that we actually can, so speaking, foresee that is coming, looks good. If we should have, so speaking, a take- we, we should take a look at, so speaking, further ahead of that, and, you know, the long-term view, it's not possible to view it through, so speaking, the normal channels.
Then we have to look, take the macro perspective of what's happening in the political scene. Will it be a stable political situation? Will they sort out the overall problems in the U.S.? I think that the answer to that, we will see after the president election a little bit more than a year from now. But I just want to re-emphasize that what we see through the normal channels, it's still, so to speak, a healthy pipeline of projects.
Okay. Thank you, Jan. Any more questions here from the audience? Then I think we can switch over to the telephone conference, see if we have any questions there.
The first question comes from Mr. David Zaudy at Pareto. Please go ahead.
Thank you. Hi, guys. So a couple of questions, starting with the construction side. Looking at the Soraset acquisition, if you were to compare sort of the quality of the order backlog in Soraset with your current operations in Finland, how would that come out?
The Soraset acquisition is, you know, if you look at the business itself as a size, it's basically the same size as the current civil operations that we have. The company that we have acquired will, so speaking, we will merge it internally. They're gonna more or less, you know, take over the entire civil operation there. And the reason why we acquired the company is actually twice. First, it's an interesting market, and secondly, it's a good business. We will actually use the management there to strengthen the overall situation for us in Finland on the civil side.
If you were to, you know, give us a caption on the Finnish civil market, what would that be?
It's a stable market. There is projects coming, and we see that long term, it's definitely a market that we will be in.
Okay, and also the Statoil contract, it's a big portion of the order increase, order intake increase here in Norway. If you were to compare that, the kind of margins that carry with the average Nordic construction margins year- to- date, how would that play out?
I f you want to compare it, so speaking with the regions where we have had problems, is that, you know, it's you cannot compare it on the same day because, you know, the problems has been, you know, low down in the organization with smaller and middle-sized projects. Here, we are talking about a large project with full attention, and I'm very pleased with the margin that we have on that project.
Okay. And just a quick question on residential development, if I may, then. The cost overruns here, could you talk a bit about the geographic location of these projects? What kind of segments are they, and what's the maturity stage? When are they to be completed?
Hi, David. Yes, it's in Sweden, to start with.
Yeah.
It's in Stockholm and in Gothenburg. You can say it's sort of the medium, not premium, type of product.
The maturity, when are they to be completed?
The maturity is that these projects are basically completed or close to completion and pre-sale. As you know, the segment accounting, where we account for the profits as we sell, makes it quite tough when you sort of have to take down the margin in the projects.
Thank you. Last question, if I may. On CD, you have two projects, if I'm right, that are going to be completed quite soon, Green Towers in Wrocław and the City Green Court in Prague, which you feature in the presentation. If you were to compare the transaction market in Continental Europe with the very strong market that we have in Sweden,
I would say that it's, you know, it's a large interest, you know, all the quality products that we have in all the markets. The reason why we haven't sold, you know, so anything in Central Europe is that we haven't reached the stage where it's time to be sold. But now we have, you know, several products in the pipeline actually reaching that stage, you know, in Central Europe and one of the first ones in the U.S. as well, as I mentioned.
Right. Thank you.
Thank you, David. Do we have any more questions from the telephone conference?
The next question comes from Mr. Will Morgan at Goldman Sachs. Please go ahead.
Good afternoon. I have a few questions. The first one is on the Polish business. Your margins in the last couple of quarters have been quite high. I think last quarter you had some write-backs on some of your projects as you're nearing completion. I didn't see anything specifically mentioning write-backs this quarter, but could you comment on whether or not there have been any? And also relating to that, in terms of the book-to-bill ratio, obviously, you're nearing completion on a large project. I just wondered if you could give us a bit of visibility about where you see the revenues in this division going in the next year or so. The second question is related to the U.S. margin.
I think you had mentioned in the past that, as you sort of pushed more to the West Coast in some of the projects you were doing, you would expect to see the margin come down. Obviously, given some of the business mix, your margin's actually been going up. I just wondered whether that's still a trend longer term that we would be able to expect, in the U.S. business. And then finally, just looking at your outlook in terms of the orders you've got coming in. I mean, clearly, it seems you've got a near-term strong pipeline. But having said that, you have talked in the past about capacity constraints in some of your markets. I just wondered if you could talk a little bit about how you might be thinking about the top line for next year.
I guess, given the book-to-bill ratio is one on a trailing twelve-month basis, we could be thinking broadly flat. But I just wondered how you would think about that in terms of near-term strong orders versus capacity constraint. Thank you.
Okay, I picked up, like, in the three questions there, Poland, the U.S. situation, and overall, the book-to-bill ratio.
Yes.
If I picked it up right. So let's start with the Polish situation and the Polish market. It's very favorable, it's a good market. We are not the only one there, though. And the profit that you see in our books is coming primarily from a huge infrastructure project that is coming to completion this year. So we'll have some tail ends that goes into the next year as well. The Polish operation, profit-wise, is so to speak trending over what you should expect long term. But in general, we are very happy with the Polish organization and the Polish market. It's a very strong business that we have.
In the U.S., yes, we have talked about tougher situation and the tighter margin in new projects. We still have big portion of the order bookings coming from, so speaking, the old time, when it was a very favorable situation in the market. Over time, as we go, it will, so speaking, you know, gradually shift. And I think that you will see tighter margins in new, newer projects. But the backlog, as we see it right now, I'm very happy with that one. Do you want to talk about the book-to-bill ratio, Peter?
Yes. The book-to-bill ratio, as to say, is one, and we are still working quite heavily, as Johan has mentioned, in the bid rooms right now. So, it will be a bit of a stretch, but we should be able to match the revenue line compared to what we're seeing now. And then again, it really also becomes boiling down to how the market now performs and also the behavior amongst banks, given the Greek drama that we talked about.
Thank you very much.
Okay. Thank you, Will. Then I think we take the last question from the telephone conference.
The last question comes from Mr. Andreas Dahl at Cheuvreux. Please go ahead.
Hi, it's Andreas from Cheuvreux here. I just had a follow-up question on the margin in Poland. Would it be possible for you to sort of give us a sense of where margins are if you were to exclude this big highway project? i.e., what I'm trying to get here is where will margins go going into next year? Thank you.
Hi, Andreas. Well, to give you the answer, however, a bit mixed, I would say that the present mix we have of the Polish business between self-perform, building, and civil is sort of a margin there should be in tune of 5%, sort of, operating on a normal level. I still believe that in the very profitable projects we have in Poland right now, you could still expect some positive news to come out of them during next year.
Okay. Thank you.
Thank you, Andreas, and thank you from the telephone conference. We have also had some questions, on the web, but I think we actually have answered them, in the Q&A session here. So if the audience here in Stockholm have any more questions? If not, then we say thank you for today.