Skanska AB (publ)

Hello, everyone, and welcome to [indiscernible] again for the presentation of the Skanska's result for the first 9 months of 2014. My name is Magnus Persson, and I am responsible for Investor Relations in Skanska.

The event today is combined here with a live audience, and it's also a teleconference call and a webcast, which can be both listened to and viewed afterwards on our Investor Relations website for those of you who are not here today in person.

The presentation will be held by Johan Karlström, CEO; and Peter Wallin, CFO. You will all have the opportunity to ask your questions to Johan and Peter after their presentation.

And with that, Johan, please.

Thank you, Magnus. Good to see you, all of you here today, and I will start to present the 9-month report here.

The picture that you can see on the very first slide, that is a picture of the I-4 project that we signed up in the third quarter, and one of the largest PPP projects in the U.S. history.

And of course, we are very proud of that. We're doing that together with partners.

But our part of that business is a SEK 6 billion project for us that we have booked in the quarter.

If we take a look at the 9-month report and the highlights from that one, we can definitely see that the revenue, the order intake and also the profit has increased substantially. We also see quite a good trend if we talk about order bookings in the Construction sector.

We see a strong growth in most of the markets where we have operations, both in the Nordics, in Central Europe and in the U.S. And I will go a little bit deeper into the various markets in a minute here.

The American market there. That's the reason behind we have decided to exit the operation completely in Latin America.

If we move into the Construction operation. You can see that the revenue has increased by 7% up to close to SEK 92 billion for the first 9 months, and order bookings has increased by 19% during the same period compared to last year.

There's been a strong operation and strong order intake in USA Civil, UK and in Poland. And if you look at book-to-bill ratio for the first 9 months, which where you compare the order bookings with the revenue that we have had, it has ended up with 115%, which means that we are building up the backlog, which is a sign that the revenue will continue to increase going forward.

The operating income in the Construction sector or the Construction stream has increased by 20% year-to-date compared with the same period last year. And just so you should be aware of it, we have moved out Latin America from the Construction stream both in this like [ph] in period, but also in the comparable year -- the comparable number that we have presented with 2013.

Moving over to Residential Development. Basically, is basically flat, some were down, if you talk about the revenue and sold units.

We see a slower market in Finland compared to last year. We see definitely see that the market in Finland overall is decreasing, and it's coming from impact of the slower trade with Russia, which is like impacted by the Ukrainian crisis and the sanctions that is going from EU towards Russia and from Russia back to EU, and that's impacting the trade there with Finland.

We -- but if you look at other markets in the Nordics sector, we have a very strong situation in Sweden, and Norway is on the way up.

Moving over to Commercial Development. We have sold 5 projects during the quarter and year-to-date, we have sold 10 projects with very good profit.

So this is a healthy business that we are ramping up. And during the quarter, we also started 11 new projects, which means that the business going forward will actually be a growing operation here.

And this is a very good machine and very good business for Skanska. And this is a business that we have decided that we will continue to expand, and we see more activities going forward.

The book to -- if we -- I look at the pre-leasing ratio, which we compare with the completion ratio, which is a key -- you can say that as a percentage as we always compare with each other, and we always want to have the pre-leasing ratio somewhat above the completion ratio. That's a good risk mitigator, and you can see that here, that they're still keeping it on the same level.

The leasing activities has been strong also in the quarter and also year-to-date, and you can see here on the slide that we have signed up for 202,000 square meters, which is also an indicator that there's going to be more value creation going forward when we device -- divest the ongoing projects.

In Infrastructure Development. We have not sold any projects during the quarter and during the period this year, but we can see here that the value in the business of the portfolio that we have has increased by SEK 600 million up to SEK 5.5 billion.

And that is also an indication that the business and the price that we have here, once we complete them and they're going to be divested, it's going to be more profit that's coming out going forward.

Signed the financial close of I-4 in the U.S., and we have also reached preferred -- the preferred bidder stage for the Papworth Hospital in UK in Cambridge.

Taking a look at some new orders in Construction. Here, you have the big highway in the U.S.

On the picture, you can see very important and interesting project in London and U.K., the Battersea Power Station. One thing which is very -- which we have seen in U.K.

now is that the market there has really changed this year compared to last year. We see a complete change in the market and orders coming [ph] there.

And if you look at the order intake for Skanska, for us, we are more than double the order intake this year in U.K. versus last year.

It's a clear indication that there is a change in the market.

Looking at the order intake and the order situation for the entire Construction stream. You can -- if you look at this graph, you can see -- if we compare this to curves that you have here up on the slide, which is the rolling 12 book-to-bill ratio with the rolling 12 revenue.

And now you can see that the book-to-bill ratio and order intake is higher than the revenue. And it has been like that now for 3 quarters in a row, which is a clear indication that we will have increase in revenue going forward.

If you take a look at the breakdown of the order intake in the Construction business units, you can see here that most of the operations has now -- an order intake is over 100% on a rolling 12-month basis. And if you look at the year-to-date number there, it's only Finland that is below 100%, which is an indication that, that market is somewhat different compared to all the other markets.

So it's a clear trend here now that we have an increasing operation in Construction.

Looking at the Swedish number, 104%. I think it's important to note that the Karolinska Hospital is in the revenue, and it's roughly around 10% of the overall revenue.

So we are replacing the high burn rate on that project with new orders, and we're even increasing the order backlog on top of that.

So I view this Swedish operation and the overall order intake as very good, and that's a clear indication for the future. Peter?

Thank you. So why not start with the profit and loss?

I'm starting with profit and loss in construction.

As Johan said, the top line has grown by 7%, 4% in local currencies. And at the same time, we have seen and then -- have the right slide in front of me, then we will have seen the EBIT increase by 20%.

We have maintained S&A at the same level, so we have an uptick in the operating margin by up to 3.3%. Again, all the Construction information excludes Latin America also in the comparable period.

In the graph above, it's excluded from Jan 1, 2013.

So let's take a look under the hood in Construction. Sweden, a very strong number in the third quarter and in the year-to-date numbers.

We are seeing very good trading conditions, and we have a very strong order backlog and good execution in Sweden. And we have yet to change anything, I mean the profit take on our big project, NKS, that it still remain the same.

Norway, stable, I would say. Very good market there.

We are improving step-by-step.

Finland, despite very tough market, extraordinarily very good execution in organization, and you can see that from very good profitability in Finland. They got good level of fees [indiscernible] there.

Poland, also another strong performer and, again, trading conditions is improving here in Poland, very stable organization. And we have a very good regional platform in Poland.

On top of that now, we are starting to see big projects coming online, as the EU accession fund is coming to use in Poland big time.

Czech Republic. As you recall from last year, it was not as fun to stand here in the third quarter and talk about the charges that we took in Czech.

Now it's returned to profitability in the third quarter and is gradually coming up to at least a sensible level. Czech market, still weak, and there is still ways to go there, but we think that we can make it.

U.K. Also another market, which is improving.

Here, we have very stable operations, and as we do in U.S.A. building and in U.S.A.

Civil. And if you take a look in the revenues in U.S.A.

Building and Civil, respectively, there, you can see that the winter impact that we've talked about in the first quarter, we are starting to catch up now a little bit because on a year-to-date basis, we are more or less flat on the revenues. While in the third quarter, you can see quite a bit of growth there.

So all in all, 20% growth in EBIT compared to last year.

Residential Development. Here we have somewhat higher gross profit.

We have increased -- decreased the revenue by 10%. We have 14% change in lower volume of sold profit, but then we have a 4% positive price mix.

So net, negative 10% in Residential. And you can see that we have increased the gross margin quite a bit compared to last year.

And the volumes are lower, and the S&A is more or less the same. So that's eating a bit of higher proportionate share of the EBIT.

So we are still increasing the operating margin.

If we take a look on the various countries. Sweden, strong market, strong organization, good execution.

We are increasing profitability here. Norway, as you recall, we had a slump in the market in the back end of last year and the beginning of this, which made us cut down starting new projects.

So we have a lower volume in that business now and ramping it up now because now the market is recuperating somewhat in Norway. They can pop champagne again.

But the oil price is another story.

And then Finland, tough market. And in Finland, we have also, on very selected projects, taken hide for discounts that we are doing in selected projects.

If you take a look on the number of unsold apartments, it is -- the major part of that is in Finland, actually.

So quite low value for each and every one of the units, but that's something we are addressing.

If we take a look on this graph, you can see that we are staying stable now as we are finding the consistent path when it comes to the volume in the order business, starting is slumping somewhat, and that is due to the impact in Finland and in Norway of the weak market in Finland and the weak market at the back end of last year, beginning this year in Norway. Sweden is keeping a very good stable level.

And coming back to what we have sold of the stock of ongoing in production. We have 4,500 units under production, 72% is sold.

And as I have said before, it is a little bit up to a high percentage because you need a certain stock to sell in the market. 500 unsold completed.

We started the year with 435, and it's 500. We are targeting to reduce this, of course, but it's still in a -- compared to the total stock and the total safe level in the stock, we are not concerned.

CD, the third stream. Here, we are doing a great business, and we are ending with an EBIT of close to SEK 1 billion year-to-date.

And now you can see that we are -- the gains are close to SEK 1.1 billion year-to-date. And this is a business that performs well also on the back of the very positive market and the market sentiment.

And if you take a look on the divestments, we are actually now, in terms of value in the third quarter, close to the record you can see in 2012. And also profit is increasing.

We took the decision to invest much more money into the development businesses, especially the CD business when we made the new business plan. And this is something which is bearing fruit now.

So the higher investments, the higher the profits. It's not more difficult than that.

So this is something which you can -- you should continue to look at as a recurring gain in this stream.

The portfolio is growing. As Johan said, we started up 11 projects in the quarter.

And you can see the bars behind me, this is the value of ongoing projects upon completion. You can see how much of new projects and new future profits that we are building up all the time.

We have a very good -- we have a market value of SEK 26 billion on the portfolio, and we have it booked to date at SEK 13.7 billion. Upon completion, it will be SEK 21.6 billion.

Leasing is the key. Leasing is the key to start new projects.

Leasing is the key to mitigate risks. And leasing is the key to sell.

And we are doing quite a good job there -- out there in the businesses, as you can see from the curve. And we need to continue to be good at leasing in order to continue to grow this business.

It looks good.

The last stream, Infrastructure Development, had another good stable quarter with increasing earnings from the projects that we have ongoing either completed or under construction. So we also -- so we have a very stable, good operating income in that business.

And when you take a look on the market value, you can see that, that is increased by SEK 600 million. SEK 300 million of that is due to operations.

We have derisked projects, and we have also won and booked the I-4 project in the quarter and a positive impact of FX because most of the projects we have, apart from NKS, is in other currencies than SEK. So we have a translation impact there.

Boil it all down to the group's statements, you take all the streams then you deduct Central. Central now consists of Latin America.

Of the SEK 1,266 billion, SEK 700 million is Latin America, including the SEK 200 million in additional charge that we took in the third quarter.

If you then compare the remainder there on Central costs with last year, last year was positively impacted in the third quarter of us closing a pension plan with a one-off positive impact of SEK 124 million. So you can see that we are fairly stable if you adjust for those items.

Operating income for the group, SEK 3.5 billion, a lower financial items due to the fact that interest rates are falling and despite the fact that we have increased the duration of our loan portfolio.

SEK 3.3 billion in pretax profits and at an IA [ph] average tax rate of 26% puts us at SEK 2.4 billion profit for the period. Earnings per share of SEK 5.85.

Cash flow. Here we have a somewhat lower and a more negative cash flow from operations this year, this year-to-date, due to the fact that net investment is somewhat lower compared to the comparable period.

As you can see from the third quarter, we are increasing cash flow both from operations since we are also reducing the negative impact from working capital. So all in all, we are quite good on cash flow and, hence, the rolling number is increasing, as you can see from the graph.

Free working capital in Construction. When we are growing revenue as quickly as we do now, the percentage is falling.

But you can also take a look on the bars, and you can see, in absolute terms, that we have reduced the reduction in absolute terms of working capital. And as we increase revenues, you should expect, as we do, that the working capital abates and starts to grow.

The percentage will still continue to drop if we grow revenue as quickly as we do right now because you have a lag.

Group financial position. We have an equity of SEK 20 billion, a balance sheet turnover SEK 91 billion, a net debt of SEK 4.2 billion, but what we are looking at is operating net financial assets/liabilities.

That is what we refer to when we look at our investment capacity into the development businesses at positive SEK 2.8 billion, which is quite a bit ahead of Q3 last year. And that is also depicted in the curve.

Capital employed stood at close to SEK 37 billion, and equity to asset at 22%.

If we decompose and look at what have changed in the financial position, we have the cash flow. As we talked about, year-to-date, negative SEK 4.1 billion, including then the dividends made to the shareholders.

There you see a big number because we have taken an additional hit, SEK 850 million, due to the fact that interest rates are lower, so we have increased our defined benefit obligations. That is embedded into the net interest.

The weakening effect is also creating a situation where our large US-denominated businesses is increasing, which you can also see, which has had a positive impact. All in all, a SEK 5.2 billion change that gives us a closing balance of negative SEK 4.2 billion, SEK 4.2 billion in net debt.

Then we add on the pension liabilities and the interest-bearing liabilities in the co-ops, and then we get to what we track as our net -- re-net [ph] debt, SEK 2.8 billion positive in net cash.

Change in equity. Here, again, the impact of the currencies and the impact of increasing the pension liabilities is creating somewhat of a negative impact on the equity.

On top of that, the dividends made. We are still at the very good level, and we have one of the nicest quarter in Construction still to be made, the fourth quarter.

Finally, taking a look on the investments in capital employed for the business. You can see the -- out of the SEK 37 billion in capital employed for the group, SEK 27 billion is into the development streams.

And here, we can see -- we are very stable on RD, but despite the fact that we are increasing to safe levels in CD that the capital employed is increasing. And this is exactly what we want to achieve.

We want to keep RD at the current level, and we can continue to increase commercial development. ID is a bit more lumpy because it's more political agendas and timelines, which depicts when we can make those investments.

With that, the market overall in Construction looks stable. And in Sweden, we have a very good situation now, especially on the building side, both on the nonresidential and the residential side.

More uncertainties on the civil sector in Sweden due to the new political situation are concerned over the political game that is now going on in Sweden when they are delaying large infrastructure projects, and we see several of them here in Stockholm. And there is a concern more for Sweden as a society, because we need infrastructure for the growth in Sweden and for the overall economy.

Otherwise, it's going to be hard for us in Sweden to build all the residential buildings and the homes and apartments for the growing population, especially here in the capital.

So I think that's important for the politicians here to understand that they have to come out of this game that's going on and take the responsibility for Sweden here.

In Norway, we have a strong situation in the markets, especially on the civil side, a lot of projects coming up. And they have also now announced it's going to be several projects with a 50-type of contract.

In Finland, we see the impact -- the overall impact from the political solution that is impacting overall situation there, both on the residential side and the overall market.

Poland, very positive. Czech Republic is on the way up from low levels.

The biggest change and the biggest shift, if we go back 1 year that is in U.K., we see a clear trend of new projects coming to the market. We see it in the market.

We also see it in our own order bookings. The competitors, though, they are still very hungry, so we -- there is a very tough competition in that market.

Stable market in the U.S. Strong pipeline of PPP projects, which is, of course, good for the Construction sector.

And that's, of course, interesting for us. California is on the way to come up as an important part of the U.S.

now. We see not only PPP projects there, but especially big infrastructure projects coming to the market.

Residential Development. More as the same pattern as I just painted here.

Sweden, strong. Norway, stable, started to pick up now when we -- more consumer confidence there in the market.

Finland, weak due to what I've just explained. And in the -- other European cities where we have operation, which is Warsaw and Prague, we see some stable -- we see a stable business in Prague that's also coming up from a low level.

in the Nordics, in Central Europe and also in the U.S: Stable vacancies, and there's a growing interest and a great demand for our completed projects. We are going out in the -- on the transaction market with our completed projects.

And so it's important for us that we see it -- an interest there.

One could, maybe, think that the geopolitical situation in Central Europe could impact the interest for our completed projects in Poland, Czech Republic and Romania. That has not been the case.

Rather, the opposite. A lot of money that's -- the capital used to go to Russia has now to be reallocated to other countries, so we see -- actually, products like -- and a growing interest for our products and our completed projects in that geography.

ID, strong pipeline in U.S., actually more projects that we can handle and go after. And there is, of course, a strong need for infrastructure there, and not -- and it can't be financed and funded in the old traditional way.

So that's the underlying reason why we see more projects there.

Europe, much lower. So we allocated the resources over now in the ID organization more towards the more favorable market in the U.S.

So with that, Magnus, maybe we can open up for some interesting questions.

Let's do that, and let's do it this way that we start with questions from this room. And if there is time, we will move to take questions also from the telephone conference.

And when you have your question to be, as you're already up with your arm, please state your name and the firm you represent before asking your question.

Tobias Kaj from Carnegie in Stockholm. I would like to start to ask regarding the Construction margin in Sweden.

You say that you haven't made any changes to the recognition from Karolinska Institute. Does that mean that when you will do that, you expect a further improvement of the margin in Sweden?

We are conservative regarding the Karolinska Hospital, not Karolinska Institute. Just to be clear about that.

And because it's a long project, many years to be built, it looks okay, and it's going to be a fantastic project for this, for the citizens in Stockholm. The reason why we see a good margin in Sweden, it's a stable business.

They're performing. There's a lot of things that's going in the right direction.

And it's a stable market as well, and we see a healthy order intake. I will not make a projection and a forecast for the profit in Sweden going forward, but we always keep large projects like the Karolinska Hospital and others in a conservative way in the beginning of a project like that.

And regarding the EBIT margin in U.S. Civil, you saw a decline of slightly more than 2 percentage points year-to-date.

Can you give any breakdown on how much of that is related to the very cold winter? And how much is, like, increased competition in the market or other things?

I think I've been standing here in front of you and all others and try to explain that the U.S. Civil margin will trend down to this level that we now see.

And there is always a winter impact, and I'm sure it's going to be winter every year even in the U.S. And so this is like the normal pattern that we have this type of impacts.

Of course, it could differ between the years, but I think that you should expect that this is the level that this market and that business should deliver.

And the fact that the decline was larger in Q3 than in the first half, does that mean that we should expect the kind of rolling 12 months level to continue...

You never look at on an individual quarter. I always try to educate you and all the others that the best way to look at this is like on a rolling 12-month basis because it can move up and down.

You see it in Skanska Sweden, for example, a very strong third quarter, but look more on a rolling 12-month basis. That's a better way.

One final question, if I may. You'd touched upon the competitive situation in U.K.

But given the strong improvement of the market condition, do you think that -- or do you see any signs of less competition in that market?

No, I don't see a sign of less competition. I don't think that we should expect that because if you have a market in Europe now because there's, like, a slower market in other geographies where we do -- where we are not present.

But that means that companies are actually -- well, of course, go-to markets where they see a favorable market. And we're also coming from a situation where we -- when there has not been so favorable.

But that means that some of the competitors are quite hungry, and that is dangerous. So I think that one should be very careful here of signing up new projects and be -- because -- when the market is turning up because you could also expect quite a high cost increase of the underlying expenses here on a project.

So this is something that we are preaching quite hard in our own organization to be aware of that. And so yes, the market is turning up, but it's very competitive.

Next question. Stefan?

Stefan from SEB. First, if you could comment on the order backlog that you built up.

If there's any change in the churn of it -- change in the churn of the order backlog that it's time that you process it, is it similar to what it was last year? Or is there longer project -- more longer projects versus the short projects?

In the U.S., we see longer duration on the projects. Several of the projects that they're signing up for now, especially the big ones, will continue to be under production for several years.

Take for example, I-4 in Florida. I think it's like in 5, 6 years, that's going to be our production, which is a very good situation because that means that we have, like, quite a good horizon into the future of what we have in the order bookings.

So when you see an order backlog or an order intake that maybe is quite steep and goes up doesn't really mean that the revenue will reflect exactly that pattern because it's going to be laid out in a longer time horizon.

Duration, is it that the long [ph] going to a group level as well, not only in the U.S.?

Well, yes, but especially on the markets where we see the large projects like U.K. and the U.S.

That's the typical pattern there.

Going to the U.K. It's fantastic growth, of course, order intake.

How do you handle capacity there or your ability to deliver on that as well? And is there a limit to how much you can take on before you see issues with say, yes, your own production units?

That is, of course, like a question that we always ask ourselves. Do we have the capacity?

Do we have the right people for the various projects that we sign up? And yes, we have that.

We have had -- during some time, if you look the history, we have had a slower order intake. So it was needed in -- to get such an order intake for us to maintain the level also, start to build up the -- to build up the revenue there.

And the project that we have signed up in the U.K., they also have a very long duration. So you won't see, like, in a steep revenue that goes up like this as you see with the order intake.

As a follow-up on that. When you say always a little bit concern when you say we have a decline, and we needed to get some volumes in there, are you very certain that you haven't given away margin at the same time?

We have a strong -- we have always had a strong order situation and an order -- I would say, like an order backlog and healthy order backlog in U.K., and we have not been under pressure to, like, make sure we are signing up projects to feed the organization. A better way maybe to express this is if we should continue on the same level, of course, we have to fill up the order backlog and -- for the future, for the coming years.

South America. Are you -- do you know the size of the goodwill or book value of the operation that you plan to possibly divest?

It's 0.

And book value is very low as well.

Yes.

And then my final question is on Residential side even though it's a small thing. But the number of unsold completed units that are increasing a little bit, is there any particular regions or markets where you have -- or special projects that you -- where you have difficulties?

Or is it more widespread?

No. Its more market, and we are talking about Finland.

All other markets is, like, trending in a positive direction. Finland, we see another situation.

And that's where we see unsold, completed apartments building up. And that's the reason why we now have started with this campaign in certain projects.

Not across the board, but we target different parts there.

Thank you, Stefan. Next question.

Albin Sandberg, Handelsbanken. I have a follow-up on Latin America.

I think, prior, you have indicated that it will take you until 2016 to wind down the operations. Is that still valid?

Just to be clear so you understand there. We have -- Latin America, we have 2 parts.

We have E&C, Engineering Construction, we have O&M. On the E&C side, as we said in the last quarter, we have several projects that is on construction, and we will complete them according to the contracts.

And there is no change there and several of them will end around year end this year, but they will also -- some of them will go into 2015. And we will -- we have to complete that.

We will not bid for new works. The new information that we have gone out in the market this quarter is that the other part, the O&M part, we will start a process now to divest that organization.

So we have this -- say, it's going to be -- we have, like, 2 ways of leaving the market, winding down the E&C and divesting the other part.

And with regards to the latter process when it comes to the O&M, we don't have a buyer lined up, but we would initiate the divestment process.

And then now when you lift Latin America out of construction, do you think that would cause you to change your construction margin target, overall for the group?

No. I think that the overall target that we have of 3.5% to 4%, that is, like, in a valid range where we should be with the ongoing business.

And one of the reasons why we have moved it out of the construction stream, and I'll keep it here on the center, is that we want to be clear about the future strategy and the construction stream that you look at. That is the future, and that's what we're going to focus, the construction operation.

And my final question [indiscernible]. I'll try at least, but I know you won't give too much forecasting.

But normally, Q4 is a good quarter for commercial profit divestments given how you're portfolio looks like. Now how's your feel for Q4?

I have always a good feeling about the commercial development operation because that's been a very good machine. And there's a lot of activities going on.

Those are starting up and selling projects.

Thank you Albin. Any more questions in the room?

Niclas.

Niclas Hoglund, Nordea. Two questions.

Firstly, if we just talk with the Infrastructure Development, you had a very, well, strong quarter. Have there been any tendering costs coverage regarding the I-4?

Could you please quantify that, if that's the case?

Yes. We have what we call success fees when we close a project.

I won't quantify it, but it has some impact but not the major impact.

Okay. And when you look at the surplus values in ID and Commercial Development, we've seen the taxes in this quarter, 26%, despite very big contribution from gains, which normally tend to be very low taxed on.

Could you, please, give some more light on a bit tax situation on the ID and projects, the M25, for example, and CD as such?

Well, all projects in ID under operations or under the income taxes in respective countries. So M25, the British tax rate, for example.

European, you can simplify around 20%; Nordics, somewhat higher; and then in the U.S., 40%. And when we say 26%, we look at the mix over the year, and we have 26% as sort of a steady rate.

So we are not looking at the composition in each individual quarter per se. We are taking an annual view on tax.

Just to clarify. If you were to sell your ID projects ongoing, would you have to pay gains tax on that in line with what you had to pay for Autopista, for example?

It depends on how we structure and to who you can sell it to. But normally, you can structure it under the current tax legislation to reduce capital gains taxes.

So Autopista, for that sake, were in the exception of the rule, rather than when you look at the current portfolio?

Well, we are trying to structure them, so we can sell them with optimizing the tax. And in that case, it was very successful, of course.

And then coming over to the CD part. You continue to run with rather high costs and that's, of course, driven by that you're building out your organization.

Should we expect the, sort of, underlying costs, excluding gains to be around SEK 100 million per quarter? And is that included in your return on capital employed targets for the segment?

The costs are included in the capital employed targets. When you start up a new market, it will take some time before you hit the returns on the portfolio as you build up value and as you start to divest.

It took 3 years before U.S. started to come up with the sale of 10th and G in Washington, D.C.

a couple of years ago. And we are running with higher costs because we're building up the portfolio.

And with that said, I can also -- the portfolio and how we can sell from the CD portfolio is also on the basis on how completed are the projects, how much were -- are them to sell. So we are talking about the recurring level and all that, but it can vary between the years, depending on the portfolio.

But you should expect us to continue to want to increase the CD business and, hence, you will see product development costs relating to future profits.

More questions, please. Jan?

Yes. Jan Ihrfelt, Swedbank.

You started 11 new products in CD. How many of this were upon speculation?

I don't have that number in my head. I can't answer that.

But usually, we have -- it depends a little bit on the market situation and where we start. In general, it's more possibilities it is in the Nordics will start with the pre-lease.

In Central Europe and in the U.S. there, you have to start the projects more on speculation because that's the -- how the market actually worse.

This is just a general answer now, not about -- specifically, about the 11 projects.

And in the total ongoing projects, do you have any figure what portion that started on speculation?

No. It's -- we treat it in a somewhat different way.

We actually have 2 measurements that we follow: One, which I have -- which I explained for you here. We look at pre-leasing ratio versus the completion ratio and making sure that we are ahead of that for the portfolio.

So that's, like, in a 1 piece. The other piece that is called capital at risk, which we don't explain for you what the limits are.

But that is the total investment value times the vacancy rates, and then we have a cap on that for the entire portfolio. The total investment valued in ongoing projects times the vacancy rates, and then we have a cap.

So that's a way to, actually, make sure that we are not going over the risk limits for that portfolio.

Thank you, Jan. Next question, please?

Okay, no more questions in the room. So we'll ask the operator, do we have any questions from the telephone conference?

The question relates to Latin America. You say that you have accelerated the process in completing the ongoing projects, but still you didn't shorten the time before you were finished with the projects.

I want to question, you still say end of 2015, so what's the acceleration really about?

Well, we are accelerating the exit of Latin America by deciding that we will divest the O&M part. The E&C will be completed once we complete the various projects according to the contract

Okay. So the SEK 200 million, what do they relate to?

That is -- okay, sorry. That is related to increased costs on the E&C side and closing down that business.

Okay. So something new happened during the quarter that you didn't know in Q2 then, in the projects?

Yes.

Okay. And other question.

On the residential units, the other European result is rather weak, is that Czech Republic or Poland? Or is it split or both in negative territory in Q3?

Czech is doing okay, and we are winding down the U.K. RD business and then we have the startup in Poland with quite few sales in the quarter.

Thank you, Jonas. Any more questions?

Two questions, please. The first one is also on your Latin American business.

Can you give us your expectations on the timing of the disposal? Plus also, if you can give us, let's say, some sales profit and also the book value data for the Latin O&M business.

The second question is on the Norwegian markets, you sounded more positive on the market. You believe that it's the residential market is turning around to a -- let's say, what are the key signs that you see the markets for the moment that make you more confident here?

The first question is very easy to answer because we are initiating the divestment process now, and we will not give an indication of any status when we have just started the process. And I can say that we are foreseeing to protect our book value when we sell the O&M business.

Coming to your Norwegian question, the -- we are more positive towards the RD market. We are seeing more demand and more sales and also sales in projects, which we intend to start because we start project with a presale level of around 40% as a default level.

And we are seeing that we are getting there quicker now than we used to do in the previous quarters.

Okay. And on the Latin business, on the O&M business, are you willing to provide also the book value of the business?

Or you don't want to comment?

We don't want to comment on the book value, no. But we intend to cover what we have.

And as I've answered on a previous question, it is not the raw material impact in the group.

Thank you, Tobias. More questions?

Thank you. Okay, we are also running out of time, so I suggest that we wrap this up.

Thank you all for coming here, and thank you all in the telephone conference for listening in. Welcome back when we report the fourth quarter.

Thank you.