Skanska AB (publ)

Welcome, everyone. This is Andre Lofgren, Senior Vice President, Investor Relations speaking.

And the welcome is to our 9-month report presentation, which will be held by our CEO, Anders Danielsson; and also our CFO, Magnus Persson. And after this presentation, you will be able to ask questions.

And with that, I hand it over to you, Anders.

Thank you, Andre, and welcome, everybody. I want you to look at the first picture here.

It's our Powerhouse Brattørkaia in Trondheim in Norway. Powerhouse, it's - the name is because the building produces more than double the amount of electricity it consumes daily.

Then we go into the 9 months' report and the overview here. Overall, solid performance.

So this is a strong report. The Construction stream steadily improving quarter-by-quarter, the same with this quarter and the Residential Development, strong profitability.

And we also increased our sold and started units on the first 9 months. Commercial Property Development, we have started a lot of projects during the first 9 months and also sizable starts.

And the gain on the divestment, they are on attractive levels. Operating margin in Construction, 3.6% in the first 9 months, so same in the third quarter.

And return on capital employed in Project Development, well above our target of 10%, so 12% ROCE. Return on equity, 26% on a rolling 12 months' basis.

And we continue to have a very strong financial position. And it's also very encouraging to see our carbon reduction that has reduced with 47% since the baseline in 2015.

And you also saw that we increased our targets for carbon emission to 70% reduction in our own operation until 2030. With that, we can go into these different streams and starting with Construction.

Revenue decreased to SEK 95 billion. That's about a 6% reduction in local currency for the comparable periods.

The order bookings, SEK 111 billion for the quarter compared to last year, SEK 110 million, and should also remember that last year, we had a high-speed rail of close to SEK 14 billion in the second quarter. So this is an increase by 6% in local currency.

So we have a book-to-build of 117% on a rolling 12 months' basis and the order backlog, just shy of SEK 200 billion. Operating income increased with 48% in local currencies to close to SEK 3.5 billion for the period and the operating margin, again 3.6% compared to 2.3% last year.

The Q2 divestment of infrastructure services operation in the U.K. impacted positively in the second quarter with SEK 370 million.

And encouraging here as well to see that the profitability improves in all business units for the first 9 months. Going into Residential Development.

The revenue increased to SEK 10.7 billion. We also sold more homes and we started more homes compared to the last year.

Operating income, 1.5 - close to SEK 1.6 billion. And the operating margin well above our target here as well, 14.5%.

And the return on capital employed on a rolling 12 months' basis, close to 15%, high activity and strong profitability all over. And the focus for us when it comes to Residential Development is the focus on zoning and bring new projects to the market.

We have today a very high sales rate in our ongoing project. So the biggest priority is to start new projects there.

Longer term, if you look at the RD business, some uncertainties, of course, about the - where the economy is going, the unemployment levels and so on. But in the foundation for this business is strong, structural shortage of homes is definitely a mitigator for that one.

Going to Commercial Property Development. The operating income, SEK 1.5 billion.

We have a gain on sale in the first 9 months of SEK 1.8 billion. Even though it's lower than last year, we have - the divestment has been on a very attractive level.

And the return on capital employed, above our target, 10.8% on a rolling 12 months' basis. We have today 32 ongoing projects, which corresponds to almost SEK 24 billion in total investment upon completion.

We have also historically a lower occupancy rate and completion rate. And that's because we have started new projects.

We have all-time high when it comes to start of new projects. We have started 16 projects the first 9 months, which corresponds to a total investment of SEK 14 billion, highest ever.

We can continue to see a slow leasing market, but clearly the activity is picking up in the third quarter. We have leased 125,000 square meters during the period.

That's slightly lower than last year. And we continue to see a solid property investor appetite.

And they are definitely going for flight to quality here. And again, divestments, they are at very attractive levels.

So we go back to the Construction stream here and look at the order bookings. And here, you can follow it over time year-by-year.

And you can see the order backlog, the development of the order bookings of rolling 12 and compared to the revenue and also order bookings per quarter. So what you can see here is that we have had higher order bookings on rolling 12 compared to the revenue.

So I expect this to - you can see it, the flattening-out, expect it to increase going forward. But again, healthy backlog of shy of SEK 200 billion.

And if I look into the different geographies when it comes to order bookings, overall, strong backlog, strong book-to-build over well above 100% in all markets, except for Sweden. But I'm not concerned over that figure.

We are in a very, very strong pipeline, and we have a lot of projects that they are in the first stage that sort of pushed - the client pushed them over the new year or into the fourth quarter. So I think overall, very strong 117% book-to-build, which equals to 18 months of production.

So that is a good position. With that, I leave it to Magnus.

Thank you, Anders. So if we then look at the income statement for the Construction stream, revenue is down 11%, 6% in local currencies, which is sort of the volume indicator here.

So currencies does make the numbers look a bit more sort of that the revenue decline is bigger than what the volume is. Still, what Anders just went through with 117% book-to-build in a rolling 12-month basis and the 18 months of production in the backlog, we're not too concerned about this, expect it to sort of come back here.

S&A always very important for us. And as you can see, it's falling nominally.

We are coming in at SEK 4.1 billion in S&A costs. If you look on the S&A margin then, minus 4.4%, it's a bit higher than, but that's driven by volume, obviously.

And given the backlog that we have and the book-to-build, we think this is a good level to be at for the moment. Gross margin 7.9% year-to-date.

You need to adjust this for the U.K. divestment to see the trend here, if you will.

And if you take that out, you end up with 7.5%, Q3 isolated at 7.6%. So as Anders said, we continue to piece-by-piece improve the underlying performance of the Construction portfolio, which is exactly what we have been working with.

Takes us down then to the EBIT margin of 3.6% or 3.2% year-to-date, if you take out the U.K. divestment.

And I think the development here is really sort of a testament to this stabilization of the Construction portfolio that continues and successfully improving the performance. If we look at the different geographies then, the margin, as said, improves in all geographies year-to-date.

In the third quarter, it was stronger in Europe and in the U.S., slightly lower in the Nordics. But I'd say, overall, all geographies continue to improve their performance.

But the margin in individual quarters can, of course, go a bit up and down. But overall, a very solid performance.

And in the third quarter, no one-off effects sort of disturbs the comparability there. If we go to Residential Development then, we've had a very strong performance, revenues of SEK 10.7 billion.

Of course, that's a lot if you compare it to SEK 9.6 million last year. If you look at the third quarter isolated, sales fell.

It looks like quite a bit. But there's a couple of explanations to this that are important to be aware of.

First, I think the third quarter last year is a very, very tough comparison for two reasons. One is that there was a significant amount of pent-up demand in the housing market after Q1 and Q2 had been, to a large part, at a standstill due to the pandemic.

The other one is that we divested a package of rental properties in the third quarter 2020 for SEK 1.5 billion. And then of course, right now, due to or thanks to the strong sales we've had, we have fewer units to sell.

Our inventory is a bit low. I'll come back to that.

Performance-wise, with an EBIT year-to-date of 14.5% and a whopping 15.5% in the isolated quarter, the performance in Residential Development is, of course, on a very, very high level now. And there are no significant one-off effects in the quarter here that you need to be aware of when you compare it.

If we look at the different geographies, we improved margins both year-to-date and in the isolated quarter in all different geographies. So I'd say the market is perhaps strongest in the European geography currently with a very, very strong demand and a very positive price development.

But it's positive market in all our geographies. And I should also add, of course, that the strong price development there has really sort of made it possible for us to increase prices when we sell these units.

And also that we have been sort of not needed to use sales reserves that sort of always have with you when you start a project. And all of this in the market contributes to a very strong result.

If we look at home started and sold, you can see that the lines in the chart here dips a bit in the third quarter of sold and started. Year-to-date, we have sold more.

We have sold 3,054 units, and last year, the same period, 2,879 units. So sales is a bit up.

And we have started the same amount as last year, which is roughly 2,500. So we have a bit of a started deficit, if you will, in this.

And in Q3 then, the sales, as already commented, we sold actually considerably lower amount of apartments than last year. But the big part of that is explained by the divestment of the rental portfolio in the third quarter in 2020.

So with the sales pace as strong as it is, it has been challenging to backfill with new projects. And a chief reason here is that this sort of slow and resource-demanding with the permitting process to drive this process through the administrative authorities.

That takes time. And that is the limiting factor for starting more projects, which we are working hard on, of course.

If we look at homes in production, we have roughly 7,400 units in production at the moment, which is a good step-up from the 6,600 that we had a year back. Over this, we have sold now roughly 80%, which is a number that, from a commercial perspective, you can say is too high.

We would be more comfortable with 60% to 70%. So we're working to start more units then.

No issue with unsold completed homes as we can see 94 units, that is very small amount in comparison to the total amount of units in production here. Then we go to Commercial Property Development.

We had a very low-volume quarter, you can say, in the third quarter. The result that you see, the revenue of SEK 4.4 billion and the gross income, is basically generated - the largest part of that in the first quarter, where we sold a fairly large office building in Copenhagen.

In Q3 isolated, some smaller transaction. And we also divested the remaining ownership we have had in one of the U.S.

projects that we previously sold to 90%. And the activity in the quarter has mainly been in creating new opportunities for commercial development that we will capitalize on in the future then.

So five new projects were started in the isolated quarter. If we then look at the realized and unrealized gains.

You can see these bars in the chart on the slide is increasing. In totality, we now have unrealized gains in the portfolio of SEK 10.5 billion, up from SEK 8.5 billion in the second quarter.

And in total year-to-date, we have started on 16 new projects with SEK 14 billion in total investment at completion, which is then actually the highest investment value of new starts in a single year in Skanska's history, already now in the third quarter. So we're really doing now what we have said we would do for quite some time and putting this good pipeline we have into play.

And of course, it's happy to see then, as it should be, that unrealized gains are increasing. If we look at the completion profile of the portfolio.

This profile is now a bit bifurcated, if you will. We have increased the amount of properties that are completed and unsold.

The investment value of those goes up from SEK 8.1 billion in the second quarter to SEK 10.7 billion. That's the orange bar in the chart there.

At the same time, the occupancy rate of these properties goes up to 67% from 59%. So that's a good development.

And then as you can see, we do not expect to complete anything in the fourth quarter and just very little in the first quarter next year. So the new starts that we are now doing, they will, of course, complete in quite some time ahead.

So it's a young portfolio that we have here. And the leasing exposure, if you will, is quite sort of further out in time ahead of us.

If we look at leasing, the two lines that track occupancy rate and completion rate, they go down. But that is, of course, but a consequence of the challenges with leasing that have been characterizing the market for some time, but also the fact that we are now starting a lot of new projects.

And when you start a project, you obviously have no leasing and you have no percent of completion in it. So that sort of forces both of these lines down, these two indicators that we have.

Year-to-date, we have leased 125,000 square meters. There are a lot of leasing negotiations ongoing.

We started to comment on this in the first quarter, that the market was waking up a little bit, which was reinforced in the second quarter. And we still see this good activity in the negotiations.

And I think it's important to be aware here that it takes sort of, say, 6 to 9 months between contact to contract in the commercial development business. So what we saw, the discussions we saw starting perhaps in the beginning of the second quarter now, they are maturing now in a good way.

If we look at the group, operating income from different business streams amounted to SEK 6.5 billion. Central costs down to minus SEK 226 billion, so more than SEK 100 million lower than last year.

And that is related to improvements in the legacy portfolio that we have, the old businesses of Skanska. Central costs or headquarter costs are basically stable.

Takes us down to the total operating income of SEK 6.2 billion and the net financial items that are slightly lower than last year here. And of course, rates are lower.

They have been low for a long time. But it is challenging to find yield on the financial assets as we stand now.

But as we grow the development portfolio and start new projects, we are also increasing the capitalization of financial costs in the group here. Taxes at 16% year-to-date.

If we look at cash flow, we've had a tremendously strong cash flow development in the group. And if you look at the operating cash flow here and you compare it to the same period last year, the main difference is the investment/divestment.

This year, we had net investments of SEK 300 million. But last year, we had net divestments here of SEK 4 billion.

So that's a significant difference. And also the fact that we have, mainly in the second quarter this year, paid a large amount of taxes, which is, in a way, positive because those taxes relate to the significant profits that were booked on the sale of 2+U and ERC, among other projects in 2020.

So this explains the main differences in cash flow here. Free working capital, that - yes, it essentially continues to be very strong.

We are at a level of 20% of revenue, which is a very strong level. And we do not see any firm indications that this is about to change.

If we look at capital employed, you can say that this - we started the year with SEK 44.5 billion, we are now at SEK 46.1 billion. And with the amount of new starts we have in commercial development and the ambitions we have in Residential Development that is very likely to increase here, which would also lead us to enter into more of a net investment cycle.

We have been in a net divestment cycle for quite some time here. So we'd expect the green line in the chart, if you will, to sort of continue down a bit here going forward.

If we look at the financial assets we have access to, we have SEK 17.5 billion in the cash and equivalents and committed undrawn credit facilities to our disposal. And SEK 13 billion of that is available within a very short notice.

So we are well stacked with sort of funds to realize our investment ambitions. Financial position for the group, we remain with a very, very stable financial position.

The adjusted net cash in the company is SEK 15 billion, flat at the end of the third quarter and with an equity-to-asset ratio of around 32%, so again, remaining a very, very solid financial base, so to speak, to work from, commercially speaking. With that, Anders, I hand over to you.

Yes. And I will address the market outlook stream-by-stream.

And if I look from an overview, it's pretty much unchanged since last quarter. We can see in the Construction stream that the pandemic is still present.

But we also can see that the activities increase in our markets. So we can see it on the nonresidential sector that company - private companies are starting projects, which is encouraging.

We can also see during this year, price increases on certain materials and also bottlenecks in the supply chain. We have been able to mitigate those by very careful bidding process to secure prices before we bid for projects as long as possible, as much as possible and also to avoid those bottlenecks by accelerating procurement, for example.

Public infrastructure investment to stimulate economies is there. We can all see it in a different market.

But funding is still uncertain in different markets as well. Ambitious investment plans under development in many of our countries that are in our footprint.

But the lead times are expected to be long before we can see it materialize out in the pipeline. For Residential Development, shortage of homes in the housing market is still there.

But we also can see activity is increasing in overall, that more and more homes come out into the market. And longer term, it's a balance between, of course, the rising unemployment levels and some economic uncertainties, what will happen after the pandemic.

But that mitigates with continued low interest rate policies. Commercial Property Development, investor appetite, solid.

We have low interest rates and stable credit markets, which is positive. And as I talked about earlier, tenants, they are still hesitant.

But the activity is definitely picking up. We can see that clearly in the third quarter here that we have more and more visits on our project.

They are very interested. You can see that more oil companies are getting their people back to the offices, clear trends, especially in the U.S.

market and U.K. market.

And we can see it happening with a slight delay here in the Nordic and Europe as well. And to summarize this presentation, solid quarter, strong first 9 months.

And the Construction stream quarter-by-quarter continue to improve the profitability. Residential Development, strong performance, and we have started sizable projects in the Commercial Property Development.

We are well positioned. We have a strong financial position, strong organization.

And our strength is very aligned with the future customer needs. And I want to remind you that you're all welcome to the Capital Market Day on December 7 later this year.

With that, I'll leave it to Andre to open up for questions.

Great. Thank you very much, guys.

Yes, and as Anders said, it's time for Q&A. And please follow the instructions from the operator.

Thank you very much. I have three questions, please.

The first question is on Construction. If I look at Q3 only, which does not include the divestment gain in Q2 in Europe, I would say that the margin is very strong in Europe and continue to improve in the U.S.

Could you please comment on the sustainability of margin at this level in these geographies and if there is any scope for further improvement? And where would the driver come from?

The second question is related to Residential Development. You were talking about not starting home fast enough.

But if I were to look at your pipeline in the Residential Development, would you be able to comment on how each stage of the pipeline looks like? So how mature is the pipeline?

So for example, do you have significantly more of the pipeline that still start in the planning stage? Or are there more actually towards the end of the planning stage and therefore more ready to start?

It's just to get a sense of how quickly you can ramp up the home starts number again while the demand is still good. And the final question is anything you can share on the cement supply situation in Sweden.

Because we have been seeing a news article saying that they may have to start rationing supplies from December. So any color would be great.

Okay. Thank you.

I will start to address the first and the third question. And then Magnus can comment on the second one.

When it comes to the Construction margin, we have seen continuous improvement for the last 3 years. And as you recall, we took some strategic decisions, strategic action for 3.5 years ago.

Those are paying off now. Quarter-by-quarter, we're steadily improving.

And I can see that overall, in all markets, that we improved. And we can see that in the first 9 months as well.

So we - as you know, we have a target. We - of more than 3.5% or equal to 3.5%.

We are getting close to that target. And that's really encouraging.

We're determined to continue with our strategy. It's profit before volume.

And we are keeping up to that strategy for the Construction definitely. And I don't see any differences in the markets.

U.S. market is picking up as we can see as well, the margins.

On the cement supply, of course, I addressed it in the second quarter as well. If we will see some issues or stop in the cement supply partly in Sweden, this is a Swedish issue as you know, it will be disruptive for the industry, definitely.

And what we have been doing, even since this summer, is to prepare ourselves for different scenarios. And we are continuing to doing that.

And I think we - so I'm confident that we are doing - we have good plans in place for different scenarios. But without going into any details here.

On the RD question, Magnus?

Yes. Your question was about what stage is our pipeline in Residential Development.

And of course, it varies across different geographies because there's also the permitting process. It doesn't look exactly the same all over the place.

But you can say we have a good land bank, where we have sort of a very large amount of potential projects, so to speak, that is in the zoning process. And that can take - it can be quick sometimes, but it can also take very long, so - and then it's sort of hard to describe exactly where in that process it is.

But it's not primarily, I will say, a land bank that is holding us back. It is the zoning processes.

So I would say that's the answer you're looking for here. In totality, we have around 26,000 building rights.

And we also have, subject to certain conditions, at least another sort of 13,000 building rights that could be available through options for us. So we have a lot of control of a lot of building rights here.

It's all about processing this through the zoning process and then of course, up until getting building permit. But that is normally a smaller thing compared to get zoning plan in place.

Can I just quickly ask a follow-up question? So just to clarify the definition, so it's zoning and then building permit and then building rights.

And then if you have the building rights, how quickly can you start building?

I mean when we acquire land, we sort of say we acquire building rights. And it can be rural land or it can be - you can have sort of the general plan.

But then you need to have the right zoning, so you know what you're allowed to build in a certain place. And once you have that, you can sort of design the building.

And then when you have done it, then you apply for building permit. So the zoning process is what takes time.

Yes, I've got a few questions. The first one is on Construction margin.

So just to understand you correctly, you're basically saying you've achieved the 3.5%, give or take, and you don't see any reason that kind of goes backwards. Obviously, there's all sorts of concerns around cost inflation.

So just to understand, is your message essentially that you think you can hold that margin or maybe even improve it? The second question is on residential.

Sorry, maybe it was commented on earlier. But was there anything specific in the quarter?

There was obviously a relatively steep drop in the top line. And is there anything we can read across from that for the future?

Is it just quarterly volatility? And then finally, on commercial, so I mean, obviously, what we're seeing is your leasing rates are quite low, right?

I mean, they haven't really improved. At the same time, you're telling us the unrealized gain is kind of going up materially.

So the question, I guess, is at what stage does this sort of - the strategy change? Because as far as I can tell you, you're kind of holding on to things, you don't want to sell at a low price.

The balance sheet is kind of increasing in value, right, in terms of the unrealized gains. At what point do you feel it necessary to perhaps try to move these on?

Or are you just going to sit there and wait?

All right. Thank you for your questions.

I can start with the first one and then Magnus can address the other ones. With the Construction margin, to be clear, we have 3.6% year-to-date here.

But if you exclude the one-offs, i.e., the infrastructure services divestment, we are at 3.2% in the first 9 months. So we're not at our target yet.

So we will continue to work hard to reach that. And then on the RD and CD?

Yes. Question about whether there are not sort of any one-off effects in the top line of the RD numbers.

There's no one-off effect in that. But there are one-off effects in the comparison quarter, the third quarter of 2020 that I mentioned some time back here, where we sold a SEK 1.5 billion worth portfolio of rental properties to the external market.

So the comparison number is a bit distorted by that but not on the top line this quarter. And then you had a question on commercial development.

The leasing is slow. The unrealized gains go up.

And what is our strategy with this? I think a couple of things is worth explaining here.

If you read the final prints in our report, you will also see that when we report unrealized values in the portfolio, that is assuming that these properties are leased, of course. And to be very clear on this, we do not book anything of the unrealized gains.

This is only a matter of reporting how we view our portfolio. I think that's a very important sort of piece of information.

So this is - this does not lie in our balance sheet. All the commercial development projects is booked at acquisition cost in our balance sheet.

And of course, our strategy with this is we are confident that this is a solid business in the long term. And we do not want to sort of sell off properties before we have leased them out properly because that would mean that we are leaving upside, we're leaving gain on the table.

And that is one of the reasons to why we carry such a strong balance sheet as the group has, that is to have the staying power as the market cycles up and down a bit. And now we are in that cycle in the commercial development business, where we can use the staying power to make sure that we actually fully capitalize on the potential of these properties and don't have to divest them too early.

Okay. So what you're saying is essentially - I mean, you kind of hinted that investors are taking more of a look, I think if I wasn't mistaken, there's more and more visits.

But essentially, you don't want to sell stuff which is effectively fully leased. So you'd rather wait because otherwise, you don't capture the full value.

Is that right?

That's absolutely correct. And we get fairly large amount of requests to sell properties from investors that are not leased to the level we would like to have them leased.

But again, we sort of resist that. And we think that there is still value to be created by improving the leasing.

And we will make sure that we extract all the value from these projects as we think we can before we divest them.

Yes. Good morning, thank you for taking my question.

So I just wanted to follow up on commercial development, if possible. I have the impression that you are more positive about the outlook.

But at the same time, looking at your qualitative guidance on Page 4, where you have the arrows, you still have arrows pointing down for commercial development. So can you help us understand a little bit?

Are you expecting 2020 - 2022 to be still a little bit of a transition year and perhaps the activity to improve in 2023 and '24? Or how are we supposed to square the circle, please?

Yes. Thank you for question.

It's - what we can see in the market now is definitely more activity. What we haven't seen so far is that we have signed the contract.

Hopefully, we will see that in the near future. But as Magnus pointed out, it's normally take 6 to 9 months before we sign any contract.

So we are encouraged by the increased activity, but we do think it's too soon to celebrate and to increase the market outlook. So that's basically the reason why we still have the arrows pointing slightly down.

Okay, very good. And if I could have some follow-ups on the numbers for commercial development.

So you have got unrealized gains above SEK 10 billion now, up from SEK 8 billion. So is it just due to new projects started in Q3 or you have actually revalued some of the existing assets during the quarter?

And maybe one more, what is typically the occupancy rate of CD assets when you divest them? And thank you.

Yeas, I will answer that. The increase in the unrealized value around the realized gains is by new starts.

Very seldom do we revalue properties during their life span until maybe precisely before they are mature enough to be sold. But we are very cautious with that.

And then your second question concerned - can you repeat that, please?

Yes. So typically, when you sell assets in commercial development, what is typically the occupancy ratio of those assets?

Okay. Yes.

Ideally, of course, it's 100%. But we can consider selling when it's slightly less than that but not a lot.

I'd say we seldom really sell properties that is below 90%, even if it can happen from time to time. But then it's a very sort of careful commercial consideration because we are very good in leasing and we do not want to leave money on the table.

Thank you. Just two questions from me then, small one, maybe I misunderstood.

But when I look at - on the central costs, you have the [OPS] gain there of SEK 85 million. Could you maybe - you said it already, maybe I missed it.

But could you maybe just remind me what that is?

Stefan, this is Magnus. You're correct.

That's an adjustment to previous reserves that we have done in the legacy portfolio as a consequence of that developing better and better. So that's the reason to it.

Not the whole reason, the other reason is that we have a sort of better underlying profit in some of those assets.

Okay, good. How much is still - what is the net reserve?

Is that something you want to comment on, that could be the net reserve in total?

No, we don't comment on that level of detail. We keep the reserve amount there.

But we have, of course, reservations for all known risks in that portfolio. It's a runoff portfolio and we do not want to take any risk on that.

It should be very uneventful. And we should focus on our ongoing operations when we look at this company going out into the future.

That's what we want.

Good. Then going over to CD, I'm a little bit curious, I mean, your balance sheet is, to me at least, looks extremely strong and in a historic perspective as well.

And the Board is not there, so I can't ask about dividends, of course. But what is - thinking about starts, if I look at the - your leasing, if I look at the real estate companies I cover here in Sweden, you see vacancies going up.

I fully understand if you see more interest. But I mean, there is a very hot end market more than you are constructing new offices.

So my question here is in that kind of environment, you have a very strong balance sheet. You have buyers standing online, wanting to buy the assets and some questions about occupancy.

How eager are you to start without having tenants in place? Going back 10 years, you wouldn't even start without having a tenant.

But what is your view now? How do you balance that?

I know this is a very open question, but I hope you understand what I'm reaching for.

Yes. You can be the judge if you get the right answer then.

But I mean, you have to go back a couple of years to understand the situation. Already in 2019, we were hit a bit by the cost escalations in the Construction arm, so to speak, which made us start fewer projects in commercial development than we wanted.

Then in 2020, we had this very good pipeline. We had ambitions to grow, which we have been communicated for quite some time, but then along came the pandemic.

So we have, over this time, built up a super strong balance sheet. And our ambition is to continue to invest this.

But of course, as you point out, leasing needs to follow this. Now we have a type of financial position that allows us to take a certain amount of sort of speculative risks in this way.

That's the business model we have. But of course, we would like to lease more.

There's no question about that. But our overall ambition here is to continue to grow the property operations in Skanska and use these funds that we have available for that.

So just to - I may ask a conclusion there, you're willing to start projects without tenants really. And I mean, you do it in some markets as well.

But that's really the - what I can understand from your answer.

Yes, you can say almost all projects we start in commercial development is without tenants, so yes.

Okay. Good.

Then let's see if you answer this one, but I'll try anyhow. Expectations on CD, if I look at consensus expectations from the market, there's quite a lot of expectations on you divesting from the CD portfolio in the fourth quarter.

And it's all built up, of course, from your - from comparisons from earlier years and so on. But just to try to get a little bit more out of you on those opportunities because it's a black box, we don't really know, do you have any larger projects that are close to 100% leased without saying that how negotiations are going?

I don't know if you can indicate something or you can just say you don't give a [indiscernible].

In the stock of SEK 10.7 billion of unsold completed commercial development projects, you have everything from those that are leased to low degree to those that are leased to a very high degree. And obviously, our ambition is not to have them like that.

We will sell them. Q4 is normally a very strong sales quarter.

The investor market is very strong, but we don't forecast. We don't give forecast to that.

Thank you very much. Just one follow-up question, please.

And coming back to Residential Development, please, and it's a more general question. I suppose just trying to understand a bit more about the dynamics of supply and demand in housing.

And we know that in Sweden, there has been a structural housing need, given the demographic growth. We also know that financing has been and continue to be cheap, yet since that developers don't seem to build sufficiently fast to fulfill the demand.

And that has actually been the case for quite a while, I would say, not just a 2021 sort of scenario. Now I totally agree that part of it could be related to the long kind of zoning planning process.

But is there something else here at play? What can you say about the housing affordability?

Could that be something that doesn't necessarily translate the need into demand? Or is this typical practice of developers to sort of end the build to the demand in order to maintain this sort of supply-demand tension?

So yes, anything on that would be great.

Yes, I can answer that. Our first priority, as I said in the presentation, is to start new projects, where I think we are too high on the sales rate in the ongoing projects.

We have - having said that, we have increased our portfolio with ongoing projects significantly the last year. So our intention is definitely to start new projects and - but it's - the bottleneck here is definitely zoning to get permits to start new projects.

And in my view, it takes too long time to go through the zoning process. It can take years here in Stockholm area, for example.

So that is a bottleneck. And also addressing the affordability there, we do have - not only in the building residentials for high end, we try to avoid that.

So we also have a significant part of our operation in more affordable housing. We have, for example, BoKlok, the cooperation we have with IKEA that has grown a lot during the last few years and that is really successful.

We have also launched that concept into the U.K. market.

And I'm - it's really encouraging as it has been well received. So we have quite a good diversification of our offering to the market, both affordability and more closer to the high end.

So we're in a good position there. And we're also in a good position when it comes to RD since we are diversified when it comes to geographies as well.

So that's good.

All right. Thank you very much.

I actually have one question - or actually two questions on the chat. And I will read them to you guys and you can arm wrestle who will answer this one.

The first one was actually from Simen Mortensen of DNB, but that was already covered. It was about this PPP gains in the third quarter.

But then we have from Albin Sandberg of Kepler Cheuvreux. It's actually three questions I realize now.

First one is how many residential starts do you hope for this year and next? Take them one-by-one, I think, maybe.

Yes. We don't give any forecast, as you all know.

We do believe in a stable market. We have increased our start if you look at the 9 months.

We have increased our start compared to last year. Our intention and our first priority is to start new projects because we're - otherwise, we're running out of homes for sale.

And that, we will not allow that to happen.

Great. Second question, about the debt revenue in the U.S.

Is there any left? And if so, how much and for how long?

Thank you, Andre. Is there a debt revenue left in the U.S.?

Yes, there is some left. But we are continuously working that down.

And I would say that the absolute chief amount is sort of handled. But there are always tails on the difficult projects that you need to deal with.

So there is some left but not a tremendous amount.

Good. Then the last question, it's about the cost inflation.

When does cost inflation become a real issue to margins?

We have seen this coming now for several quarters, the cost escalation. And it could become a problem if we cannot handle it in the right way.

And our approach to mitigate this cost escalation is to secure as much as possible before we even bid for a project as much as cost on material subcontractors and so on. And when that is not 100% possible, we do that as soon as possible after we sign the contract.

So we're consequently avoiding to take any risk in the further cost escalation. That's our approach.

Great. Thank you.

That was all the questions. And again, just want to remind you of the Capital Markets Day on December 7.

And invitations are going out next week, so have a look out for that one. And with that, we thank you for your attention today.

Thank you very much.