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

Welcome everyone to Skanska's Capital Markets Day 2021. My name is André Löfgren. I'm Senior Vice President, Investor Relations at Skanska. And I'm really happy to host this event for you this afternoon, and here is the agenda. We have an overview. We're going to go through some of our recent performance, then also some of our good accomplishments. We're going to a group strategy. There will be a break. And then we're going into our market and also the commercial direction for Skanska going forward. Another break. And then group financials and the targets, and we will end with a Q&A. And it's going to be presented by our group leadership team. And when it comes to Q&A, well, they all will be participating as well, you can actually post questions already now and throughout this whole day actually. And then we will collect those questions and there will also be a telephone conference, of course, where you can ask questions. And with that, I think we should get going. So I would like to introduce our CEO, Anders Danielsson.

Thank you, André, and a warm welcome to everyone for this afternoon. Before we start, I want to present the group leadership team, which consists of, besides myself, Magnus Persson as the Chief Financial Officer. We have Caroline Fellenius-Omnell, as the General Counsel; and we have Kirsi Mettala for Human Resources; Lena Hök, Sustainability and Innovation; Claes Larsson, responsible for Commercial Property Development, Residential Development, Europe and BoKlok; and we also have Richard Kennedy, who's heading up the U.S. construction operation. You will see all of these persons on stage today. First, a recap: who we are, Skanska in brief. And we are -- our footprint is U.S., the Nordics, U.K. and Central Europe. And if you look at the division on the revenue, about 42% is in the U.S., 37% in the Nordics and the rest, 21% in U.K. and Central Europe. And we are one of the most leading project development and construction company in the world. The revenue has been around SEK 160 billion in 2020, and we are around 30,000 employees. And here, you can see the picture of our business stream. We have Construction, Residential Development and Commercial Property Development. And now we also last week announced another stream, another business stream, Investment Properties. And the ambition there is to own and manage properties, commercial properties, to capture additional value creation. Also durable cash flow, of course, and also being a long-term owner and strengthen our relationship with other stakeholders, building up a portfolio over time. And the ambition here is to build up around SEK 12 billion to SEK 18 billion. So we will come back to that, of course, later on. But otherwise, you can see on the picture here that revenue, the vast majority of the revenue, is Construction. And we have -- when you look at the EBIT division between our streams are more even. And here is our business model. And if we start with Construction. Construction, which is the vast majority of the revenue, as you saw, creates cash, a lot of cash and a lot of profit. And the cash go into our project development streams. And we have Residential Development, Commercial Development, and now we also have Investment Properties. And these projects are built and constructed by -- in close cooperation with our construction units. And we finally divest those, especially in Residential and Commercial Development, which creates good returns and also total shareholder return. Now I'll go into some performance and accomplishments the last few years, and I'll start overall. Back in the fall of 2017, the management created a strategic review of the whole business, and especially the construction operation. So the aim was, of course, to stabilize the construction stream, restructuring our operation and implement initiatives to stabilize and reduce the size of unprofitable business units, and also increase focus on cost control and risk management, strengthen our organization and governance and our balance sheet, which enabled us to continue to grow the project development continuously. If I go into Construction stream first here. There you can see 12 years back -- 10 years back, well, the revenue, the bars, you'll see the lines, which is the EBIT margin. And here, you can also see our target 3.5%. And the action we took after 2018 was we left some of the power sectors in the U.S. We had a major restructuring in Poland. We focused on the core business in the U.K. and Central Europe. We introduced a more decentralized way of working, and we also put more accountability out in the business unit. We reduced costs where we're more selective in bidding and we focused very much on the risk and claims management. And it has paid off the last few years, as you can see here. On the residential development, our ambition is to be the leader residential developer in our market. And we have a solid footprint in Sweden, and we want to strengthen our position in Norway and Finland. In some way, we have done that. We want to expand in Central Europe, and we also entered the U.K. with the BoKlok concept. And we also have the ambition to grow BoKlok in Norway and Finland. And here, you can see the development over the last 10 years here as well. Commercial Property Development. So here, the ambition is to increase the activity. We want to increase the land bank and build future pipeline and also controlled expansion. In the Nordics and Central Europe, we have quite a good footprint, so we want to maintain that strong position. And of course, increase activity, especially in the U.S. market. And just recently in the last couple of years, we have entered the Los Angeles market. And here, we have a focus on capital efficiency and cost-efficient focus. And you can see over time that we have been growing this business. And of course, we have been able to maintain our very strong financial position, as you can see in this picture. We have also performed in other areas. Here is the carbon emission. We have reduced -- we set the target. We increased the target earlier this year, and we have a 70% reduction target until 2030, with 2015 as the baseline. And here, you can see we have already, in Q3 this year, reduced emissions with 47%. So we are well ahead of reaching our target here. When it comes to safety, health and safety is top of the agenda for the management, for the company. And here, we cannot just relax. A lot of focused management attention. As you can see, a lot of visits. I encourage and expect the management on different level to be out there, visit project, talk about health and safety issues, and that we can see good effects of that. If you look at the reduction of high potential incidents that can really create a serious accident, they have reached -- decreased this year with 40%, which is a really good achievement. And how do we work here? Well, we work from bottom up when it comes to a strategic focus on reducing safety hazards. So it starts, of course, I mean, having the right equipment and so on, but you really need to work in a more strategic way, and do things -- replace things, do a lot -- work a lot of -- with the different methods to replace the hazard and physically really remove the hazard. That's a challenge for us. With that, I invite Kirsi and Caroline on stage to go through our foundation and global trends.

Thank you, Anders. So I will speak about our purpose and values, which is really the foundation on which we stand. So we have 4 core values, which is act ethically and transparently, care for life, better together and commit to customers. So let me start with care for life. Health and safety and the protection of the environment lies at the very heart of what we do. If we see an unsafe situation, we don't just walk by. We are action-takers and change makers, and that also goes for the environment and the climate. We delivered sustainable solutions and each of us feel accountable for passing this legacy on to future generation. The second value is act ethically and transparently. We want all our employees to lead by example and also to act with integrity and transparency. This means also that we encourage an environment where you can speak openly, raise a concern and live by our code of conduct. We don't accept any shortcuts here. The third value is being better together. In everything we do, we strive to be better together. And this also concerns the way that we are in the workplace, that we act with fairness, respect and openness. We also embrace diversity and inclusion. And we leverage the diversity, both in our own workforce, but also together with our customers, partners and the communities. And the last value is commit to customers. So we believe that the customers' success is also our success. We listen closely to the needs of the customers and also to their customer needs. And through that, we build tools and deliver projects that last through the entire life cycle and meets their vision. So our values are really, really strong. And we believe that they are not only there to guide us but they are also there to ensure our success. And they are there to deliver on our purpose and also to ensure our commitment to deliver long-term shareholder value. And I'm now passing over to Kirsi to speak about the first choice employer.

Thank you. Talented people and excellent teams are business critical for us in order to stay competitive, exceed our customers' expectations and also increase the shareholder value. Great resignation seems to be a trend at the moment, but we haven't yet seen that in Skanska in a massive way. One reason for that might be that we are and we want to stay a first choice employer by offering extensive learning and development opportunities, leadership that is based on trust and inclusiveness and also competitive rewards. We also want to secure that we have the critical competence and workforce in place. What helps us is that we are a really stable and secure company that cares for its people, have fair working conditions and an inspiring working conditions. As a global company, we can also share our knowledge and expertise between different markets. And also, we have the opportunity to offer career possibilities in some other markets. But what makes people to stay in Skanska is actually our inclusive working environment, with flexible and inclusive and very engaging working practices, where diverse people can really succeed and feel that they are part of one team. Purpose seems to be a kind of an issue at the moment that people tend to really appreciate when they are choosing the employer where they want to work. We focus on sustainability, especially on climate, diversity and inclusion, health and safety and ethics. And that makes our people really feel and understand that they are connected to our purpose building for better society. But let's hear now more on global trends. So welcome Magnus and Lena.

Thank you, Kirsi. So let's have a look at the global trends. I mean as a big company, we don't operate in isolation or anything like that, but we are continuously seeing global trends and long-term changes in the various markets where we are active. And this creates opportunities for us, and they create challenges for us. And we, of course, need to identify the opportunities and act on them at the same time as we need to mitigate the challenges. And what you can see on the graphic here are some of the more important ones. And in terms of digitalization, it's quite clear that the advances that we can see in digital technology is creating exactly such opportunities. And they're important to us. And of course, we also have competitors that are acting upon this. But if we can grasp these opportunities, they will hopefully lead to competitive advantages for us. So our efforts in digitalization, they're really directed to 3 different areas. First of all, it's about productivity. And of course, that's on-site productivity, but also productivity in the longer span through, for instance, a development value chain inside the company. Second, we have efficiency, very important. And as an examples, you can have efficiency in how we utilize the machine part that we run. But also efficiency in background administration processes and so on. And finally, quality, which is a very important area. And if we can sort of utilize the new technology in the right way to get the feedback loop from Construction into early-on design, we can improve quality of the physical assets that we leave after us to the clients. And also in terms of how we can deliver can get better in terms of, for instance, delivering built drawings in bid models and so on to clients. And then we have climate change, Lena.

Yes. The build environment makes up about 40% of the carbon emissions coming from energy. This puts quite a lot of expectations on our industry on how to reduce carbon emissions as well as expectations when it comes to -- expectations when it comes to how climate change need to increase the resiliency for the built environment when it comes to urban areas and buildings and infrastructures. It needed to be more resilient and secured for more frequent and severe extreme weather events. This is increasingly in the minds of policymakers, investors and customers.

If we look at urban development, this is, of course, a long-term trend that we're seeing across the world. And today, more than 50% of the population in the world lives in urban areas. In our home markets, more than 70% lives in urban areas. So of course, what goes on in these areas in terms of investments and development constitutes a key driver for the demand for our projects and services. This is, I would say, particularly clear in the Nordics and in the U.S. So all of these types of investments, they can be expansionary investments in infrastructure, it can be upgrades or simple rehab jobs are very important for us in the long term. And of course, a lot of investment plans have also been put in place, I would say, over the last 1.5 to 2 years on the back of the pandemic, trying to link the need for investments also with environmental sustainability and sort of the overall success in greenifying the world there.

Yes. So to give some examples regarding regulations on national and regional level that are posing more focus on sustainability performance is, for example, the EU taxonomy, the EU Green Deal, and also the U.S. Infrastructure Investment and Jobs Act. And of course, this focus also means a need for disclosure regarding performance levels. And within our industry, we have several certifications systems that validates the performance and the impact from innovations and sustainability-related solutions that are offered to our customers. As sustainability matures, the possibility to evaluate and also value increases also the expectations and the focus from investors in the financial market. As for our industry, the green bond involvement as well as the sustainability-linked loans is something that is directed and quite of interest for the built environment. Also to acknowledge some achievements. So amongst the achievement this year is that we have had our climate target being validated as a Science Based Climate target, to the highest ambition level of 1.5 degree. We have also launched our Climate Plan Act, standing for awareness of sustainable solution in our industry, customer success with a low carbon or even net zero solution as well as transformation of the industry and operations for climate smarter solutions. And by that, I think we go over to the group strategy.

All right. This is an overview of the group strategy and the visualization, if you will, and I will start to explain it and start with the strength of the company, what strengths do I see in our company today. I see exceptional teams. I see leading knowledge and foresight. I see outstanding performance. And also what enablers do I see to make this happen, make the strategy happen: customers-first mindset, culture of continuous improvement, innovative solutions and sustainable impact. That, together with our strong foundation of values, will lead to creating long-term value for customers, shareholders and society. So with that introduction, I will leave it to Kirsi and Caroline to talk about the strength.

Thank you, Anders. So let's start with the exceptional teams. So we are a real people company with thousands of different teams working in our projects and also in our offices. We attract, keep and develop our people to reach our customers' goals and also deliver on our purpose. But what makes us a part is not only our world-class people, it is actually the way how we come together to build our -- and form our diverse, inclusive and very coherent teams, where everybody is committed to our value-based culture. So over to you, Caroline.

Thank you, Kirsi. So the next strength is leading knowledge and foresight, and it is really a strength that we have, the ability to analyze, prepare and adapt. We do possess a leading and unique insight into the way that people move, work and connect today. And we can also leverage this knowledge by knowledge sharing within the teams, but also through the local expertise and the global reach that we have. And by that, we can deliver an all-encompassing customized solution to our partners. The third strength is the outstanding project performance. With every decision, idea or action, we have an ability to listen, learn and advance. And this makes us deliver projects that exceed customer expectations. And we also do this through outstanding operational steering and by delivering smarter and more sustainable solutions that last through the entire life cycle of the project, and also delivers long-term shareholder return. And now we will continue with the enablers.

Thank you, Caroline. As Caroline mentioned earlier, commit to customers is 1 of our core values here at Skanska. We first articulated that value in 2015 in connection with our Profit with Purpose business plan. Today, we operationalize that value and enable our business strategy by embedding a customer-first mindset in everything we do. This is about the great results and the great projects that we deliver for our customers every day. And it's also, importantly, about the way we go about doing that. We partner with our customers to truly understand what drives their business success. We listen to our clients. We engage in an open and honest dialogue with them about what's possible, what's not possible. We put smart solutions on the table, and bottom line, we deliver. This is -- this applies to everyone who works at Skanska. We all need to come to work every single day, put ourselves in our clients' shoes and understand what it takes to deliver for them at a high level. We measure our success in this area, by such things as Net Promoter Scores, brand surveys, customer surveys and also, in my view, the most important one, repeat customers. We have a very high level of repeat customers here at Skanska, and it's something of which we are very, very proud. On the screen in front of you, you see the new Moynihan Train Hall in New York City. Moynihan Train Hall is located across the street from Penn Station, which is in Midtown Manhattan. This building was first opened in 1912, and it was a United States Post Office. The train hall floor that you see in front of you was once the largest mail-sorting facility in the United States. The idea of converting that post office into a train hall was first floated sometime in the 1990s, and it was championed by then New York State Senator, Daniel Patrick Moynihan. The idea took about 25 years to take hold. And finally, in 2012, Skanska won the first phase of the project, which was to extend the concourses from under Penn Station under Eighth Avenue in New York over to the post office. We started that work in 2012. We finished it in mid-2017. And at the same time, we secured the contract to design and build this fantastic facility. We locked arm in arm with our partner and customer Vornado Realty Trust for the next 3.5 years, working with the New York State Economic State Development Corporation to deliver this facility. The grand opening was on January 1 of this year. It was over 2 months early, we're proud to say, and we were able to achieve that exceptional result because of the incredible skill and diligence of our people, and because we have a customer-first mindset. The Moynihan Train Hall is just one fantastic example of the type of world-class infrastructure that Skanska is capable of delivering and that we will continue to deliver in all of our markets for many years to come. With that, I will turn it over to Kirsi to talk to you about our second enabler, a culture of continuous improvement. Kirsi?

Thank you, Richard. I would say that a culture of continuous improvement is in our DNA. We want to be slightly better every day. By offering constant learning and development opportunities, we secure that our people have the confidence that they need to perform. We want also to attract and recruit more diverse people with different skill sets and perspectives in the areas like sustainability, digitalization, customer experience and innovation. And with our outstanding working environment, with flexible and digitalized and also engaging working practices, we make our people to really be innovative and creative. One good example on our continuous improvement, is this BoKlok Gullringen factory, where we actually had a very extensive innovation and automatization initiative, where we turned the Gullringen into one of the most modern housing factory in Europe, and the production line started in November 2021. So over to you, Lena.

Thank you, Kirsi. So innovative solutions. To us, it's about focus on how to scale, using insights and expertise that we have gained across different markets and different projects. That's a true strength of Skanska. The European Spallation Source, the ESS project, is a great case in point, where teams from U.K. and Sweden worked together to deliver an outstanding project also with sustainable achievements when it comes to circular solutions as well as biodiversity, energy efficiency as well as eliminating waste. Going forward, sustainable impact is at the core of our strategy as well as our actions and our operations to act responsible for people and planet, as well as to work with transformative solutions and stand up for resilience, for healthy, resilient places for all is at the core of our strategy. Responsibility. Anders already mentioned this: Safety first. For us, to always ensure safety for all will always be key. As well, of course, among our key responsibilities, is also to act as a fair and responsible business, to safeguard the environment and embrace diversity. Also, we have an opportunity to drive for transformative solutions when it comes to climate smarter environment using our insights, also partner for innovative net zero solution as well as to transform to low carbon construction. The Powerhouse concept developed by Skanska and partners is a great example of this. This is an energy-positive building, producing more energy than what is needed during its whole life span, including the energy needed to produce materials to construct the building as well as operating it during 50 years; also, sharing the surplus with other buildings and charging electrical vehicles. As well, resilience. For us, to create healthy, resilient places for all, understanding the need for design for community needs as well as partner for social value. Here, Generation Park in Warszawa is a great example of this. This is designed with the highest sustainability certifications in mind, such as LEED; the health certification, WELL; as well as Building without Barriers certifications. Also, this is the biggest lease ever signed in Skanska's history for 47,000 square meters office building. It's a quite big project. And last to mention Hyllie Terass, also designed for the highest level of certifications validating the performance when it comes to LEED and WELL, but as well participating in the development of a new certification, how to develop solutions when it comes to climate-neutral buildings. The NollCO2, zero carbon emission certification developed by the Swedish Green Building Council, working with how to use circular solutions, low-carbon materials as well as energy production in the building. And by that, an overview of the group strategy.

Thank you, Lena. I will wrap up this part of the strategy. The average person makes thousands of decisions every day. And to me, leading a global construction and project development company, this is evident: every decision, big and small, matters. It's the sum of all those decisions that is the measure of our success. And in my 30 years with Skanska, experience has taught me that the decisions that have the most impact do 3 things: they meet the customer need, they positively impact society and they make our business more profitable. The projects that are most successful for us and -- have always been the one that find the sweet spot between these 3 spaces and drive performance. We never underestimate the impact that these strong decisions have. And now I want to introduce a strategy film. [Presentation]

That was great. All right. Now we're done with the first session here. So now it's a 10-minute break. So get some coffee and other refreshments, and we'll be back with the market outlook and also where we're heading going forward. Thank you. [Break]

All right. Welcome back, everyone. Now we will begin to the market situation and also the commercial direction for Skanska. And we will do this stream by stream, and we will start with the Construction stream. And with that, I'll leave it to Anders.

Thank you. And Richard and Caroline are joining me on stage as well. Starting with Construction. As André told us, and we will first look at the footprint of the Construction stream. And it's the majority -- biggest market is in U.S., but also a big impact in the Nordics; we are in the U.K. and Central Europe. First of all, the commercial direction of the Construction stream.. And it's continuously improving profitability. That's the priority #1, profit before volume. But we also can allow to grow volume in a responsible way. And we do see a lot of opportunities -- we heard it before the break here -- in sustainable recovery, innovative solutions, digitalization, to advance the company forward. And we do want to sharpen our offering and solution to meet the customers' need of the future. But, Richard, activity is increasing in our market.

Yes, it is, Anders. So it's obviously good for us to see that the activity is increasing in our construction markets across our operations. As you know, Anders, on a rolling 12 basis, our book-to-bill ratio was 117% as of Q3 this year. That's obviously very encouraging for us. We've also seen, as it says here on the slide, price material increases and supply chain bottlenecks, a lot of news about that recently. I think we've been doing a very good job of managing through that, Anders. And we just need to keep a close watch on that, and Caroline is going to talk about that in a little more detail in a minute. Another encouraging thing in our market is the ambitious investment plans that we see. A perfect example of that is the infrastructure investment and Jobs Act in the U.S., $1.2 trillion worth of funding. That was approved in November. About $1 trillion of that money is going to be pushed into the system over the next 5 years. So that will have a big impact on our markets, and it will be interesting to see how that develops. That will become more clear as to how and when that money rolls out in 2022. Lena talked significantly about sustainability and our focus there. That's a great thing for us. We've been focused on sustainability for over 20 years here at Skanska. And I see that our competencies in that, Anders, are really catching the demand in the market. I think it's going to set us up very well today and going forward. Something we also need to watch in the market is a dynamic around political uncertainty. We saw that recently here in Sweden. We've been living with for many years in the U.S. and our other markets, and we just need to -- simply need to be aware of that and be able to adapt our business to whatever comes at us. I think the work that we did in COVID was a great example of our ability to be adaptable. And another thing, another dynamic in the market is social awareness. Our society, our employees, other stakeholders -- people are looking to companies like Skanska to do more than just be about profit, we have to be about purpose. And Skanska has a great purpose. We build for a better society. It's a fantastic foundation for us, as Caroline talked about earlier, and I think that carries us through today and into the future. So now I think it's Caroline's turn to talk about material price and supply chain issues. Thank you.

Please, Caroline.

Thank you, Richard. So to speak about one of the risks that we see, and that's the volatility of material price increases and the supply chain. It's volatile, but it has -- we have also seen some stabilization when it comes to some material prices. And I also have to say when it comes to our projects, we have so far seen low impact. But of course, this is something that we are monitoring very closely and also to see the potential long-term effects that it may have. And we have taken several actions, mitigating actions, and we have improved our governance and we have also sharpened our commercial management. And for example, we practice selective bidding. This is something we heard Anders speak already as part of our strategy, but this is, of course, super important now, for example, with long-term contracts and so on. And we also make sure, to the extent we can, to lock in the prices before we submit the bid, and we also use framework contracts. And then we also try to have indexation clauses where we can in the contracts. And we also monitor the performance of our suppliers closely, the financial performance, to see if there's anything that we need to do. And of course, we also increased the contingency in the project as well if we see that there is a risk for price escalation. So those are some of the things that we do to mitigate the risks that we see. And now I will leave it to you to speak about competition in the market.

Indeed, and I would like Richard here as well. But I will start to address the European markets. And starting with the Nordic ones. Approximately a few players, maybe 3 players, maybe 4 players, that are -- have a major impact in the market in our 3 countries we're operating in. But we do see international companies aiming for increased market share here as well. That's natural. In the U.K., it's a very fragmented market, where domestic and international players are competing and it's a fierce competition. And then we can see that many of the companies are struggling in the U.K. market. So something is happening there. In Central Europe, very aggressive competition, especially in the civil construction. All companies from all parts of Europe are there to compete. And international companies have a large presence in the Central Europe. How about the U.S., Richard?

Well, Anders, as it says here, we have a large market in the U.S. It's a big geography. The market -- the competition is local and it's international or it's national, fragmented markets, but we're strong in all the markets that we're in. On the building side, we have a very strong construction management business. And I think something that sets us apart, and I talked about sustainability earlier, is our focus on diversity and inclusion, climate. Our clients are demanding more of that, particularly on the private side, and that seems to be setting us apart from our competition. I'm happy to see that. On the civil side, we have many international competitors in connection, for example, with the infrastructure act I talked about earlier: when $1 trillion comes into the system, a lot of people want to get a piece of that. The strength of the civil business is we're very local. We have strong local relationships with labor, with our clients, with trade contractors. We have great people locally. And even though we have a lot of competition, I feel comfortable that we're going to be able to get our piece of the market. Also something we've seen is some of our competitors have had challenges over the years as we have. We were earlier on that, I think. So we've cleared the decks in Skanska Civil, and we're set up in a good way to move forward. And I think that experience of some of our competitors with some challenges hopefully can raise the margins a bit for us going forward.

So it sounds good. And if we look at the order situation, we have been quite successful in the last couple of years. As you said earlier, we have a book-to-build 117%, which is encouraging for the future. And I would say the quality of the backlog is really good right now.

Absolutely, absolutely, on both sides, for building and civil in the U.S.

And if you look at -- again, I showed this in my introduction, 10 years back, the performance of the Construction stream. And here, you can see that we underperformed in 2017 and '18, but then we have really improved the profitability in Construction stream. And the vast majority of that improvement has been in the U.S. So what have you done?

Well, Anders, you talked about strategic actions that we took back in 2018. Obviously, we had some problems in some projects -- some very large projects in the U.S. We've been able to work through those in a very good way, and you see that reflected in the EBIT line that's climbing up to the right. So happy to achieve 3.5% target in Q3. And hopefully, we can sustain that and continue to move forward. That's the plan, of course.

Okay. So to repeat again, the commercial direction of the Construction stream: improving profitability, profit before volume, responsible growth when that is allowed. And we do see a lot of opportunities in the trend in the market -- for example, sustainable recovery, innovative solution, digitalization. So I'm really encouraged by that. And I want to show you one good example here as well. This is the Slussen project in the middle of Stockholm, it's a major overhaul of a traffic solution from time to time has been tearing down by time and also sinking -- basically sinking into the water/historical site. And this project's actually safeguarding the drinking water for Stockholm. So it's a critical project for the city of Stockholm, of course. So this is one example where I can see a trend that clients want to build a resilient infrastructure and resilient cities going forward, and that creates a lot of opportunities, of course. With that, I'll leave it to Claes to go into the residential development stream. Claes?

Thank you, Anders. And behind me, you see the map, current footprint of the Residential Development business in Skanska. We have 5 operating units covering Norway, Sweden, Finland; and then Central Europe covering both Czech Republic and Poland. In addition to that, we have a niche concept called BoKlok, which is our sustainable offering for the many people, which today has a footprint in Norway, Sweden, Finland and has just entered the U.K. market. Commercial direction, definitely would like to grow this business. We have a strong solid footprint in the Nordic business, as Anders was referring to earlier. But we think we can grow in selected markets -- predominantly, I would say, in Norway and a couple of other cities. We'd like to expand the business in Central Europe. We have ramped up the business quite successfully in the Polish market. Just also recently entered Krakow and see further potential expenses in the future. When it comes to BoKlok, very stable volumes in the Swedish market for quite some time. But we have had a bit of a challenge to ramp up the business volumes in Oslo and Helsinki. So that's a big focus going forward. And of course, then we have the big efforts to enter the U.K. market, which I'll come back and cover on a later slide here. The big bottleneck actually to meet the current very strong demand we see in the market is the future pipeline, to get it actually through the permit stages, zoning and then building permit in order to start them. So the land bank management is absolutely crucial here. And permit processes takes longer and longer time and it's very unpredictable, where you end up in a gridlock or a delay. So you need to have a lot of ongoing pilot processes in order to plan stable volumes for the future. Then of course, we need to drive a very efficient business in general and of course, take the benefit of having an in-house construction capability, because then we can design and we can procure and execute the project completely under our own control. Extremely big benefit when operating in a very high cost escalation environment, as we do in many of our markets currently. Another example of efficient operation is what Kirsi was alluding to earlier, the big, you can say, retrofit of the production line in our modular housing factory in Gullringen for BoKlok. We will increase the capacity by 50% once we start up that operation due to robotics. The market has been very, very strong for quite some time here across the board, I would say. And so far, we had a very solid response of the BoKlok entry even if it's pretty early days still. On a more granular view here on the various submarkets. You can see that the biggest price increases we have definitely seen in the Czech and the Swedish market, but basically in our full footprint we have seen that prices have gone up. You can see that Finland went across the tide a bit in the beginning of this measurement period but has stepped up lately, but more modest growth we have seen there. Competition: very fierce. I would say we have a couple of larger players in all selected markets. But in addition to that, we have a lot of smaller players buying smaller pieces of land, so the fierce competition for land is very troublesome for us. And we are not really [ competitive ] -- if you have a permit of a small land lot, someone else would probably buy it at a very high price. But our land bank strategy is to go for large and complex land plots where we can steer the development and do the place-making in a very good way and also be more competitive and have less competition for those pieces of land. Here, you see a breakdown of sold homes here. A couple of things to point out here. Sweden is a really important business for us, obviously, the dark blue here. If you then also add the BoKlok volumes covering the Swedish market, you can see that the Swedish business is very stable with good volumes and the growth focus is then, to a large extent, on international markets. But you can see also the key focus areas, because the sold homes has gone down on rolling 12, and of course, we would like to sell more to meet the strong demand that is out there, but permitting again and land bank management, that is key actually to backfill the project pipeline all the time in order to start more projects and grow the business. Moving then to the BoKlok entry, [ Brent ] as we call it here. So far, so good. We already identified a couple of areas where we would like to be present. One is in the larger Bristol area, that's to the west here on the map, and the second is the South Coast. Basically, right now we're targeting the area between Southampton and Bristol. So far, we have 2 ongoing projects, 225 homes already sold, which is pretty quickly ramp up since we just started 2019 to have feet on the ground here. We've secured land for roughly 1,200 homes, and we are constantly working with the land bank. Those 1,200 homes is spread out between roughly 10 locations in the selected geographies. So a very good start even if it's early days, and a very strong reception from the market. There is a big pent-up demand for sustainable homes for the many people, which is BoKlok's core mission here. Taking a look at the performance profitability-wise and revenue-wise. This has been a very, very solid business since 2016 on the profitability level. You can see it comes from very low levels in 2012 when we completely restructured the business. But in general, a very strong performance for half a decade now. Moving to the return on capital employed. We have a combined ROCE target for the development business in Skanska of 10% and Residential Development has overshooted this target more or less since 2015 with small exception, maybe 2019. So very, very strong performance in general. Homes in production. Here, you can see that we are operating now with a very high sales rate on historically very high level. Maybe a bit too high, so it's extremely important for us to have a firm pricing strategy and customer segmentation in place for each single projects. We don't miss out to capture all the value from the price increases that, to some extent, has happened more quicker than we had anticipated. We have less than 100 completed homes that are unsold and that is historically very, very low levels. So of course, it's a very, very strong market out there. To wrap up a bit the commercial direction, we need to succeed with our growth plans, expansion plans and ramp-up of the U.K. [ Brentry. ] And to build the pipeline and the land bank management is, of course, then super important to actually achieve this growth plan. And then the One Skanska approach, utilizing the full benefit of having in-house construction, is instrumental also for our future success. A couple of nice projects here. This one is actually a pretty small project down in Bunkeflostrand, Gottorps Hage. This will be the first carbon-neutral rowhouses ever built in the Swedish market. And we have really put a lot of effort into various -- every single piece of material that goes into this project in order to reduce the carbon footprint as much as possible. Also, solar panels on the roof will deliver a lot of energy to run these rowhouses. So very, very sustainable project. And then, of course, we have the first launch, BoKlok on the Brook, which is in the outskirts of East Bristol here. 170 homes makes this the single biggest BoKlok project ever. So we were brave to start on that scale. Actually sold out completely prior to completion, which is a big effort and a big achievement and a very good start of this business expansion. With that, I will move over to Commercial Property Development here. Starting again with a map here. And here we are covering -- we are having 3 operating units, one covering the Nordics and here we also have Denmark, so Norway, Sweden, Finland and Denmark. And then we're operating in Poland, Czech Republic, Hungary and Romania in Central Europe. And in the U.S., we're operating in 5 selected cities. Commercial direction here is clearly that we would like to expand this business quite a lot and definitely increase the investments the coming business plan compared to the previous one. And we think the biggest growth is definitely possible to do in the U.S. In Sweden, Denmark and Central Europe, we have a very stable and big market position. Of course, we can potentially grow. But the biggest opportunities in Europe to grow is actually to ramp up the business further in Oslo and Helsinki. Otherwise, we don't see any new cities that we would like to add to the footprint in Europe. Potentially that could be the case in U.S., but we first would like to succeed with our LA entry that we have recently started. Also here, the same issue with developing the pipeline. You need to backfill with land, drive permit, design, SOWing, et cetera, to get projects ready to start, and that is the big bottleneck we have seen lately. Then -- we are mainly an office developer in this customer segment, but we also have selected niche businesses, like logistics in Sweden, we do multifamily rental residential in the U.S. and in the Danish market. And then we are also exploring the life science or lab sector in the Boston submarket in the U.S. We've done one project historically and we're trying to target that sector going forward. Of course, we need to have a super strong sustainability and customer focus in this segment. Of course, given everything that is happening and has happened right now when it comes to the pandemic, we need to have the future office concept with pandemic-secure design -- a very sustainable, healthy buildings actually. So strengthen our customer offering to win the tenants is super important. I would later cover Investment Properties, our new business stream, and we see strong synergies between Commercial Development and Investment Property that I will cover a bit later. Market, very interesting, completely divided market between investor and tenant market. The investor market, with exception maybe of the second quarter last year when everyone was shocked by the heat of the pandemic, investor market has stayed very firm. There is a big wall of money out there seeking good investment opportunities. And given also that a lot of developers have hesitated to start a new project, it has dried up the supply and demand is much stronger. So yields have stayed on a low level and even maybe gone down a bit in some of our selected markets. So very strong investor market in general. Completely different story if you move to the tenant side. Last year, a lot of hesitation, a lot of interrupted or postponed process and negotiations with tenants. This year, that continued, the big uncertainty around the future of office and flex hybrid solutions, et cetera. But from the summer, interest has picked up. So we have had a lot of -- initiated discussions during Q3 and a lot of them had turned actually into lease contracts in Q4. So we see a solid recovery and bounce back of the market currently. But of course, the long-term impact of the pandemic and hybrid flex offices is still to be seen and evaluated. The property clock here from Jones Lang LaSalle clearly shows the difficulty to depict the market right now. The markets here are all over the place, where we have selected the ones where we have presence. So we have all our submarkets here, except some regional cities in Poland. And if I just offer my perspectives on the positioning here, I tend to agree that Bucharest is the slowest capital city market we have in Central Europe currently. Houston has been hit severely by the energy crisis and then, of course, pandemic. So the outskirt of Houston, the so-called energy corridor is a market where we will not do any more development; we will only focus on CBD downtown. But the Houston market has been slow for some time. Also Washington, D.C. has been slow, a bit oversupplied, vacancies has gone up, and there is a pressure downwards on rent levels. So I can agree that, that market as well is a bit slow. On a positive side, most of the leases we have seen signed in Q4 here or Q3 has been actually in Prague, Copenhagen or some of the Polish cities where we have a strong presence then. I also have marked Seattle here green. Seattle is a bit on the slow side right now. We have had tremendous success with 3 commercial office projects in the past, the last one, 2+U, the biggest single investment in our history. Now we don't have anything ongoing in Seattle, but we have just started the biggest project ever, The Eight in the Bellevue submarket. That's a twin market located east of Seattle on other side of Lake Washington, basically no vacancy in the Class A office stock. And everything that is ongoing is fully leased, except our projects. We are the only one in this very strong market that can offer absolutely modern office space, healthy space with a higher level of technology to the market and to a strong market. The Bellevue market is the strongest market we have of all our selected cities currently. But I can agree that Seattle is a bit on the downside. It's a very different perspective despite the fact that they are located in close proximity to each other. To the left, you see also here what we have started this year in these cities or the investment sum. The first one, SEK 4.2 billion is then the project in Bellevue, which is run by our Seattle office. We started one project in Washington, D.C. with a 50% prelease and one office project actually in the Arlington market. And it's the same story there. The Arlington market is close proximity to Washington, D.C. market run by our operations there, but much stronger than the D.C. market. That's why we go spec in Arlington, but not in D.C. And in Houston a big project, absolute prominent location downtown, 32% pre-lease before we started. That's why we decided to go for that one. Competition also here fierce, competition and especially competition for land. Land prices has not really gone down due to the pandemic. Also, of course, very fierce competition to win the tenants. And there has been a pressure on rent levels, but the biggest impact we see is that concession goes up -- I mean rent-free periods and also fit out contributions to the tenants. So it takes a lot to win the tenants. You need to be extremely competitive. And we have not actually gone for the low rent level deals here. We would like to get well paid for our -- so we better have patience rather than go for cheap deals. Capital employed and ROCE. A couple of takeaways from this one. You can see the breakdown: Current loan capital employed is equally distributed roughly between the Nordics, the Central Europe and the U.S. You also see that this business stream as well contributed a lot to the combined 10% project development growth target by overshooting it basically 9 years out of 10, so very strong performance. The small highest part of the stacked bar, CS CD, that's a low-risk business that is done by the construction unit predominant in Sweden, and it's usually 100% preleased public buildings or housing for elderly. So very low risk safe development activity. This is a very interesting slide showing the dynamics that we have seen, partly of the pandemic, but also the problem with actually building a sustainable pipeline. 2017 and '18 were all-time high in terms of started projects. And this is measuring then the total investment upon completion for started project every single year. So '17 and '18 really stellar year. 2019, we went down for 2 reasons. One is that we were not able to backfill the pipeline with permitted projects to the same pace as we -- as it was started. Secondly, we had a couple of -- not the strongest submarkets, but the couple of markets where we needed to be razor sharp on the cost side. We brought a couple of those projects back to the drawing board to redesign and do some value engineering to make a viable business case. So that's why the business volume went down a bit in 2019. Then 2020, we all know the pandemic hit, and we post activity to some extent, to reflect a bit where we would like to start. And then we started late 2020 activity again. 2021, you see what's happened, SEK 15 billion year-to-date, already an all-time high. Basically showing 2 things here. We believe strongly in the future of this business. And secondly, we have been extremely good in actually driving the permitting processes and make our projects ready to start during the pandemic here. So SEK 15 billion in total, very high number. Leasing market, obviously, you see here the effect of the pandemic, the bars tracking the rolling 12 leasing. We had a couple of really high bars 2019, an all-time high. Now it's stabilized in a much lower level. And we, of course, hope next year to start to build this upwards. We also track the leasing ratio and the completion ratio of the portfolio. Those have both gone down because of starting a lot of new spec development at this sort of in the early phases, and you have plenty of time to lease them. We would like to see these 2 lines move in tandem, which they still do, showing that we have the risk level on the portfolio under pretty good control. Back to the previous one here, out of the SEK 15 billion, SEK 10 billion is actually located in the U.S. 5 projects. I mentioned a couple of them before, The Eight spec project in the Bellevue market. OZMA then is a multifamily project in D.C. and the multifamily market rental residential in Washington, D.C. is very strong. 3901 Fairfax is then a medium-sized spec project in the Arlington market, much better than D.C. And then you have 17xM and this is 50% pre-leased. And 1550 on the Green used on 32% prelease. So I think we have a very good risk exposure in general of the ones we have started in U.S. this year. So I feel good about this stack bar. This one, you know from the quarterly reports here. And ideally, we'd like to see 100% on the completed, and then the line -- green line -- should go down.as we move into the future completion dates here. And now it's up and down a bit all over the place. A couple of comments here: 67% leased and completed. Obviously, the ones that have a very high leasing ratio, it's easy to take the decision to sell those and the ones lagging leasing basically due to the pandemic, we have the patience then to lease them up before we put them on the investor market. It's not that strange that we are not at 100% here. 67%, fairly solid number still given the current circumstances. Already now, I can say that the line will jump up in the next quarterly report when it comes to Q3 '22 and Q2 '23 because we have done some really substantial leasing in Prague and Copenhagen. Also we can say that Q3, Q4 2024 are burdened a bit by rental residential multifamily projects in the U.S. that obviously is not leased at all prior to completion. To wrap up, the commercial direction here is to grow the business prominently in U.S. and Oslo and Helsinki and stay with the current high market share that we have in the rest of the market, potentially grow if we see the opportunities, of course. Continue to build the pipeline and be extremely customer focused here and make sure that we meet the future demand of pandemic-secure, healthy, sustainable premises to our tenants. And then, of course, have the synergies with Investment Properties that I will soon cover. Capital projects is also here, Port7. I'm pretty impressed by the achievements this year for this one. They were allowed to start the first phase in May and could start the second phase if they leased 8,000 square meters. They hit that number already in November. And so we have actually started the full office phase here. So very successful leasing so far. This is the single biggest CD investment ever done in a market located in Prague 7 in the northern part of the city. The Nest45, we actually set down the foot in Ørestad 5 years ago, bought a small land bank of projects. And since then, we have developed -- completed the 300 residential, have 160 under construction: That's 460 rental residential. One completed office project; 100% leased before completion. Nest45 is the second phase of that project. So they are tied together, you could say. More than 80% leased 1 year prior to completion. So 25,000 square meter offices, more than 90% leased combined, 1 year before completion. Very strong leasing efforts by the team here in Copenhagen. Last but not least, this is a small project when it comes to leasable space, but it's the first entry into the L.A. market, located up in Beverly Hills. This is an extremely tight market when it comes to get entitlement and permit. I would say Prague and L.A. are the most difficult markets for us when it comes to get things through the permitting stage. So we are basically only one in this micro location that can offer super modern, healthy, sustainable offices to the tenants. And I really look forward to see the reception of this project next year. It's still a hole in the ground. I was there a couple of months ago. But next year, we will really ramp up the leasing work with this one. With that, one more business stream to go, Investment Properties. And we have issued a press release last week that we will launch this business next year. And what I will go through now today is the rationale of why we think this is a really good and appealing future business for Skanska. First of all, of course, I mean, these projects, subject to the IP business here, are, of course, very good investments for us. We completely control everything from idea to design, procurement, execution. We pack them full with everything we know within technology and sustainability. And of course, a very solid tenant mix that creates a stable and predictable cash flow for the future. But we also see that there is an untapped value potential in some of these projects that we might have missed out previously, and I will go through that on a couple of later slides here. But to start, this is a very attractive investment for Skanska. Secondly, we think by having a long-term and broader presence in our colocation, we will be seen as a bigger contributor to local society and that will strengthen the stakeholder relations with, for instance, municipality and, of course, tenants. Instead of just leasing premises to tenants and fit them out and move them in and then hand it over to someone else, we will continue that relation during actually the usage of the premises. And then the third perspective here is actually that we will also become a more attractive employer for real estate talent out there by delivering actually the whole scope from idea through execution and also asset management, the whole life cycle of a project. And to that, you can also add having in-house construction. We will be a full service provider within real estate and construction, and that will then be very appealing to the talent out there. Building a bit on the previous slide, this strengthened stakeholder relations, we are convinced that will increase the business interfaces for us. A stronger presence will give us opportunity to access potentially future development opportunities for the commercial development stream, like additional land acquisitions. And of course, I said earlier, when we create a longer, more durable relation with our tenants, we can serve them with a customer-first mindset. We might help them with expansion, retrofit the space. Maybe they would like to move to another Skanska location. Maybe we can serve them in another market outside Sweden because of the relation we built up. And then, of course, we have seen a big trend predominantly in the Swedish market where real estate companies go into development. What we know as a developer go into, you can say, real estate management. We will level the playfield here. And in addition to that, we will be more or less the only player that also have in-house construction. So by adding all this and have the whole scope, we will increase and sharpen our competitiveness in all sense. Then value generation. Missed out on some future value increases -- that goes, we think, definitely for larger areas. And we like to go for larger areas. Land bank big places where we actually can set the tone: we do the place-making and we create the future location. We don't create the future location maybe by the first phase, maybe not by the second phase, but when we complete the full area, actually the first phases in that area will have increased in value. And we create the places for the future. Maybe the metro location will go there, et cetera, and we will add a lot of office projects. And this is an untapped value potential that we have missed out earlier when we are selling too fast. And of course, when we have full ownership of our big location, we really are in total control of taking all the decisions for executing the whole area, which also is a benefit. Then last but not least, a big business plan focus, as you heard earlier from my colleague here, is within innovation and digitalization. And of course, if you have assets under property management, you will be able to capture a lot of data and analytics and evaluate it, feed that back to Commercial Development, making us a better developer. And also a dialogue with the tenants when they're using the space, what can be improved, et cetera, feed that back to commercial development, improve the customer offering, make better projects for the future, get new tenants, et cetera, in a sort of circular feedback loop here which we think is a very added quality by launching Investment Properties. This one, you have seen many times before, how we create value in Commercial Development -- it's through [ the zone ] in the early phases. It's through construction, leasing and then divesting it. And now we add 2 more components. Of course, the cash flow, the operating net from the tenants paying with the rent levels. And then we also have this untapped value potential in change of property value. And then we feed back all these synergies. And you can say the synergies can be divided basically into 3 buckets here. One, we think we can access more future development opportunities through strengthening business interface. Secondly, we can get the more spin-off business with our existing tenant relations. And then you have the feedback loop on innovation, technology, sustainability that makes us a better commercial developer in the long run. We have put a couple of project portfolio criteria actually to transfer the assets from CD to IP. It should be office properties in Sweden. It should be strong locations today or in the future. If it's in the future, it's because we will place make and then multi-phased projects would be very convenient to put into this. So they are highly prioritized. Preferably multi-tenant building. This is not an absolute must, but then we get more tenant interface. And of course, are more spread out duration of the lease lengths in the portfolio. We have said that it should be at least 80% leased before it can be subject to a transfer. And then we would like to have geographical clusters in order to have a very cost-efficient property management operations. And that takes me to this slide. And Anders was already in his introduction, mentioning what we are targeting here in terms of portfolio size to capture the full financial and operational synergies that we see and would like to catch actually in the future. SEK 12 billion to SEK 18 billion in market value, and that will take us to probably north of 0.25 million square feet under management. And with that, Magnus, if you would join me on stage to go through a bit reporting and financials connected to this.

Thank you, Claes. So let me explain to you how this will work from a financial perspective then. So if a property is fitting with the criteria that Claes just outlined, and the decision is taken to not divest this property externally but to transfer it into Investment Properties instead, we will have a gain on sale in the Commercial Development business stream. The other thing that will happen, of course, is that as this asset is transferred, we will have a lowering of the capital employed in Commercial Development, and the capital employed will increase in Investment Properties. And here, it's important to be clear on that. In Commercial Development, we value the properties according to acquisition cost. But in Investment Properties, they will be held in the balance sheet to market value. So we have different accounting principles in play here. Of course, we will report a divestment in Commercial Development, and we will report an investment in Investment Properties. But since nothing is leaving the group to a third party, this investment and divestment will be eliminated at the group level. I should also point out here that the impact of the transaction is, as you see here, but in the Investment Property business stream, there will be no effect of the transaction on the P&L, but all the P&L effect, all the revenue and the costs that are recognized in Investment Properties will only come from managing the property sort of on an ongoing basis. So if we then have a look at how that will be displayed in our quarterly reporting, we can say we will, of course, report a P&L, profit and loss. It's a business stream as is Construction, [ RD, and C. ] So in much the same way, we will have a P&L for investment properties. Because of the nature of the business, there will be a few new elements in it that I will take you through. We will also report some operational KPIs, and of course, some selected balance sheet KPIs. And in addition to that, we will, on a quarterly basis, also report a full list of all the properties that are held in the Investment Property portfolio. And if we look on the graphics here, you see some parts that are encircled with sort of an orange box, if you will. Those are new. And we have decided to include them from now on in the external reporting with the Investment Properties business being done. Taking them from the top, we will report operating net of Investment Properties, which is essentially the rental revenue, rental income less operating expenses, property administration costs, property tax, repairs and maintenance and so on. So that is the result that comes straight out of the property portfolio in Investment Properties. Then we will, of course, since the properties are held in the balance sheet to market value, we will have changes in the market value as a part of the P&L here, which is a new thing. And we will, of course, do this revaluation of the property portfolio every quarter. And once every year, it will be done together with third parties, really an external operation of the portfolio. In terms of operational KPIs, we will report a net leasing, and that's basically what it sounds like. It's the new signed leases in the time period, less the terminated leases. And also the surplus ratio, which is, you can say, an efficiency measure of the property portfolio, which you arrive at by basically taking the operating net and dividing that by the rental revenue. In the accounting for Investment Properties, I would also like to be clear on that, there will be no difference here between the segment accounting and the IFRS accounting here. So I will come back a little bit later here and explain somewhat more in detail on how we will account for the actual internal transaction of the properties from Commercial Development to Investment Properties. And with that, I hand over to you, André.

Thank you, Magnus and Claes. All right. It's time for the second break. And after that, we have the final session, which will be then on group financials and also our target. And I just want to remind you that you can post questions during the break, whatever you feel like, and also maybe gear up for the telephone conference, where you can ask questions live. All right. Have a nice break. Thank you. [Break]

And we're back for the last session. Now it's the group financials and the group targets. And I would like to introduce our CFO, Magnus Persson?

Thank you, Andre. So group financials. We will start with Construction, and this is a little bit of recap of what Anders and Richard has already talked about. This is the revenue development we have seen since 2012. And as you can see, we grew revenues by approximately 4% on an annual basis from 2012 up to 2019. Since then, we've seen a drop in Swedish kronas by approximately 19%. And then the chief reasons to this is, one, the strategic actions that we undertook in 2018 really started to have effect 2019 and '20 and then, of course, the pandemic. And going forward, in terms of volume ambition in the Construction business, we will grow only responsibly here. We will have a very clear requirement in terms of profitability and organizational stability in order to sort of allow growth in our different business units in Construction. If we look at the improvements of the margin then. Over the last 3 years from 2018 to the third quarter of 2021 on a rolling 12-month basis, you can say that the gross margin, which, by and large, is the margin that comes straight out of our project portfolio, has increased from 5.1% up to 7.5%. And note here that the margin then for this year now is adjusted for the divestment gain that we have in construction of the infrastructure services business in the U.K. So approximately 2.5% increase, which is a lot, obviously. If we look on the cost side here, which you have on the right side of the graphic that you see in front of you, you can see S&A levels are fairly flat. We improved it a tad but not a lot. But of course, this has to be seen against the backdrop of the falling volumes. So we really put quite a lot of effort of keeping sort of the right organizational size for the volume of the business that we are running here. The chief sort of pushes we have made here has been to select the right project. It's absolutely critical to go after the right projects and, even more important, to sort of stay away from the wrong projects. But even if you have -- if you can identify the right projects, you need to have good control of the risks. So we have been working a lot with the bid controls to ensure that we sort of win the right projects also on the right terms here. For -- in the Capital Markets Day, and, of course, when the situation is as it looks, we have to spend a lot less time. All people in the organization spent less time on sort of addressing these issues, which just frees up time to do other value-generating activities. So we have dealt with the legacy portfolio or close to at least. And the other aspect here is to backfill then the Construction portfolio with new profitable work that has the right type of risk profile in it. And this we have worked a lot with really to be very sure in bid situations what is the risk profile of the project that we are looking at. And then to make sure that, given the risk profile, we actually get paid. We have a margin in the project that makes taking this risk worthwhile. And of course, also to ensure that we have the appropriate amount of contingencies and reserves in the project to be very sure that we have sort of the financial success of the project that we would like to have. So this is the way we have been thinking a lot when we have backfilled the portfolio. And as Anders also said earlier on here today, the backlog today is a very high quality of the backlog that we have. And I think that is a testament that the strategy that we have been running here is working very well. If we then move over to Property Development. On the graphics here, you can see the property assets that we have in Commercial Development and Residential Development. And as you know, we have been saying for quite a long time that we would like to grow the Property Development. And as you can see here, since 2018 up until today, we have grown the assets in these 2 business streams by approximately 22%. And of course, I'd say 2019 and 2020, it has been a bit slower growth than what we would ideally have liked, but we are impacted by the pandemic and also by sort of cost escalations that marked certain parts of our home markets and especially in 2019, where we had to work very hard and in some case, even reengineer some of the projects to make sure that we had the right commercial basis to make a decision to start the projects because we, of course, don't want to start something that we're not absolutely sure of is the right project here. Today, we have a very good pipeline and we have growth ambitions both in Residential Development and in Commercial Development. Here you can see the return on capital employed for both Residential and Commercial Development combined. This is the measure that we have in our external targets, also 10% return on capital employed. And as you can see, historically, we have on a few occasions over the last, say, 8 or 9 years, been up to 10%, but most of the time above here. A few factors that I think are important to consider when you look at Skanska and think about the performance here. One is that the cost of land has been increasing quite a lot, for quite some time also. Of course, this is connected to the increase in prices, both in apartments but also increase in sort of good divestment market in Commercial Development. If developers get more paid, they are more willing to pay more for the land. So these 2 things go together. Another thing is the, I would say, prolonged permitting processes that we see in many places as in most of our markets. Zoning is a bit of a challenge. It takes more time to run the development process and make sure you get the right permits, which in effect leads to situation where you really need to have a bit more land actually in the land bank and more land in the permitting processes to be sure that you have enough projects so you can sort of satisfy your start ambitions. If we move then to Investment Properties. Our ambitions in Investment Properties and the SEK 12 billion to SEK 18 billion that Claes showed here a while back, that comes on top of the ambitions in Property Development. And how will we fund this? Well, we will not fund this by any sort of asset-backed financing. But this will all be funded by and through our central credit facilities in the group. And we do think that building up this type of portfolio, I mean, this is yielding assets. It will be a very stable cash flow from them, high-quality assets. This will actually increase the debt capacity of Skanska if we were to need it at some point in time. And of course, reaching this volumes here of SEK 12 billion to SEK 18 billion, that's not done in a heartbeat. This will take a few years to build this up in sort of the right way. An important part of our funding is, of course, net working capital in Construction, and we have had a very positive development of this position over quite some time. And now in the third quarter, we could report a net working capital over revenue of around 20%, which is extremely strong. And as you can see on the graphics here, it has been very strong for quite some time. What we think about when we design our own capital structure and also when we look at our investment capacity is that the average ratio here on a slightly longer-term basis has been made 13% to 15%. But there are no signs on the market or in our negotiations with clients or anything like that, that this is about to change structurally. We are still able to get very favorable terms. And of course, this is not only done in order to have a strong balance sheet in the group. It's primarily done, I would say, as a risk mitigant because if you were to end up in a dispute with the client, it is always better to sort of sit on the cash. If we look at our investment capacity, we have an adjusted net debt -- or rather an adjusted net cash position at the end of the third quarter of SEK 15 billion. And our limit that we have set out has been around minus SEK 10 billion. So that essentially means that we have SEK 25 billion to sort of work with here. Now given what I just said about the net working capital in Construction and the need to be a bit sort of realistic or cautious when it comes to trusting that as a funding source long term, we say that we have an investment capacity to go into Property Development and Investment Properties of approximately SEK 20 billion here. So we have plenty of funds in order to support the growth in Project Development and Investment Properties without foreseeing any crowding out effects in any near term here. The equity position of the group is very strong. We have over SEK 40 billion in equity at the end of the third quarter, which is an equity-to-asset ratio of approximately 32%. So very good position. And this is actually a commercial benefit for us because it is important when the customer comes to us and they really trusts us to deliver very important physical assets to them that they are depending on in their operations, they need to be able to be sure that we are around even if, for instance, a tough macroeconomic situation occurs or anything like that. So it is important to have this very stable balance sheet in place. And where we are now, also the position we have now with this SEK 42 billion equity, this really supports the ambitions that we have of growing both Project Development and Investment Properties. In terms of return on equity, we have a target of 18% that we've had for quite some time. And as you can see on a couple of occasions, we have been below that, but the majority of the time, we have sort of been above our own target. Of course, when we now go into Investment Properties, these assets are, you can say, yielding a bit lower than what you would normally have in a Project Development business. So long term, if this portfolio is big, you would, of course, have somewhat of a downward pressure on return on equity. But we will now start building this portfolio up next year, and this will take a few years ahead. So I don't think this will be any issue in the near term here. Then going in a bit more detail in Investment Properties and how we will value the properties and the reporting principles of it. Because it's important here that since this setup will involve both Commercial Development and Investment Properties, it's important to know that each business stream will only report the value that has been created in that business stream. We will not pick up any development profits in Investment Properties. They will be accounted for in Commercial Development. All transactions between Commercial Development and Investment Properties will be done at market terms. And we will, on an annual basis, disclose the external valuations and the actual transaction prices that we have employed. So that can be sort of looked into. The whole property portfolio in Investment Properties will be valued every quarter, and we will have external appraisals every third quarter. And of course, there will be no construction risk transferred into Investment Properties either. And as already said, there's no difference here between a segment and IFRS account. So now I will take you through an example, just to be sort of crystal clear on how we will account for these internal transactions. And what you see in front of you is an example, imagine an example of a property that has a market value of SEK 120 million that is sold from Commercial Development into Investment Properties. So the first thing that will happen is, of course, that Commercial Property Development would report a gain on sale. In this example here, the gain on sale is SEK 20 million, as you can see, because the booked value of the property is SEK 100 million. That's gain on sale since we have not sold the property to any third party. From a group perspective, if you look on the group accounting, that gain on sale will be eliminated in the central stream and be reported externally as a change in market value. And this is the cost that we have -- we report and value the assets in Commercial Development to acquisition value, booked in Investment Properties to market value. So we're moving from one accounting regime to another. So from the group perspective, it then becomes an increase -- change in market value. Second then, the deferred tax position that will be created by this internal transaction, that will be held in the central stream. So that will not be charged to the Investment Property capital employed. Commercial Development will report divestment and Investment Properties will report an investment. But on the group level, this will, of course, be eliminated. And the reason we'd do it like this is because when you read the results and the cash flows from our different business streams, it will be a lot easier to understand what has been happening in each business stream if you can see these gross values. But then as I said, they will be eliminated then. So in the group level, of course, we have not made any transactions to a third party, so no investment or divestment at the group level. And finally, what will happen also here is that at the point in time when we make this transaction, we will have had a profit in the Construction business because the Construction business or those that have been building the property for the Commercial Development stream, but before this property is sold, this profit cannot be released. So it has been eliminated. But then this profit, the Construction profit will be released upon this internal transaction. So there, it will also come. So with this, I now hope that how we will deal both with the accounting in Investment Properties as such and also with these internal transactions are absolutely crystal clear and that it is not as difficult as it might see. With that, Anders, please.

Thank you, Magnus. And I will go through the group targets. And starting with the Construction stream. We keep our target of at or above 3.5%. And you should remember that this is over a business cycle. So my ambition on the -- GLT's ambition here is to be on that level or above over a business cycle. When it comes to Project Development, we have seen today this afternoon that the performance has been on a really high level. So here, we keep our target of at or above 10% return on capital employed. And on the Investment Properties, our target is to be at or above 6% return on capital employed. Return on equity, we will keep our target here at or above 18%. And we slightly adjust the net debt limit target to minus SEK 10 billion, and we keep our payout ratio ambition of 40% to 70%. We also have carbon emission targets, we have been mentioning them today as well. One target is to have Scope 1 and 2, i.e., our own operation down to 70% emissions by the 2030, and we have a net zero target of 2045. We also have a separate target in our Project Development. And there, we include the whole value chain, including Scope 3 as well. And we have a 50% reduction target until 2030 and net zero until 2045. And also, of course, the overall target was Scope 1, 2 and 3, the whole -- our own operation, the whole value chain should be at net zero by 2045. With that, I leave it to André to open up for Q&A.

Great. Thank you very much. Yes, time for the Q&A. So we'll be arranging a bit here on stage because everyone from GLT will be up here, and you will be able to ask questions over the telephone conference or on just posting things, and I will check them out on this iPad. We have already a few incoming here. So there will definitely be some questions for all of them. And yes, why not invite them up on stage. Please, GLT. Good. Welcome. We will start with questions from the telephone conference. So we will open up for questions there. So follow the instructions from the operator, please.

[Operator Instructions]

No questions registered. Okay. Then we will warm up with a few from what's been posted here then on the iPad here. And I actually wrote a few of them down. There were long questions, so I'll try to summarize them. Let's start with -- on Construction. We had a few questions regarding the order intake for 2022. How is the pipeline looking? I think maybe Richard or Anders can answer that question.

I can start with the European part. I'm confident we have a good pipeline. I can base that both on -- that we are in Stage 1 and waiting for Stage 2 in quite a lot of projects in Europe. And I also based it on that we can see now that infrastructure investment, the private client, they are starting project and that is really encouraging. So I believe that will continue for the European part, maybe, Richard, you can comment on U.S.

Sure, sure. So I feel confident also, Anders. We saw a slowdown in 2020 in relation to COVID, and that was obviously expected. This year, we've seen a good increase, as we discussed earlier, particularly on our building side. Our private clients seem to be moving more fast than the public sector. But with the infrastructure investment and Jobs Act that I talked about earlier coming into play and just generally state funds coming back into projects, I feel really good about what the order booking situation looks like not only for this year but coming up in 2022 and beyond.

Good. All right. Then moving on, still in Construction stream. I think I'd take them in that order, stream-by-stream. We have one about the supply situation in Sweden, especially when it comes to the cement. There are uncertainties after 2022 about the supplier. What are our or your alternatives or solutions is the question.

I can answer that. We've commented also on the Q3 report, where the situation was more uncertain. It's good now that, that has been extended for 1 year. And I'm quite confident that we have good plans in place for all scenarios, basically. And also, we are quite -- have a lot of manufacturing on concrete in Sweden and also elsewhere. So we are international players. I think we have good plans in place.

Good. All right. Then there is a bunch on Investment Properties. I will try to hand the word out here in -- to a few of you here. I think we're going to start with the first one, to Claes maybe. For how long do you think it will take us to get to SEK 12 billion to SEK 18 billion in our portfolio of Investment Properties?

We can say we have a solid pipeline, but we don't give forecasts on the exact time it will take to get there.

Good. And then a follow-up on that one is the financing of this portfolio. How will it be financed? I think maybe Magnus, you could answer that one. Is it by levering these assets? Or is it a group funding strategy that we're looking at?

Yes. As I said earlier, there will be no sort of asset-backed financing or project financing of these assets. But funds will be drawn from group central credit facilities, essentially. And that is the way that we will continue to do that forward. And the reason for it is part administrative but definitely cost-wise.

Great. Thank you for that. Then connected to that, I would say also, is a question of why not increasing the debt capacity or the limit that we have just looking at or comparing to REITs and others where you might have a loan-to-value of 45% or so? Why don't we go even further, so to say?

Yes. I mean the reason to not go further than, which I interpret as sort of further changing the net debt limit or adjusted net debt limit, is simply that we don't have to. We think it's a conservative net debt limit we have. But we should also be conservative with that because we need to be -- to have a strong balance sheet, it needs to be financially solid. Then, of course, as we sort of build up the Investment Property portfolio, this will be super fine, very modern and yielding assets. So this will definitely add to the debt capacity of the group. Should we sort of down the road need to tap into that, we'll be in an even better position.

Great. Thanks. Continuing on Investment Properties. Now it's, I think, a Claes question. It's more on why now? Why Sweden? And what would have been into the sized ramp? So let's skip that one since we don't give forecast. But why now and why only Sweden? And also maybe the size -- what is a decent size for -- from each city perspective for running the assets?

I mean why now? I mean we have done a comprehensive strategic work for quite some time now. And we're done with that strategic work and are taking decisions. That's why now, obviously. And why Sweden? You could say that historically, we have had a very big market share in the Swedish market in Malmö, Gothenburg and Stockholm. And to build up a portfolio like this in any of the other international markets will take much longer time. We have a solid pipeline. The best building, right portfolio we have across the board is definitely in Stockholm. So we think we will quickly reach the critical mass to capture because the cost synergies run on efficient property management, et cetera. And also, we can capture the synergies. Part of the synergies is also from the Swedish portfolio when developing CD products in other markets.

Great. Then I have actually 2 new questions coming in here that is pretty similar. It's, again, with Investment Properties and the size of it. We said that it's between SEK 12 billion to SEK 18 billion. What will happen if or when we reach the SEK 18 billion and go -- should we go above? Have we capped it SEK 18 billion? And a similar question is that if we continue to grow, will you then have to divest the assets?

I can take the first part. As being said here, this is a long-term strategic direction of the company, long-term strategic decision. And we have also guided the market, you can say, to have this ambition between SEK 12 billion and SEK 18 billion just to give the market an idea of what we're actually aiming for. So it's not an absolute limit. It will take a few years, as I said as well, so we will work hard to continue to grow that portfolio over time.

Great. All right. Let's mix it up with actually a call from the telephone conference. So please, operator.

[Operator Instructions] We have a question from the line of Pam Liu from Morgan Stanley.

I have 3 questions for Commercial Development and Investment Properties, please. The first one is, operationally, what is the actual value that you think previously you missed out by selling too soon? I obviously get the point about better stakeholder engagement and better need -- to understand better the customer need and become a better developer, a better business. But just what are the really the dollar amount value missed by selling up too soon? Because at the end of the day, isn't that there's always the divestment value, that's sort of the value gained from doing that? And number two question is, if I go back to history a little bit, in your Capital Market Day in 2015, there was actually a slide showing Skanska's transition from a property company to a developer. That's from 1997 to 2015. We note that after 2015, Skanska began to trade at a somewhat lower multiple to Swedish real estate companies. So with the creation of the Investment Properties today, is this just switching back and therefore, are you hoping to see multiple re-rating? My third question is, are you still planning to divest the properties you hold in Investment Properties at all? Or you won't be for a number of years?

I think I can start from a strategic point of view here. Of course, when we -- the history is the history, and I don't think we have made any mistake strategically in the history. We have performed on a very high level for Commercial Development for many years. And we've also been building up this portfolio, the Commercial Development portfolio for many years. Look at the U.S., for example. We started 2009. Now it's 1/3 of the capital employed. So I think we have made a fantastic delivery on that. But when it comes to the property company -- or should we be a property company? This -- I think this is the fourth stream that really will add value to the shareholders. So it's a new strategic decision that we have been working for some time. And now we have taken the decision, we communicated to the market, we have a comprehensive plan in place, a good pipeline and we also have the right people in place in Sweden. So that's why we said we're going for Sweden in this case. And it's a decision if we should divest or put it into the IP stream, that will be on a case-by-case in Sweden.

Maybe I can address the first question. You talked about the dollar value we missed out. We don't have that number, but what I was referring to earlier is that if you have a multiphase product development, the first phase will probably be traded on a higher yield than the last phase completing the whole area. And that sort of yield compression that we actually create we miss out if you sell too early.

Great. Operator, do we have any more questions online? If not, I have one here. I'll go with that one. All right. Let's see. When is the decision then taken -- again, Investment Properties. When do you take the decision if this is a Commercial Development, office development-only or if it's going to be an IP or Investment Property asset that we are either divesting externally or transferring then internally, Claes?

It's at completion when we discuss the strategy for the divestment, basically, because we don't earmark any projects when we start them. When it's time to divest, we decide if we divest them externally or into IP.

I can just point out what we said earlier today as well that the ambition is to be at least 80% leased, and that normally is in the -- closer to completion of the project.

Great. Then I think we have covered the most questions that have popped up here. There are a few more, but they have been handled as it looks like. So some were asking the same kind of questions. Again, just checking if there's anyone on the phone call or otherwise.

No further questions on the phone.

All right. Great. Thank you very much. Now Anders will very soon here summarize this whole afternoon that we've had together. But before that, I just want to thank the audience for your participation and interest during this afternoon and also GLT for your participation. So thank you, guys. And I will leave it to Anders.

Thank you. We do have a solid foundation financially, operationally and culturally in this company. And the global trends of urbanization, digitalization and sustainability brings us great opportunities going forward, but also challenges and uncertainties that we will manage. We have a very robust commercial direction where we will increase profitability in Construction, remain a leading residential developer while growing sales and grow Commercial Property Development and launch Investment Properties. To succeed and deliver leading shareholder return, we will keep an intense focus on understanding our customers and society's needs, strengthen our culture of inclusion, learning and collaboration and increase the leverage of innovative solutions. With that, thank you for listening. Have a good day.