Skanska AB (publ) (SKAB) Earnings Call Transcript & Summary

Hi, everyone. This is Andre Lofgren, Senior Vice President, Investor Relations speaking. And I would like to welcome you to the presentation of Skanska's 9-month report for 2020. The presentation will be held by our CEO, Anders Danielsson; and also our CFO, Magnus Persson. After the presentation, you will be able to ask questions, and we will get back to that. So please, Anders. Go ahead.

Thank you, Andre. And before we go into the highlights of the report here, I want you to look at this picture. You can see one of our Commercial Development projects called Citygate. It's a high-rise building to the right, which is located in the city of Gothenburg. So let's go into the 9 months report then for 2020. This is a strong report. We have overall solid performance, and we can see improvement also in Construction stream. We have picked up pretty good in the Residential Development. Volumes are strong and profitability is solid. And the Commercial Development transaction, even though we have a low volume in the quarters, isolated quarter, we have seen during the 9 months good profitability levels. Having said that, we have also seen during the pandemic that the leasing is challenging. The -- a lot of tenants are hesitating even though we have seen some pickup in the activity in the later part of Q3. Return on equity is slightly below our target of 18% on a rolling 12-month basis. We have a very strong cash flow and a very continuing, very strong financial position. And as you recall, we distributed the dividend to the shareholder in October. So let's go into the Construction stream. Revenue has decreased with 8% in local currencies for the first 9 months. We could see that order bookings have increased compared to the same period last year. So we have a book-to-build of 107% on a rolling 12 months basis. The order backlog is on a good level, SEK 183 billion. We saw also Construction income of SEK 2.4 billion for 9 months and operating margin of 2.3%, same percentage as last year for the same period. What we have seen, though, in Q3 is continuing improved profitability. So we have in Q3 isolated 3% compared to 2.8% last year. It is lower volumes, which has different causes. One of them is, of course, the COVID-19 disruption that we have seen now in Q2 and easing up somewhat in Q3. We can also see that clients are postponing ramp-up of new projects. And we also see that we, as a result from our earlier strategic action, to be more selective in order to improve profitability. But overall, I'm very proud of the organization and the -- our ability to keep the projects up and running despite that we are in the middle of a pandemic. The strategy remains selective bidding, improved commercial focus and increased cost efficiency. Let's go into Residential Development. Here, we can see increased activity in Q3. We have seen increased number of sold homes, number of started homes has increased. You can see that the revenue increasing. And we have a healthy profitability. We had over SEK 1 billion as operating income for the first 9 months, and operating margin has been above our target of 10%, 11.2%. The same for return on capital employed. We have a target of 10%. Now we can see on a rolling 12 months basis, 12.1%. So strong volumes in both of sold and started homes, and we are maintaining good profitability levels above our targets. And we can also see in the third quarter that the consumer confidence has improved significantly, which is encouraging, of course. And longer term, of course, we have some uncertainty now with the second wave of the pandemic and higher unemployment levels is a worry. But structurally, the underlying need for new residentials is high, very high on -- in our market. So there is definitely an underlying need. And we also have, as you know, low interest rates which helps a lot. Commercial Property Development then. For the first 9 months, we have SEK 2.2 billion in operating income, and the gain on sale of SEK 2.6 billion, including joint ventures. And so the return on the capital employed is 10.6%, also above our target of 10%. Today, we have 39 ongoing projects, which corresponds to SEK 25 billion in investment upon completion. And the occupancy rate and completion rate are pretty much in line with each other. We follow that carefully over time. We have 57% occupancy rate in our ongoing project and 62% completion rates. So I think we are in a good position there. Nine projects have started year-to-date. We have leased 135,000 square meters, and that's lower than last year, and we can definitely see that the uncertainty in the leasing market remains. Having said that, we do see that activity picked up somewhat in the late part of Q3. But overall, a solid property investor appetite for our high-quality buildings with right -- with very ambitious environmental standards as well. So sustainable, high-quality developments in the right location remains very, very appetite for -- amongst investors. So let's go into the order situation for Construction. We have a book-to-build of 107%. You can also see the development of the backlog here overall, the blue bars here. And you can also see that the order bookings on a rolling 12 months basis are following the revenue, of course, on a rolling 12-month basis, even though we can see a slight decrease in revenue for the course, as I just went through here earlier. But overall, healthy backlog. If we go into the different geographies, where it's distributed on the next page. Here we go. We can see that we have a book-to-build of 107%. You can also see the split. If we have -- we have 100% in the Nordics, which is on a good level, even though we have slightly below 100% in Sweden, but I'm not concerned over that. We have a good pipeline, and we are in -- sort of in the first stage in quite many projects that we will book later on here. Very strong here, of course, in Europe, but you should remember that we booked SEK 14 billion in the second quarter from HS2, the high-speed projects in the U.K. But overall, I'm confident that we have a very healthy backlog. We have 15 months of production overall, which historically is a good level. With that, I'll leave it to Magnus to go deeper into the figures, please.

Thank you, Anders. I go to the next page, which is the overview income statement for the Construction business stream then. Starting from the top with revenue, we are down year-to-date 9% in revenue. And we have approximately 1% currency effect there. So if we measure this in local currencies, we're down 8%. In the third quarter isolated, we had, in Swedish kronas, a bigger drop, 16%; 11% approximately in local currencies. So the difference is considerably smaller than year-to-date to the third quarter if measured in local currencies here. But the foreign exchange effect is fairly large, I would say. And as Anders has already gone through, the drop in revenues here is a combination of earlier production disruptions, clients being more hesitant and, of course, us having been selective now in biddings to make sure we only take on the right projects for a period of a couple of years. And this sort of comes through in the revenue after a while here. So these are the effects that we see. Very gladdening we can see the gross margin increasing year-to-date, 6.4%. And if you look at the quarter isolated, we're at 6.9%. And I think this is sort of a sign of strength that we managed to increase the gross margin in -- during these times as well. So that's really good. And if we look then underlying the performance of the project portfolio, we can see that, that is continuing to stabilize. And we witnessed that by less swings in performance across the portfolio. So that's very positive. We see S&A is coming up somewhat to 4.1%, but still this is a very good and competitive level of S&A. And if we go all the way down operating margin, 2.3%, the same as the comparable period, but we have to remember that in the comparable period, we had a positive effect from Norway amounting to SEK 200 million. So if we take that out, the comparable period would be at approximately 2.1% then. And then, of course, these 2.3% are delivered during times of a pandemic. So we sort of think this is a good performance here year-to-date for us. If we go to the next slide, you see the income statement over the different geographies. You can see that the Nordics are lower in margin here, 3.4% compared to the 3.7%. But again, if we adjust for the one-off effect that we had last year, the comparable period would be a 3.2% margin instead. So also here, we continue to improve a bit. Sweden, 3.1% year-to-date. We have been explaining some of the challenge we had in isolated places in the Swedish construction business before. And in the quarter then, we can now see that the Swedish construction operation is delivering 4.4%, which is a good level here and also above the comparable quarter. So that is positive. Europe is down 0.9% year-to-date. And here, we've had, say, fairly large negative impacts from the COVID-19 situation both in the Central European business and in the U.K. business that impact our costs and also impact the revenue. So these are sort of the main reasons why you see a drop in the margin here. Margins from the U.S. improving, probably according to expectations, 1.8% compared to 1.3%. And in the quarter isolated were 2.2%. A result of a lot of hard work, of course, in addressing the challenges we've had there. And we're also on our plan to take care of the dead revenue that we have in the U.S. We're following that plan and the reduction of that dilutive effect is going according to plan. If we move to Residential Development then, we had a significant step-up in volumes, as you can see. We had a 33% increase in volume up to SEK 9.6 billion, the first 9 months. Then virtually all of the nominal increase compared to the year-to-date numbers last year was to be seen in the third quarter this year, which was extremely strong. Overall, it was a strong quarter across all geographies, sales-wise. We should also add then what's already been said that we had a major divestment of rental units, multifamily rental units, in Sweden that gave us revenues of approximately SEK 1.5 billion. So of course, that's not a size of rental deal that we do all the time. And I think that's good to point out if you want to understand sort of the underlying movements also. Compared to 2019, we can also see that we have a slightly higher sales price per unit now, also if we were to adjust for the divestment of the large rental package that do attain a slightly lower price per unit than the housing co-ops. Good margin, 11.2%. No major one-offs year-to-date here. We have an underlying margin that we sometimes comment on that is very close to the reported margin here. So that's, of course, positive. And a very low S&A level, which, of course, is positively impacted then also by the large rental deal. If we move to the different geographies in Residential Development. We can see, again, here, a good performance in development in all geographies, both in Nordics and Europe. And Sweden isolated is above 10% year-to-date, which is we think the right level. This is where we should be at a stream level then, 11.2%. Quarter isolated, we're also at or just above 10%. The exception would be Sweden then. But again, the rental deal is somewhat dilutive in terms of margin here. But of course, it gives us a hefty profit nominally speaking. So that's very positive. And also, if you go into the details here and the quarterly result, you should be aware of that, in the third quarter 2019, we had a major one-off effect in the Residential Development Europe business, where we released a large provision that we did not have to use against risks, so that which distorts the comparison a little bit. But overall, a strong performance here across the geographies in Residential Development. Move to the next page, which shows started and sold units. You can see we started approximately 2,500 units over the period here, which is a good step-up from the number of starts in the comparable period, where we had a little bit above 1,700 units. And also in terms of homes sold, we were up to -- close to 2,900 units here. So both the starts and sales are increasing. And of course, that's a positive sign. We said on a couple of occasions that we have an organization that should have a little bit higher volume of ongoing projects than what we've had for a while. So this is very positive. And also the fact that we, even in a market that has been characterized to some extent by uncertainty over the last 6 months, we have the strength and we have the balance sheet to still start units, which is definitely something that benefits a large and stable company such as Skanska. If we move to the next slide, you can see homes in production. We had approximately 6,600 units in production end of third quarter, which is then down from the year-end but up from the second quarter, to my -- to the point I made on the last slide here about the importance of starting a little bit more here. We had 173 units that was unsold and completed. Also this is down somewhat, only a little, but still somewhat since the second quarter. So we remain very stable here, which is good. And we remain to -- we would not see any issues with handovers of sold units to clients. We are getting paid, and they are accessing their apartments precisely according to plan. So that is, of course, very positive here. Then you note a very high sales rate here of 74%. If we do the adjustment for the rental package that we sold, we are at 68%, which means that we're very well balanced in terms of how much we have ongoing and of that how much we have sold. So we are able to have units out for sale, which is, of course, very positive for the possibility to sell. If we move to Commercial Property Development. The year-to-date numbers are, of course, completely dominated by the achievements we made in the first quarter when we sold Solna United. In Q3 isolated, we have made 3 smaller transactions, all of them in Sweden, nominally, not that big, but good profitability levels. We -- with a gain on sale then of approximately SEK 200 million and an EBIT of SEK 100 million. If we move to the next slide, which shows then unrealized and realized gains in the portfolio. We have unrealized gains in the Commercial Development portfolio of around SEK 8 billion end of quarter, which is then up from 6.7% in the last quarter. So we have managed to sort of increase the potential profits in the portfolio at the same time as we realize then the SEK 200 million during the quarter here. The green line is the realized gains on a rolling 12 months basis. And you can see that is sloping down then, not so surprising given that we -- this is the second quarter in a row where we don't have any major CD transaction. So that's sort of a mathematical consequence of that. Go to the next slide, shows you the completion profile across the Commercial Development portfolio. First, to the left, you can see the completed unsold projects, where we have approximately SEK 5.5 billion. And then this quarter, we completed the projects with a total investment value of around SEK 2 billion. And we have 3 properties there. I've commented on this for the last 3 quarters. These are properties where we are lagging a bit in leasing and, of course, the COVID situation and the uncertainties around tenant demand there has not alleviated. So we still -- they are still lagging here. It's fine properties. We're not concerned about them. But of course, it is taking a bit more time. If you look at the fourth quarter here, we expect to complete ongoing projects with a total investment of close to SEK 9 billion with a very good occupancy rate in those, 82%. So that's good. And then we come to the first quarter next year when we expect to complete properties for a little bit above SEK 2 billion. Also here, with a good occupancy rate then. I think the obvious thing when you look at this and compare it to how it looked a year back or so is that we are a bit thinner in the portfolio of unsold projects than we have been. And we have, this year, now started 9 projects, and we have a very good pipeline of new projects to start in Commercial Development. We just need to get to the position where we feel it's the right time to start them. And in some cases, it's a bit lag in permitting. We need to find the right construction costs. And we also need to be ready ourselves, so to speak, before we can do that. But as I said, we have a good pipeline here. If we go to the next slide, which shows you leasing. You can see the orange line is the degree of completion of the ongoing projects, and the green line is the occupancy rate in those projects measured in terms of rent. And as Anders already pointed out, we're 62% completion, 57% occupancy rate. So these lines are still sort of -- they should be fairly close to each other, they still are. Obviously, the last quarter, we saw a bit of a fall in terms of occupancy rate there. It's nothing surprising with that. We all know that leasing is slow at the moment. Tenants are somewhat hesitating. But we are seeing, and this is positive, at the end of the third quarter, a slight pickup in activity from tenants. It's about discussions that were ongoing pre-pandemic that is now coming alive again, and it's also about some new leads in terms of discussions with them. So I would say this market is not dead, but it's been dormant for a few months here during the pandemic. If you look at the blue bars, you can see the number of leased square meters on a rolling 12 months basis, which you can see is coming down then. But you also have to recall that our -- since our development portfolio and CD is a bit smaller now than, say, 2 years back, the number of square meters that we have out for lease to the market is also smaller, which also have an effect on this. Then we go to the group income statement. Operating income from the business streams, SEK 5.6 billion -- SEK 5.7 billion. Central costs, SEK 340 million compared to SEK 141 million in the same period last year. But here again, we have a fairly large one-off effect in the comparable period. We had a court case ongoing in Czech Republic, against which we had a provision taken. We solved the court case, settled that and could release those provisions in the second quarter of 2019. The sum in question was SEK 200 million. So if you adjust back for that, you can say central costs are essentially the same this year as it was last year. And underlying this, we can also see that costs for our headquarters organization is slightly coming down. Operating income, SEK 5.272 billion first 9 months. Net financial items, minus SEK 177 million compared to minus SEK 69 million. Here, the biggest changes here is that it is harder now than what it was a year back to sort of get a decent return on dollar deposits. And also the fact that due to a slightly smaller development portfolio ongoing, we are capitalizing a lower amount of our financial costs against these projects here. So those 2 things explain the vast majority of the difference in the net financials here. Taxes, 18% compared to 17% in the comparable period. Main reason to this difference is the mix of geographies from which we are extracting profit here. These different geographies carry different nominal tax rates. We move on to the PPP portfolio. And as you know, this is a run-off portfolio. We have a number of projects that we're working on completing. And after they are completed, we will divest them. But nothing has really happened in this portfolio in the third quarter. The changes you see in the value here is either based on time value and foreign exchange rates. So those 2 things explain the changes in values. In total, we have an expected effect in the unrealized equity of SEK 1.7 billion from this portfolio end of third quarter. We look at the cash flow. As Anders has pointed out, we have a very, very strong cash flow in the group. If you look at the chart on top of this slide, you can see that both the first, second and third quarter were positive in terms of cash flow. And of course, on an accumulated basis, you see the green line here showing the rolling 12 months, very strong cash flow here. And we have, during the early days of the pandemic, we were very cautious with investments, of course, to make sure that we took the uncertainty seriously. And on top of that, during the spring, we did not distribute any dividend. We have done so now during the fourth quarter. So these things together makes up for a very good cash flow. And I'd say this goes from all business streams, both RD, Commercial Development and from the Construction business. If we go to the next slide, shows free working capital in the Construction business. We have a historically high number here. If we look at the KPI that we use to track this, 17.4% of working capital over revenue, a very high number. If we look forward a little bit and we see the volumes -- volume development that we have now had over the first 9 months, of course, that can potentially impact the nominal values of the net working capital position, not at least since we are, as I said, at a historically higher. Very important for this is large civil jobs. It's a very important type of work that we have to get to this position. And we also have a strong pipeline of civil works across the different business units in the group here. And our assessment, as Anders has already mentioned this, that what we see now is that the impact from COVID is more uncertain in the private sector than what it is so far with the public sector. If we move on to investments and divestments. If you look at the green line in the chart, you can see that we are now and have been for a while fairly deep into divestment, net divestment territory in the group. And year-to-date, we have investments that is approximately 17% lower than what they were last year, at the same time as divestments are over 20% higher than what they were last year. So of course, this contributes quite a lot to the positive cash flow in the group there. And then if we look at capital employed, no major shifts there. We are, by and large, at the same level as we were at year-end of 2019 then and somewhat lower than the third quarter of 2019. If we move to the next slide. We have total external loan portfolio of SEK 4.4 billion. All of them are green. It's a mix of green bonds and green bilateral loans. You can see the maturity profile on the right-hand side there. In total, our available funds, SEK 22.7 billion end of third quarter. And of this, we can access SEK 16.6 billion within 1 week. So we are very well stacked when it comes to liquidity there. If we move to the next slide, which shows our financial position. Total assets, SEK 128 billion and equity close to SEK 36 billion. Equity to assets ratio almost 28%. So we have a super stable balance sheet here, which we are very happy to have in times like these, with an interest -- adjusted interest-bearing net debt of plus SEK 8 billion. So maybe it should be better called then net cash. So very stable. And this should be compared to then our limit in this metric, which is minus SEK 9 billion. So we have a very sort of ample space for investments to go if we feel that we can find the right assets to go for. With that, Anders?

Yes. Let's go into the market outlook, starting with Construction. COVID-19 still creates uncertainties, especially in the U.K. and the U.S. We do see some that had eased up somewhat in the third quarter, but still uncertainty how it will develop in the future, of course. We see lower demand from private clients. The public infrastructure investment to stimulate the economy, we expect that to come. We base that also on our experience from the past. But funding can be uncertain in this time. On the resi development, Residential Development, we have recovered. So we increased our market outlook here in the third quarter in the Nordics. So we have seen strong recovery in consumer confidence in the Nordic countries. And there are also limited number of new developments. So there's an opportunity for us to start projects. We can do that. And on the longer term, there's, of course, a balance here with rising unemployment and some uncertainty in the economic development. But we do have low interest rates, and we also have a structural shortage of homes. On the Commercial Development, we keep our market outlook as a weak market going forward. The tenants are hesitant, and the investors, on the other hand, has a strong appetite for our projects. It's low interest rate and the stable credit markets which is really helpful. So to summarize the group here before we go into the Q&A. Overall, solid performance, improvements. We have a very strong financial position. The market uncertainty is still present, but reduced in the third quarter. Long-term focus remains financially to improve the profitability in Construction. We're doing that by being more selective, decrease risks in the portfolio and also cost, look at the cost, and improve the commercial management of the -- in the organization. We have taken great steps forward there. And all of this together, make us make the profitability improve quarter-by-quarter. And we also want to long-term grow the project, the development. Our ambition is to be the leading residential developer in our home markets. And we're also looking at responsible expansion of Commercial Property Development. And you could recently see that we started our first project in the fifth city in the U.S., in Los Angeles, so that is promising. With that, I'll leave it back to Andre to start the Q&A.

Yes. Thank you very much, guys. Yes, let's open up for questions. So please follow the instructions from the operator.

[Operator Instructions] Our first question comes from Tobias Kaj from ABG.

I would like to start regarding your -- to ask regarding your Construction margin. After the Q2 call, you guided for continued negative impact from COVID into Q3, but now you report an improved margin year-over-year. Does that mean that you didn't see any negative impact? Or can you give some more color on that?

Yes, what we saw in the third quarter was that we were able to come back to our projects and keep them up and running. We were able to keep our people safe at the same time. So that's the main reason. And we also saw in the third quarter that the strategic action we took a couple of years back, they are paying off now. And we can see that -- we have seen that before the pandemic, and we can also see it in Q3. And we also learned, I would say, in Q3 to -- I mean to live -- we are in the middle of a pandemic, but we have found ways to handle that, to keep the social distancing in our project, to use other protection if needed out in the projects. And that's really well done by the organization and contributing a lot, of course, to this improved margin.

And the exception from improved margin is Europe or the rest of Europe, where the margin is clearly lower also in the third quarter compared to last year. Is that related to COVID? Or is it something else that limits the margin development there?

It's both connected to COVID there. Both Central Europe and U.K. as been impacted quite a lot from the COVID, and that continued in Q3 as well. But we also saw that -- reduced revenue due to market conditions and uncertainties in the U.K. due to both COVID and Brexit, so you see that the private clients are hesitating to start new projects.

And for Q4, do you expect an increased negative impact given that we see more new restrictions now?

We don't give any forecast for Q4. But you can look at our market outlook, where we have seen that -- we expect the market to be weak in the commercial building, nonresidential building. We expect the civil market to be stable, more stable. So that's our outlook for the coming 12 months. And we -- but we are in a good position when it comes to the backlog. So I'm confident with that.

Okay. I have a couple of questions regarding your development streams as well. And regarding Commercial Development, I think you started 9 projects year-to-date. Can you say something about the volume or the amount of volume to be invested in those projects and how that stands compared to the same period last year?

Tobias, this is Magnus here. No, I mean, there's nothing in that -- nothing in those starts that sort of sticks out of what we will consider to be ordinary type of mix of projects here. And you also -- when we start projects, we release so you can look at that also. But there's nothing in particular that sort of sticks out there in terms of size or, for that matter, geographical distribution.

Okay. And in CD, you have a huge project in Seattle, which is more or less completed. I think tenants are -- have started to move in, and I think it's more or less fully let. And can you say something about the divestment process of that building?

We don't comment on divestment processes, but when and if we sell that project, we will communicate then.

But is it likely that it will be in Q4 already?

You will have to wait until we communicate.

Okay. One final question regarding Residential Development. You had very high numbers, both in terms of units started and units sold, and we know it's very lumpy between the individual quarters. Does the high number in Q3 indicate that you will see a much lower volume in Q4? Or do you think that the strong market enable you to keep up a good volume also for the fourth quarter?

Yes, so we saw a large increase, but we also communicated that we sold a package of rental apartment in the quarter of SEK 1.5 billion. But we -- even without that, we saw a large increase in Q3, definitely. We don't comment on Q4, but we can see our outlook, market outlook is stable going forward. So we have increased the market outlook from weak to stable in the Nordics.

Our next question comes from Stefan Andersson from SEB.

Yes, I'll follow-up on some of Tobias's questions there, going to Construction first. If you could maybe help us a little bit further there. I mean you started the year with the first quarter being slightly up, but then the COVID came and you had a 5% drop in sales. And then COVID has been there slightly in Q3 and you have new issues with postponements, you mentioned, and sales are down slightly more year-on-year in the third quarter. I know you love to talk about 9 months, but it's a little bit lumpy. I'm just trying to understand what's happening here. Could you maybe elaborate on the split of decline in the third quarter, roughly? Is it -- how much is COVID and you not having access to sites and how much is postponement? And then connected to that, on the postponement, what kind of delay are we talking about? Is it a risk for reversed orders that we'll see negative orders? Or is it just the 3 months when it comes to postponement?

Stefan, this is Magnus. Thank you for your question. See if I catch them all, otherwise, you will have to remind me. But if we start backwards here, why do we say that there are postponements, what type of postponements. Well, typically, you can have a situation where a client has selected us to do work, what we call selection. And then you work with the client to define the project and set up a budget. But of course, you need to agree on final terms before we are awarded the actual construction contract. In situations like that, due to either budgetary constraints or it can be sort of overall uncertainty, we see in some cases that these awards are slipping in time. We're still working with the project. We have the relationship with the client, but the client isn't sort of actually stepping into binding construction contract. So that is a typical type of slippage that we can see. Then you asked about the -- I'm not sure I got you completely, but the lumpiness of the Construction performance over the first, second and third quarter. Did I get that right?

I mean, yes. I fully understand that COVID had a big impact in Q2. And just wondering, looking at Q3, it's -- the decline we see there is like, is it equally much from COVID and the postponement? That's really my question.

Yes, okay. I think in terms of the dynamics, if you will, of these impacts, I think they were from sort of pure COVID, I think that was more in the beginning because there was a higher overall uncertainty. And as Anders has also explained there, we were also working very, very hard to find new work methods to adapt to distancing requirements and workarounds on sites and so on to make sure that we can keep production up. So there you had one type of impact from COVID. And of course, a little bit later, it becomes more -- less sort of that type of disturbances. I'd say we have adapted very well in our operations and are able to handle that in a very good way, both from a production perspective, but also from a safety perspective now. So the further time goes, the more impact -- there's more from, I'd say, postponements and certain delays there in terms of volume.

And then on the risk for reverse orders, I guess, looking at, for instance, the hotel side, it could be a risk that people would like to get -- trying to get out of such discussions with you. I mean do you see anything like that in your order backlog?

No. We have -- Anders here. We have not seen any cancellation in our order backlog. It's more that the private client, commercial client, they are postponing the start of the project. If we are in stage 1, they -- some of them postpone the start of the big contract.

And sorry for repeating that one. But is that -- would that be postponement until further -- until a new decision coming? Or is it just like a month delay in the whole system generally?

I would say, so far, it's more a postponement of the start of the project.

Okay. Meaning then that you don't know the starting point, so to speak. Is that correctly understood from you?

Yes. In some projects, we don't know when the clients choose to decide on the start. But on the other hand, we don't book them until they do take the decision.

Okay. Then just a question on the CD side there. You could maybe -- I fully understand you can't tell us when you close a deal, I mean we have to wait to see that. But you haven't really sold anything in 3 quarters now or in the third quarter without any divestments from your backlog or portfolio. I mean this time it's more stuff you are going to build. So what is the main resistance or the reason for not closing any deals, in your view? I mean, rates are good, there is a transaction market at least unless it's hotels and retail space. So where do you see the slowness in discussions? What is the main reason?

We don't see any slower interest from investors. It's -- but you cannot look at a single quarter either. So we have a good portfolio and -- going forward. So -- but we will let you know as soon as we divest future projects, of course.

Our next question comes from Simen Mortensen.

Congratulations on solid results. I have a few questions. In terms of the sales in RD, Residential Development, I know especially the sales of homes in Sweden to be extraordinarily good, 1,116 homes in the quarter. I was just wondering also, does that number include the investor deals of SEK 1.5 billion? And if so, how many of those units are part of that deal?

Simen, this is Magnus. Yes, it includes 600 units.

Okay. Also, in Construction, you highlighted that there is some delays and decisions by clients to postpone ramp-up of new projects. Covering construction over time, I usually notice that margins in construction projects are the lowest in the beginning of the project. And thus having a lower margin, how has this affected or has this affected your margins in Q3 because you don't have any that much projects in the early phase of construction, especially then in the U.S. and Europe? Has that been part of the effects, which we see in the margin this quarter?

Simen, this is Magnus again. I think you make a good question. And of course, we are -- this is one the things that we set out to make sure we have, sort of a well-valued portfolio of Construction projects. And that means that in the beginning of the project, risks are higher because you have more risks sort of to close out on over the lifetime of the project. And then at the latter part of the project's life when you have passed more risks, then we extract, sort of, relatively speaking, higher margin from that project. And of course, as volumes are decreasing, on the average, we get a more mature portfolio. So that is very likely, it has some sort of upwards effect on that. I wouldn't say that it's a big one, but theoretically, you're right.

Okay. In terms of your working capital, you touched upon that being very high at the record level, 17.4%. Just wondering if you can help us there with like how fast might things actually change here because we've seen the dip in the revenues already. And what will be the drivers for that to come perhaps a bit more, like what you stated, a normalized level between 13% and 15%?

This is Magnus again. Also, it's a good question. As we have said on a number of occasions, we think it's hard to say what a normalized level is for this, if you go sort of bottom up. But looking historically, we have been able to circle around 13% and now we're 17.4%. So of course, we should be cautious in assuming that this 17% is sort of something we can achieve also in the future. But in terms of the dynamics, of course, there are a number of projects that are large. And typically, it can be a fixed price project, for instance, certain types of projects that is very positive for the net working capital position. So it depends a little bit on what projects we win and what are the clients and so on. So we set ourselves up in the right way to get to this position. That volumes fall doesn't automatically mean that net working capital comes down because it depends on what type of volumes are running out of the portfolio and what type of projects are replacing this with also. But of course, if you make an average of the portfolio, over time, lower volume will equate to a lower net working capital position.