Skanska AB (publ)

André Löfgren - Head, IR Anders Danielsson - CEO Magnus Persson - CFO

Albin Sandberg - Kepler Cheuvreux Niclas Hoglund - Nordea Markets Stefan Andersson - SEB Marcin Wojtal - Bank of America Merrill Lynch

Good morning, everyone. Welcome to the presentation of Skanska's 9-month Report for 2018.

I am André Löfgren, I'm heading up Investor Relations at Skanska. The presentation in held here in Stockholm, at our headquarters, so thank you all for showing up.

And we also have a lot of participants on the web, at the webcast, so thank you for logging in. You will all be able to ask questions after the presentation.

And the presentation will be held by our CEO, Anders Danielsson, and also our CFO, Magnus Persson. And with that, I leave it to you, Anders.

Thank you, André. Good morning.

This, before I start, on the picture here on the Slide, you can see the Brattørkaia, a powerhouse in [indiscernible] building in Trondheim. It's actually the northern world's most energy-positive building.

Going into the figures. Overall, we have a decrease in operating income.

We ended up in the nine months, over SEK 2.4 billion. We have already announced the write-downs in U.S.

in two PPP projects, and we also have impairment charge of goodwill in the third quarter as well, the totaling of that is SEK 1.3 billion in Q3. We continue to have a very strong performance within project development, both in commercial development and Residential Development.

Our strategic review that was started before this year, during last year, the fall, is now completed. And we have taken strategic actions that was communicated earlier this year.

We also took some more decisions now in Q3, and I will come back to those later on here. But overall, our position is maintained as financially strong.

If we go into each stream, and starting with construction, the revenue increased somewhat during the nine months. The order booking decreased.

We have a book-to-build of 87%. I'm going back to each of our markets, but I will say, overall, this is perfectly in line with our strategic action that we took earlier this year.

Order backlog is SEK 186 billion, and we are also being more disciplined within the bidding. We are much more selective on what project we should go for in all our markets.

The operating margin, 0.2%, unacceptable level, and that's very clear for us, and that's why we're taking action, and we're also taking more measures during this quarter. And the write-downs, of course, and charges impacting the profitability.

And the measures are somewhat on the message. As you know, the strategic action we took, communicated in January, was in Poland, in Europe, we took a lot of action there and reduced the scope to limit the operations to seven -- six to seven cities, where we already have commercial development and Residential Development operation.

And that's we are closing a lot of projects from -- in the geographies where we should leave as operating unit, and we also are on track. So I would say, we're not completed yet.

Somehow, those project will continue in -- somewhat into 2019, but I'm confident that we will succeed in that plan to reduce the scope in Poland. And in U.S., we had already communicated that we will exit the energy sector, and we will also stop bidding mega design-build PPP projects in U.S.

And the reason for that, we're leaving the energy sector because that sector hasn't developed as we thought it would be for -- few years back, and we also see that the performance is not on a good level, on a acceptable level. And the PPP project, we just think that this mega design-build PPP projects in U.S., the risk/reward is not attractive enough for us.

So we will not bid for those. And the market is very large in U.S.

for going for other projects. So we have done our homework when it comes to sweet spot analysis.

Looked 10 years back, where have we made money, where have been successful, so focus going forward in or within those sweet spot analysis. UK and Czech Republic, we have done some analysis there as well.

So we are focusing our future operation on the core competence, core business. On a group level, we have done governance review during the spring.

We have a new structure in place since 1st of July. We also are implementing our new governance framework, if you will, to simplify things for the organization and make sure that we have an efficient headquarter, with the management that are closer to the operation, closer to the market, closer to the clients.

And that's also going according to plan. Residential Development revenue goes down to SEK 6.6 billion.

The homes sold reduces by 27% compared to last year, but the homes started is not reducing as much. It is lower figure, as you see, but not in line.

I can -- the reason for that is also that we have another mix today in the pipeline and also in the project that we start. So in Sweden, we start more BoKlok residential and also the lower segment, affordable housing, in Sweden.

And we also start more ramp to residential. So that became a bigger part of the total portfolio in Sweden.

In Norway, there's also some decline in the sales of apartment. And we also see good -- continued good market in Finland -- both in Finland and in Central Europe.

So I think we have a good mix. We have diversified portfolio, both when it comes to market and also when it comes to segments.

We have a good position here. Operating margin is 17%.

It has increased in the quarter by release of provision and also some land sale are included. Return on capital employed are above the target, 10%.

So sales pace in Sweden and Norway still on -- slow. But they -- our ambition, we have a good position when it comes to sales rate in ongoing project.

We don't have so much unsold completed, quite low if we compare to the total operation. So we -- and we're also, as you know, a financially strong company.

So we can take opportunities that will show up in the weaker market going forward. So ambition -- long-term ambition is to grow this stream.

Commercial development. Very good quarter, very good operations.

Gain on sale, SEK 2.4 billion in the first nine months. We have a return on capital employed equal to last year.

We have 56 ongoing projects. So it's a lot of opportunities in this market for us.

We have a strong position where we have our footprint. SEK 33 billion in investment upon completion, of course, in those projects.

We have 45% occupancy rate, 55% completion rate. And that's also a trend we can see now as we increase our operation in the U.S.

market. We see a trend there that the tenants, they decide -- take the decision later on in the process.

So I'm not concerned over this, if -- gap, if you will, because we have a good pipeline of tenants, and it's a high activity amongst our tenants for signing up our projects. And also continued to be a strong interest from investors.

Infrastructure Development. This -- the comparable period includes A1 motorway in Poland that was sold last year, early last year.

We also have decided to close down the project development within Infrastructure Development. The reason is we took the decision earlier this year to close down Stockholm and London office.

We also now took a decision to close down the project development in U.S., and that's a consequence for not -- that we're not going for those mega design-build PPP projects. We're not saying that we're totally leaving this sector, but we don't think we have enough pipe -- projects in the pipeline to defend a permanent organization for project development.

But we do have a lot of assets, as you can see, SEK 3.5 billion in value. So we do have a strong asset management organization to take care of this portfolio and make sure we get the most out of it, both when we manage it and when we divest them.

The order situation within Construction. We see we have a gap there between the book-to-build rolling 12 and also compared to the revenue.

And that's -- I'm not concerned over that. Going into each market in the minute here.

But that's in line with our strategic initiative, strategic action to reduce the risk within the construction stream. I want to see more predictable profitability, more sturdy profitability going forward.

So it's profit before volume, we are going to prioritize, be more selective and keep on bidding within our sweet spot analysis going forward. So this is a consequence of that.

And if you look at each market, Nordic, that's performs on a good level today, they are holding up the order backlog 100%. You can see slightly lower in Sweden, but I think the pipeline in Sweden is very promising.

So I'm not concerned over this, and you shouldn't be either. Europe, 86% book-to-build rolling 12, that's in line with, I just explained, our strategic action, mainly in Poland, but also some action in Czech Republic and UK.

And U.S., the same story there. I want to see improved steady performance.

If disregard those two projects and the goodwill write-down in U.S., we are performing on a good level. So I'm not -- I'm sure, I'm confident -- it's an important market for us, and the market is strong.

So I'm confident that by being more selective, keep ourselves within our core competence, I'm confident that we will succeed in going back to profitability again. So that was -- Magnus, can't you go into the details, please.

I would love to. So let's start with the income statement for the Construction business stream then.

As you can see behind me, we have accumulated revenues in the tune of SEK 115 billion for the first nine months this year. It's up compared to the same period last year.

And as -- I mean, as Anders already outlined here, order bookings are coming down around 15% versus the comparison period. So this means that the growth in construction revenue will not continue, because as you also can see, backlog is now coming down here.

So we will have an inflection point when revenue will start to come down over 2019 and 2020. So I think that's an important sort of piece of information to carry with you if you trying to forecast the company going forward here.

If you look at S&A level here, we have around SEK 5.2 billion in sales and admin to S&A percent of 4.5%. In that, we also have the goodwill impairment charge that we have in the U.S.

here. So if you take that out, you will come to sort of the true underlying S&A, which is then 4.2% here.

And obviously, SEK 200 million in operating income for the first 9 months, 0.2%, is deeply unsatisfactory. And you can also see this on the chart at the top of slide here, since the beginning of 2017; we have had a lot of project write-downs and sort of one-off charges that has pushed our result in this business stream down.

I will go through this and give you an overview over how it has impacted the different geographical regions, in a couple of slides here. If you look at the results for different regions, then Nordic is strong.

We have an operating margin in total of 3.8% here, a little bit lower than last year, but still a very sort of good level. Sweden is even better, it's 4.8%.

And in the isolated quarter, we actually have 5.2% in Sweden. So very, very strong performance, also, of course, on a good market there, but nevertheless.

In Europe, minus SEK 564 million for the first nine months. And this is -- I mean, the big impact there is, of course, the problems we're suffering in Poland.

But also, I want to point out now that in the third quarter, all the European units are back in black, so we're not losing money any longer here. So that feels really good.

I'll say, the problems that we have had in Poland, they're much more ringfenced now. I feel that we have them well under control, but it's a journey to take to return to a decent level of profitability.

And USA then around minus SEK 800 million, and I think you all know the charges that we've taken there, SEK 520 million in the second quarter and now SEK 900 million in project write-offs in the third quarter and also the impairment charge. So that sort of explains the minus SEK 800 million here And takes us down than to the SEK 231 million.

If we then look at the distribution of the project write-downs and the one-off effects here. I'm not going to go into this in detail, it's a little bit of a service to you to keep track of all the sort of major result impacts here.

But in total for the first nine months here, we've had charges of SEK 2.3 billion, which can be compared to SEK 1.1 billion over the same time period last year. And here you can also see how this is distributed between the different types of charges that we've had in the different geographical regions.

We move on to Residential Development. And of course, anyone who has been following the Swedish and regional residential market is not surprised by the fact that the revenues are coming down for the first nine months.

We have had a revenue decline here, market-driven, of around 34%. And if you look at the operating income then, SEK 1.1 billion, to a very good margin.

I want to emphasize that a part of this operating income for the first nine months, around SEK 500 million, comes from gains from divestments of land and the release of provisions in this business stream. And that actually means that the underlying operating margin that we are trading at currently is more like 10%.

And this is sort of very important piece of information if you're trying to assess the capacity, sort of the underlying trading of the company right now, given the market situation here. And the 10% is where we're at for the first nine months and also holds true for the third quarter here.

If we look into distribution over the different geographical regions, as you can see here, we have a very good margin in the Nordics, but this is also where we have had this -- the effect of the land divestments and the release of the provisions here. So almost all of that is in the Nordics, and about half of the effect you will find in Sweden.

Marketwise, I'll say, Sweden -- the Swedish and Norwegian markets are, of course, a bit slow. We'd argue that the Norwegian market may have come a little bit further than the Swedish market in terms of stabilization here.

The Finish market is good, and so is the Czech market and the Polish market, which are the geographical -- the national markets we are into in our European part of Residential Development. Homes started and sold.

As you can see, we are still starting more projects -- more units here than what we are selling. But in fact, sales in the third quarter now this year was actually higher than the third quarter last year.

Then we have this mix here that Andres also spoke about. We have a much larger share now of affordable units and rental apartments than what we had previously.

So you will also recognize that mix situation, if you look at the revenue per sold unit, you can see that this is coming down, and this is entirely, I will say, a matter of this mix. That's the big effect there.

Even though, we have this situation where we are starting more than what we're selling, we're also, of course, handing over a lot of units. So if you look at units we have on the production here -- in the stock of production, it's basically at the same level.

You can say, if you compare it to one year back, it's down around, you can say, 400, 500 units here. So it's coming down a little bit on a yearly basis.

But the sales rate in the portfolio is still very good. We're at 72%.

I think this is a very healthy level. So we are not at all worried about an excess exposure here to the residential development market.

And of course, we're keeping this measure -- sort of our eyes closely peeled on this and how we develop here, because it's really important that we sort of keep track of that here. The other thing I should point out here is the development of the unsold completed homes, because you can see a fairly big uptick here to 261 units.

It was around 130 units the last quarter. So it's a pretty big sort of nominal uptick here.

But you need to compare that to the overall volume of this business in order for the analysis to make any sense. And if you place the 260 versus the 7,500 we have on the production, it's a really small number that we have sort of completed but not yet sold there.

So the exposure there is low. We go to Commercial Property Development.

First nine months of the year amounting to around SEK 1.8 billion in EBIT, which is in line, I will say, with the same period last year, which was a very strong year. Gains from divestments, first 9 months, is SEK 2.4 billion.

So we're looking at another very strong nine months period here, and we've also had a super-good start of the fourth quarter. I hope that most of you noticed the release that we had some time back of our sales of the 121 Seaport property in the U.S.

to a very significant capital gain on that one. And if you add than the pieces together, it easy to come to the conclusion that this year will also be a very strong year for our commercial development.

We are now rolling at around SEK 12 billion on an annual basis in terms of divestments in this stream. And if you look at the green line here, you can see the operating income on a rolling 12 months basis.

So we are sort of producing an operating income that is quite steady and quite high now from this portfolio. And if you look at the bottom of the slide, you can see the capital gains from the sales value of the properties we've had for the first nine months, and sort of the margin on divestment here if you put it like that is 27%.

So we're still operating here at a very sort of strong level of profitability. We have 56 ongoing development projects, as Andres shared, and inside the portfolio of these 56 projects, we have unrealized gains of around SEK 8.6 billion and realizing on a rolling 12 months basis here, around SEK 3 billion of these gains that we have in the portfolio then.

And we have been circulating around SEK 9 billion to SEK 8 billion in unrealized gains in the portfolio here for quite some time. So we have a very sort of strong portfolio in the making here.

Leasing. You can see on the blue bars here that leasing on a rolling 12 months basis is coming down, and leasing is a bit slower, as you can see in the numbers there.

This is not a cause for concern here, because what we can see, but what you cannot see, is the pipeline we have of lease negotiations and the dialogue we have with potential tenants, and this is very strong. So it takes a little bit longer time, I would say, for some tenants to make decisions here, but this is not sort of any cause for concern here.

You can also see the gap now that we have between the percentage of completion in the portfolio and the level of leases in the project is increasing a bit. But again, we're not concerned, we're in a strong market, a good yield situation, and so on.

If you go to Infrastructure Development, not a lot has happened there in terms of the numbers. Anders told you also about our decision to sort of stop shop with the project development part of ID here.

We had the restructuring costs in the first quarter, which you may call, of SEK 120 million. And then we have divested a motorway in Norway in the late May this year and also received some additional payments from previously executed transactions.

So this in total makes up the SEK 58 million in gains here that you can see. Project portfolio, we have an assessed market value of the portfolio of SEK 3.5 billion, and the increase since last year here is mainly driven by currency effects and also by the pure time value of the net present value calculations, you can say.

You can also note slight investment there of SEK 0.1 billion, and this is just a preplanned equity injection into one of our SPCs that has been committed for a long time here. So it's not a new investment that we're making.

If you add everything together, you come down to an operating income from our business stream to SEK 3.1 billion. And then we have central costs of around SEK 630 million.

Some eliminations which takes it down to SEK 2.4 billion in operating income for the group. You can also note the slight uptick in net financials.

We have a very, very efficient financial operation at Skanska. So this increases due to very well handling of excess cash through low-risk financial placements.

The other thing that sticks out a little bit here is the tax rate. We're moving from 9% in tax rate to 16%.

This is almost entirely explained by the business mix in what country are we making what transactions. Last year, we had a major transaction in ID in Poland.

It was a motorway that we sold in the first quarter that was -- we were able to do in a very tax efficient manner. And also last year, a larger part of the gains from commercial development came from the European and the Nordic operations, whilst this year, it's from the U.S., and there's a difference in the tax situation here, explaining then the difference in the tax ratio.

Cash flow for the -- if you look at the rolling 12 months here, cash flow looks pretty good. For the first nine months of the year, it's improving a little bit, though it's still below zero.

I would argue that's quite normal for this time of the year. And if you compare it to last year of SEK 2.9 billion plus, a large part of that are proceeds from ID divestments that were kept in as working capital here.

And that takes us down to total cash flow then of over SEK 3.6 billion then for the first nine months. In Construction, we're keeping up a very good work in terms of prepayments and the net working capital.

We're currently at a level around 14% of revenue and have been there for a while. And I think this is a very strong performance in this area to be able to stick to that, especially since we are increasing sort of the relative share of contract models that are not automatically sort of lend themselves towards this type of free cash flow here, like various type of partner agreements, and so on.

So that's a strong performance. And obviously, if we now will go into an inflection point with the revenue in 2019 and 2020, the overall revenue in construction will then come down, and this will, of course, impact a nominal amount of this free working capital.

Right now, we have around SEK 23 billion here that we can utilize, but then that will come down. So I think that's also important to bear in mind if you look forward here.

In terms of our investments and divestments and capital employed, we continue to increase this. Now the numbers in the table that you have here are a comparison against the same period last year.

And then you can see that RD and CDR increasing here. If you compare to more recent sort of dates here, the increases in RD is sort of flattening out here due to the market situation in Norway and Sweden in particular.

But we believe in this long-term. We are long-term generating very, very good value from this business, and we will like to continue to grow this part of the group here.

The financial position. We have around SEK 117 billion in total assets.

SEK 28 billion in equity, a very solid equity-to-asset ratio here, 24%. And net debt at the end of the third quarter of minus SEK 3.7 billion, and I think this is also a good level, we're improving here since last year.

Capital employed for the entire group, SEK 46 billion then. Here I also would like to point out some of the effects that we're having, or will have from the introduction of the new lease accounting standards, IFR 16.

As you know, this will come into effect January 1, next year, and the means that we will have to put sort of the lease values in the balance sheet in a different way than what we have done before. Our assessment of this and the effect for Skanska that we would have that this rights of use of our assets would be around SEK 9 billion.

This is of course, very large sum that will end up on our balance sheet the majority of rights of use assets are found in the Commercial Development business stream and in the commercial, construction business stream. And is made up primarily of office buildings, it's made up of land leases and also various types of real machines and cars.

So these are the biggest effects on the distribution of the business streams. And we will of course, come back to you later on with a more detailed analysis here on the impacts on the balance sheet and also in our key ratios because I think, that's very important to understand, but now we have sort of the big-ticket explanation here to that how will impact us okay, Anders?

Thanks. Addressing the market in our different streams here, starting with the construction.

The Nordics, it's a bit of a mixed build -- mixed picture in Sweden. We have a strong, very strong civil market, we have a strong commercial construction market, but we see decrease in the residential construction market being Sweden.

The rest of the -- it's a stable market in Norway and Finland and overall, strong civil market, very strong civil market. In Europe, Poland, the building market is stable.

Brexit, in UK, has continues to influence the nonresidential market where commercial construction. We have a stable civil market in UK, also Poland, wiki in Czech Republic, has been weak for a while now.

That's why we have taken some measures in that. And we also see a very low unemployment rates in central Europe now.

So we see a rapid cost escalation in both Poland and the Czech Republic. So that something we have to be very careful about when we put the bit for project and start Commercial Development, Residential Development.

But we are on top of that. USA, the USA continues to be a good market, but it's fierce competition.

The infrastructure market there is the problem is very promising. We have most of those decisions also taken on the state level and say the level.

So we can see continue to see a very strong pipeline there. Residential Development.

The Nordics continue to be very uncertain markets, slow market in Sweden and Norway. Stable market in Finland and also, robust market in Central Europe, Czech in Poland.

Commercial Development, strong all of her. We have the strong interest from both investors and also from the tenants.

Very low vacancy rates, especially in Sweden, if you look at the Nordics. Europe's strong demand both from tenants and investors.

U.S. strong appetite and good tenant demand.

So you can see historically, low yield level, I think will continue to be good appetite for our projects. So by that, I'll leave it to Andrea to start up to Q&A.

Yes, exactly, thank you very much guys. And we start with the questions from the audience here in Stockholm.

So we have microphones running around, Albin, first one out.

Yes, I'm Albin Sandberg by Kepler Cheuvreux. I have three questions, starting on the construction units.

Anders, you said, also in the report, you spend the first nine months reviewing the operations and so forth. And I guess to some extent in a company like Skanska, there's so much going round so you'll always have to review it.

But going into Q4, do you feel like you're bulk of that review has been done so that we start on a clean sheet in Q4?

Yes, as I said, the review has been done or we have reviewed -- we started that review last year in the fall, and we took some strategic actions in January this year and then we have continue to do that review. And some part of that is taking quite some time because they are complex, very large projects.

So now we have the completed the review and taking the measures that we think is enough.

Great. And a few quarters back, when those kind of write-down started in the U.S., you also stated in those reports that you expected some kind of recouping of some of the charges.

Is that discussion still valid and have we seen any positive impact of that in Q3?

We haven't seen a big amount of that in Q3, but I do think that some of those cost increases we see in projects, we are not responsible for. And we will try to recover from those over time.

But today, we are taking all the cost estimated see for completing those projects and then, we will take any income when we have finalized the agreement with clients and other parties.

Great. Then on the [indiscernible] I wonder, you didn't change the market outlook quarter-on-quarter, even though, I found your results Q3 isolated quite good.

[Indiscernible] and kind of weakening market for quite some time, just would like to understand, what exactly is happening in Q3 that makes you [indiscernible] -- sorry, is it lower [indiscernible].

There something wrong with you microphone. But I can repeat the question maybe for the listeners here.

The question what are the differences we're seeing in Q3 since we wrote down the expectation for the construction residential market, and that's not the residential part. The residential part is actually unchanged when the market expectation still slow, but unchanged.

But we can see on the construction side, overall, in Sweden, where we change the market expectation, is that it's actually starting fewer Residential projects overall in Sweden, but our Residential Development is unchanged.

And then also the comment that you and also some of your peers are making about the hesitance among customers to sign of early in Residential projects. I mean, if this were to become the new norm of how the market will look like, would you be ready to take more risk on your balance sheet and start anyway?

Or do you feel that it's requirements from banks that is holding you back from starting new project?

We have a very strong financial position. It's our decision, which of course, a good position to be in.

And we have, if you look, we review project by project and take the decision about the presale rate, presale rate before we start the construction. And as we've done in the last few years in a very good market, very good position all of our location, we can have a very low or in some expectations, we a, a zero presale requirement.

But we take that decision. I would say, the average is around 40% and we can see that -- its hesitation in the market today in Sweden and somewhat in Norway as well.

But I'm confident that we are in the right places, and you can see in Sweden underlying strong need for new apartment going forward, but I think, we have seen too much of a bulk of high end apartments especially going in the Stockholm, that needs to be told out in totally in the market before we can start to see any increase. So think -- I expected to be slower in the higher market for some time.

But, we also refocus our portfolio somewhat. So we are more diversified and we can do that by being more diversified, both when it comes to geographies, where we have our operation, but also on the segments.

My final question is on the IFRS 16 comment. Historical list you've been quite good in providing segment aside from IRS [indiscernible] more [indiscernible].

My question is do you think your ONFAL calculations?

Yes. We will do that.

I mean this is the right of you to ask up on the balance sheet. And if we sort of different things the way they key rations are defined today, then it will impact that, yes.

Niclas Hoglund. A couple of question from side as well.

First may be follow-up on the Albin's question review. Today this morning, we also announced that you were postponing your Capital Markets Day.

Despite that the sort of current review is already done, could you maybe share some light on why you postponing the Capital Markets Day?

The reason is that we want to give you as good picture as possible of the status in the company and the future plans. That's why the -- to give you a better picture on the strategic action that we are completing now, so we postponed it a couple of months and we will have it in the latter part of March.

Great, and then moving on to construction U.S.. You talked about the sweet spot analysis, could you share some data on Delta on profitability, maybe, and comparing with while the U.S.

energy or the larger projects compared with the sort of medium-sized sweet spots?

Yes. So we're -- we don't comment on individual projects, or segment of project.

But I say that if you take away those two projects on the goodwill write-down we seen the third quarter, we have an acceptable healthy level in the operations. Then we have fixed in U.S.

We have a mix of U.S. building projects, where the lower risk, lower margin operation, and we have also the U.S.

civil, which is higher risk, higher margin, more like the European operation. So I expect, can see that already today.

That we are performing on a healthy level. Can expect us to keep our self within that sweet spot analysis and continue to do that going forward.

And the market is good. So we can be selective.

And a follow-up on that, I'm assuming that you also just for all the dead revenues that you are having right now on projects that sort of diluting profitability. Would you like to sort of share some more thoughts on that revenues in the previous comments you mentioned SEK 800 million U.S.

for next year? Could you share some numbers also for 2020?

Is it on a similar level?

I mean, what we've said in -- for the U.S. operations, we expect around SEK 800 million and that revenue growing into 2019 here.

And for the problem projects here, they will of course be completed sort of down the line. So, and I'd say, that demand would be probably down and over by in 2021.

But I mean, it's maybe a little bit too optimistic to say that we'll never beat any of the revenue in the construction company. So I think that's you need to be a bit cautious while sort of assuming everything away here.

There has been some concern since you've mentioned that, well, these two projects taking choice right now are within the PPP scope, ongoing projects and, well, there are only two of those ongoing as far as I know and the sort of completion times goes well beyond 2021. Is it isolated projects within the PPP that -- well, creating these revenues?

Or shouldn't we expect for the full time, for example, LaGuardia?

I can comment on the PPP project that we see the write-downs on. We are about halfway through in those projects.

We have done the review, we have of course use the 50% completion on those projects estimate in the cost for completion. So we have about a precision that.

And we also have most of the design is completed. We also have done most of the procurement of.

So we are in a better position to judge that. And that's what we've done.

And we also taking the cost, we think is needed to complete this project.

Super. And then moving on to residential a point.

You mentioned that you're improving the mix. And you also sort of including also higher share of risk in residential rental apartments.

Could you share numbers of how big part the rental is on the ongoing production, may be? Or -- also reflection on the profitability on EBIT related to BoKlok and ramp up holds impact that next going forward?

I'd say when we see the performance today, it's very high due to the completing the profitable project that we started a few years back. But we also said that the current mix, we have an underlying performance of around 10%.

And that's with our mix today. Our BoKlok participation in the portfolio is has increased from last year from 50% to 60%.

The Rampa Residential is not -- it's a minor part of our total operation, but it still included. But we still have this -- we have quite a good performance level and profitability on those as well.

Super and then my final question, if I may. On the commercial development side, you've had an exceptional with, well, very strong performance with, well, EBIT margin contribution of 27% and you're also talking about a very strong pipeline.

And given that you now sold the Seaport project, what's your sort of thoughts for 2019 and 2020? Have you sort of sold the good stuff?

Or is there anything more to sort of sale?

We create the good stuff in this business, even don't we sell, so that hasn't stopped. And I mean we still have sort of big ambitions in commercial development and for 2019 and 2020, I'm not going to give you guidance, but you can see where we are portfolio was and are these projects we have now, 56 of them will be completed, will be, sort of, profit will be recognized.

And normally, I'd say on a portfolio like this, you will expect a turnover of maybe three years or something. Something with mics here.

If that was sort of roughly answering your question.

[Indiscernible] expected to decline [indiscernible] high returns.

Okay the margins tariff questions needs to relate of sales price. And as we will know the yields are very, very low in many places, and I have a hard time seeing that yields will sort of go further down.

So it's a lot market-driven here, obviously, and we're trying to make the best deal possible out of every market situation where we are in. So it's, I mean, I can't give you a straight percent answer on that question, as I'm sure, you'll understand.

It depends a lot on where the market is and we are in a position that we want to sell the project.

The gains, so since the divestment in Boston, well, it's in the U.S. and you have higher taxes and the U.S.

Now with these charges and write downs we have taken, is there an opportunity for you to sort of utilize these SEC, losses in the U.S. and harder to have more tax efficient into the fourth quarter, which we would expect the sort of average 25% tax on that divestment?

I mean, of course, we use all the sort of tax possibilities we haven't. So we're not letting any loss benefit from any loss to so to speak unutilized there.

So that will be used. But I think 16% this year-to-date, I think, it's a reasonable [indiscernible] for the year.

All right. Any more question.

Yes, up there, we have Stefan Andersson.

Stefan Andersson with SEB. Going back to Residential just trying to understand how you put your errors there.

I mean it's a year since we saw the residential in Sweden, weakening when it comes to starts and now you take down your arrow to a negative. I mean how we -- what kind of -- what is the criteria for you to have this as an outlook?

Is it your ongoing production you're trying to measure, or you're giving us an information on the future outlook of the market? And then also, connected to that, why is it flat on your own Residential Development while you see a weakening in the construction side?

There is a to be clear. It's our four cost 12 months ahead.

What we can see now in the total construction, residential construction industry in Sweden is that we expect the fewer, much fewer construction project will stop. And that's of course, we are not only constructing our own projects in project development, Residential Development, we also have external clients.

So we don't expect -- we expect less order intake from an external clients when it comes to residential construction. But we also see that our own Residential Development part is quite slow, but it's unchanged.

We don't believe in the 12 months ahead that it will stabilize. It will stabilize, it will not decrease a lot more.

We don't think it will increase a lot more, we think it's continue to be quite slow in certain markets, especially in Stockholm.

Just -- but you don't think you're a little bit late to take down the arrow good outlook for now take down the arrow?

We believe so far the construction part, not the own project development.

Then it comes to minus, you talked about the not to worry about the unsold houses there in Residential side, and nice to see, but the movement is probably what we look at. I fully understand your comment, but so to put you little bit on the spot going into the next two quarters, do you expect that to share to increase or decrease?

We're not going to forecast that for you, you can do that.

Okay. And then the last question on the Residential then.

It seems like the property developers have been summoned by NASDAQ to talk about the accounting methods because they vary a lot. Have you also been summoned and what is your stance when it comes to trying to uniform the accounting, where you think it's going to end up?

Will everyone going through your model of percentage of completion or would it be deeper and up a model who do you think?

I think the word someone may be a bit harshed, we've been invited to the stock exchange to discuss this. I think it's makes a lot of sense to try to agree on the expedition of IFRS 15 in the context of property development.

Because we can just observe how different developers are applying this in a different way. And I think for anyone reading and being interested in external financial reporting, this must be a bit tricky to sort of compare the situation for different companies here and also the underlying risk that the different companies are carrying in their portfolio here.

As you know, we have a sort of a dual reporting. We have IRS reporting and then we have our segment reporting.

Then the expectation that we have now is that in our IRS, our interpretation of IRS is in line with what is sort of the being proposed do not propose here so to speak. So we will be there at the stock exchange meeting of course to discuss this.

Thank you, Stefal. All right, anymore questions from the audience.

If not, we will headed over to the phone conference. So please just follow the instructions from the operator.

So I've got a few questions, the first one is on Commercial Development. Can you indicate, if you expect to sell any additional assets in Q4?

And also, considering the large divestments that have already been announced in Q4, can you indicate if you expect EBIT for the division in 2018 to be actually up versus 2017? So that'll be my first question.

Then question number two, just coming back on your residential business. Obviously margins have been better-than-expected this year due to provision reversals and around sales.

Could you indicate if you expect those effects -- provision reversals, et cetera, to continue in Q4 and perhaps into 2019? And would should be significant?

And maybe lastly, could you provide some indication for operating working capital for the fourth quarter because optically, there wasn't really an outflow in the nine months, but we see there are some other impacts, which perhaps make it less clear? So I would just like to have some indications from you, should you expect a significant improvement in Q4.

I think we're going to give this a try, Marcin, it wasn't easy to hear you. Go ahead with what you think you heard.

See the Q4 compared to last year EBIT.

You're asking about this quarter's EBIT in Commercial Development versus last year's, I'm not going to give you that. We think if you tally the results up until today, the first 9 months, and on top of that, you add the investment that we've already announced, you can see that this year will be a very good year.

In terms of what we will sue in Q4, we'll have to wait for Q4 report to get to that. And the second question here, I think, concerned Residential Development.

And whether if I let you -- or heard you correct, Morrison, whether or not this differential between the reported margin and our underlying mission and we'll continue to Q4 and 2019 and 2020 and going forward? Well is that's correct read for my part?

Yes, yes, definitely.

Yes, okay. Now I can tell you that provision release and the effect of this that we have for the first nine months and in the third quarter are exceptionally large, and we don't expect that to the differential level of that differential to continue.

The last one, I think you'll need to repeat, Marcin.

Can you hear me well right now? Is it better?

Sorry, no the question was on operating working capital. Do you expect a significant improvement in the fourth quarter of 2018?

Working capital.

Working capital?

That's right.

What I expect to happen with working capital this year. Okay, well again, Marcin, we see no particular reason for a sudden change in that, but you will have to wait for the fourth quarter report.

All right, thank you very much for your attention, and enjoy the rest of your day. Thanks.