Skanska AB (publ)

André Löfgren - Senior Vice President Investor Relations Johan Karlström - President and Chief Executive Officer Peter Wallin - Executive Vice President and Chief Financial Officer

Tobias Kaj - ABG Erik Granstrom - Carnegie Niclas Höglund - Nordea Tobias Loskamp - HSBC

Welcome to the presentation of Skanska’s Year End Report for 2016. I am André Löfgren, heading up Investor Relations at Skanska.

And we have a live audience here in Stockholm at our headquarters but we also have a lot of participants on the web and on the phone. You'll all be able to ask questions after the presentation and it will be held by our CEO, Johan Karlström; and our CFO, Peter Wallin.

When we’re done with this presentation, have the Q&A. We would also glance into the future a bit.

We will look at the reporting structure for 2017 and onwards. Peter will present that part.

It's about the structure and also the reasoning behind it. But I think first thing is first, so Johan, please, the year-end report.

Thanks André and good to have you all here. We have a little bit earlier start this morning, but as you can see that we have a lot of people here in the audience there.

We are early budget in construction, so we like to be early on. Here on the slide behind me, you see the picture of M25 product, the product that we divested just before the end of the year part of the ring road around London and with very good results.

So that’s leads us into the highlights of the year-end report for Skanska. What you can see here is that we have had a substantial increase in operating income from 6.5 up to 8.2 if you compare it with the 2015 the last year.

And especially coming from the very strong performance that we had in product development all time high profitability and operating income from the combined businesses which consist of the three residential, commercial development and infrastructure development operations that we have. In construction, it’s more of a mix picture and in some of the units.

I will come deeply into that later into my presentation. With very good results but some others with weaker result with underperformance and then of course we are very much have focused to restored the profitability and come back to the normal level where this unit should be.

And you can see that we had a considerable increase in EPS, earnings per share up to 15.89. Very good order intake during the year as well as in construction, so we added up with an all-time high of order book.

And you can see that the order intake during the year was 170 billion. Return on capital employed in the combined product development businesses overshoot quite a lot the target of 10%, you can see it’s 18.4.

And the Board yesterday decided to propose an increase dividend up to 8.25. So with that I’ll start with construction.

Revenue is basically flat if you compared it with the previous year and very strong result in USA Building and in Sweden and also very good order intake in these countries as well if we include UK there. Book-to-build 123% and an order backlog of close to 200 billion.

That’s an indication that it will be increased top line coming years in construction. Operating margin now 2.6% compared to our target of 3.5% that is something we are not satisfied with at all.

Some of the units like Sweden, USA Building, which I mentioned delivering very good results and good margins. But on the other hand, Poland of course is disappointment and we are very much focused on to finalize the restructuring of the operation and get it back on track.

In USA Civil, we still have some challenges in some of the infrastructure products that we have talked about before. And we also have some higher cost on the overhead side.

But overall I will say that it’s a good performance in all the other units in construction. Moving over to Residential Development and you can see on the numbers here, both if you look at the revenue, the started - the number of started products and homes then also how many we have sold that you can see that an increased volume, increased activity that we have.

And the increase in bottom line, the profit is coming both, it’s coming from different things here. First of course, when we increase the revenue, increase a number of sold units.

It helps us because the overhead stays more or less on the same level there. So that’s helps.

It’s a good market from that standpoint. We have the possibility to start more products, but we also see opportunities on the sales prices.

At the same time as we have our products in good order, so we make sure that we can deliver them according to the cost that we estimate. As we control over the cost, we see opportunities on the price side and then an increased volume.

When you mix it altogether that’s what’s comes out of that business. Very good and farewell market operational especially in Sweden.

Commercial Development, delivered an all-time high here as well in as together with Residential Development with a profit of 2.3 billion. We have - in the numbers, we had taken down products in the energy corridor which is suburb to Houston to micro-market which is depending on the oil sector and oil prices.

It’s not going to - and there we have seen slowdowns and there we have been a little bit more cautious on the values in these properties and we have taken it down by 200 million which is included in the numbers of course. You see a good return on capital employed in the businesses.

We have 47 ongoing investments now at the yearend. And I don’t know if you saw already this morning that we have announced another huge investment in Seattle, it’s a commercial development office tower and we done investment value of around 3.5 billion.

So we see more opportunities in all the markets we operated in. When you look at the all the ongoing product, you can see that the key ratio that we follow, the preleasing versus the completion ratio, they are following a charter and we keep them on the level where we think that they should be as a combined portfolio and it’s a very good risk mitigated.

Leasing, in the increased activity, that’s increased portfolio product that’s also reach an all-time high, which is the value creation because this is so important that we have the leasing with us, so we can move forward with the divestments when we are coming to the end of the - on the products when they are completed from the construction side. Moving over Infrastructure Development, we had a very good return there as well as we sold the M25 product there outside London at the end of the year.

And you can see that is also boosted up the return on capital employed. And in the numbers is also embedded an impairment of around 300 million on the wind products that we have in our portfolio.

And due to the lower energy prices, we have taken down the value on those products. In the first quarter of this year, we expect to complete the divestment of the A1 product and A1 highway in Poland.

Looking at the trends, in order intake and construction you can see the light blue line at the top here and you can see the dark blue line. And that’s like a good comparison goes there.

And we have compared a rolling 12 number of order booking versus the rolling 12 numbers of revenue. And you can that the dark blue it’s now like much higher than the dark light - the light blue.

And the gap there that you see between that is what we build up to backlog is our burdening less revenue compared to the order intake which is an indication of how the future will look like if I talk about the revenue side in construction. And here you can see a breakdown of the order bookings in the areas business units in construction.

And if you take a look at the column that is called book-to-build, the percentage there, that’s maybe the best key ratio when you look at the business. When it’s over 100%, we’re billing up the backlog 123%.

And the only business unit is that’s below 100% that’s Finland. Nothing to be worried about because we know that the market - even it’s a little bit flat in the market, we see great opportunities for Skanska and we have already this quarter in turn to 2017, booked several good orders and we have announced a big hospital order in Finland.

So we see also there good opportunity. So overall, favorable market situation and in the U.S.

the high number there, you see the 140% in order book in book-to-build that of course is very much boosted due to the LaGuardia order which was the largest product ever that we have booked in Skanska history. So with that Peter, I leave it you to go a little bit deeper into the numbers.

Thank you and morning everyone. So income statement in construction.

Revenues dropped by 1 percentage point in local currencies for the full year. If you look over the quarter now, you start to see the gradual turnaround of the revenues into the fourth quarter on the back of the very healthy bookings that we have experienced over the years.

We ended the year with a gross margin in construction of 7.3% and selling and admin of 4.8%. And you can see that it’s moved up by 40 basis points predominantly on the back of bidding costs for new products but also the fact that we are doing implementation of earpieces two major business units namely the Swedish business and the USA Civil business.

And those investments are causing the SNA to increase. Operating margin was 2.6% for the year, that’s 0.9% below the target.

If we dig in a little deeper into the various units, the Swedish business is very robust and ended the year very strongly. The secret recipe is good, control and good management of the products and no looser projects.

Norway, variable market I think stable performance by the Norwegian team. The Finish team also ended with a very good stable margin, whereas the disappointment as we have talked about is relating to Poland.

We take a further loss in the fourth quarter by 50 million and that is essentially the function of some margin fade of some projects and further costs to deal with sort of rightsizing the business. We are setting it up, so the cost level will be adopted to the business volume going forward.

Czech Republic had a good decent stable year and they are back sort of trading back in profitability where we are expecting them to be. UK also very special year for UK in many ways, but they did a very stable performance overall.

Super performance from the USA Building units, this is a construction management. So you could expect sort of ranging around 1.5%.

1.8% for this business is very good performance. Civil then which is impacted continuously of this ERP in implementation and also the fact that we have several projects with a serial gross margin and we call that - could be a bit harsh, but we call it dead revenue because it actually doesn’t benefit bottom line and it doesn’t covered overhead.

So it dilutes the margin. So 2.8% for the full year there the market and the business is good otherwise, so there is good with some opportunities to work with.

Residential, we are doing quite well within as you can see. Revenues increased by 8%.

Volumes increased by 12%. So the price mix is negative for.

We have a surge of affordable homes in these numbers. Book look as we have mentioned in the CEO comments and the report is doing very well.

And as you can see the gross margin is continuously going up. Thanks to very good robust market but also very good execution of the projects.

So we ended with an operating more than 12.1% which is very strong for this business. If you dig in, you are going to see the major source the engineer is the Swedish RD business which are doing good and going on all the cylinders I would say and actually making any bit over and above 1 billion in total, 15% operating margin.

Norway doing good, as we can see they now are trending up in volume especially off-slow areas where we are growing and they're doing 11%. Finland I would say here we start to see signs of the market turning back on to towards positive I think the Finnish team has done a good job of weathering the markets and we are improving from the current level the performance is quite okay in Finland.

And last but not least Central Europe which is Prague and Warsaw nothing else is doing okay where Poland continues to be in a startup phase. Last year in Central Europe and we are actually sold the piece of land of sort of one of the remainder of the business to small business we had in UK.

So if you take away that SEK 4 million to SEK 5 million in capital gains on that land piece you're going to see sort of a good steady improvement of the performance. 12.1% in operating margin 17% return on capital employed.

The volumes increased quite a bit in the fourth quarter and as you can see we're more or less increase the started by 20% year-over-year and despite this increase in volume you can see started and sold tracking, so that's why you’re going see that a pre-sold, the projects we have under construction or to 77% sold, so we are still trailing and we think it's a little bit too high level, because we need to start up more projects to sell more. The unsold completed this small portion, orange portion on top of the bar is continuing to turn down and it's not a very high volume given the total size of the business.

The third screen commercial property development posts all time high level again. And that is despite the fact that we have written down assets in the used on energy corridor.

So we have we have a couple of projects in Houston, we have some of them in the energy corridor, they are our partially leased and we have done a write down to SEK 200 million in those projects. As you know with oil and gas prices that is something which is impacting the property prices there.

We are continuing to have a good level, this year we had a more different spread of the activity compared to last year, but we ended down with 32% margin on the on the sold projects or we used the term development profit which is a markup and then you end up at 4% to 8% that's a pretty good and staggering number. So if you look on this composition where you have on the red line the realized gains and you can compare it to the buildup we have in the portfolio, and with the leasing we are doing we are securing value in future sales.

So we have a good pipeline as Johan mentioned we have just announced our new projects and as a sort from a few days ago we also announced the startup of a project here in Stockholm. So leasing is important to mitigate risk, important to build values.

And 379,000 square meters if you want to picture it, if you can picture the Freedom Tower on Manhattan. You take that and another half of that building one and a half Freedom Tower is what we're leasing right now.

I think that's hats off for a very well executed business. Fourth and last stream on infrastructure development post a very good profit of SEK 1.8 billion.

Thanks to the divestment just before Christmas of M25 and this is sort of a mature product A1 another mature product is sort of deem to be divested now beginning of this year, and with that sort of we have quite and a portfolio of remaining product which is needs to be developed in order to realize value, so we have we have taken the mature product and divested them with good proceeds. And as we also mentioned the lower energy prices has also made it to takes down the value of the wind assets.

Looking at the valuation at M25 leaves still we are more or less keeping the unrealized development profit at SEK 1.4 billion here we also have the uplift of A1 one according to the contract that we have signed with the investor. So it's the remaining product I would say given what we are divesting it is kept at a prudent discount rate.

Make it all together we have the group you knock down with central costs and add on elimination in this case you come to SEK 1.2 billion we should have made an under million to may it round off the numbers, but this is where it ended. Net financial items has shrunk compared to last year, we have principally we have a net cash position and we have no Latin American operation that has been the trick.

If you look into the fourth quarter you're going to see that net financial has risen somewhat that's a function of us having residential development for the future which we sort of keep and we’re going to pay a price at a later date, which means that we discount this piece. So this is actually a discount rate being we leased on a future development into R&D.

So it's nothing to do with sort of the indebtedness or lack of indebtedness that you can see on the balance sheet. We have SEK 1.8 billion in EBIT earnings before tax, tax as on average been 19% and we end up other earnings per share of 15, eight to nine on the tax line that's a function of the mix of business we have across the countries and also what type of business it is.

And cash flow, it looks poor when you look at this number, but it's actually a very good cash flow. The principle impact if you compare to last year on the cash flow is, number one we are continuing to increase investments into our product development businesses.

And number two the proceeds of management to five is booked and is impacting the working capital negatively SEK 3.1 billion. We've got the money into the bank account last week.

So we're all sort of there in terms of cash flow. And we are working a lot with our working capital within construction as you can see.

We are continuing to increase the working capital, free working capital in construction in absolute terms and we are increasing also in relative terms to the revenue. So we are at 13.9%.

Strong focus on cash flow in our business and also already upon inception when we are building the product we are very carefully looking at sort of the cash flow profile. The product development businesses we have increased capital employed by SEK 10 billion over the year to SEK 37 billion and it is on the average share we have produced 18.4% return on capital employed, which I think is quite a good number given the interest rates level we see in our surroundings.

Financial position is very strong and healthy. We have a SEK 10.6 billion on-sell and that is despite the fact that we actually prepaid taxes of SEK 500 million which is at 0% interest rates and in today’s environment that's a pretty good interest rate.

Feels strange to say that, but that's the case. If you look on the change in the financial position, you have the change in cash flow which I talked about, changing in pension liability we increased pension liabilities principally in the Swedish plan and in the UK plan because of lower interest rate levels.

You saw reduced this that by SEK 2.7 billion in the quarter because of the so the rebound of the long term interest rates, one of the reasons behind it is of course, the U.S. election and the president we have in the U.S.

with very strong focus on increasing indebtedness. That makes us close with a SEK 1.2 billion in net cash position, we add back the pension liability and interest bearing would come at SEK 10.6 billion on fund.

Pension equity, good profitability and increasing up to 27.5, so, we have a very robust financial position here on. So let’s end up here with the some comments regarding the market before we open up for questions.

And here you can see that the overall the market is favorable. Stable market, very good in some countries, maybe with some weaknesses in - is a little bit weaker in Finland but overall it’s a very good market on the construction side.

The civil sector seems to be extremely good, especially is in Sweden, Norway, we see a lot of projects in the pipeline. I have received a lot of questions regarding the Trump impact in the U.S.

do we see projects already now coming into the market, due to the President what he has stated. No, we don’t see projects coming directly now because it’s going to take some time, but we know that there is a lot of projects already before the Presidential Election in the pipeline which has been also referendums in several of the major cities and some of the states about increased VAT tax on other of ways to finance the need for infrastructure spending seen in several of the cities and states and we see great opportunities in the U.S.

going forward. Regarding residential development a very favorable markets especially in Sweden but also stronger in part of Norway around the capital.

Finland is okay market and we also see stable performance on the market side in Central Europe, in Prague and Warsaw we have where we have operations. Commercial development, overall good.

Leasing, leasing is a good, a lot of demand on the leasing side. We see great opportunities on the transaction side as well even in the low interest rate environment that we see now and just in one micro market that we talked about the energy corridor in the Houston otherwise it’s very good market in the various locations where we have operations.

Under PPP side, there is a lot of discussions, will it be capacity for the administration and their governmental bodies to prepare all the products now and that it will come to get them ready and that’s going to be a bottleneck. That could also be one reason why it’s going to be going over more towards PPPs.

So it’s not only because of the financing side, but also the capacity of design side because if you go with a PPP project, then you move the design work over to the contractors and that also like you can say that’s a one reason to also move over projects we have PPP setup. So we believe that also boost and increase the PPP market in the U.S.

Otherwise we see some products coming in U.K. and it’s also be an announcement of some infrastructure projects in Norway.

So with that’s over to André.

Yes. Thank you much Peter.

We will open up for questions and we will start with the audience here in Stockholm and there would be microphones running around here. Will you start up there.

Thank you. [indiscernible] Asset management.

Two questions please. The order book is improving massively, U.S.

is getting red hot. You’re going to face a lot of cost inflation in the U.S.

going forward not on raw materials but also on the labor side. And if the Trump events happen, it’s going to be even more.

All your contracts structured so that you will be able to handle this cost inflation. Second point on the residential side, the EBIT margin of 15% in Sweden that’s in my opinion too high for the long term sustainable, would you agree?

And secondly, what about the land bank, what kind of investments will we see in the orders going forward in the land bank?

If I start with the first question then Peter can think a little bit about how to answer the second. So coming back to your question regarding how we deal with underlying cost increases and how their contracts are structured especially in the U.S.

And the way we do it is that if there is a product with a long duration, we always have a discussion, what type of increase - have what type of risk will be really own takes. First is dialogue in the contract, what risk we have to take and what the risk the clients have to take.

And then of course we don’t want to take on a lot of we don’t understand if you talk about the cost increases. It can be for example for asphalt which is very much oil dependent and so on.

So very often, they take the risk on the cost increases so on the some of the materials difference between the contracts though. So that’s like first part of the recently mitigation we do.

The second part is that, of the risks that are going to end up in with us then we say okay what can we get quotes. What can we have a back to back with suppliers and subcontractors, so that’s also one other things that are work up on when we structured the whole deal and the contracts both upstream and downstream to the clients.

Then okay what is then left with us that we can’t protect both ways. Then see what and then we make an estimate and an assumption that what should be additional cost and contingencies that we have to set aside as a separate party in our estimate to cover the remaining list that we have to bear.

We had the situation that we are now facing in the market, this is something that we are fully aware of, it’s something that we discuss on a daily basis in there, because we know by experience easy to make these mistakes here. So it’s something that we have a very close focus on.

Are we seeing any contracts already now contracts you took 3, 4 - four years ago that you started to get problems with profitability wise already now?

Due to cost increase.

Yes, in the U.S.

Not really because this is something that we have had on radar screen and focused upon lacking all the time. So this is you can say and ordinary risk management work that will be hard up all the time.

But of course in today’s environment, this is going to very, very high up on it.

Thank you. And on the residential side, would you say 15% this is sustainable margin in Sweden and secondly on the land bank, are you increasing your, I mean can you increase your land bank purchases?

Well, it was interesting to get the question of, it’s too high because we have had the other issue I would say. What we’re doing, we’re looking ahead in the future because you’re alluding to land bank which means essentially that you need to be buy something to develop inside within 5 to 6 years.

So when we do that we have the magic default of you have to hit 16% gross margin in that sort of acquisition to hit the 10% to create a 10% return on capital employed. So that’s the formula.

Then we always work with finding efficiency improvements to hike the margins. It’s sustainable, long term ten years not 15% is going to be really high.

But we will continue to strive to hit good levels. We are acquiring land.

We tried to find land which is not because if you - the sweet spot with very small size is now you have a lot of investors chasing at very high prices. We tried to find land pieces, which is more complex in its structures which it’s both consists of rental, commercial and coops.

So that makes a place very well to the ones Skanska get advantages that we have found in many projects.

And they are larger these investments on land that Peter just described and there are fewer players that they can take those off.

So basically your main competitive advantage going forward is the balance sheet balance in the U.S. on the bonds also Nordics the balance sheet?

The balance sheet including that we can combine the product development operations, so we don’t have to just a commercial development or just a residential development operation, it’s like when you can build a big piece of land and then you can divide it between the various units.

Excellent, thank you.

Thank you. All right, Tobias.

Yes, thank you Tobias Kaj from ABG, congratulations to a very strong report. And I would like to start to ask regarding the Swedish construction margin, I mean the full year it was up 10 points, it’s not with a very big deviation, but in the fourth quarter it was a very strong improvement to almost 6%, is that some individuals project that has contributed to this very strong figure in the quarter?

It's always a mix between the close out of products and the performance in various parts and it's also big part of our operations is asked something concrete operation which is very seasoned about. And then you need to know how will a year so to speak, so doing three to look at just one individual quarter look at the ruling 12 of the profitability that's a better indication.

And in your guidance you say that the demand in the housing market in Sweden has improved even further from a very strong situation, do you see problem with the overheating in that market and cost increases?

It could be and that is something that that we have to focus upon a lot. We see opportunities not only in the major cities, but also in other you can say like universities like [indiscernible] and the cost increases to have control over the cost and to make sure that we have an efficient design, but also that the products are completed if you talk about design before we started product that is the best way to control the cost.

We know by history and that if we go back several years that was one of the major problems we had, and that we will not repeat that. So we make sure that we have the project designed and ready to start before the go, that goes down we can also have control over the cost.

So you don't see any indication of margin dilution at the moment, because of increased cost inflation in Sweden?

No we don't see it like from that side, but on the other hand this is something that we have to really have to look at to see and fall of the development on the cost side.

And regarding the Polish operation you came back with a slight loss also in the fourth quarter due to that you have adjusted your cost level in the operation, are you at the right level now or do you need to adjust the level further?

We view that we are at that the backend of resection [ph] program so this is back in a more finalizing it now, and we also see a little bit of a different backlog in Poland, because if a look at the order intake it's actually over 100%, if you talk about the book-to-bill ratio, but it consists of a little bit different type of product if you compare it before, before it was shorter project and you more or less burned the whole revenue in the same year. Now, we have a little bit longer duration in some of the projects, which means that that the backlog also goes into the year after 2017.

So we want to have the revenue on a cautious level to make sure that we have control over the business.

And regarding residential development you had a very strong 2016 both in terms of profitability and in terms of production starts, given the current market situation. Do you plan for a similar level of production starts this year?

Yeah, this business doesn't lend itself doing sort of quick accelerations and declarations. So when we have ready to go and launch project as we had during the fourth quarter, and as you can see from the sales rate, as I commented upon it remained very stable.

We - it depends upon the projects are ready to be launched and we fulfill that the fault sales levels that we have, but we are maintaining the same level that that's the approach we're having.

Thank you.

Thank you. All right.

Any more questions from the audience otherwise we will open up for questions from the participants on the phone.

Good morning, thank you very much. Let me start, I have a few questions, and maybe I could start with ID just to make sure I get everything correctly.

Peter you mentioned the sort of re-changing evaluations in terms of wind power, but just to make sure that did not hit the EBIT in the quarter did it?

Yes it did SEK 300 million, that's why it's SEK 300 million it's mentioned in the report.

Okay, so the EBIT was affected by a negative SEK 300 million just as it was in CD but where is that was in Houston?

In total impairments write downs of SEK 500 million in the fourth quarter. That's correct.

Okay, thank you, very clear. And then if I could just ask you a few questions on the U.S.

operations, Peter you mentioned that building is - you’ve stated at 1.5% is a margin that we should expect for a building, now you're reporting 1.8% I do know that you always would like to report higher margins than you know general construction standards, because obviously you do not consider yourself the standard in the industry, but how should we view that, I mean does that mean that you think 1.8% is sustainable going forward or that we should sort of look for more of a 1.5% margin for building obviously we won't see that as of next quarter, but I think in general.

The strategy for you is a building USA Building as you know is primarily a contractual management which is a low risk lower margin type of business. The overall strategy for you is a building is to gradually slowly move it into more complex type of projects in conjunction with you USA Civil.

One example of that is LaGuardia, it's a 50-50 split between USA Building, USA Civil. So we're moving resources, so we're moving at capacity from a low margin business into higher risk yes but also in higher margin operation.

We won't go faster in that change than we have people, because then because we don't have the skill sets and the people to understand another type of contract types, it's dangerous, but over time that's going to be a slow shift over to that. And we see great opportunities in the market now for USA Civil and USA Building to work together.

There are projects they are you can say that are lacking a half-half in between Building and Civil airport for example. LaGuardia is a good example of that.

Both lot of civil work, but it's also a lot of building work, and we see great opportunities to combine it in those projects, and it's very seldom that these products when you see very become it that are construction management, so that's like the overall strategy to slowly move it over into that side. We will just say you didn't get it wrong here now, we will of course, keep the construction management operation as well, that's going to be near and medium term future is going to be the major part of the operation.

Okay, thank you. That's all.

Yes, good morning. Okay, let's start out to EBIT commercial development pipeline.

As you mentioned you've started up a lot of new projects at same time your report to reckon profit from the segment, from business area. Could you elaborate a little bit on the outlook for more recurring earnings from the stream going into 2017?

What should we set a good earnings level given that you have sold a lot of projects over the last three to four years? Thank you.

Nic, I am going to interpret your question, because you crack up a lot down here at least it very hard to hear, so if you please could speak very much closer to the microphone. I think you are talking and I asked about the recurring level of divestments within the CD stream and we are of course continuously going to divest.

We have now been all time high here in a row and of course going over time we will increase the level as we are increasing the investments in the stream. It could vary somewhat between the years and now we are have been around the SEK 10 billion for two years in a row.

And I think that given the size of that business that could be in that range that we are divesting.

Okay and the profitability given that of course land prices have moved up over the last couple of years. Should we expect the profitability level to be also up in these levels or that returns to come down towards your target?

You are completely right that land price is increasing and we are also benefited of course by the very positive sentiment on both the leasing side and on the investor side. I'm not going to give you a forecast for the level, because we are to 4% to 8% in development profit is a hard act to follow.

And we are you can say - as a default on average in the portfolio, we are looking at the development profit in the tune of 25% more or less. So the 4% to 8% is a hard act to follow, I would say over time.

And when we start a product and we also putting some cautious assumption of how the market conditions will look like, because we don't know how the interest rate environment will be two to three years down the road when we're coming to completion. But as long as the interest level and the lower yields that we had today consistent of course it's going to be a great opportunities for the business to deliver over and above the request that we have internally.

So just maybe a clarification, in the reports you were talking about SEK 5.9 billion in cash flow that will support 2017 linked to already the rest of projects. The recent clarification is stand is the A1 divestment included in that number or since it will be reported in the first quarter will that add today.

Nic can you guess the question, can you help us.

I think I will try. He was talking about the already sold but not handed over investments or divestment or having a commercial development in ID, is that number that we have in the report is also including A1 product or not.

I think the numbers we are mentioning is only relating to the CD deals we have, which means and then NM25 which was around SEK 3 billion. So A1 is not mentioned and A1 if you recall from the press release was SEK 1.4 billion.

Thank you very much.

Yes good morning. First question today I have is clarification on a USA Building where a marginal was pretty strong in the year.

And I just want to clarify you say also kind of a reversal of the impairments just taken in the last year?

Reversal of…

Write downs from the last year.

From the last year, we have - overall we have performed well, we have some impact of that, but not to great deal, the business is doing well and doing well.

Okay, so just a regular impairment reversal level okay. And then I have a question on the dividend, how did you look at the eight Swedish kronor twenty five, you said I mean the dividend payout ratio has clearly come down if you look at it that way or if you just to look at it in an absolute increase?

There is a lot of things regarding dividend it’s like a crystal ball. The dividend reflects of course the increase profit, it also sort of looking out the opportunities we have to invest money, and I would say that the press release following the interim report for the fourth quarter is a good sign of that.

We see continued good growth in product development opportunities, and with the return of 18.4% I think it is for the benefit of the shareholders to continue to invest money in our business in the way we are doing.

And been a lot of questions and comments regarding will it be - should it be in a potential extraordinary dividend and the way we view that extraordinary dividend is that if we don't know what to do with the money and the capital in the company, then of course, then we have to like in a correct a balance sheet, but that's not the view that we have, because we believe we can see that we have opportunities to invest the capital and use it for good investment and give the shareholders return in the business we have, and that is in the product development operation, which is performing in on a very high level, but over time with definitely think that's going to be good opportunities for us there. So therefore that has been lacking a discussion how we balance what should be dividend it out to the shareholders and what do we think that we can continue to invest and give the shareholders a good return in the business.

Okay makes perfect sense. Then a question on the M25 dysprosium [ph], can you just run us again through the cash flow impact as you said that the cash flow will only come in or has only just come in and you haven't you said this pulls and then reflected in the NPV already or not, so if you could give us an update here?

Thank you. I think you the M.P.V.

it well the sales price was three point one billion we got some limited process just before New Year's and remind that was paid as of last week. So it's not reflected in the sort of cash balance we reported in the report it has happened after the report.

The sales price was SEK 3.1 billion. We go some limited process just before New Year and we’ve remind that was paid as of last week.

So it’s not reflected in the sort of cash balance we’ve reported in the report. It has happened after the report.

So also in the NPVs the 25% included?

Do you mean the net unrealized development profit in the industry?

Yes, what you call it.

The SEK 1.4 billion reflects A1 that will be divested closed during the beginning of the year now. M25 has gone from that which you can see in the material.

The SEK 1.4 billion is A1 and the whole portfolio of that projects in ID.

Okay, now that makes sense. And then lastly, could you comment on the next to the Swedish - do you had a couple of write downs in Sweden, what type with the power price assumptions, how did you compare to your original expectation and what's up with the UK project that you said that is not further pursued?

That was many words not very clear. Did you hear André.

Yeah I heard, but I couldn't make sense of it.

Do you refer to - you said write down in Sweden was that correctly understood.

No, in IDs the write down of SEK 300 million that you’ve reported, could you give some more big round to what has happened with the power prices regarding the win project in the UK project where you have written in the reported, you're not further pursuing it what's happening there? Thank you.

Yeah, so the wind power is the Swedish we have to investments in one wind power parks in Sweden in the north of Sweden. We have adjusted values to reflect the energy prices and then energy production for those that are that’s to that basis.

And the remaining wind investment or exposure that we have is opportunities and options to develop rights for building on shore win plants in Scotland actually. And we have actually taken down previously capitalized costs to pursue those, we will continue to pursue those, but we have written down the capitalized costs.

And when I say pursue we will pursue to get the rights to develop the wind, it doesn’t automatically mean that we will develop the wind.

So as with the wind parks will remain a let’s say core area opportunity for Skanska, is it something that you found not to be that?

I think wind is a good investment in from a sustainability point of view but not from a financial point of view. So are going to find different sources to invest money in than wind.

It’s not the focus area going forward.

Okay. All right.

Very clear. Thank you.

Right. That was all the questions on the phone I’ve heard.

So I think we’re done with 2016. So maybe we can just quickly move into 2017 and talk about the new reporting structure.

Okay. André have said that we will look into the future and what could be more exciting to talk about the new external reporting structure of Skanska.

We have talked about rebalancing the group, increased project development to be more in synced with construction. So this is the way we have portrayed that joining.

And if you look at the EBIT contribution between these two types of business models we have you can see that product development has for a number of years become bigger and bigger in the proportional share of the groups EBIT. And that is of course an impact of the fact that we have ramped up investments over many years.

So the step up on investments level is actually doubled if a comparable to sort of what it has been in the past. The reporting doesn’t really reflect that.

And we have been a very much detailed on the construction side we more or less kept the reporting standard for 16 years now. So we are reporting per country in the construction part, in the audit part but then only on sort of on the larger scale when it comes to commercial development.

So we have decided to adjust that to reflect how the group is looking and how the group is operating. So in construction, we will report on the larger areas, Nordics stand being the Nordic countries, we will break out Sweden because it is such a big part of the group.

The U.S. will be grouped and Europe.

And Skanska will actually have U.K. as a part continued part of Europe.

So that’s the way we have decided. That’s not a referendum.

And in residential, we will reflect this as well. So we are in that way harmonizing the way we are reporting through and through.

And if you look into the past and this is the construction stream only, the bits and pieces have been balancing over sort of the past ten years and what was the only thing you can see is the European bits has probably shrunk somewhat, thanks to good growth prospects in the Nordics and in the U.S. businesses.

And if you look in the tables into the report, coming Q1, this is what you will find. You will find this grouping in construction.

You will find this group being in RD which means that we will report the same headline number the revenues, the operating margins and so forth. And when it comes to the comments we’re making in the report, we will with make comments similar to how we are reporting the areas.

Of course if we have something very special that pops out in a specific country, then we will mention that, that’s of course a correct. And perhaps more importantly how we describe the market outlooks will be exactly as we’re doing today.

So you will find the arrows with colorings and everything because this is a good simple way to actually show what we’re seeing in the marketplace. So coming from the first page, we will continue this balancing.

Now our product development has grown over and above that of construction. The target is of course to continue to grow construction and their earnings in construction, so we can grow in tandem.

So that is the secret recipe. André?

Okay. And let’s open up for the questions on this theme as well.

Any question from the audience? Crystal clear.

Right. Perfect.

Thank you much and see you with this new suit on in Q1, 2017. Thank you.