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

Good morning, and welcome to the presentation of Skanska's fourth quarter and year-end report for 2023. I'm Antonia Junelind, Senior Vice President, Investor Relations here at Skanska. And on stage today, I have President and CEO, Anders Danielsson; and Group CFO, Magnus Persson. Shortly, they will take you through a business and financial and market update. And after their initial presentation, we will have time for questions. You can ask your questions either if you are here in the room with us by raising your hand or if you're watching, you can join the telephone conference. So with that short introduction, let's begin the presentation, Anders.

Thank you, Antonia, and good to see you all. Before we jump into the figures, I want you to look at this picture. It's the George Washington Bridge in New York. And it's one of the bridges that we have been on and off working for decades. And right now we are renovating the cables on this beautiful bridge. So let's go into the fourth quarter in 2023. If I start with Construction, it's a solid performance. We had operating margin of 4.4% in the quarter. So that is really strong. And the order backlog is also on a historical high level, close to SEK 230 billion. On the property asset values were impacted by weak market. And a few weeks back, we communicated impairment charges of the market values of SEK 2 billion in the isolated quarter. And therefore, the return in the project development is on the negative side due to that. And also the return on equity is down to 5.8%. But we have continued to have a robust financial position, a very strong financial position. And we also have a proposed dividend of SEK 5.5 per share to the AGM later this year. And we also managed to reduce the carbon emission further during the year. So right now we are at a 60% reduction compared to the baseline year of 2015. I will go into each and every stream now. Overall, I'll start with Construction. The revenue is pretty much flat, down in local currencies with 3%. We have order bookings on a healthy level. I would say, strong order bookings overall, SEK 44 billion, which gives us a order book-to-bill of 103%. So we are in a healthy place, SEK 230 billion, as I mentioned. And I think the order backlog right now is healthy, good quality in the order backlog. We have been able to continue to be selective and go for projects that we have a competitive advantage and also a solid profitable performance in the past. So that's a good place to be, of course. Operating income, SEK 1.8 billion, which is -- gives us an operating margin of 4.4% in the quarter. Solid performance continued in the Construction stream. We have a good order intake and the backlog remains high. And that's supported by a very strong market in the U.S., both when it comes to building or building operation and the civil market. The full year operating margin is 3.5%, which is in line with our target and that is also good. We have been on that level over time now for some years. And that is I'm really impressed by the organization and what they are doing and holding up the margin there. Residential Development, the revenue is increasing to SEK 1.9 billion. We also increased the number of homes sold, but it's still on a low level historically. And we started some projects also in the fourth quarter, a little bit less than we actually sold. Operating margin income is negative here, also impairment charges in the residential stream of SEK 500 million. There was also communicated a few weeks back, which gives us a return on capital employed, which is also negative. So it is -- even though it has increased somewhat in the quarter, we have lower than normal sales. And it will take some -- we expect it to take some time to the market to recover. And we're also working with the turnaround, the book [indiscernible]. We have taken a lot of action during the year. We have reduced costs where we've drawn for some geographies that were not sustainable in the long term. And we also reduced the number of employees in this operation. Central Europe is the exception here. Here, we can see strong sales and a good market. So that is very encouraging, also a market that we will expect to be -- continue to be stable. Commercial Property Development, we have a negative operating income due to the charges we took in the fourth quarter. We have a gain on sale of close to SEK 600 million. So the divestment we have made in the fourth quarter, they are on a good level. So that gives us a good future for -- that we are in the right place as we have a good, high-quality product to offer the market for the future as well. 23 ongoing projects, which gives us SEK 29 billion upon -- investment upon completion and we have started 3 projects in Q4. We are in a position where we can start projects where when we think, it's right, where we see we have the right product in the right location and we believe in the market going forward. That is a very good competitive advantage of course, to have that financial strength and we are determined to keep that position. We have completed 22 projects and those represent SEK 9.5 billion in total investment. Of those, we have a leasing ratio of 74%. 4 properties were divested to external and to internally to investment properties, very high-quality building. And as I said, the external divestment we have made, they are on a good level, one in U.S. and one in Sweden. And we have leased 63,000 square meters in the single quarter. And that is an increase compared to the same quarter the year before. And we also, as you know, announced the largest lease ever in value in January now in U.S. Seattle. So that is also a positive sign in this segment. And finally, investment properties, 2 properties were acquired in the fourth quarter. We have the Stockholm 04 in close to Hammarby Sjostad. And that also in conjunction with our previous project that we have transferred to investment properties, very good location. And also Heliateras in Malmo, very good location as well and a future development area. And results were really impacted by a reduction of fair market value here of SEK 200 million. That was also part of the announcement we made a few weeks back. And the occupancy rate in the portfolio are at 91%, which is on a high level. So it's very high-quality buildings, attractive for tenants. And it will create shareholder value for the future as well. So we're targeting high-quality sustainable office portfolio in the right location. And the target is to develop between SEK 12 billion to SEK 18 billion over some years. And we are on track and the strategy remains. I will jump back to Construction and look into order bookings. Here, you can see the order backlog over time, over some years. And you also can see the different lines; the yellow lines here is the book-to-build on a rolling 12-month basis [Technical difficulty] over time, flattening out now in the last quarters. And you also can see the order bookings per quarter, which is, of course, varies a bit from quarter-to-quarter. But you can see the long-term trend there on the order bookings on a rolling 12, the gray line, a little bit hard to see. But again, the order backlog, the blue bar here is on a record level. You can also see that in the history. And if I go into each geography, it's a bit of variation here. We have, overall, in the Nordic, 109%, mainly driven by a good civil market in Norway. So we have one very good order in the civil market. They are also performing on a very good level. We can see lower activity in Europe. I would say U.K. is quite one of the weaker markets we have and also Finland. Very strong market in the U.S., 110% book-to-bill over rolling 12; 21 month of production in the backlog. So we are benefiting from a strong market there. So overall, 103%, I'm confident in that, good quality. We have 18 months of production, which is on a healthy level, if you look in the history as well. With that, I'll hand over to Magnus.

Thank you, Anders. So let's have a bit of a deeper look in the P&L for the different business streams. We start with Construction. Revenues came in, in the fourth quarter, approximately 3% lower, both in local currencies and in Swedish krona than the same quarter last year, then a good level of project profitability. We had a gross margin of 8.8%. It's a bit down from last year, but it has its sort of explanation. So we're at 8.8%. This is a good level. Maintained S&A, also here well under control and with an operating margin of 4.4%. So this is -- it's a good quarter performance-wise, even if the comparable quarter looks higher. And as Anders already pointed out, if we take this, which we should always do and look over some longer time period, if we take a rolling 12 months measure, we are at 3.5%, which is what we have sort of guided for via our financial targets. So it's a solid performance from the Construction business here. No meaningful one-offs in this results either in the quarter. This is sort of our base business that continues to produce and is doing that in a really good way. If we look in the different geographies, we have the Nordics coming in at 4.5%, same thing with Sweden then. And the comparable quarter here, we had some positive claim settlement in the fourth quarter last year, which explains some of the lower result in lower margin in the Swedish operations compared to last year. But 4.5%, it's a good level, performing well. Europe, 1.2%; this is not what we would like to see. And essentially, we have 2 businesses folded in under the geographical segment that we call Europe here. One is the Central European operations that are performing really well. And then we have the U.K. operations. They've had a challenging quarter here. And the market is sort of weakening in the U.K. And this translates into a sort of lower margin in the quarter hitting the overall segment. And U.S. 5.5%, super strong, has been going at a very strong level for quite some time. Here, we also have a good amount of order intake. Margins are strong. Performance looks really good. So it's a good mix and a good situation for the U.S. part of the business. Residential Development looks slightly different. Obviously, the quarter here is marked significant by the asset impairments that we announced on the 10th of January then of SEK 470 million. So that is taken straight into the quarter, leading us to recognize a loss for the quarter at the operating level of SEK 502 million. And the main sort of a part of the impairments is to be found in land assets and in BoKlok. And if we sort of take out the impairments and say that these are land assets and we take out the BoKlok operation so to isolate the other part, we still make a decent level of project profitability on the units we sell, which to us is really important. And it also shows that the issue we have now is more of a volume thing. We have an organization, have had on the average for the year that is too big for the volumes that the market allow at the moment. And given that and as was also highlighted in the quarterly report, we have taken quite a lot of measures to address the size of the organization here. So we have sort of an adequate organizational costume for what the market allows currently and for the near-term future. So we're taking actions on that. If we look on the different geographies, obviously, all geographies are impacted by the impairments. The biggest part is in the Nordics, but also in Europe and a bit similar situation here actually as we had in the Construction side. The Central European Residential Development operations is actually performing really, really well. They have a good market. They're performing -- they're producing good profits, selling well and so on. You have a negative result here in the geographical segment for Europe in Residential Development. And all of that, you can say, quite a lot more than only this SEK 21 million is attributed then to impacts on the BoKlok U.K. operation. Homes started and sold. We had -- we're basically in balance, you can say, in the fourth quarter, started 340 units, sold 384 units. So sort of a fairly good balance. They're selling a little bit more than what we start. And if we look on a slightly longer term, the situation is the same. We started this year, 870 units, but sold approximately then 1,100 units. So we're starting less than what we're selling. It's a very natural sort of development when the market weakens a bit. If you look on the chart, you see a green line and the blue line representing the rolling 12 month measures of starts and sold. And you can see on a rolling 12 months level, we are now selling then more than what we've started. So this is us adjusting the portfolio, which we have been doing throughout the year to accommodate the new market circumstances. Homes in production, we had 4,300 units in production. And obviously, when you sort of start less than you sell and then you complete, this falls. And you can see the last few quarters this has been dropping off quite quickly then. The sales rate of 52%, obviously lower than what we would like it to be. And when unsold completed now at the end of the year of 550 units approximately. This is higher than what we would like. But it's certainly within what we consider to be acceptable limits as the market is moving because when the market slows down and we are completing units still in a faster pace than what we can sell. So we do expect this to come up some during the year. And an important thing is, of course, to be in control of what units are being completed like this, how old are they getting and to make sure to put in enough sales supporting sort of measures. So we don't have a problem there. And that's not where we are today. So we continue to have a big focus on this. And we think it's sort of development of this follows a very natural development cycle of the business when the market moves like it does today. If we go into commercial property development, same thing here, obviously, the impairments that we announced on January 10 of SEK 1.4 billion, completely marked the quarter result-wise. We recognized a loss of SEK 930 million in the isolated quarter then. Underlying that, we also sold, as Anders already said, 4 properties here, booking a gain of sale of SEK 600 million in the quarter there. And the main -- if you didn't read sort of the press release on Jan 10, I think it's good to point out that the main impact of the impairments are to be found in the U.S. part of the Commercial Development operation because that is where the divestment market and also the leasing market is the weakest at the moment. Unrealized and realized gains, we closed 2023 with an assessment that we have around SEK 4.5 billion in unrealized gains in the CD portfolio, down then from the third quarter with around SEK 1.6 billion. In this change of SEK 1.6 billion, there are some puts and takes because we started some projects. We sold off some other projects. But we also made a fairly large change in these values in the sort of quarterly valuation exercise that you saw that we released on January 10 then again. So in total here, we come down and we exited the fourth quarter with SEK 4.5 billion in expected unrealized gains. This is the completion profile of the portfolio. And just to remind you, we have, at the end of the quarter, 22 properties that are completed and unsold. We have invested SEK 9.5 billion in these properties. And further to the left of the chart, you can also see with the green dot that they are leased to 74% on the average. It's a good level of leasing in these properties and they are generating good income, but they are not sold yet. Then, if you track to the right, you can see all the properties that are not yet completed. And each quarter shows the amount of expected completion in terms of total investment by quarter here. So in the first quarter this year 2024, we expect to complete properties for an investment value of around SEK 2 billion and then slightly less than that in the second quarter and quite a lot in the third quarter this year. And we have -- in that we have a number of U.S. projects that are expected to be completed. And these projects are normally larger and which make this bar be quite high. So it's around SEK 11 billion of investment value that we expect to complete there. If you look at the leasing rates here, 48% for the properties that we think we will complete in Q1. Then, we have 70% for what we expect to complete in the second quarter, 18% for what we expect to complete in the third quarter. Now Anders already brought it up. And a few days back, we released or announced one of the largest -- actually the largest lease ever in Skanska's history in nominal terms, which is in one of these properties in the Northwestern part of the U.S., city called Seattle. That will bring this up substantially up to over 50%. So while leasing is slow, when you have sort of Class-A properties that are brand new with the highest level of amenities, customers are really interested in that. But it is a slow market. And we have to invest a lot more time today to find and sign the leases. And here, we're coming to leases then. You recognize this shot since before. We leased just above 60,000 square meters in the quarter. And we are now on a rolling 12-months basis around just shy of 200,000 square meters leased. So leasing is starting to turn up a little bit. And if we look on the different markets, very little has, in a sense, changed comparatively speaking, because the best leasing market today is the Central European one. Following that, the Nordics and the sort of slowest market remains to be the U.S. market. Investment properties, we made changes in the fair value assessment of these properties of SEK 165 million in the isolated quarter, obviously then impacting the result to minus SEK 129 million. The operating net remains at a good level of SEK 42 million in the isolated quarter. In Q4, we also transacted 2 new properties, one in the Stockholm area and one in Malmo, in the southern parts of Sweden from the Commercial Development business stream into investment properties to an approximate value of SEK 1.5 billion. Properties are well leased. And of course, with a 91% leasing, there's not a whole lot of square meter stuff for the market. But what we offer is, of course, of high interest there. So a good start still of this business stream. And we continue to build it up in the coming years. If we look on the group on a consolidated level, we just went through the business streams. And then we have what we call the central stream containing legacy operations and the headquarter organization. Normally, this is -- we record a cost here. This quarter, we recorded a fairly significant profit of SEK 607 million. The reason for that is that we late in Q4 divested our ownership share in the joint venture that owns LaGuardia Airport and booked from that a gain on divestment of close to SEK 800 million that is recorded in the central stream here. All the other items that you will find in the central stream is essentially at the same levels as before. So nothing you need to sort of bring with you to understand the development of the group here. Operating income, SEK 957 million, net financials, fairly uneventful in a sense, not a lot has happened there. Taxes SEK 110 million at 10% seems quite low. And the reason for that are sort of the mix effects over different tax jurisdictions with different nominal tax rates and how that mix is impacted when we have significant impairments in the U.S., which is a high tax environment for us. So then we have this effect there. There's nothing else that sort of structural nature that you need to recall and bring with you when you assess the company. So it's a one-off impact like that. Taking us down then to profit for the period at the bottom line of SEK 1 billion and SEK 2.48 per share. Cash flow, we had a very strong cash flow in the fourth quarter of SEK 4.8 billion, driven to a large extent by us net divesting in the properties and also a good cash inflow from net working capital, which is quite usual in the fourth quarter as many public clients sort of settled early in the fourth quarter. So there was a positive impact here. And you can see that the cash flow curve was with the blue bar furthest to the right, shows sort of a very good cash flow in the fourth quarter. And if we look at the working capital in Construction, here you can see the effect I was just talking to you about the dark blue bars represent the fourth quarter. And there are normally sort of a bit of an uptick from the previous 3 quarters as we have this effect there. On a slightly longer perspective, you can track our key KPI here, which is working capital over revenue marked by the green line in the chart. And you can see that it has sort of slowly been decreasing to some extent, following in a sense that the change in the external environment that money is starting to be associated with the cost. So even our clients, we need to negotiate a little bit more with them to achieve the front-loaded payment plans that we prefer. Investments and divestments, we had a good divestment quarter, as you can see in the chart. And capital employed in the property operations, both then investment properties and the product development part, totaled around SEK 60 billion at the end of the quarter. We had a very significant liquidity position at our disposal going out of 2023, close to SEK 28 billion, of which around SEK 10 billion then is connected to undrawn or unused credit facilities. So very well positioned in terms of liquidity. And of the central funding that we have taken up, around half of that is from the credit markets, half of it are in form of bank loans. You can see on the slide here also the maturity structure that we have over the drawn-down funds, which is a well-balanced maturity structure over the years to come here. So we feel very confident about our liquidity situation in that sense, which is very important. We are a big property developer, becoming a big property owner. And we have a bit weak-ish sort of divestment markets here. So this is important to us. And then if we look at the overall financial position, we closed the year with SEK 56 billion in equity, SEK 56.3 billion to be exact and a net cash position of SEK 9 billion and adjusted net cash then of SEK 10.4 billion. So we remained with a very solid financial position, taking us into 2024. It is something that gives comfort to clients that we discuss with. They know that we will be around. We will not be forced to make sort of rash decisions for any financial reason. And it also gives us the sort of the nice position to be and to own our own decisions then a given point in time. We can really make the decisions based on what is best for the company from a commercial point of view instead of having to cover for sort of a financial position. So a very good position to be in. I hand over to you, Anders.

Yes, sure. So I will go through the market outlook and start with Construction. And here, we can see a mixed picture. As I said earlier, it's a strong market in the U.S., both for civil and building. And we see a mixed picture in Europe. We have seen a weak market when it comes to building. And it's driven by low activity on residential construction and commercial construction in Europe. We see a strong market in Norway when it comes to civil. There is actually something that has strengthened this quarter. So that is encouraging. And we have been successful there as well. Otherwise, it's a stable infrastructure market in Sweden and Central Europe. Central Europe, we can see a lot of EU funds coming into the market supporting the infrastructure market there. And also in Sweden, we see that they are starting projects. Weaker market in the U.K. and Finland, definitely on the civil side. And the U.K. overall is, I would say, U.K. and Finland, the weakest market we have in Europe. Residential Development, unchanged outlook, weak market, we expect the market to be -- continue weak the next 12 months. We see some higher activities. More people are showing up on our sales activities. But it takes a bit a while before they take the decision. I would expect the interest rates needs to go down a bit before we can see the market takes off again. But the underlying need is there. So I think we are in the right geographies. And I also think we have a good product to offer the market when it returns. Same for commercial property development, we expect it to continue to be weak the coming 12 months. We see higher activity in the leasing. Still the investor market remains hesitant. But we can see that the profit on the divestment we have made is on a good level. So that I'm confident we are to Magnus' point, we have a healthy leasing ratio in the completed projects. So it still gives us an income over time. Investment Properties, a stable market, we have 91% leased in the portfolio we have today. And we are determined to continue to develop that. We think it's the right thing to do, high-quality, very attractive office building here in Sweden. And the rents, they are expected to remain stable. We have seen that the rents are actually stable even though the leasing market has been slow for a while. So to conclude the quarter, the strong performance in Construction, Residential Development, lower than normal sales, even though it picks up a little bit here in the fourth quarter. And Commercial Property Development, 4 properties divested in Sweden and in the U.S. Investment Properties, 2 high-quality properties were acquired during the quarter here. Property asset values impacted by weak markets with the impairment charges we took. And we have proposed a dividend of SEK 5.5 per share. And we're maintaining a strong financial position. With that, I leave it to Antonia to open up the Q&A.

Thank you. Okay. So now we will open up for your questions. And as I mentioned before, if you're watching us online, then you can join the telephone conference to ask your questions there. I would encourage you to use the HD audio link that provides better sound quality, both for yourself and us here on stage. And for those of you that are here with us in the room, you can just please raise your hand and we will start with questions from the room. So we will start over here, Stefan.

Stefan Andersson, Danske Bank. A couple of questions. First on Construction. The U.S. margin there, just to clarify, do you have any provisions that you released in the quarter? Or is that a clean quarter in the U.S.?

It is a clean quarter. So we have no one-off effect in the quarter. So it's a strong performance.

And then coming back to the comments you made about the U.K. and the weak margin there. Is there one-offs in there you indicated that it's a quarterly issue more than that this is a new level that you are struggling with and working with. Did I get -- was that the correct impression? Or is this the level you are at the moment and need to improve further?

No, this is not the level that we are satisfied with. But the market is getting weaker in the U.K., and of course, that affects how much profit you can sort of recognize from projects. And then as I think you know and many other who follows us, isolated quarter, it goes a bit up and down. And we have a couple of things that sort of coincide, you get a quarter that is not where you would like to have the margins. But this is not sort of the level we foresee the U.K. business to be at structurally speaking.

Good. On the residential side, revenues were a little bit higher than I thought. You saw a little bit more. But you also started some -- just to -- if you could indicate a little bit on the starts, did you have a relatively high level of presold there? Or was it more a speculation?

It's more -- we have started probably where we think it's the right location in markets where we have seen that we have a good sales rate in the ongoing portfolio and where we have projects that are close to completion. So that's quite low sales rate in the start of project.

Okay. Good. And my final question is probably difficult to answer, since you already adjust your values. But on the commercial side in the U.S., there is definitely some concerns in general. How pleased -- how pleased are you with your values there? Are you following the market, are you still concerned about the valuations you have on the portfolio there? And also on the CD side, could you indicate how much that is commercial versus what is resi? And you could also exclude public commercial or public offices, so to speak. So what is pure commercial over there?

Yes. I want to start on the first one, are we concerned about the valuations? No, obviously not. I mean we did -- we have then -- I think this is good question because it gives me the opportunity to talk a bit about it. We have made a tremendous effort during the fourth quarter to dig into the matter of property valuations. So I think everyone that is active in this sector is aware of, it's sort of the level of information that is available to anyone who tries to sign a value the property is very limited compared to what we have seen over the last 15 years. And there's a very high bid ask between buyers and sellers. So of course, there is uncertainty in valuations generally speaking, which makes it sort of a necessity for a company such as to really try to dig into all angles and try to find any supporting information on what we think it could transact for once you sell it. So we're very sort of pleased with where we are today because we think that really reflects the market where we are. But in terms of the sort of future development, I will say nothing because that's very hard to say. Somewhere down the line, hopefully sooner than later, buyers and sellers will start to meet again. And that will be the point in time when I think everyone will see who was right and who was wrong in that, but we are not fully there yet. And then you had a question about the difference between commercial and residential development in the U.S., was that correct?

[Indiscernible] commercial U.S. and portfolio.

Yes. Okay.

You don't have to invest in the land bank [indiscernible].

Yes. Yes. Well, I'd say we have probably maybe 2/3 is offices roughly.

Okay. Thank you. So with that, I will move over to the phone conference. And I will ask you to start by limiting yourself to 2 questions per person. And then if we have time for more questions, you can just hop on the queue again and we will get back to you. So operator, can you please introduce the first caller to us?

[Operator Instructions] The first question comes from the line of Graham Hunt with Jefferies.

I'll take the 2. First, I don't know, could you elaborate a little bit on the weakness that you're seeing in the U.K. construction market, specifically which end markets are you exposed to there that you're seeing incremental weakness in Q4? And then second question on the resi portfolio. Are you complete more or less with the restructuring actions you're taking in BoKlok in 2023? Or is there still more to go there to rightsize that business for the current level of activity in 2024?

Okay. Thank you, Graham. If I start with the U.K. market, we can see a slow activity. And we can also see that the government, they are not pushing out projects in the same pace that we have seen before. And we can also see that the private sector, the commercial developers in London, for example, where we have a large operation, they're also more hesitant to start new projects. So that's the reason why we have a low or weak market outlook for the coming 12 months there. And on the resi BoKlok, there has been major restructuring done in BoKlok. We have reduced the number of employees with close to 60% during the year. And we -- but we're not out of the woods. The market is still very tough for that segment, the low-cost segment. The clients in this segment, they are having difficulties to financing and buy apartment. So I expect this to continue to be a tough times for the BoKlok. And I cannot rule out any further action there.

The next question comes from the line of Arnaud Lehmann with Bank of America.

My first question is on the investment plan. If we look back on some of your slides in Commercial Development, you highlight that we'll have significant completions in the third quarter of 2024. And obviously, you've started much fewer new Commercial Development projects in the last months. Should we -- does that imply a much lower level of investment from the second half of '24 or into '25? Or are you planning to ramp up more new projects in CD, maybe you're trying to anticipate some recovery eventually? That's my first question. And my second question is on the decision to reduce the dividend to SEK 5.5. I mean, considering, as you highlighted your cash flow generation and the strength of your balance sheet, can you elaborate on the decision to reduce the dividend?

This is Magnus. I will take your first question and Anders will follow up about the dividend. In terms of starting Commercial Development, I mean if you look at the information we provide you with around the completion profile, one thing that stands out immediately is the large amount that we still have to sell. So we can only sort of start in a sense, if we know we sell. We can't start and continue to build up a balance of what is unsold. So with the divestment markets being so slow, we need to be very selective with projects that we start. And of course, that is a little bit of a mix of geographies and project performance and so on. We'd like to have good things to sell in the geographies that we really believe in. So in some cases, we start projects. We started some projects in Q4. But overall, given the size of the portfolio, we are now in a period where we start very little new projects. And we will sort of have to wait until we can see the divestment market coming back again before it's possible to really with some certainty pencil business cases for new starts. And we would really like to have a solid business case that we firmly believe in before we go and start a project.

I can comment on the dividend. We have -- this dividend proposal is representing 70% of the earnings, which is in the higher end of the ambition we have as a company to dividend between 40% to 70%. And I think it's a well-balanced proposal, considering where we are that we are have a profitable construction stream. We have a strong financial position. And we're also determined to keep the financial strong position for the future. That is a very good thing to have and gives us a competitive advantage. So in my view, well-balanced proposal.

[Operator Instructions] The next question comes from the line of Gregor Kuglitsch with UBS.

I wanted to get an update on the sort of cash in and out. I guess, particularly in CD, I think in the Capital Markets Day, there was some information. But now you've sort of crystallized some of the cash in, I think, particularly in commercial in quarter 4. So can you just remind us how much cash is to be collected on disposals you've already signed? And then equally, the investment commitments, which I think we can kind of see in the accounts, I think it's maybe SEK 12 billion, but correct me if I'm wrong, just on CD, so maybe a summary of that, please. And then secondly, on working capital, you sort of flagged a little bit more pressure, let's say, a challenge in terms of keeping the ratio up. I mean what's the latest thinking with that ratio on free working capital in Construction heads towards? Do you think that will continue to decline as a percentage of revenues in the coming years or quarters?

This is Magnus. I will try to answer your questions. So let's start with CD then. The Commercial Development business has always been different from the Residential Development business in the sense that if you back up a few years, at least, you could sell a residential unit basically 1 or 2 years before it was completed and in that sense, securing a future cash flow for the business, a cash inflow. In the Commercial Development business, this has really not been the operating mode or the business model. It happens in certain cases. But the absolute majority of the deals, you sort of make the dealer sign that you handed over and you collect within a very short time frame. So you have -- normally speaking, you have very little committed cash inflow in the Commercial Development business. Now where we are today, we have commitment -- committed inflow of SEK 800 million in 2024. And then, I think it's roughly SEK 5 billion or SEK 6 billion committed beyond 2024, so to speak. But apart from that, it's -- the divestments we need to find and we need to sign them. And then you're absolutely correct. We do sort of report total investment at completion for all the properties in our quarterly report. And we also report how much investments we have accrued to-date. And the differential between these 2 are obviously our sort of investment commitments in the ongoing properties then. So what you do not get clearly is the sort of profile over time on when these are supposed to happen. But you will get some indications from the completion profile on that. So these 2 are important pieces of information that we sort of give in the quarterly report to make sure that you can get the feeling for how we are looking at the cash in and outflow and what is committed and not. Then, if I move over to net working capital and the capital ratio. It's a very difficult thing to anticipate because the payment plans project by project over, say, 6,000 to 8,000 projects or something like that is what makes up the total net working capital position and hence, the net working capital ratio that you referred to. And these are then negotiated with the same amount of clients, so to speak. So while we have a very good overview of the current position and the decay of a current position because at the end of the day, there will not be working capital, it will be money that's coming in, it's very difficult to anticipate the future negotiations in this and we have seen this in many cases. But what is positive with it in a sense that despite the uncertainty of the development, any change in that will go very slow because the profile of the net working capital in the company in the construction part can only change with the sort of rotation of the construction portfolio. And you have thousands and thousands of projects, you don't make a churn of the whole portfolio within the course of a year. I mean it takes years to churn the portfolio and hence, the impact the net working capital. So therefore, we sort of always think conservatively about the net working capital development. But I don't think there's any reason to be sort of immediately alarmed about the development because any change will take time and it will go slow.

The next question is a follow-up from Graham Hunt with Jefferies.

Maybe 2 on Construction. I mean you've been printing margins at or above your target for some time now. I wondered if you could comment at all on your ability to maybe push profitability in that division higher, particularly see some of the regional markets improved and signing some potentially higher-margin contracts, so you find a data center project recently. Are those higher-margin profile contracts that you're signing? And then second question, I don't -- could you just comment on the state of the labor supply or specifically labor scarcity in Construction and whether what you're seeing there and if that's affecting your business at all?

Thank you, Graham. I'll start with the first question. The margin, I'm very satisfied that we have been able to keep the level of 3.5% or above the last few years. It has been quite some time before we were that [indiscernible]. So that is a good achievement. And I also think we have a good order backlog. The quality in the backlog today is good. It's on a much healthier level that we saw some years ago. We have a large part of the backlog as so-called dead revenue. We don't see that today in -- so I'm confident. And of course, in the market, they are good. For example, in the U.S., we see that we can push up the margin. So my ambition for the future is definitely not to be satisfied on a 3.5%. The target is 3.5% or above. And of course, we always struggle to -- and aiming to improve. So that's what I can say about that. The labor scarcity is not a big issue for us. We have been handling that in a very good way throughout the pandemic and throughout -- after the war broke out in Ukraine. So I think the organization has done a very good job there. I also think that we, as an employer, we are attractive. So that's also a good thing for us. And people want to work for Skanska. So we have not had any issue to get the right people in place. Plus, we are always very careful before we bid projects. We don't go for project if we don't see that we have the right team in place and the labor so that we can get enough labor to the project as well. So that is also a way we -- how to mitigate that.

The next question comes from the line of Nicolas Mora with Morgan Stanley.

Just a couple from me. First one on Construction and on the order intake. Throughout 2023, we've seen that you realized more and more on large projects. Does it mean that the smaller projects, most likely a bit more skewed to small resi and non-resi projects are then lacking and will pressure a little bit the revenues into '24 and first quarter of '25? That's the first question. And second, on -- and coming back on Graham's question on margins. When we look at the potential in the U.S. to further push up the margin and looking at '24, is it enough to offset the weakness we've seen in Q4 in the U.K., which we may have -- I mean, we might have to see this weakness into '24 as well, is there enough under basically under the hood to offset any potential weakness in especially, yes, in the U.K. from the U.S.?

Thank you for your questions. I will take the first one and Anders will follow up on the second one. In terms of the order mix, if I understand your question correctly, you're really asking that we're releasing a lot of big jobs today, so what about the underlying sort of small order development? We don't see a sort of material change in that. I think that's what we can say. It goes a bit up and down. We've had inflation and so on. So I guess, over the last 5 or 7 years, what was one size back then costs a lot more today also which impacts a bit how much you release and how big you consider these orders to be from a nominal perspective even if the physical work is the same. But there's no material change in that. What we do see a bit is that the bigger jobs have become bigger in certain markets, meaning that the order backlog we have can sort of provide us with work further out into the future. But it's not a major shift in any way. But I'd say in some places, especially in the civil part of the market, it's sort of moving slowly in that direction.

And the second part of your question, the margins, if weaker margin in the U.K. can be offset by the stronger margin in the U.S.? Yes, definitely. We can see that already today that we have a much higher profitability in the U.S. and I don't expect that to change over time. We have a strong market and a very good order backlog in the U.S. What we are doing, we are still prioritizing profit before volume. So in markets where we don't see that we can have a healthy profitability, we'd rather reduce the amount of operation. And we have done so during the year, last year. You can look at the number of employees has reduced to the year before, we are around 1,000 people. So that is due -- and that is action we have taken to mitigate the weak market in especially in parts of Europe. But I don't aiming for anything less than going for our overall target in Construction over time.

On the U.S. margin front, I know you don't report the split between infra and building anymore. But in terms of -- if we think about the verticals infra, let's say, kind of tech construction, data centers and commercial real estate, are there big differences in your ability to deliver the high margins we've seen, big discrepancies between the different verticals?

I'd say, as I say, we don't split up that in the report. But I can say that the performance are good, both in civil and building in the U.S. It's different business models, but if you look at the different performance, it's strong performance all over.

Ladies and gentlemen, that was the last question. I'll hand over to Skanska for any closing remarks.

Excellent. Thank you. So that means that we have now answered all of your questions and it's time to finish up here for today. So first of all, thank you, Anders and Magnus for your presentations. And then, thank you for your questions and the people joining us here in the room, thank you. We will be back with a presentation of our first quarter report in May, beginning of May. And a recorded version of this presentation will be available on our webpage shortly after this. Thank you and have a good day.