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

Good afternoon, and a warm welcome to Skanska's Capital Markets Day 2023. So happy to see that so many of you have joined us here in London. I would also like to say welcome to those of you that are watching online. We are broadcasting most part of this afternoon, and a recorded version of this will made -- be made available on our web page afterwards. To introduce myself, I'm Antonia Junelind, Senior Vice President, Investor Relations. And here with me to cohost this event is our Business Unit President for Skanska in the U.K., Katy Dowding.

Good morning.

So you will hear more from Katy later this afternoon but I have asked her to just briefly orient us on what Skanska is doing here in the U.K. to begin with, before we invite the group leadership team on stage. So Katy, can you tell us about Skanska here in the U.K. and our legacy in London?

Sure. Absolutely. Thank you, Antonia. So I joined Skanska in the U.K. in 2003. And coincidentally, that was the same year that this fantastic building that was completed. And it's one of the most distinctive buildings on the London skyline, it's truly iconic. And did you know that it's got 24,000 square meters of glass work in this building. Incredible, the same size as 5 football pitches or 5 soccer pitches, if you're one of our U.S. colleagues. But actually, it's called the Gherkin because of its beautiful curve shape but did you know there's only one piece of curved glass in the entire building. And if you look up, it's there. And in fact, because Skanska are a very prudent, careful organization, when we built this building, we produced 2 of those just in case. But the really good thing is because we're such an expert builder, we only needed one of them. So there's still a spare available to now. We have lots of legacy in London. We have lots of legacy in the U.K. We built some of the best infrastructure. We built railways. We built commercial office buildings. We built hospitals. We built schools. Our legacy lasts across the whole of the U.K. With the heart of our building, heart of our operations in the U.K., our building and our infrastructure businesses. But actually, we're different from the rest of the market, because we can enhance our building and infrastructure offerings, because we also have specialist services. We have specialist piling expertise. We have specialist M&E expertise, mechanical and electrical, and we have specialist facilities management, which means we can look after buildings for their life. And as well as that, we have specialist services around preconstruction advice and design advice, bringing all of these together truly sets us apart in the market as well as the strength of our wider Skanska family. This gives us a truly unique integrated offering in the U.K. So I thought we'd show you a film with just a selection of a few of the buildings that we built in London. [Presentation]

I'm really proud of all of these buildings. They leave a legacy. Our customers are proud. Our employees are proud. Their projects to be proud of in Skanska in the U.K. Thank you.

Thank you, Katy. So the main purpose of this day is, of course, to provide you with an update on our group strategy and commercial direction going forward. And here is the detailed agenda. So today, we will cover -- we have divided the afternoon session into 2 sections, 2 main sections. The first is also the longest one. This will be presented by the group leadership team and it will be broadcasted live. This will cover our performance and operational performance, our strategy in the recap, and we will also go through our group financials, digging a bit further into our operational targets and also our financial position. We will also take a bit of a broader view on the outside world and look at the most important trends that are impacting us as a company, but also our industry in general, looking at sustainability and also digital transformation. Naturally, we will cover all of our 4 business streams. So we will have Construction, Commercial Property Development, Residential Development and also Investment Properties to look at our focus areas and actions going forward. We will have a short break at around 2:15 this afternoon, and we have left quite a good amount of time for your questions at the end of this first session. And we're ending the broadcaster session at around 3:30 GMT this afternoon. And for those of you that are here in London with us, we will then take a slightly longer break and we will be back here on stage for business insights for the final hour. And we're ending here not later than 5 this afternoon. So now, we will introduce ourselves with a short film. And after that, I will welcome on stage our President and CEO, Anders Danielsson. [Presentation]

All right. Welcome, everybody. It's great to see you all here in person in London. And we have a packed afternoon, and I will set the scene and just put the company in the context before we begin to each and every business stream later on here. So I will start with just the overall picture of the company. We are one of the world's leading project development and construction company. And we are -- we have a presence in the U.S., 40% of the operation in the U.S., 40% in the Nordic and the rest around 20% is in Europe, and that includes United Kingdom and Central Europe. And you can see the revenue on the upper right-hand side, the revenue, the vast majority comes from Construction, 87%. And then we have a quite equal split between Residential Development and Commercial Property Development. But when it comes to operating income, it's another split here. And this is 3 years average on the last 3 years, 60% of the operating income comes from Construction and then they have a big part from Commercial Property Development, smaller part from Residential Development and startup Investment Properties coming back to that 1%. But overall, in the 3 years average SEK 156 billion revenue, and we have 28,000 highly skilled employees in the company. And this is our business model, if you will. We have 4 business streams. We have Construction, Commercial Property Development, Residential Development and Investment Properties. Buildup stream that we announced 2 years ago, and we have started to build up a portfolio there. But overall, we are unique in a sense that we are working the whole value chain. We have project ideas. We're buying land, we've developed the commercial buildings or residential buildings. We construct them and either we divest them that we have done successfully during the years. And now we also have an option in Sweden, as you know, that transferred them into the investment properties to gain even more shareholder value out of our development operation. So -- and that's a strength. So we can use the synergies there. And we have clear synergies when it comes to the financial side, because we are using the cash flow, the positive cash flow from construction, free working capital, we invested in the project development, we either divested creating shareholder value or decide to keep it and create a stable cash flow in investment properties over time. So that's a good thing. And of course, these development activities also create new contracts, internal profitable construction contract. So it's -- we work in the whole value chain here. And that's also -- that we have a financial strong position also make us unique because we can -- we own our own decision. We can decide when we think it's right thing to start the project, we're buying a land when it makes sense for us and the shareholder to do so. And that's a big advantage. And the history tells us that if you can work, keep the financial strong position in the down turning market, you can really come out even stronger from when the market picks up again. And that we determined to do that, of course. Before I jump into the business and financial update, and our commercial direction going forward, I want to introduce the group leadership team. And besides myself, we have 7 Executive Vice Presidents. And everybody is here. So I want to present them one by one. I'll start with Magnus Persson, our Chief Financial Officer. I continue with Caroline Fellenius-Omnell, heading up our General Counsel. We have Lena Hok, Sustainability & Innovation. We have Richard Kennedy, heading up our U.S. Construction Operation, including U.S. Building and U.S. Civil. And then Claes Larsson, heading up our Commercial Property Development and Investment Properties. And we have Stale Rod, heading up Construction & Residential Development in Central Europe and also Skanska Norway and Skanska U.K. And finally, Therese Tegner, heading our Human Resources. So you will see everybody on stage here this afternoon. First, I want to go in briefly about our strategy, our current strategy and also the performance update, how we're doing. And if I look 5 years back, we took some important decisions to restore the profitability in the Construction stream. We took decision to continue to grow the project development. And I will just show you how we're doing there. But if you look at the out of the world, what has happened in the market, that has been quite a dramatic changes in the business environment. We have the pandemic hitting us in 2020. We had the terrible war in Ukraine, also impacting the whole society, the whole world. So we've seen a lot of scarcity in when it comes to material in the construction industry. We have seen inflation. We have seen scarcity of also labor, so that [ as ] commodities and so on and of course, hiking interest rates. So that has been a lot of things going on in the world up to now. But we have our strategy. We have -- we are firm. We are very stable as a company and this is a visualization about the current strategy. And it's built upon 3 pillars. You have our strength, you can see that on the upper hand side there. We have our enablers and we have our ambition, of course, to create long-term shareholder value. And if I look at the strength, just briefly, I think this is definitely a strong big thing with Skanska. We have, everywhere I go, I see exceptional teams that make it possible to build a building like this or other buildings we have seen and you saw also this morning when you were on a site visit. That is totally impossible if you don't have the right team in place. We have a great knowledge in the company and we have outstanding performance in a lot of parts of our company. And of course, our enablers were customer, we will be nothing without our customers. So that is a customer-first mindset that is critical for our success. And also that we maintain a culture of continuous improvement, to always try to be better and better. That's the only way to keep ahead of the competitors. And also, innovation solutions. I see a lot of that going around the company. The challenge for us is how do we scale it up? How do we get the benefit of being a global company with the operation in many countries. And sustainability is the sustainable transition in the society that we've seen today. That is beneficial for us because we can use our knowledge and really win new profitable work with that. We can see that the demand, the requirement from clients are increasing all the time. So that is an area where we should be ahead of the competitors. But the ultimate target is creating long-term value for our shareholders, customers and society. And everything is empowered by our purpose and values. There is something that goes along the whole organization. We are a decentralized organization. That's a strength but we need to have common values and purpose, and that is really something I can see. We are living the truly living out there in the whole organization. I'll be going to just briefly now how we're doing in each -- in our different streams. I will start with Construction. We took some important strategic decision back in 2018 to restore the profitability. We were low -- we were not performing on a good enough level at that time. So we took a strategic decision. We have been disciplined. We have been selectively choosing projects. We have done our homework. We have to make sure we have the right team in place. So quarter-by-quarter, we have been able to restore the profitability, and you can see the operating income, the blue bars, rolling 12 on the left-hand side here. And also, you can see the green line is the rolling 12 operating margin percentage to the right. As you can see, we have been reaching the 3.5% target, the dotted line. And we have been on that level or above the last 3 years. And that is despite everything that's going on in the world around us in the industry. So the strategic shift we made in 2018 has really paid off. And we are determined to keep that discipline profit before volume to keep delivering good results in the stream. In the Project Development, now merged the Residential Development and Commercial Property Development. The dark blue here is the Residential Development and lighter blue is Commercial Property Development. So here, you can see how we build up that capital during the years. This goes back to 2014. You can see the green line here is the return on the capital employed. So -- and here, we have a target of 10% return on capital employed for the project development. And if you look at the 10 years average, we have been at 11%. So we have had really good years and we outperformed on a good level. And we also increased our focus on being more diversified, especially in the Commercial Development operation. So we are more into opportunities in logistics, multifamily, life science. I will come back to that later on. But of course, you see the green line, the return is down. We see that the transaction market doesn't really work right now. So we haven't been able to divest commercial buildings and we haven't been able to sell residential apartments in the same pace that we used to. And that's, of course, something we need to take action on, and we are doing that. We will come back to what we're doing. But it's focused on cost, it's focused on capital turnover, and that is something we will address today. When it comes to Investment Properties, we announced it 2 years ago. The first year in operation was 2022. We managed to transfer 3 high quality, very good location, office building in Sweden, 2 in Malmö, 1 in Stockholm. So at the Q3, now we had SEK 3.7 billion in the portfolio. After Q3 was closed, we added another building, Stockholm 4, just next to the previous one office building within Investment Properties. So now we're at SEK 4.5 billion. And the ambition is clear. We're aiming at building up a portfolio between SEK 12 billion to SEK 18 billion over time, over some years. We have the capacity to do it. We have the competence within our company to run such an operation, and we can see that we get the benefit. We will create stable cash flow over time, and we will also gain more value out of it since we are developing an area like in Stockholm now but also in Malmö, we can gain value over time as we develop a whole area. So there's many, many opportunities to create more shareholder value from this stream. Critical, of course, to maintain a financially strong position. This is one thing we measure we have an adjusted net debt or net cash position over time. We can see it here on the slide. This is going 5 years back, the development. You also see the dotted line, which is our limit of minus SEK 10 billion in adjusted net debt. We're not close to that, which is good in such a market situation. We are determined to keep a financially strong position. And now -- especially, now when the transaction market doesn't really work, it's even more important to safeguard this. And we will go into this, what we're doing here and what our focus areas are. But again, we are determined to keep the strong position. If I look at the other areas where we measure targets, we have a target for carbon emission to reduce that with 70% until 2030 in our own operation, and this is a visualization of that. We can see how it go down. We have a baseline year of 2015. And so far, we have been able to reduce it with 58% in our own operation. And we are good on our way to reach the midterm target. The ultimate target is 2045 when we should be net zero in the whole value chain, and that means Scope 1, 2 and 3. With that, I will bridge over to another important area, which is sustainability and digital transformation. Welcome up, Lena Hok and Stale Rod.

Starting off with the market perspective when it comes to sustainability and innovation. Important to note is that the built environment stands for approximately 40% of the energy-related carbon emission. That means that there is a tremendous focus on our industry when it comes to being part of reducing carbon. Equally, it's also an industry that is part of the solutions needed when it comes to the climate transformation. Looking into the IPCC report from the UN, several of the key solutions that are needed in order to handle the climate transformations are within infrastructure and buildings. And you can see some of them up here. They need to transform a shift from fossil energy is also a need to turn towards electrification and investments in clean energy and energy efficiency is there's -- therefore, put on the table. Equally, a shift towards increasingly more public transportation or low carbon transportation infrastructure. For Skanska, it stands for about 30% of our revenue last year. From a city perspective, a lot of the carbon emission stems from the buildings, so how to operate the buildings? The energy needed to operate buildings when it comes to air, water and of course, heating and cooling the buildings. Therefore, there's also a need to retrofit and refurbish and have an increased energy efficiency in buildings. Refurbishment of buildings was about 11% of Skanska's revenue last year. And equally, of course, decarbonization of materials. Some of the heavy emission materials are cement, concrete, steel, aluminum as well as asphalt. All of those needed to be increased resource efficiency as well as focus on how to shift towards circular solutions as well as renewables and low-carbon solutions. Unfortunately, there's also a need to safeguard the built environment and safeguard people's health and safety and societies when it comes to extreme weather events, which also means a search for resiliency or climate adaptation solutions. Foremost, I would say, floodings when it comes to the built environment. So in all of this, there are driving forces creating a market potential to do a shift within our industry. And of course, to acknowledge that once the sustainability performance is also valued, it needs to be standardized and defined how you are to follow up on that performance. And that's why there are mandatory sustainability disclosures being pushed forward in several markets in EU. It's both on environment, social and governance aspects, but heavily focused on climate and carbon. There's also a pull when it comes to mobilize capital for this transformation, and that's both when it comes to public spending but also on private. And I guess that some of you have considered the risks and opportunities when it comes to ESG for our industry and others. Equally, also a push when it comes to changing our building codes or customer needs and customer targets. For example, when it comes to energy efficiency of building, being both something that is cost efficiency, having an energy-efficient building but also push when it comes to building codes. In Europe and the EU, that is stated when it comes to regulatory or energy codes on energy efficiency of buildings. Also in the U.S., for example, in New York, you have the Local Law 97, as it is called, that is stating requirement of energy efficiency on existing buildings for those buildings that can't meet those requirements. There are also fines. So all of this having a push for transformation at the market, including then retrofitting resilience and customer needs. It is from this context and a backdrop when it comes to this market opportunity that you should look at the Skanska climate target and our climate plans for us going forward. And as Anders mentioned, heading towards net zero. For those of you that have been out on the high speed 2 project, you have heard about the net zero mindset, how to increase improvement and how to reduce the need for materials or energy with smarter solutions. So we have set fourth an interim target, both on Scope 1 and 2, that is the energy we use in our own operations. So electricity as well as the fuel. And of course, first and foremost, how can we drive for efficiency to reduce idling our machinery, smarter planning and logistics to reduce transportation, how can we shift to renewables or electrification of heavy machinery and transportation. That's a journey we have embarked upon. We have a good progress in that. Equally important is our Scope 3 emissions. So those are sternforemost from our Project Development when it comes to materials as well as the energy needed to operate the buildings during the lifespan that is 50 years. So for us to ensure that we are optimizing the design and the planning and procurement of the materials. Equally, if we are to design a building that is mostly energy-efficient or even producing its own energy, and by that being an energy plus building. That, of course, is also having a customer value by itself. When we are doing this, we are also acknowledging the need for new solutions and innovations. And that's why our innovation portfolio, about half of the themes are actually connected to sustainability. And some of those tools are, of course, the digital ones. Anders talked about the knowledge of Skanska and the possibility we have to transfer knowledge and expertise across markets. So taking one example when it comes to that. Some years ago, we acknowledged the need to have a data or digital tool when it comes to doing carbon reporting and follow-up of projects in the U.S. market. And we transferred the knowledge we had on that in our Swedish business, to our U.S. business. Together with partners, we developed a tool called the Embodied Carbon in Construction Calculator, EC3 and we made it open source for everyone to use at the market. It has become a tremendous success. Today, we have 168,000 environmental product declarations in the EC3 tool. That means that we and others and our partners can easily use it too when we are doing designing, procurement or following up on projects, and we can show our customers the carbon impact from our projects by that. And of course, for Skanska, we are gaining the knowledge also onwards because we are part of the Board of the EC3, meaning that Skanska together with some major tech companies are still engaging how to develop a follow-up on the data needed when it comes to do carbon reporting from projects. Adding on as well when it comes to using our different business streams, we have our construction -- our Project Development Business and our Investment Properties Business, where we can take more of a long-term view, understanding the usage and how you are managing the buildings. And by that, using the different sensors and building an ecosystem when it comes to the data and the monitoring and the usage of building. When it comes to the usage of room, the air quality, the energy, the water, all of that giving our customer a value, also giving us in our Construction stream of value to understand how to most efficiently operate and use a building in a way that accounts our customer to a great value. And moving on, when it comes to efficiency, Stale, you have some examples from Norway.

Yes. Thank you, Lena. And as Lena says, when the buildings now become a bit more advanced and more complex in terms of technology, we need to be able to control them and to steer them. So just to give you some examples of what we've done through our partnership in Simenergi we have created a software engine called Simien. And that software engine that allows property owners actually to fine-tune the performance of their own building portfolio in terms of energy efficiency and indoor climate, which is crucial going forward. So this is a fantastic tool that is available out there, used by both private and public clients of us. Then you heard Anders said, our Construction business is a big portion of what we do. And you will hear later on today that our civil construction is a significant part on that. And we work with how to improve the productivity, the cost efficiency and also reducing our CO2 emissions on the civil side. And one of the digital tools that we have developed there is a software solution through a company called Ditio that we are now using in several of our civil projects. You can say all the civil project in Norway, and now we're trying to scale that up to different markets. And the Ditio solution enables you to do efficient fleet management. In particular, in projects where you have a lot of mass haulage, you're moving dirt, you're moving rock through the project. So to have an efficient fleet management and a good logistics in the project, enabling you to reduce your idle time. You have a more -- a better mix of machines, and then you can reduce your fuel consumption. You have more efficient production. And by that, you also reduce your CO2 emission. So this is a fantastic tool that we're using, and we see great potential across the group, and you will hear later on today, civil construction in U.S., for example, a great market for us. So you can say that the construction industry and Skanska is really picking up in terms of digital technology and how we use that in our project. And these technologies that I explained, they are now being successfully used in projects and in region. For example, through drones and robots where we do image and video recognition, et cetera, et cetera. But to be able to scale up across diversified and also decentralized company like Skanska, we need to have a true digital ecosystem where data flows without any barrier across our group. So to make sure that we can create that is essential. Because we harvest and we generate a great amount of data in our business every day. And obviously, out of that, using generative AI and also a great language or a large language module to optimize our performance, our productivity, that's a huge potential for us. But going back in a way to the basis, making sure that you have an ecosystem where there's free flow of data. So you can use it through machines, through units, et cetera. We have worked for some years on the basis of a clear data strategy, where we have selected and prioritized what kind of technology we use, what kind of platforms we build everything on. We have also worked on standardizing certain processes across the group. So we're able to share data across units and as I say, across regions. And now it's about implementing all these great tools and digital processes that we have, ensuring that we can increase our productivity, we can increase our cost efficiency, and we can reduce our CO2 emission like this picture from an R&D project we had in Norway together with Volvo, Ditio and SINTEF, where the ambition was exactly that to reduce our CO2 emission, improve our productivity and our cost efficiency. So that was some words about the digital transformation. Now, we'll dig a bit deeper into our great company and give you a business stream update. So I'll welcome on stage, Anders again and Richard Kennedy.

All right. Business stream update. Myself and on stage, I have Richard Kennedy, heading up our U.S. operation -- Construction Operation. So we'll start with Construction. And Construction, this is addressed it in my introduction here. We have been in a strategic shifts in 2018, being more selective, being more careful on what project to go for, and to make sure that we go for a project where we can see a competitive advantage, that we have the right team in place and we have a profitable track record. So we call it our sweet spot. So we did that exercise a few years back -- look 10 years back. And so where have we performed and where have we not perform. So we have been very selective in that. And if you look at what we're doing, we are having external and internal contracts, of course. We are in the social infrastructure, and we are in the mass transit like rail, subways, airports and so on, infrastructure, regular infrastructure, highway, bridges, tunnels, we have commercial offices in our portfolio and also, of course, residential homes for people. And if we look at the portfolio, we have quite a balanced portfolio. We are diversified both when it comes to segments but we also diversified when it comes to through geographies. And 44% of the revenue -- this is also a 3-year average that you see here on the whole page, 44% in U.S., which is the strongest market right now in construction. We are in the civil and building operation, and we can see that the market outlook is strong, and we also growing that business. And when we go to Nordics, 40% of the revenue, mixed picture, both in the Nordics and Europe, more stable on the infrastructure, the civil market, more weaker outlook on the building sector, driven by weak residential and commercial office building. Interesting to see our backlog here in the right-hand side -- upper hand right-hand side corner, the nonresidential building is 51%, 44% is civil construction. And quite a small part is on the building residential construction and a very limited part 1% in the maintenance facility management. We have some of that here in the United Kingdom, successful business. And the revenue in the 3 years average rolling 12 SEK 147 billion. The vast majority of the employees here, close to 26,000 employees. And also, you can see the interesting information, I would say you get this later on as well. Here, you can see the split between public customers and private customers in each sectors, building, civil, residential and service sector. For example, civil, we have the vast majority of our public clients in that sector. But the strategy has yielding strong results. It's profit before volume. I think this is a good illustration of that. Here, you see the blue bars are the revenue and the green line is, again, the operating margin rolling 12 over time. You can also see that we prioritize profit before volume. So during the pandemic, we actually went down with the revenue and -- which was natural because we didn't chase volume at that time. We reduced the cost, kept the discipline and continue being selective and restore -- kept profitability on a really high level. So being selective and disciplined, that is key for success here. We also have a strong order backlog and we can see that the backlog today, we saw in the last quarter are on a historically high level. I can also see the dotted line that book-to-bill development over time, 107% last quarter. So we -- I'm confident with the backlog. It's a healthy backlog. We have been able to churn this backlog during the last 5 years to today. The project we have in our backlog today is project that we have won under the new bid regime. So with that, I hand over to Richard.

Thank you, Anders. Okay. Good afternoon, everyone. So Anders just talked to you about our backlog in construction. And as I stand here today in Q4 of 2023, I feel very enthusiastic about the results that we will deliver in the coming years out of that backlog. I'm also very enthusiastic about profitability that we've been able to deliver in the Construction stream, bouncing back from some of the lows and challenges that we had in 2017, 2018 and so forth. I mean, the green line has gone up. First and foremost, that has gone up on the back of the work of exceptional teams that we have out there on our projects. I hope some of you had the opportunity to meet some of those people when you visited HS2 today. In Skanska, any project you go to, we have fantastic people. We have some of the most talented people in the construction industry working on our projects. I'm proud to stand on this stage and represent them, and talk to you about the results that they deliver. It's our job as a management team and leadership of the company to make sure that we set up our project teams for success, and we do that through successful risk management, and here are some of the elements. Sorry, I thought that was already up there. So selective bidding. You've heard that a few times today. Selective bidding has been our monitor for several years now. Focusing on the right projects in the right locations with the right customers, the right contract types, the right margins. And these are the parameters that we look at it every single project that comes -- every single project opportunity that comes in the door at Skanska and if those parameters aren't there, we don't go. The same thing goes with the right team for every project. I just talked about our exceptional people, our exceptional teams. We need to make sure as a management team that we are bringing together the right competencies and experience, so that we can put the right teams out in the field and help them to deliver successfully. I'd say in the past few years, that's become a much more open discussion amongst us as a leadership level, working with our business units to make sure we have all the right people out there to set them up for success. Managing material price and availability risk and securing subcontractors and suppliers early. This is a complex business. We have to pull together labor, materials, subcontractors, designers, other consultants in order to meet our time and budget obligations to our customers. In the past couple of years, it's become very intense with increased inflation. We saw huge spikes in inflation in 2021. We saw supply chain availability of materials and so forth get really stretched out after COVID and with the war in Ukraine, in particular. As a leadership team, we pulled back as part of our risk management process, and we focused the company on inflation and supply chain availability in particular. Now our teams always look at these things. This is just part of our day-to-day business. When things get intense out there, it's good to step back, look at things more carefully, and that's what we've done in the past couple of years. I'm very happy to say that our teams have delivered exceptionally well through the past couple of years. We haven't seen any big hiccups in our business, either because of inflation or because of material unavailability. And it's a testament to our relationships with our customers, too, that we haven't had a lot of claims around that. We've had good dialogues with our customers, helping them to find solutions when, for example, a tile is not available or some piece of equipment they're looking for, help them find a different solution, bring them to the project, meet their needs. That's what we do every day. Something that's come into effect in the past couple of years, in the past 5 or 6 years, I'd say, that's good in our markets is early contractor involvement. Typically, in construction, we've been a bid-build contractor. If you go back in history, that's -- we get a set of plans and specifications from our customers. We bid against the competitive field. We provide a pricing schedule. We win on low price and we go. Our building business in the U.K., our building business in the U.S. is different. It's more of a construction management business, where we get in early with our customers. We work with them on scope, schedule and budget issues. We help them pull the project parameters together. We help set the table in the right way. It helps us to reduce our risk and set the whole team up for a more profitable project. We've seen more of that come into our markets in the past several years, including on the civil side of our business, and that's a good development. We hope that continues. So our conservative claims management and profit recognition. We're conservative by nature as a company and the way we keep our books and account for our projects. And Magnus is going to come up later and talk about that. That applies to conservative claims, how we look at claims with our customers and how we recognize profit. If I look at the -- when I stand back and look at the forecast for our projects in terms of their performance and their ultimate profitability, there is a bias to the upside because of the way we account for things. And finally, our internal project tender approval process. This is the foundation for all the projects that come into Skanska. I joined this company in 2004, and I've been working with lots of great people over the years to help us develop and evolve our approach to risk management. I think it's very, very good right now, and we're working to continuously improve it. We work with our business units down at the regional level, at the business unit level, at a management team level and also with our Board of Directors when they review projects, and this helps us all the system that we've developed to have the right conversations about the right projects, the right ways to deliver to our customers' needs. It's a very good process. And again, we're working to continuously improve that. Here's an example that we've introduced in the past few years, portfolio management and risk assessment. We have a large portfolio of projects across Skanska. We work in a diversified business, as Stale said, across a large geography. We're in Finland, we're in Sweden, we're in Norway, Czech Republic, Poland, the U.K., the U.S. We have different contract types. We have different customers, we have different local customs. Sometimes all these differences can obscure the risk in our projects. So we created this model, if you will, to help us step back as a team and profile our projects on a consistent basis. We rank our projects by risk. If you look at the bottom part of the scale here, you see variable price, and scope of responsibility. So if we have a small project in terms of its value, say, in the U.S., say, a $20 million project, and it's build only, that would be plotted on the lower part of this model. If we have a higher-priced projects, say $1 billion design build, lump sum bid project that would be all the way on the right side of the project. We have both of those types of products -- projects in our portfolio and everything in between. Again, this is just a model. It's part of our risk management process. It helps us as a team to step back, see the portfolio for what it is and make sure that we're working with our teams to get into the right projects in the right way. I think it's been a very good development for us. So what is the commercial direction in construction? Selective bidding, you've heard that a few times now prioritizing stable and strong profits before volume. This has been our mantra for the past several years. This is what has moved the construction profitability up, have you seen above our targets for the past couple of years. This is our North Star, and we're going to continue following it because it works. Profitable growth in markets that support this. Anders talked to you about some of the market dynamics that we have in construction. We're weaker in some of the building segments. We have some tremendous opportunities in infrastructure, [indiscernible] is in front of me. We've secured some really great projects recently in our Norwegian business unit in the infrastructure market. Same thing goes for the U.S. market. We're going to talk to you about that later in the day, building and civil infrastructure very robust market opportunities for us. We're set up to go win those opportunities the right way, and we're going to do that. Since the opportunities in the transition to a sustainable built environment, Lena just talked to you about in length about sustainability drivers in our markets, that is real. We've been on that journey since I joined the company. Again, in 2004. We've been talking about green and sustainability for a long time before it was kind of a hip to talk about that. We were talking about that. Now I think the market is meeting the competency and experience that we have. We see that here in Europe. I see it coming to the U.S. We're very well set up to help our customers decarbonize, get better energy efficiency. It's all about being better being very steward of our environment and making more money for our customers. It's all coming together in a great way, and we are very well positioned to deliver that. Increasing strategic focus on digitalization and new technology to improve productivity. Stale just talked to you about that at some length. I think we're at the near beginning of our journey in that. We have a ton of data in this company. We're harnessing that. We're normalizing and harmonizing the platform across our construction stream. We're finding ways to create tools like EC3 and [indiscernible] other tools that we can use to help our teams be successful, get out there, meet our customers' needs, and it's all built on top of an innovative and collaborative culture that we have developed in Skanska over many years. I watched a video last night, I just happened upon it on our Intranet. Of about 45 people in the U.S. working together, talking about how are they going to deliver innovative solutions to our clients in different ways, sharing resources, sharing ideas and opportunities. It's such a good culture we have in Skanska again, built on top of exceptional teams with the right idea about how to serve our customers. Finally, staying close to our customers to sharpen our offering and solutions to meet the customer needs of tomorrow. Anders said earlier, we're nothing without our customers. That is true. We showed you a film earlier. I talked about the repeat business that we have with our customers. It's over 80% in this company. You don't get that. If you don't deliver, we deliver exceptionally well to our customers. We love to continue to work with them, stay close to them, understand what they need to deliver to the market, and that's what we're doing. So I feel very bullish about the commercial direction of our construction stream as we stand here today in 2023. With that, I think we will now turn it over to Stale to talk to you about residential development.

Very good. Thank you, Richard, and Anders. And I will say some words about our residential development. And just to clarify that first, we do residential development to 2 streams. The business-to-consumer stream that I will present, and then we also do residential development in the commercial development stream through multifamily. But we do residential development, where we develop and we build high-quality, energy-efficient and sustainable homes for our clients. And when we say develop, we go out there and we buy land, we take the land through the zoning process, then we design good homes. We build it, and we hand it over to our clients. And in this stream, it's mostly multifamily homes that are owner-occupied or owned by association. A big part of the volume in Sweden, for example, is sold to associations. So Anders mentioned, this is not the biggest part of our business, but it's an important part of our business and has been over many years, 10 years or approximately SEK 10 billion in revenue over the last 3 years as an average. We have today a booked value of approximately SEK 22 billion in this stream. And you can see here that revenue comes mainly from the Nordics, 83% comes from the Nordics and then the remaining part comes from Europe and majority of that is Central Europe with Poland and Czech, minority part here in U.K. through the concept of BoKlok. And when you look at the 83% in the Nordics, approximately half of it is in Sweden and the other part then is in Norway and in Finland. This has been a good business for Skanska over many years. As you can see from this graph, you see the revenue here with the blue bars and then you see this, I would say, light blue or grayish line, which is the underlying performance, the EBIT margin of this business, and it's been very good and stable for the last decade. Obviously, everyone is aware of the market situation now within property development, both on commercial and residential. And obviously, that is also affecting our profitability as of today. So you can see that we are being hit by the difficult market situation. Our profitability today being hit by the impairments we've done in the last period, but mainly due to the result of the low volume where we are being eaten by our own sales earning cost and our in a way, ability to adjust fast. So in this stream, it's very important that we're taking actions to adapt to the current market situation. And we are doing that across the streams where we are producing a residential development. We reduced our sales and earning cost now to adapt to a different market situation with lower volume that we think will actually last for a while. We do, however, do production start in selective locations with the right products. We are still selling a partner to customer groups. So we are focusing with the strong balance we have that we can actually start projects also in this challenging market. As always, project execution to make sure that we execute the projects in a good way that we complete and we get the handover to our clients so we can collect the cash back into the company, it's important. And it's also important that we manage the buildup of potential unsold completed unit. And we have a good churn of the unsold completed unit, so it's not growing old on our balance sheet. I will come back to that later on. We have this concept of BoKlok, low-cost homes, affordable homes, and that market has been hit significantly now. So these, say, this customer group that had could hardly afford homes in the start. They are really being hit by the high interest rate now. We have a turnaround ongoing in our BoKlok concept. We have decided to leave Finland and Norway. So we're focusing now on Sweden and on U.K. And we have a turnaround ongoing also in these markets to adjust to the market situation. Obviously, we are not selling that much now, but we have a good land bank, and we are focused on making sure that we deliver long-term value to our shareholders, to make sure that we get our land through the zoning process. So when the market picks up again, we have something to sell. We are projects ready for our customers. And then despite the fact that the Nordic market is being particularly hit by the market situation now with low sales, we're selling pretty good in Central Europe. In Poland, in particular, in Warsaw and Krakow, but also in Prague. So to utilize the momentum there and make sure that we get as much out of the good situation in Central Europe, that is something we're really focusing on. Next slide, you can see that we have had approximately 7,000 units in production over the last 3 years. Obviously, when the market situation is like it is now, it's about in a way being very selective in new starts, so you don't end up building a portfolio of unsold completed units on your balance sheet. And I would say that we have done that in a pretty good way. Obviously, it takes time to do this. But you can see here from the graph that actually our units in production goes dramatically down. And that gives the effect on -- also the unsold in production, unsold units in production. You can see that staple curve go [indiscernible] unsold units in production, slightly growth in the unsold completed project. But as I say, we are focusing very much on making sure that these units are not getting old on our balance sheet. So this was the situation as of Q3, where we had just below 400 units unsold completed units, whereas approximately half of this is BoKlok concept. And only 44 of them are more than a year old. Majority of them are less than 6 months old, showing that we're handling the situation very well, making sure that the unsold completed units are not getting old on our balance sheet. So to sum up, the commercial direction on residential development. Obviously, focusing on sales, sales, sales, making sure that these units are not growing old on our balance sheet that we have products to our clients. We're doing what we can to reduce our sales and earning cost across the different streams, adjusting to a lower volume that we think will last for a while. We do, however, do project start in selected location, and as I just say, Central Europe is a good market for us. So we are looking for how we can utilize the potential in the markets where we have right locations, right products to our customer group. Always, it's important to look for cost synergies between the development arm we have and the construction arm. I think we're doing it pretty well. But as Anders and Richard say [ there's ] always the potential to improve our performance. And then we have some great concept. And 1 of the things that the learnings from the -- in a way, what happens in the energy market, where the energy prices goes up, is that our customer, they are a bit more interested in their own energy bill. So if you can provide them with good homes where they can reduce their energy bill, that is a concept that works on a private economy. And we have good concept for that. So today, we're building our powerhouse residential project in Norway, in Trondheim, in Norway. That is a project that when you move into Europe, [indiscernible], you will just have a portion of the energy cost that you have in [indiscernible] and foremost also Central Europe. So it is a great potential for us. So that was some words about our residential. Now we go into commercial. So I welcome on stage, Claes Larsson.

Thank you, Stale. And this is then what we do in commercial property development. We shape sustainable and smart places where people can work, live and connect. And we have a couple of different project concepts. Offices has been and will continue to be the core product in the stream, but we have also lately stepped up within residential rental, as Stale said, which is then rental homes called multifamily in the use that we then sell to investors. Then Life Science, very interesting market in the U.S. We have been in that sector before. Now we are planning to return and have secured an interesting pipeline for the future. And then we have also done some portion of industrial, mainly logistic facilities in Sweden through the years. Snapshot of this stream land. You know the format. So this is the revenue, averaged the last 3 years an allocation between the U.S., the Nordics and Central Europe, where we have this business. SEK 43 billion in book value end of Q3. And the market we experienced obviously quite challenging markets right now, but it's a mixed bag. So I will run through a bit to the overall messages here from us. The leasing market is very slow in the U.S. or slow. I would say it has picked up somewhat this year, suffering quite a bit from back to office. It's a very strong labor market in the U.S., but a lot of people still want to work from home, and companies are trying to get them back. So it has been now hovering around 50% back to office for quite some time, and this needs to shift before companies then can take decision on the future space needs. So a little hesitation in the market, the need quality space. We are in dialogues, but they don't know exactly how much space before the situation, the post-pandemic effects have settled down. More stable in the Nordics. We are signing leases on a regular basis in our Nordic markets. They are smaller than they used to be because we have, to some extent, the same issue here that you are hesitating about what kind of space do I need in the future. The strongest leasing market right now is actually in the core markets in Central Europe, and that is Warsaw, I would say also Prague and Budapest, where presence in a couple of other cities in that region, and we also have some weak markets, but definitely in the core markets, it's a much stronger leasing market, and we'll come back to that and show some numbers and graphs later. Investor market across the board, challenging. You all know that the interest rate hikes in all markets has made investors hesitate quite a bit. I would say, we don't engage in that many discussions right now in the U.S. We just have 1 completed project. We see more activity definitely in Europe, more dialogues and discussions, but hesitations and hard to meet the pricing expectations from sellers and buyers. So a bit hesitating markets definitely, but better, I would say, on this side of the [ Atlantic ] than in the U.S. And of course, if you don't divest that many projects, we have divested, you saw that in Budapest, we have done some smaller transactions in Sweden. But of course, the EBIT effect will be visible in this page. The good thing is that we still have the properties, so we can lease them up and get the net operating income from them, but this is then, of course, the effect of less transactions carried out. So what are we doing right now? We are focusing a lot of leasing the properties. We still have vacant premises in some of the properties, and then we lease them up and wait for the investor market to heal. And if you see here, this is a 10-year perspective on the leasing. We had the peak market or peak performance, I would say, 2018, more than 0.5 million square meters. And then we have gone down, obviously, for known effects, the pandemic and then terrible war in Ukraine has hit the market. But now we hope we have bottomed out and are sort of increasing the leasing on a a rolling 12. Point out here also, you can see the strong performance in Central Europe, which is a light blue here. So a lion part of the rolling 12 is actually done in the core markets in Central Europe. We're also leasing better in U.S. this year than last year, very low level 2022. We're going down in the Nordics, but that's not because the market is bad. This is because we have a very high leasing ratio in the Nordic portfolio. I will come back to that also later. But we feel good about the current leasing activity in Europe, definitely. And I think it's also a sign of strength that we're leasing more this year despite that we don't have started that many projects. We have not added a lot of vacant space to work with. This one, you following our quarterly reports now the format have done 1 change on this. I will go through that. But first, you see the completed projects, close to SEK 10 billion in book value right now. The good thing is that it's quite high leasing ratio to 76%, pretty solid number, given that we have had some weaker markets lately in leasing. We will add some more projects in Q4. They are even leads to a higher extent, 86%. Then the change from what you have seen in the quarterly report is then the light blue parts here where we single out the completions of residential rental projects, and they are empty by design until we open the lease office, and we do that maybe a couple of months before completion. So the lighter blue parts that is 0% leased is not the concern. We haven't started to lease them yet. So the full focus here on this graph is obvious to lease up the dark blue space for the completions 2024 and of course, continue to raise the 76%. So we feel that we have a good bunch of projects here ready to divest when the investor market heads. And the [ SEK 10 billion ], if you take a more granular look at it, 21 completed assets. It's 10 in the Nordics, and it leased to 8%. So they don't have that much to lease. That's why you're dropping down here on a rolling 12. Central Europe as many projects leased to 66%. I would say, in general, we have a very high leasing ratio in the core markets. We have a couple of low-performing assets in regional cities with lower leasing ratio, otherwise, it's pretty solid. Some of the projects also in Central Europe. And just 1 project is completed in the U.S. with a high leasing ratio. Then a bit about -- started by talking about the concepts here, and we used to be a pure office developer. 10 years back, you can see the breakdown in ongoing projects, 95% offices. We had some Life Science at that point of time as well. Then we stepped up 5 years later, more rental residential became visible. That part is much bigger now in 2023. And then if you take a look at the future, which is the land bank, the stack bar to the right and what you can expect out of that over -- of course, this is over a longer period of years. But then we have a quite substantial opportunities within Life Science in the U.S. and still also rental residential, and then office is down to maybe a bit more than 50%, but that will still be our core project going forward product. Commercial development direction -- commercial direction forward here. A lot of focus on leasing right now since the investor market is what it is. We are actively out there, trying to work with divestments and we succeed some -- succeeded with some deals this year, and we will continue to work on the ones where we feel that we can get the good pricing for our assets, but it's a bit inert in the system, as I said. And we rather wait then to get the proper pricing and continue to lease up the assets, we can create the full value from them. And of course, capital efficiency is important. That's why we obviously work all the time also with the divestment work. And then develop future pipeline, we do that always. We have a land bank. Some of it is not even zoned, some is zone, but you need to change the zoning, some new building permits, et cetera. We try to get as many products as possible shovel ready, as we say, so we can kick start and when the market is back. And we still do selected project starts. If that prerequisites, the market is right and still strong, we have the financial muscles to start, but we are very, very selective right now. And then as I said, we aim to increase the diversification of asset types here to move into other sectors and also to expand in the already present sector residential rental. And then you've heard a lot about sustainability and innovation. And it's so important that we have a super strong customer-first mindset there and listen to the tenant and investors what do they want and shape our workplaces for the future and our homes for the future along the demands that the market currently require. With that, I move over to the last business stream here, which is investment properties. And here, the thing is to actively manage a high-quality property portfolio in Sweden. And why do we do this? I mean, obviously, it's a very stable cash flow for the group, constantly increasing here. We also believe there are strong opportunities to create further value over time. Anders was alluding to that in his opening remarks. The current portfolio, we have 3 assets under management, very high leasing ratio here. We added a fourth one, as you heard earlier, Stockholm 4 to the portfolio. And if we go in a bit more into what kind of products is it here. We have 2 of them in Malmo. Those of you who know Malmo, this is in the so-called University Peninsula area, which is in the city center of Malmo. We have 2 products [indiscernible], not that far away from each other, very high leasing ratio, as you can see, 195%, super strong sustainability credentials, definitely and also well-certified buildings. Then we added Stockholm 1 as well, and Stockholm 4 is an adjacent building. And if I talk a bit around what criteria do we have when we transfer them to investment properties. I mean they should be at least 8% leased. There should be at least 60% occupied. This should be office projects so obviously in Stockholm [ Gothenburg, Gamla ], We see an extra, I would say, plus if it's multi-tenant building because then we get a larger interface with a lot of tenants. And then as Anders was alluding to, if we have a big campus or multi-phased projects, we usually do the placemaking. We do the first project, might not be top value on that 1 if it's a single asset, and then we'll continue to work our way through a campus and when the campus is completed, then we have created much more value in the first phase. So by keeping assets close proximity to each other, belonging campus we think we can drive future value in the earlier phases. So those are the criteria. We take the decision late in the process, but it's time to divest. So even if we have more phases in Stockholm 01, a future decision to divest externally or to investment properties is taken when it's time to divest. Commercial direction. We have said a portfolio of SEK 12 billion to SEK 18 billion is a good size [indiscernible]. Then we will have a stable, good, efficient asset management in these 3 cities. You reach some sort of critical mass where it starts to become possible to drive synergies. Talk about future value generation by actively manage this portfolio of assets, we believe we can create in addition to the net operating income also for the value out of them. Also, of course, sustainability and innovation and focus. And here, going back a bit towards Stale and Lena talked about. Capturing data, this is a unique opportunity to actually own the data in the investment properties. We can capture data from customer survey energy efficiency, air quality, et cetera. And all that is then analyzed and fed back to our development business and to our construction business. So by actually capturing and analyzing the data, we call it the feedback loop, we can become a better developer and contract also offer best better products for our customers going forward. With that, Antonia.

Thank you, Claes, and thank you to all of those that have been on stage this far. We will now break for a short leg stretch, refill our coffee cups, and then we will be back here in 10 minutes to continue the presentations with group financials, targets and the Q&A session. For us here in the room, we can find coffee and refreshments at the back end of this room. Meet you back here in 10 minutes. [Break]

Welcome back. So we are now starting our second session here or the second section of the first session. And we will now go through our group financials. We will take a closer look at our operational targets and our ability to perform on them, picking them apart a little bit. And we'll also look at our financial position. taken together with capital allocations and capital commitments going forward. And to present this part, I welcome on stage our Group EVP and CFO, Magnus Persson.

Thank you, Antonia. I hope you can hear me all right up, you can. So I will take you through an update on starting with construction. We will look at profitability, but more than history, we look a bit at things that are important for us to know that you understand when you interpret our company and how we're going to perform forward. We're going to look at project development and property investments, obviously, balance sheet and liquidity. I think that this summarizes the slides I'm going to show you. We'll start with construction. We normally talk about the performance in construction in terms of EBIT. You all know this EBIT margin in nominal EBIT and so on. Internally, we spend a lot of time looking at SG&A and gross margin separately because in terms of S&A, as you can see, we have been working very hard with this to keep it flat, and it's a bit of a challenge sometimes in the construction business because it is a type of business that is cyclical. It moves up and down with various things, and you always have to be active in managing this. You can never sort of lean back. And as you can see here also, we've been quite successful. We've been keeping it very stable at just around 4% or a little bit above 4% historically, which we find is a reasonable and very sort of defendable level of overhead costs for a modern construction organization that has also ambitions to sort of continue to drive performance improvements. And of course, if our ambition is to keep SG&A stable, then the performance improvement needs to come from the gross margin then obviously. So this is sort of the indicator we use a lot to look at how are we moving in terms of project performance. And by and large, this is a reading of project performance. We also had some smaller businesses in industrials and so on, but a lot of this comes straight out of projects. And we have already with Anders and Richard today, you've seen similar graphs, and we have discussed why this has sort of happened and all the actions we have taken to manage this performance improvements over the last 5 years or so. But the important thing here is that we need to -- we keep SG&A very stable, and then we focus on driving increased productivity, increased efficiency out there in the operations. We do a lot of that. One thing that for us is extremely important and that I would like to cover in some detail with you is how we recognize revenue and our conservative take on profit recognition in the construction business. It lies very close to heart. And the way we do it on the visualization here, you have really 1 project that is bid on your left-hand side of the chart. And then on the right-hand side, this project is completed, that is 100% completed. So you can see the bid margin. It has a little bit of a circle. We bid this project, let's say, 8% or something like that, then every quarter throughout the life of the project, we assess what is the most likely final outcome of this project, okay? This is what we call the most likely margin. And that is represented in this example with the blue line. And as we move a project, you encounter unforeseen risks and you encounter risk you knew about and you deal with them in a good way. And you constantly reassess this. So most likely margin will move a bit up and down over time, of course. The important thing here is that this is not how we recognize revenue from the project. The revenue recognition is done more cautiously. And if you look at the orange line, it's just a reported margin, that is the margin we use when we value the project and when we recognize profits. And then there is a difference here in the beginning of the project, it's a fairly large difference between the most likely valuation of the project and the reported valuation. That difference is assessed based essentially on -- the risk assessment that we have for this project. If it is a very risky project, you will have a bigger differential, right? So the differential here is really to be seen as a risk reserve that we have in the project. Now of course, as we complete the project, we complete risk by risk. And finally, we have handed over a successful project to the client. If you pick 1 of these things, take the erection of a steel structure, for instance, something that can go wrong in worst case. So of course, we have assessed a risk reserve to the risks associated with this specific thing we need to do in the project. When we have successfully erected the steel structure, we can remove the risk reserve and then we increase the reported margin, and we get an increased profit takeout from the project. So this is a very good way to illustrate how we deal with the risks on the cost side and the project. But it's not only on the cost side. It's also on how we recognize -- how we recognize income from the clients. Because we are in a business where we signed an agreement with the client, and it is not particularly seldom that we encounter things that is starting to be debated, may be it is the client responsibility. Is it our responsibility, and no matter how precise you are on a contract, you can always end up in a bit of a gray zone. So for us, we never take revenue that is uncertain in any way into our books. This is like a key tenant we have internally, and we follow this very carefully. We only recognize revenue where the client has signed off on an amount that they will pay us. If there is any uncertainty on these receivables, we do not recognize them, we can still keep them in what we call the most likely outcome of the project we don't recognize them as profit. So as we move along with the construction operations, you have probably noticed over the last 2 years, you see a lot less write-downs. And this is because we are being conservative in the profit recognition of the project in addition to us sort of successfully improving what will be the win for and also the execution. But this is a big and important component I would like you to sort of understand how we recognize margins here. If we skip the example for a second and we look at reality then, on this visualization, you can see also the most likely margin still the blue line here. The yellow line or the orange line, that is the tender margin. And both of these margins is the average margin for the top 400 projects in Skanska, the 400 biggest construction projects, okay? So if we start with the most likely margin, then you can see that over the last 5 years, the most likely outcome of all the 400 largest projects we have ongoing has actually increased by close to 2%. Now you can also see that the bid margin has increased. So we have been quite successful with bidding for piece by piece, a little bit higher margin and how come. Well, we are working internally quite a lot with the risk/reward function, focusing a lot on what are the risks because this is very important in order to understand the profit take out in the beginning of the project and also to make sure that if we bid for a job and sign off on a bid margin, we need to know that we get paid for the risks we take. We just need to ensure that we don't accept risks that we don't get paid for. And we have been working a lot with this. It's part cultural. It's part sort of operation and how we steer things, but it's not likely cost-plus thinking. It is really what risks are we taking on and how much do we need to get paid for that and we're quite successful in that term. The other thing that I think is very interesting to see here that over time, if you back up 4 or 5 years, the most likely outcome of the project portfolio was actually below our bid margin. Today, it is above the bid margin. So we are now executing projects in a way that makes it possible for us to -- on the average for all of these large projects, have the most likely outcome of that, that is over and above what would be the project for, so which really shows an improved execution ability in the job done. So that was some of the margin development. And I want to look a bit on the backlog because this is as far as indications about the future you get in the construction operation. You have a certain backlog and if you understand the backlog, you understand the good part of the work that we are about to execute on. On the left-hand side, you have debt revenue. And debt revenue comes when we have a project that is assessed to be a loss maker, and project that we will lose money on. And according to accounting rules, if this happens, we need to recognize the full estimated loss for that project immediately in the isolated quarter when this project becomes a loss maker. So any further work on that project really means that the revenue we recognize will have 0% margin. So it dilutes the overall margin of the Construction business. Now if you look on the chart on the left here, you can see that in 2018, we had debt revenue in the tune of SEK 17 billion. That's 10% or 11% of the overall volume in the business. Now this volume is SEK 4 billion. Of course, the dilution effect that we have now in the construction margin is a lot less than what it was if you back up 5 years. If you look on your right-hand side of the chart there, you can also see the whole backlog split up into margin segments, you can say. And we have split the backlog into 4 different margin segments. One part is 0% or below, and it's the debt revenue. And then you have 0% to 5%. It's essentially not covering SG&A and some, and then you have 5% to 8.5% and above. And here, you can quite clearly see also that over these 5 years, when we talk about the quality of the order backlog, this is about the profit content on the backlog we are talking about. We are convinced that we have good jobs in our books at the moment. To [ backup ] 5 years again, we had around 43% of the backlog we thought would close out when all those jobs were finished at 8.5% or above. Today, that number is 60% and given the volumes in play here, we're talking many hundred billions of Swedish krona because these are a lot of jobs from start to end. This is a lot of money. So it's a good indication to why we say that we are comfortable with the quality of the order backlog that we have. If we look at revenue then, this is just a revenue development since 2018 up until today, fairly flat. I mean I think we had SEK 158 billion revenue in 2018, and now we have SEK 162 billion on a rolling 12-month basis. So not much has happened sort of on the top line. In that, we have foreign exchange effects. The Swedish krona hasn't been the strongest currency over the last years. And on top of that, we have inflation effects. So the currency effect on this is around SEK 16 billion. So if you take that out, revenue or volume-wise, you can say, has been decreasing a bit. Inflation effects have mainly been coming up over the last 2 years. Unfortunately, they are very, very hard to assess because we have the project type of business, but they are to be seen on top of that. If we look forward and at the end of the third quarter, we had around SEK 105 billion of work that was in our books already, and to be executed in 2024. So quite a lot of work actually 65% of the rolling 12-months revenue. And if we go back historically, we compare this to third quarter is another year is actually a good number. And so we sort of have a good outlook volume-wise for this volume. But of course, there's still work that needs to be won and work that needs to be won and produced in 2024. But this is the way it looks today. So where we stand today, no major difference from sort of the last 5 years in terms of how much work we have already secured for the next year. If we look at the ambitions we have and Anders and Richard have already been on this. We will continue to focus on the profit before volume. We don't have any plans to do anything else, but organic growth, and we are quite satisfied with the geographical footprint we have today. It fits very well with the ambitions we have from a strategic perspective in the home markets that we are operating in. Then I would like to shift over to project development for a few slides. And this is return on capital employed and project development. You have seen this slide before today, maybe not -- didn't look exactly like this, but project development, that's residential and commercial development taken together. And for that, we have a financial target saying that we should be up or above 10% return on capital employed. Historically, we have managed to do this. Over the last 10 years, we have been at or above, but mainly above it year by year, then you can note here 2022 and the last 4 quarters as well, not rolling 12-months, that we are falling below here. The main reason to this is volumes essentially, the property transaction market is slowing down or it is quite slow. And this impacts -- this return metric in 2 different ways. One is that we don't recognize as much profit as we would if we had a full churn on the divestments. The other part is that units or properties that we don't sell, they are still with us on the balance sheet. So it becomes a bit of a double whammy on a return target like this. You get the double effects here. And with the market being slow as it is today, there's very few transactions going on. This target will be out of reach for the foreseeable future until the property transaction market comes back again. We really need to get divestments going. So when the buyer and the seller find each other again price-wise, and we will start to see transactions going, then this can be in play again, but not up until done. Then I want to take a little bit of a dive into commercial property development. And what you're looking at here is the market values for the unsold land, ongoing properties and completed properties in commercial development. On the left-hand side, you have it in 2018. On the right-hand side, you have it the last quarter -- the third quarter. So in 2018, we had invested SEK 40 billion at completion for all the ongoing projects, including the land we had and the completed properties. And the assessed market value of those assets was SEK 49 billion. And on the right-hand side, you can see exactly the same thing, but the different time periods. So when we are completed with all the unsold properties we have ongoing now, if we add to that the land we have and we add the completed properties, the total investment will be SEK 49 billion, and we assess the market value of that to be SEK 55 billion. So how do we assess these market values. Well, for land and for completed properties and for ongoing properties, we do an internal assessment of the valuation every quarter. So they move all the time, depending on how the market shifts. For land and for completed properties, we also have third-party valuations every year. We don't have that for the ongoing properties. And I will come back to the reason why. But of course, it's a bit difficult to have a good external valuation on a property you're building, I will come back to that. You can also see here that the surplus values, which are -- or the expected gains, if you will, once we divest these assets, they are represented by the light blue or light gray color. They are becoming smaller. And the main reason to that is that yields are increasing on the market essentially. And we have today, it's a very low visibility on what is the value of these properties because there are so few comparable transactions on the market. And we can see that there is a spread between the asking price from seller and the acceptance price from the bidders. It's also hard to say how big the spread is. We made some very good deals. We sold the property in the third quarter to an excellent price. And we see these deals happening at prices that are really good, but the volume in the transaction market isn't really there today. If we move on to an example then, and this is an example project. So see this as 1 project. It has started on your left. That is when we decide to go ahead and make this investment. And on your right, this project is completed, and the chart shows how it could look in a market that is sort of not so good like the market is now. So if you look at the chart, you have the total investment for the project, So if you look at the chart, you have the total investment for the project. It is essentially all the money we need to invest in this project up until it is completed. And then you have the light gray part. That is the sort of gain we would recognize if we sold this project today on the market, okay? So the big swing factor in that assessment is the yield. The top green line, that represents the business case that we underwrite when we start this project. And you note that, that is lower than the light gray part here, right? So why do we underwrite so conservative business cases? Well, the reason to that is once we invest money in a property project, we need first to -- maybe there is permitting left to be done, et cetera, maybe we sell this project 2 to 4 years out in time, okay? So a lot can happen in 2 to 4 years. So we can't just take the current yield observations and apply that to future transaction. So we are being more cautious than that and say that there is a risk here, there is an uncertainty. So let's have a cautious business case. But at this level, we should probably be able to divest this property once it is completed. The difference then between the 2 green lines there, that is the surplus value that we communicate in our quarterly report that many of you read every quarter. So that is based on our assessed business case versus the expected cost to complete the project. That is what you can see in the chart in the quarterly report when you read that. If we then fast forward in time until this project is completed, you can see that 2 things are happening here. And this example, yields have increased, this is what has happened now. So the first thing that happens then is that the market value -- the surplus value or expected gains is falling, and it consumes the buffer we have over and above the reported surplus value, sort of communicated surplus values. This change, you cannot see. We can see it internally. But since we have a cautious business case, it's impossible to follow. So this is the main reason to why you haven't seen a lot of changes to the surplus values communicated by us for quite some time. In the third quarter now and also in the second quarter, we are making changes to surplus values, and that is because the yield increases are now to the extent that we are sort of eating up part of the reported surplus value as well represented then by the reduced surplus value. So we're coming down between the 2 green lines here. So this logic is important to understand if you're going to sort of be able to decipher our reporting and what this actually means in terms of being connected to changes on the market. I move on. This is the total property investments we have and investment commitments. In 2018, we had SEK 43 billion invested in residential development and in commercial development. It's the SEK 17 billion in residential and SEK 26 billion in commercial development. The SEK 19 billion on top, that is the net investment commitments we had at that point in time. And these are legally binding agreements we have with someone or the amount of money we need to invest to complete the ongoing development portfolio we have. So that was a SEK 19 billion in net investment commitment. If we move up until today, as you can see, we have delivered on the ambition we have had for a long time for the strategy to grow project development. We have grown project development a sale of SEK 22 billion over this period and another SEK 4 billion in investment properties. We have reduced the net investment commitments quite a lot. We are now at SEK 8 billion of that. So it's another SEK 8 billion to see through all the commitments we have with that. And in terms of the project development strategy, we have been aiming to grow this for quite some time. But given where the market is now and given the amount of uncertainty out into the future, the growth strategy is on hold now until we can get a better clarity out into the future. And in reality, it's also like this that we have a lot of properties to sell. We don't need to produce more properties to sell. So once the market comes back, once it opens up, we have a lot of profit-generating capabilities already now on our balance sheet that we would like to turn into profit and cash, obviously. In this also, I think it's important to point out that we will continue to build up investment properties, as you've seen already, according to the plan we have. Cash flow. This is 2 lines here. And the dark blue one is the cash flow from operations in Construction and the light gray one is the cash flow from operations in the project development businesses because these are the 2 big swing factors there. Stable cash flow from construction. The chief thing to keep an eye on in construction, of course, except for project performance, which I already covered is the net working capital. We have seen for, say, 4 to 6 quarters that the net working capital and construction has started to come down a bit. And there's nothing strange to that. I think it's a bit expected because money is now -- again, it starts to be tied to an interest rate. So money costs something also for our clients. And we have to work a little bit harder now to get these front-loaded payment plans that we have had or that builds up our net working capital position. So I would expect, if we look into 2024, because changes in this happens slowly. So once you are in a sort of in a trend, that changes very slowly. So probably in 2024, we will continue to see some reduction on net working capital in the construction portfolio. But nevertheless, it still remains a very solid cash flow that comes out of these operations. If we look at the light gray line, then cash flow in project development, it has a completely different dynamic to it. It's very volatile, and it depends on the balance between investments and divestments. So we have started portfolio. We have always a portfolio started development projects. Then we have investment commitments. We continuously invest to complete those projects but cash inflow comes from us being successful on the divestment market. And if the market is as low as it is today, of course, the cash flow from that angle shrinks quite a lot. And so that you can see also on this chart here with a fairly big negative cash flow in the last 12 months from here. And I haven't included investment properties here. But over time, as we build up that portfolio, this will be another sort of source of stable cash flow in addition to construction to run our project development portfolio on top of it. Net cash position, we had SEK 5 billion in net cash end of the quarter. We have a limit of minus SEK 10 billion in net debt. So that leaves SEK 15 billion in between there. And in relation to the investment commitments that we had at the end of the third quarter of SEK 8 billion, I think we'll look fairly good there. I'd also like to point out that net cash or net debt is not the whole story. We also need to make sure we have liquidity. So at the end of the third quarter, we had SEK 16 billion available cash and undrawn credit commitments. And since then, we have issued bonds for SEK 4.7 billion and also extended one of our revolving credit facilities a bit. So we are now -- everything else equal compared to the third quarter, we will be at roughly SEK 22 billion now of available liquidity. So very well stacked on the balance sheet and with liquidity for the future. If we look at the capital position, we have grown equity quite a lot. We had an equity position of SEK 58 billion at the end of the third quarter. And especially over the last 2 years due to the changes in the interest rate and also changes in the foreign exchange rate, actually close to SEK 10 billion of this equity buildup has been through OCI, essentially unrealized equity that builds up, which is represented by the light gray part share down. Then we can see return on equity, which is the orange line. and we have a target here of 18%, which is the dotted black line we were up above that in '19 and '20 and '21, but '22 and then the last 12 months, we are below that target. And the return on equity for us is impacted by a couple of things, 2 of them being quite structural. One is the introduction of investment properties that that's a lower return on equity from that business. So as we grow that part of the business, it will put pressure on return on equity. The other one is that we have essentially built up a very strong equity position. So it makes it more difficult, of course, to get the returns here. But also in this case, because it depends a lot on all business streams to reach this target. So as long as the property transaction market is as weak as it is now, we will not be able to reach the 18% here. But we have the solid capital base in place. And I think it's very important. And I know from talking to out in the operations, how much value our customers put on working with the company that they know will stand at the end of a long job. So they see this, they appreciate it, and it's a commercial strength for us to be able to have this balance sheet. With that, I hand over to you, Anders, to talk about targets.

Yes. And this is our target. We haven't changed them. We have had the same target for some time. And I think they are relevant. The construction margin of 3.5% is -- we are on that level we have been over the last 3 years, as you have seen. Project development, same here, 10 years average, 11%. Now we are not -- we are lower on that level compared to that level due to the fact that the transaction market does not work as it used to be. But to Magnus' point, we have really good assets in the right location to be able to divest when the market -- invest the market returns. Investment properties, return on capital employed of 6% buildup portfolio, relevant, ambitious target over time. And the return on equity, 18%, same here, we have been on that level or above, but due to the fact that return on project development is lowering this outcome. Adjusted net debt limit minus SEK 10 billion. We have plenty of headroom today, SEK 5 billion in net cash position. And we have a payout ratio unchanged, 40% to 70% dividend on the EPS. And we also have our sustainability target. We are well on our way to beat the first target, minus 70% of carbon emission reduction in our own operation until 2030. We also have a minus 50% carbon emission reduction in our project development. And there, we include the Scope 3 as well, the whole value chain. And that is somewhat volatile when we ended up in 2022, we were at minus 13%. But the ultimate target is, of course, net zero by 2045. And these targets also in line with the Paris agreement. And we are also -- they are also approved science-based and aiming at a 1.5-degree in the Paris agreement. So we are committed to reach our targets going forward. With that, I invite the whole GLT on stage and Antonia to open up the Q&A. Welcome on stage.

Yes. So we open up the Q&A session. And while the group leadership team are making themselves comfortable here on stage, I will turn to our online audience. [Operator Instructions] And we will start with a question here at the front.

I'm Arnaud Lehmann from Bank of America. If I could start with a couple of questions on construction and one question on commercial development. On construction, as you highlighted, selectivity quite a few times, this has been quite successful for you. In a more challenging environment, interest rates are higher, clients are a bit short on cash. How easy is it to maintain this selectivity when maybe your competitors might be a bit more desperate to get some projects going to keep people employed? Do you think you can maintain the discipline in this environment? And the second question is, you showed a chart showing that you expect margins to be above 8.5% or 60% of the backlog. Does that mean there could be upside to your 3.5% operating margin for the Construction stream? And lastly, on commercial development. I mean, at the moment, very few transactions, obviously, that's impacting your cash inflows because you keep investing, but you're not getting inflows from the disposals. What's a balance between, let's say, trying to get some cash in-house from selling some properties while maintaining some good margins on the project? Essentially, at which point will you be ready to say, hey, we give up on the 20%, 30% development margin. We're ready to take 5% to 10% and reduce the price accordingly.

So we'll start with Anders, then Magnus you can continue.

Richard can chime in here on the U.S. perspective. I think we have a good order backlog. We are -- so I'm very confident in that. We have a high quality in the backlog. So we're not in a position where we need to chase volume or chase projects. So we can allow ourselves to continue to be selective which is really good in the market like this. So for the European -- I'll start with European, I see that we rather lowering the volume ambition in some markets while we excel on the more the civil market or the more -- higher better markets. And that's in Europe, that's mainly the Civil operation. We have won some really good projects in Norway now, and of course, the U.S. operation. So Richard, you can elaborate on that.

So to build on what Anders said, your question about interest rates affecting the opportunities that are coming to us. From a U.S. perspective, if I talk about the building side, for example, we've been surprised not to see that so far. The opportunities that come with us with our health care clients, educational clients, they continue to come. It's been very robust. We actually believe that if the Fed has topped out in interest rates and starts to lower interest rates, we actually might see a surge in opportunities from our client. So on the building side, it's been good. On the civil side, there's just a ton of public funding that's been pushed into the markets. Our state agencies are flushed with tax revenues, so things are good there. So to build on what Anders said, it's a robust market. Of course, if it goes down, we have to go down with it. That's the way we manage the business, we have to manage the SNA, Magnus covered that extensively. I stood on a stage in 2021 in the U.S. talked about the markets and our group strategy and say, look, markets go up and down. We have a great strategy as a group. We just need to ride through that whatever that means for us. And sometimes, that means reducing your SNA. Other times, it means building it up, building up before just to capture the market, but I think we've got a lot of discipline. And the lessons we've learned over the past several years tell us that we always need to be ahead of looking out and seeing what's coming at us and adapting the business to be -- to meet the needs of the future that we see. The results that we have in the past are in the past, so manage the business very carefully. That's what we're doing.

And then we had a question on commercial property development, Magnus.

Yes, I mean we are constant -- as Magnus said earlier, every quarter, we are reassessing the market value in our product portfolio and were adjusted downward a bit, as you saw on the slide. And that is our opinion about the current market. And if you can hit that level in the market, we do a deal. If not, I mean, then we sort of like to get back at a later stage with another potential buyer and strike that level. But of course, we would like to transact on our opinion of the current market level.

The issue is I mean there are buyers at the right price or there's just no market at the moment, I'm talking, I guess, in Europe?

We have several active discussions, but predominantly in Europe. So there are buyers out there. And so we don't feel that the market is at all dead or anything. There are buyers out there. And when we meet on price, as we did in Budapest, that was a deal on the level we expected and we did the deal. We've done also a couple of deals in Sweden earlier this year, actually presold before we even started construction. So there are buyers out there, and we are in discussions. But in the meantime, we'll continue to just add value to portfolio by leasing the remaining space and make the assets even more appealing to the investor market.

A question over there?

Simen Mortensen from DNB Markets. Magnus, you said the growth ambition in CD is a bit on hold because the market is liquid, but at the same time, you have a quite aggressive growth ambition in investment properties, which is yielding much less. Can you tell us about your rationale for going in investment property investments, which had a return on capital employed of 6% while growing down? And should we see these one matching up together? And also how are you thinking about the committed capital and sales and what we should expect going forward given your statement?

Yes. That's good questions. So the sort of different -- there's many difference between these 2 things obviously growing product development or growing IP. But one reason that we say we can't continue to drive growth strategy in product development, it's because we have a lot to sell already, right? We have a business. The business we are in is to sell properties and make money for shareholders. Now we have a lot to sell, but we need to see that there is a market that is balancing so we can have sort of a good visibility into pricing of new projects before we can continue to drive that on and grow it again. So we will be in a period and I think Claes highlighted this in a very good way, where we will focus a lot on divestments because we have a lot of very fine well leased, even if we have some leasings then to do of completed properties on the balance sheet. There's a lot of value in this, and we need to realize that. We have a market now that is a bit hesitating. And there is this bid/ask spread, if you will. And I think you have one part of the market that are being a bit trying to make stellar deals because there are no one else showing up. And then we, as a strong company, we need to have enough patients waiting out until there's sort of the market comes back to some extent before we can start to divest it. We don't have that issue in investment properties. Because in that part, there's no transaction market that stops that, the trick there is to get the right valuation, obviously. But in terms of the dynamics, we don't have the same dynamics there. So I think it's a good choice here to continue to build that up because what it will create is a solid -- additional solid cash flow into the group that we sort of want to have going forward in order to continue to have the project development operation on top of it. So it's a very strategic move to continue to do that whilst at the same time, need to wait a bit with further -- to push on further with growth in project development. That makes sense. The other part of your question, I'm not sure if I understood really.

Basically for us to understand your overall capital commitments, ID, RD, IP, where do you think this is going? Or should we think it's going? Because you have a lot of assets to sell, but at the same time want to grow, where you have the lowest returns and environment where interest rates are going up.

Yes. Okay. Good point. For investment properties, we don't have any capital commitments whatsoever because when we complete the project, that is in one of the designated cities we are in, 3 in Sweden, that has the right mix of tenants. Then we come to divestment situation. And then we make the decision whether to take it to investment properties or go and sell these property externally. We don't have any commitments there in that sense. All the investments in the properties that moves to investment properties is done in the commercial development team. So that's why we have the commitments there. And then in terms of the outlook for commitments, of course, today, with the balance sheet that is -- we still have a lot of ongoing projects that we need to complete. So we have this net commitment of SEK 8 billion. And we're being very careful, as I think was well explained by was to RD and Class and CD, we're starting new projects today because that's very difficult. We have too little transparency or visibility into future pricing. In some cases, we can do it because it's a super good project. We have experience from a nearby project or something like that, that makes it sort of makes us comfortable in our assessment. So because we're starting so little projects today on that basis, the net investment commitments will probably come down until we see a change in the market where we can sort of step on the gas a bit in investments again.

Final question for me is on the negative working capital, which you commented quite clearly, well, which direction it will take. How much of that is referring to interest rates being higher? And should we look at the percentage of revenues, for instance, the last time interest rates were as high as they are now. And I know your range is 13% to 15% normalized. Do you think that is still a rational level that we should expect to bottom out at?

This is the most difficult question I ever get. I don't have a level. I don't know how much of that is interest rates to be frank, and I don't want to make up a number. But it's clear to me that it is impacting over time. It's not like an immediate impact. But of course, if money becomes more expensive for someone, they will hold it harder and not want to -- it's not as easy to get the forward leaning payment plans then. So I think that's a big reason to why we see this slow period. And we can also see that when changes in working capital like that happens, when it has reduced or is coming up, it happens slowly. So I think we can expect that in 2024, we will probably continue to see EBITDA coming down. Then what that is, it depends on the volume development and construction to a large extent, obviously, so to say a nominal value.

Erik Granström with Carnegie. I have 3 questions, and I'll start with construction. Could you say something about what kind of competition you're seeing in Europe and the Nordics now that the market is turning away from residential and moving into much more nonresidential building and civil construction? Basically, everyone is scrambling to get into the 2 other areas that are now stronger markets.

Yes, I can comment on that. And we can see increased competition because a lot of residential construction company, they are no market for them in the near future. So they look into other sectors. Having said that, my experience, it's not easy to just put your organization into a completely new direction. So -- but we can see it and I expect it to be more fierce competition. But I'm confident in the situation we are in that we can be selective and go for projects where we can see that we have a competitive advantage and also that we have the right organization in place. So I think we are in a good position there. And also that I expect the clients, we can see more a 2-stage project right now, especially in Europe, but also in the U.S., but the client, they choose the competitors or the construction company not only on the price. They evaluate the ability to execute the project, the organization and so on. So -- and that we have a good experience that and a higher win rate, actually.

And then my next question is regarding your sustainability targets. You obviously focus on Scope 1 and 2 for quite obvious reasons. And the most companies tend to show an improvement. But Scope 3 is probably where the biggest impact is at and where I assume most of the efforts are being made. So just to try to explain to us how do you work to reduce Scope 3 emissions? And why is that so much more difficult than 1 and 2 since you are the one controlling your suppliers and subcontractors, meaning you can push them just as hard as you push yourself internally?

We focus on a very high degree of Scope 3 emissions. And that's one of the things that we have done, as I was talking about was the EC3 to making sure that in all of our U.S. markets are able also to track and follow up and also show the performance of Scope 3 towards our clients and towards at our suppliers and designers and others for all of them to join up on the Scope 3. We are also looking into how to pair project doing life cycle analysis, both on the materials on Scope 3 as well as on the energy on Scope 3. So to us Scope 3 is really important. One aspect is, of course, the reasonable sufficiency on materials. Another aspect is, of course, was the energy efficiency on the energy needed when it comes to operate the building during their life time. So we have quite a focus on Scope 3. And we do find it really important to keep on pushing that one. However, it is quite cyclical when it comes to Scope 3, that may make it more harder to show at an overall level, you have to understand as we have not divested as much in our CD business, you don't also see the release of the Scope 3 when it comes to, for example, on the energy needed for using the building during their life time.

Okay. And then my final question is regarding -- well, I guess it's part of financial targets as well as development operations. You mentioned that the 10-year average has been 11% versus a target of 10%. Those have been 10 years of good to, I would say, extremely good markets and also lower interest rate environment. Now you are above SEK 60 billion in terms of capital employed. And we could also argue that as shareholders, you should aim for even higher returns now that the alternatives are more interesting given that we have higher interest rates. So how long do you think we should be able to wait in order for you to sort of reach back to a 10% return on capital employment target for the development operations given that you're at more than SEK 60 billion in capital employed.

I can start and then Magnus can chime in. You're right. But we have been clear here that we have a lot of capital employed in completed projects, especially in the commercial development, SEK 10 billion. And if you look a few quarters ahead, we're going to egress that, main focus now is to divest and make sure they are ready to divest them. We're not in a position where we will continue to grow. Magnus was clear on that. Growth ambitions are put on hold. So we need to divest, and that's clear. And that's automatically on lowering that capital employed. So that's -- Magnus...

No, I think you have a very valid question, Erik. And of course, the thing is that we have this portfolio of ongoing projects. We don't want to stop that, we want to complete them because otherwise, we destroy a lot of value. And we have properties that are completed, they are fine, they're on our balance sheet. So in that sense, the option in order to get return on this is to sell them because we -- with a strategy, so to speak, or a take that we're going to be very careful starting new projects, but we're going to push for divestments. I mean the consequence of this is, of course, that the capital employed will be reduced. For how long that is, until you can see the return, I can't guide you on that, but we need a market that works, obviously, otherwise, we can't realize the values we have on the balance sheet. So that is absolutely important. Otherwise, we will not return to that. So the market needs to be working.

We have another question down here.

In the Q3 results, you have the commercial development, you have a completion profile. And in Q3, you pushed that back. It looked like more buildings were going to complete in late '24, '25. What is the rationale for that? Are you holding back completing buildings because of the weaker leasing market? Can you explain what's going on?

I'll take that question. It's a good observation, not everyone sees it. But it slipped 1 or 2 quarters. There's 2 reasons to it. One is that we had slippage in some projects. The other one is that we tightened up our sort of internal qualification on when the project is supposed to be sort of defined as completed. And then that had that consequence. There's no change in operations to it. It's just a reporting thing.

So that will be a one-off effect. It won't happen again.

Well projects can slip obviously, but the main part here is that we sort of sharpened up this definition and then you have this effect in the reporting. That's it.

Talking about market value, for the major projects, what kind of buffer, are there projects with zero market value? Are there projects, a whole bunch of projects with market value, 10% above the investment value? If you could give some sort of color.

I can start, and then Claes, maybe you can add. I mean there's a range, obviously. We have some projects and Claes highlighted a couple of places where we have projects that we call challenged that they are more -- that they are not performing as we would wish. And then the buffer is sort of gone and it's very slim. And we have other projects that stand up very well. So in between, there's a whole range here on that. So it's very difficult to say that it's in one way because it varies quite a lot. Maybe you want to add.

I think you nailed it. But I mean there's a lot of complexities in assessing the market value. And if you have a low leasing ratio in the market, very non-transparent pricing at present, and it's a big uncertainty. If it's a fully leased building in a market where we have good investor contacts, of course, it looks a bit better. So it's -- as you say, it's the full range. But we don't go in and comment single valuation, obviously.

Sorry, can I -- it's an important question. I mean it goes back to the sort of what market value to assess the properties against because we know the cost to complete them, right? It is difficult today to know exactly the value. We track the market as much as anyone else tries to try to sort of understand any signals and how is this moving at what rates are buyers closing? And we see the transactions we are sort of closing ourselves and all the discussions in that. So I think you have a big collective out there in the property market. All of them are searching for sort of answers to this question. So with that, we are still reporting or at least communicating surplus values in our portfolio. So on the average, we have a surplus value in the portfolio. But I mean that will move us with the market. And as soon as we get more intelligence on where the market is, these values will be adjusted obviously.

Just one last question for me. On the U.S. commercial, what yields are you assuming to get to those market values?

I don't think we should comment what yield we put in that's to comment on each single business case, but it's very uncertain right now. But as Magnus said, how would we do the business case when we start up for it. At that point of time, we had a healthy cushion on the cap rates or the yields in the U.S. And as things go along, you can say that, that has been done to a large extent consumed. And then we -- on top of the total investment on completion committed, we have done the assumed profit when we started the project, and that's where we are right now. Do the best we can in a nontransparent market to assume they're correct things, but we don't give any detailed numbers on it.

We have a question from Stefan.

Stefan from Danske. First question, 3 questions. I can take some more. First on Construction. You've done really well lifting the margins despite cost inflation on materials and subcontractors in the last few years. So I guess that's pushing risk up and down a little bit. Now we're seeing some contractors struggling a little bit, smaller players struggling a little bit. Just curious if you're at all concerned that, that could hit you in any way if you have bankruptcies or whatever down there on the supplier subcontractor side. I assume you would say no. So a follow-up on that is how do you make sure that you avoid that? And then on the Resi development side, maybe curious, just to understand, you're selling off the completed apartments, how big of a -- you have a spread of course, some apartments are sold without the discount, but looking at the biggest discount you've done so far, what kind of percentage would that have been? And then the third one on IP, I guess, with relatively good leasing pace, but very difficult investor activity. We could assume that you would actually ramp up the pace selling properties to IP. Is that the correct assumption? Or would you like to say something else about that.

I can start with the construction and also I can comment on the IP. We -- in Europe, it's different. In U.S., we are well protected through insurance program it is a subcontractor default insurance program. So there we are protected. The -- not so much in the European context, but here in Europe, we are very careful which subcontractor we select. So we have firm process in place to check we have our internal financial services to really control the subcontractor before they sign up. And we also are very careful not to pay upfront. So we make sure that we just pay for what has been executed on site. So my experience has been through some downturns and seen some subcontractors default. We are pretty good in handling that. So I'm not too concerned over that. But we will see some subs struggling. On the IP, I can say leasing is good, but we are not in a position where we try to transfer assets that are not so good. It should be a high quality and right location and in line with our statute. So we're not changing any direction in that, so it's planned. Resi, discount...

Yes. Well, I can comment in general. You can say that if we look at our overall portfolio, we don't give a lot of discount. But in a single project, right, in a single apartment sometimes you come in a range of 5% to 10%, and then you will have a say. But it doesn't necessarily have to be in the discount, but sometimes you equip them, right, to a certain level and then itself. So yes, project by project, apartment by apartment.

Just one additional comment on it. I mean it's just a small portion of the actually ongoing -- on the completed project portfolio that could meet the criteria. So this is not sort of a solution to divest projects. You need to fulfill all the criteria I mentioned in my presentation earlier, in order to even be possible to divest.

Now we have a question over here from Jefferies.

Graham Hunt from Jefferies. Just 2 questions from me. A lot seems to ride on bringing the buyers and sellers back together on your project development piece. What are the mechanisms that you're really expecting this to drive this in the midterm? I mean, what should we be looking out for? Is it just a case of rates coming back down? Or is there -- are there any drivers on your side or levers that you can pull on your side with the portfolio, maybe learnings from the IP business that can bring buyers up to your level. And then whilst we're in this period of sort of lack of transactions, how do you think about dividend policy and returns back to shareholders?

Maybe you can...

I'll just start on the first one. I mean one mechanism that is super crucial for us is to fully lease the buildings. I mean we have had discussions with investors. And if there is sort of still too much vacancies in the building is less interest. And then of course, you can guarantee that space, but to get them up to 100%, that is a mechanism where we have sort of -- you could say loaded it with a full value potential. And then it's more appealing for the buyer. And of course, the market needs to heat to some extent, but we are operating in the top quality segment. I mean there are buyers seeking only quality assets and that is the prime investor community we are targeting. But there's a lot of opportunistic actors out there, value-add and stuff like that. And in our core market with our prime products in the core markets where we go for the core investors. So I guess they need to come back to some extent also. But we can do our job for us to lease out the buildings.

Regarding the dividend, we don't give any forecast for the dividend. We had to close the year before we take a discussion in the Board, and that's Board decision, and we will come back on that in early February.

So that was -- as it seems all the questions you have today. And therefore, we're now concluding the Q&A session. So thank you for the questions. thank you to the group leadership team for answers, and then I will leave it to Anders for some final remarks.

All right. To conclude this afternoon, we are one of the world's largest construction and project development company. And we have a unique offering. We are operating in the whole value chain, which makes us more competitive, more reliable partner. And we're also trust fully actor because we're not only a construction company or a developer, we actually work -- we are a long-term real estate owner as well here in Sweden. So we also have a well-run construction operation. We have a strong and stable margin. We have no other ambition than to stay on a high level and provide profit from that. When it comes to product development, we have a high-quality asset portfolio. We have properties, they are flexible, they are sustainable. They are in the right location. We have been talking about this a lot now in this afternoon when the investment market, transaction market comes back, we are in a really good place. And we can -- we are in a really good place financially as well to wait for that. And synergies operational synergies, working on the whole value chain, we can learn from each other, learn from investment properties into our project development also in the construction unit. We can see that as a competitive advantage where we meet external clients because we can provide some of the experience, knowledge and really be -- have a competitive edge and the advantage there. So that's good. So we are definitely creating competitive advantages and customer value. And when we create value, then when we also can increase our margins going forward. We have some headwinds now in some of our markets, but the long-term trends in -- where we operate are clear. We see continuous growth in the urbanization, we see that the sustainable transition in the society really creates opportunities for us because we have the knowledge internally. So we can provide knowledge and experience and add value to the customers. because the demand requirement from clients that is increasing, and it will not stop. So that is a great opportunity. We have a diversified business which is also a good thing to have. We are diversified in segments, sectors and also in geographies. So when the market now is strong in the U.S. and more weaker or stable in Europe, that's a good thing to have. We can focus where we see the biggest opportunities for the company. And also, of course, commercial and residential are weaker in basically all markets, but we can see that the infrastructure, the civil market is stronger. And I can see a good opportunity also when it comes to digitalization and innovation going forward because that is something we can do something about. It's our internal efficiency, our productivity to create better opportunities and competitive advantage. Our financial strength really provides us with the power to stay true to our strategy and to follow through on our commercial direction. A strong financial position makes us more attractive as a business partner and contractor in the market. And that is required when we're bidding and executing large complex projects, we have the right teams in place, but we also need to have the financial stability, and we have that. We also own our own decisions in the project development. So we can decide ourselves when it's time to start a project or when it's time to buy, acquire land. All in all, we have a tested strategy and a clear commercial direction. We will continue to execute on these to create -- continue to create value for our shareholders, customers and society at large. Thank you for listening this afternoon. And with that, I hand over to Antonia.

So thank you very much for joining us here for our Capital Markets Day today. We are now concluding the broadcasted part of this day. So I want to say thank you to those of you that have been watching online. A recorded version of this will be available on our web page, no later than tomorrow morning. Thank you.