Skanska AB

STO:SKA B

Earnings Call Transcript 2021-Q1

[Andre Lofgren, Senior Vice President of Investor Relations]

Good morning, everyone. This is Andre Lofgren, Senior Vice President, Investor Relations of Skanska speaking. And welcome to the presentation of Skanska's 3-month report for 2021. The presentation will be held by CEO, Anders Danielsson; and also our CFO, Magnus Persson. After the presentation, you will be able to ask questions. And with that, I hand over to you, Andres.

[Anders Danielsson, President & CEO]

Thank you, Andre. And before we jump into the figures, I wanted to look at the picture here on the screen. It's our project Epic in Malmö, south of Sweden. It's our own development, project development, completed, fully let and very green and healthy building, so success.Let's go into the figures and the highlights here. We have a 3-month report, and we have had a very strong start of the year. All our operations deliver. We have -- can see that construction is steadily improving. We have a very strong performance on residential developments. Both volumes and profitability is strong. And a good quarter in commercial property development. We have very attractive levels of the divestment we have made in the quarter.Operating margin in construction improves to 2.5% in the single quarter compared to last year, 1.6%. And the return on capital employed in product development are above our target of 10% on a rolling 12 months basis. Return on equity, rolling 12, 24%, and continue -- we continue to have a very strong financial position. Coming back to that, of course.But let's go into each stream, starting with construction. The revenue decreased with 12% in local currencies. What we can see here is mainly driven by the COVID-19 impact for the last year here. And the decision, we also see decisions by clients to, they postponed the ramp-up of new projects. And also we see some remaining impact of the strategic action we have had for a couple of years now to focus the operations and be more selective in order to improve profitability.Order bookings, SEK 35 billion. We have a book-to-build on a rolling 12 months basis of 107%. So the order backlog is on a healthy level, SEK 193 billion. Operating income, SEK 722 million, corresponding to 2.5% margin, which is strong, very good performance there all over. So all business units improve the profitability if you look at the margin.And the strategic focus remains here in the construction. So we're going for project where we can see that we have a competitive advantage, we have the right team in place, and we have a good history and track record of similar projects in order to reduce the risk in the portfolio and improve the profitability going forward.And residential development. We have a very strong quarter. We improved or increased the number of sold homes. We also increased the number of started homes. We have an operating income of SEK 669 million, corresponding to operating margin of 14.8%, well above our target of 10%. And we also have a very strong return on the capital employed of 14.3% on a rolling 12 month basis. Very high activity. And profitability improving from already strong levels. And we have a solid land bank in our market to meet the demand. But we can see that the demand for larger apartments or larger homes has been a very strong trend during the pandemic since people are working from home and need more spaces.On the longer term, we believe on a stable market, more normalized market. And the concern is of course what will happen with the economy, what will happen with the unemployment rates. But the structural shortage of homes in our markets is still there. And we also have low interest rates. So we believe in a stable market going forward. Commercial property development, good quarter. A gain on sale of SEK 1.2 billion, and quite tough comparison though. If you recall, we divested Solna United, very strong profit last year in Q1. But we have made some very good divestments during the quarter. So a very high profitability percentage-wise in those projects. The investment market is still very strong.And return on capital employed, 9% rolling 12, slightly below our target of 10%. We have 33 ongoing projects corresponding to close to SEK 18 billion upon completion. And the occupancy rate and completion rates are well in line, I would say, 44% versus 48%. And we started 7 new projects during the first quarter. The challenge here is still the leasing activities, which has been slow during the pandemic and so was the first quarter as well. I expect that to continue during the pandemic. On the other hand, we can see strong, good dialogue with potential tenants. And so I strongly believe in this market. We can also see in -- especially in U.S., also in U.K., where the vaccination has come much further than in the rest of Europe. And that we can see that more and more companies prepare to get people back to work and get people back to the office, and the employees also want to get back.Divestments at very attractive levels during the first quarter. Uncertainty, as I said, in the leasing market, but a solid property investor appetite. They really want to go for quality building, environmental friendly, healthy building in a good location.If I go back to construction stream and look at the order situation. As I said, we have a book-to-build of 107%. You can see how that has developed over the years. You can also see the revenue, the light blue line here, on a rolling 12 months basis, going down, but as I said, mainly driven by COVID, but also some strategic action. And if I look at the order backlog, SEK 193 billion, I think that's a comfortable level, so that -- we're in a good position.And we can go into each market and look at the order bookings. The order bookings on a rolling 12 month basis, book-to-build quite strong in the Nordics, a bit lower than 100% in Sweden and U.S., but the book-to-build in the first quarter was really strong. So I think we have -- I'm confident with the level we have. We have 17 months of production, and that's historically on a healthy level. And the overall 107% good book-to-build is also on a good level.So with that, I leave it to Magnus to go through the figures more in detail.

[Magnus Persson, CFO & Executive VP]

Thank you, Anders. So we go to the next page with the construction income statement. What you can see is that revenue-wise we declined revenue with 18%, but volumes, as Anders pointed out, is down 12%. So a fairly significant FX effect there in the numbers. And we've had, of course especially January and February were slower months. We can see at the end of the quarter that the activity is picking up a bit there. So that's positive.The biggest decline in revenue in the quarter to the comparison quarter we could see in the U.S., and as we have said before, it's mainly projects that have been slipping in time. So it's -- the game here, so to speak, is to get the ramp-up of the projects that we have in our backlog to get them into production. We have a very good backlog as already said there. The backlog have in fact been growing in all our markets, if we compare it to year-end. So we think we have a good and sort of solid base to work from. But it's about getting the work into the ground.If we look at gross margin, you can see it comes up to 7.2%. That's a very good number for us. Comparison quarter. It's a full percent higher than the comparison quarter and also better than the full year of 2020. S&A, we continue to improve S&A, SEK 1.4 billion in the quarter, down from SEK 1.6 billion. On a percentage basis, S&A is a bit up than the minus 4.8%. Q1 is a low volume quarter. And of course, we have seen this revenue decline. So that drives up the S&A percent.And coming down then to a very good margin, operating margin for construction in Q1 of 2.5%. It's actually the strongest Q1 margin we have had for 10 years in the group. So it's a very solid result. It's a result of a few years of hard work with the portfolio. And we've also, as you know, reduced our exposure to Central European markets where we historically have had a more higher base of fixed costs that have been sort of hurting the profitability in the first quarter.If we move to the different geographies on the next slide, we can see that the margins are improving to the comparison quarters in all different geographies. Sweden had a good quarter, 2.3%, up from 2.0%. And we do notice here and can clearly see that the profitability in Sweden, the couple of issues that we've had there, they are stabilized. And we see the performance is gradually improving there. Also note, Europe, not negative in the first quarter. And the U.S. margin is also improving.We're still, of course, working to complete the couple of difficult projects we've had there and that we have been talking about for quite a few times, the old legacy jobs. But the portfolio that is newer and that we are -- have been taking in over the last, say, 3 years is really, really performing at a very good level.If we move on to residential development, we can see that revenues is -- they are up 30%, driven mainly by the Swedish residential business and note at least the sale of one rental property that we did in the Swedish business for SEK 700 million at the end of February as that was a very good addition here. Very strong margins in the first quarter. If you look at the gross margin of 18.6%, that is a very solid level, up a full 2% from the comparison quarter. And of course it is a good market throughout the first full quarter. And we've also been very successful in our project level risk management activities, been able to deal with the production and market risks in a very good way. That contributes to the profitability.S&A over revenue was down, as you can see, 3.7%, very low number, of course driven down by the high revenue here. If you look at the nominal levels, we have roughly the same cost base, you can say, on the overhead in the organization, as we did in the comparison quarter.If we look at the different geographies, also here all different geographies show strong margins. Nordics with 14.2%; Sweden, 15.3%. And then, our European residential business, close to 21% margin. And this is what I alluded to before. We have been very successful in dealing with both market and operational risks in a number of projects. And during the quarter, we have closed out a few of those projects in our Central European residential development business. And when you do that in a portfolio that is not so big, this has a very positive impact on the margin. But it is not a one-off, nor is it a nonoperational item. This is true profitability of the project, but it is at sometimes a bit lumpy when it comes out in the P&L.If we move to the next slide, you can see homes that are -- have been started and have been sold during the quarter. We increased both the number of homes started and the number of homes sold. Very strong sales, as you can see, with 1,362 units sold, of which 220 then pertains to the rental project in the Swedish business area. So even if we were to exclude from that and only look at co-ops, we are still increasing the sales at a very good pace here. We're also happy to be able to deliver a higher number of homes started with the high sales pace that we have. It is important that we can start and ramp up new projects to backfill the portfolio here. And we do have a good investment base in residential development at the moment. It is roughly at the same pace as in the comparable quarter.If you go to the next slide, you can see the number of homes we have in production. At the end of Q1 we had 7,100 units that we had in production. We had a sales rate of 77%, which is at a very high level. You can say from a commercial perspective it's almost too high, 60% to 70% is sort of a better level. You don't want to run out of units to sell to the consumers, of course, to our customers here. So it is important that we can start and we are starting more projects to backfill the portfolio. Unsold completed homes, 186, still at a very low and comfortable level. We have a good churn in the unsold completed. There are no concentrations to any specific submarkets or projects in this. So it's not any concern to us.If we go to commercial property development then, we sold during the quarter 4 projects. And the biggest one was an office building in Copenhagen, which we sold for SEK 1.3 billion, with a very, very healthy profit. Total gain on sale, SEK 1.2 billion in the quarter, representing a development margin of 50%, which is the same level as we had in Q1 last year. And as Anders already pointed out, it's a very, very tough comparison quarter here, of course, where we divested the Solna United property last year in the first quarter. But as you know, every quarter starts from 0. So this is a very good commercial development quarter.If you go to the next slide then, we show you here the unrealized gains that we have in our portfolio and how that tracks with our realization of gains over the P&L. And the end of quarter we had SEK 6.3 billion in estimated unrealized gains that we have in the portfolio. SEK 3.7 billion of those were related to the ongoing projects and SEK 2 billion to the completed projects we have. Essentially no change here since the fourth quarter despite the fact that we realized SEK 1.2 billion in value in Q1. So that gives you a fairly solid indication of the current pace we have in value creation in commercial development.If you go to the next slide, you can see our total portfolio of the ongoing and unsold projects in commercial development. And the bars here, they represent a total investment at completion for the projects. And the date represent the date when we estimate that the projects will be completed from a production perspective. And the greenish line represents the current leasing rate of those projects. So if we look at the overview here, we can say we have a solid leasing rate in the projects that completed in Q1 and Q2 this year. And then in Q3, we don't expect to complete anything, very little in Q4. And then we have a little bit more than in the first part and also the third quarter of 2022 with, say, the 2 projects that are to be completed Q1 '22, a very good leasing rate. And then Q2 next year it comes down a bit and so on. But it's very far out in time. So overall, I say we have a good profile here of the ongoing unsold projects right now.We've also started 7 projects during the quarter with a total investment value of SEK 3.1 billion. If you look at the far left of the chart, you can see the orange bar, that represents the projects that are completed and unsold with the leasing rate, an average leasing rate of 63%. And of course, many of these projects have a very good leasing rate. Then we have a couple of them that we are sort of struggling a little bit more with, which we have reported also before. Essentially a couple of projects that are underperforming from a leasing perspective. But generally speaking, the leasing has been very challenging, as you are very well aware of, over the last year or so. And we also have here, of course, as we have pointed out, the very strong ambition to continue to start new projects and backfill this portfolio with new starts.If we go to the next slide, you can see leasing. Obviously, a weak leasing year. And Q1 was not a strong quarter in terms of leasing either. We've been very successful, I'd say, in controlling our exposure to the situation though. We always aim to have a completion rate in the portfolio roughly in line with the leasing rate of the portfolio represented by the 2 lines in the chart. And as you can see, they do track each other very, very well. And despite the fact that Q1 was a slow leasing quarter, we do see an increased sort of activity in the market. There are more discussions going on with them. And overall say we feel that the market is moving in the right direction at least. So that's quite positive. I also want to comment on that it's still too early for us to say, to give you a firm indication on how we see the future office market -- how that will look. There's really no strong consensus among tenants or prospective tenants on changes in demand here. And of course we have a lot of these discussions ongoing. So we pick up signals very early, but we do not get the uniform picture on that.What we do expect, this slide to call it, in terms of property, properties that are well-located, have low costs for sort of maintaining and operating them, have a high sustainability standard and generally good installation and a good indoor environment. That is what we think is what will be in demand going into the future.If we go to next slide, we have the group income statement. Obviously the operating income from all different business. Central costs down somewhat from the comparable quarter, taking us down to an operating income then of SEK 2.3 billion. Net financials, no change since the comparable quarter. We have a tax rate of 17% in the quarter and a profit for the period of SEK 1.9 billion.If we go to the next slide, we see cash flow. The cash flow in the normal for Q1, I would say. And the numbers in this chart look sort of a bit high. It looks very positive. But that is the effect of booking the dividend in the first quarter after the decision from the general meeting. But booking it before the payout because the payout happened in the second quarter, which creates then a positive impact in net working capital in the central stream. So the cash flow needs to be read from that point of view. And of course, last year, we did not have this effect. So that's why the comparison to last quarter to the comparable quarter might be a bit -- yes, you need to take that into account.If we go to next slide, you can see the free working capital in the construction business then and remains at a very, very high level in terms of revenue. We had 19% of free working capital over revenue, which is a very high level. From a volume perspective, of course, as the volume has declined a bit in construction, we do have a negative cash flow contribution from working capital in the quarter of a little bit more than SEK 1 billion, but that's entirely volume-driven. And we still have a strong focus on capital management and the sort of payment terms in our construction operations, and we continue to deliver on this in a very successful way from our projects.If we move to the next slide, you can see our investments, divestments and the capital employed over time. It's quite clear here that we're still in this net divestment territory. If you look at the green line on the chart on top. But we do now start to see an increase in our invested capital again. If you look in the table at the bottom, you can see here that both for residential development and for commercial development. While we have seen capital employed go down a little bit, it's now starting to increase again very much in line with our intentions and as previously also announced there.If you move to the next slide, you can get an overview of the available funds in our central funding that we have in the group. Total in the quarter, we had SEK 23 billion available, of which SEK 6.5 billion were constituted by credit facilities that were not drawn upon. We had 2 credit commitments that matured during the first quarter. And as you can see in the bar chart here, we have one loan that matures this year. That is in the second quarter. And then we have nothing that matures up until 2023, giving a very solid funding position for the group.If you then go to the next slide, which is an overview of our total financial position. We had total assets, SEK 129 billion, an equity position of SEK 38.5 billion. And this is of course, the equity is shown here with the dividend that has already been separated from the equity, but the dividend had not been separated from the cash position at the end of the quarter. Equity to assets ratio of 30%. So very, very solid sheet overall. And this is an important enabler for many good and opportunistic deals for Skanska. So it's very important to keep the strong financial position going forward.With that, Anders, I hand over to you.

[Anders Danielsson, President & CEO]

Yes. I will address the market outlook now, starting with construction. We can see a continued weak demand in commercial office building in the construction. However, we can see improvement for other nonresidential building. And we can see that some private clients, their uncertainty has decreased. And we can also see improvement in the outlook for residential construction in all markets, which is encouraging. And we can -- and the nonresidential construction, especially improvements in the United Kingdom and USA and also in Sweden. And as I said, we can see clear trends, especially in U.S. and U.K., where the vaccination is going on a faster pace.And the ambitious infrastructure investment plans that we can see in all markets is very encouraging, of course, in the longer term. Having said that, we expect a more -- quite some lead time before it hits, the project hits the markets. In U.S., for example, we can see these federal programs with thousands of billions of dollars. So it's in the longer term very good for the market and for us. And we can -- but we still expect that in a more short term that the infrastructure investment will still be funded by the states, different states.Residential development, limited number of new developments overall in the market, but we can see also that the activities is increasing. And so we believe in a stable market, continuous stable market. And we can see one concern is, of course, what will happen with the economy, what will happen with the unemployment rate, that's in the downside. But in the positive side here is, of course, we can see low interest rate policies. And we also have, in all markets, an underlying shortage of homes, which will contribute to stronger market going forward.And on the commercial property development, investor market is solid. We have low interest rates, stable credit markets, where we can prove it with a very attractive divestment during this quarter as well. But as said, tenants are still hesitant and I expect that to continue during the pandemic. And to summarize this, before I open up for Q&A, strong performance across our operations, strong financial positions. We can see -- continue to see improvements in the construction market outlook, which is good. We can see also improvement in profitability. Going as planned, strong quarter there. And our long-term focus remains to grow the project development. We should be the leading residential developer in our markets, and we also want to grow the commercial property development operations in a responsible way in line with the market development.And we continue to focus on health and safety. Very first priority for us. And we also have a good development when it comes to carbon emissions. We -- last year, when we summarized it, we have reduced the carbon emission by 34% compared to our baseline in 2015.With that, I'll leave it to Andre to open up the Q&A.

[Andre Lofgren, Senior Vice President of Investor Relations]

Perfect. Thank you very much, Anders and Magnus. And as Andrew said, it's time for the Q&A. So please listen and follow the instructions from the operator. Thank you.

[Operator]

[Operator Instructions] Our first question comes from the line of Simen Mortensen from DNB Markets.

[Simen Mortensen, Analyst]

I have a few questions. I was thinking about starting off with actually one on each segment, especially when it comes to the margins in the construction this quarter, it is, as you said, very, very strong, but you also gave some comments that you haven't been able to start so many projects and has seen like some delays in the order book. From what I hear and understand from this sector before is that the maturity profile of projects could significantly impact the profitability you have in margins. And my question is, is those delays now impacting the margins now reporting in Q1 given the very strong margins we're now seeing here in construction?

[Anders Danielsson, President & CEO]

I can comment on that. Anders here. No, not really. It's impacting the order booking somewhat in markets. We can see COVID with the impact, especially in the U.S. and Europe. So the impact -- the order booking is impacting the revenue. But we have been able -- and the organization has worked really good with the cost control. So we have been able to reduce the cost in line with the revenue decrease. So the margin is holding up.

[Simen Mortensen, Analyst]

So as I think with the profile, it's actually through cost savings, and that's quite good actually. My other question goes to the residential development segment. And of course you had a huge sale here of SEK 720 million of rental apartments. How much are the margins in that deal impacting the figures we see this quarter? Because we see the margins in residential development is very high. And also, how is the pricing in the market going? Or what's driving these margins? Is it that transaction? Or is it the pricing of homes in homes for sale?

[Anders Danielsson, President & CEO]

The margin we see in the first quarter, that's basically due to that we are -- have been very successful in controlling the risk in ongoing projects and projects that we are completing now, have completed now in the first quarter. So we have been taking provisions earlier for market risk and so on, but it hasn't -- has not materialized. We get it to the bottom line instead. So that's very encouraging and a proof that we have the operations under control, the risk management works as we expect.And when it comes to pricing, of course we adjust the prices in all projects in line with what people are willing to pay for it. And so the -- we do very careful market analysis before we launch, have a commercial launch and start to sell projects. And we also try to have a step, phases. We divide the projects in different phases to be able to adjust the prices in line with the market development.

[Simen Mortensen, Analyst]

I also had a question on the commercial development. I've just dig into the footnotes, and into the footnotes you can see like how much of your revenues and EBIT is made from divestments. And especially when I look into the Nordics, it's almost SEK 1.7 billion, with a divestment profit of SEK 963 million. Which means that in the Nordics you have had EBIT margins on those divestments of almost 57%. Could you please tell us how you have achieved that and how representative that is? And what kind of projects is the Copenhagen project? Is it the Stockholm project? And what has actually made this 67% EBIT margin in the Nordic by business?

[Magnus Persson, CFO & Executive VP]

Simen, Magnus here. Yes, it's -- I mean, it's essentially a super good project. That's the basis of this. And I mean, projects that we started some time back. And then, with sort of recent year's development in terms of investor appetite for these projects fully let, as we've said many times, with exactly the right micro locations, good facilities in the projects and high up on -- in terms of sustainability and the facilities internally as well. Then investors want to pay a lot. And we make these super profits in certain projects then. So that is essentially what is behind it. There's nothing else there really.

[Simen Mortensen, Analyst]

Yes, but it was very good, congratulations. The other one is on the evaluation you said you had been -- you showed us the commercial property development and the completion pipeline of unsold projects, et cetera. Just in terms of the SEK 8 billion you have completed, and it seems to be the book value here, but how are you -- in the report you also give some market value estimates of those, which to my calculation here should be close to SEK 10 billion. How are you evaluating the market valuation based on your rental assumptions because you stated that you had had some delays and some issues with the rental apartment, the rental of commercial assets? And second, are those still in Houston?

[Magnus Persson, CFO & Executive VP]

Simen, this is Magnus here. Correct. I mean, it's the total investment that you can see in those bars, and that's essentially the book value for those projects because they are completed. And the market values that we show in the quarter report that you can then connect with the chart there, that is the market value when these properties are leased.

[Simen Mortensen, Analyst]

And the issues in the rental market, how much of that is Houston? And what do you see elsewhere also?

[Magnus Persson, CFO & Executive VP]

I'm sorry; could you repeat that?

[Simen Mortensen, Analyst]

You have -- some of these assets are in Houston, aren't they, in the Energy Corridor, you completed that?

[Magnus Persson, CFO & Executive VP]

Yes.

[Simen Mortensen, Analyst]

That's still the most difficult market, if I'm correct.

[Magnus Persson, CFO & Executive VP]

Yes, the Energy Corridor in Houston is one of these submarkets that is really challenging at the moment. It has been so for a while. That's correct.

[Operator]

Our next question comes from the line of Anastasia Solonitsyna from UBS.

[Anastasia Solonitsyna, Equity Research Analyst of Emerging Banks]

I've got a few questions. Just a follow-up on residential. So one of your peers reported results this week with operating margins below last year. And you have a very solid improvement this quarter on an already strong basis. And could you please maybe somehow break down what is due to the favorable mix, geography and what's due to reversal of provisions? And do you expect moderating margins from here? And basically, whether you see a return on equity on capital employed landing this year and development from here?

[Magnus Persson, CFO & Executive VP]

Anastasia, this is Magnus. I'll try to answer your questions in order. Remind me if I missed some of it. In terms of what our competitors are reporting, we're not going to comment on that, but our profitability improvement is very solid, and it comes from betterments in our underlying operations. There's very, very little, if anything, material at all in terms of sort of nonoperational items or release of risk reserves that comes straight out and impacts the result as such. So -- and as you can see also when we go through, that we'll have better months in all different geographies, both in the construction business and in the residential development business. And in the commercial development business, we had a very strong quarter even if the comparable quarter is better for obvious reasons here. So I think that was part 1 of your question. And then you had a question on capital employed. If you may repeat that.

[Anastasia Solonitsyna, Equity Research Analyst of Emerging Banks]

Yes. I just wonder how your returns -- outlook for returns on capital employed develops from here considering that you already are far ahead of your kind of targets? And do you see some moderation from this level? Or you think that we can even sustain higher returns for like near term?

[Magnus Persson, CFO & Executive VP]

Yes. So in terms of the return on capital employed, we don't sort of provide any forecast where we think that will go. We have a solid target of where we should be, which is above 10% ROCE for both residential and development business. Then as we have said on many occasions, we have the ambition to grow our project development operation. And of course, when you do that, the first thing you need to do is to invest in land, then you need to develop the land, you need to start the project. And all of this, of course, before you make the divestment. So we do expect that in terms of capital employed is that we can sort of continue to grow that business, and that would lead to an increase in capital employed.

[Anastasia Solonitsyna, Equity Research Analyst of Emerging Banks]

Okay. And my question is on commercial margins. So you've had very strong margins on divestments. And yes, you alluded to it but there are some high quality projects. And my question is, have you sort of sold the high-quality projects or is there -- you see still some like investor appetite and some good projects to sell during the next quarters or so? And do you see margins normalizing from this level? And are you turning back to historical, let's say, averages? Or you think that you can sustain like higher-margin performance compared to the previous periods?

[Anders Danielsson, President & CEO]

Anders here. Yes, we -- what I can say, we don't give any forecast for when we will divest or comment on the margins going forward. But we have our targets. I'm comfortable that we will be able to deliver in the future as well. And we also have a good pipeline. We have high-quality offices in different markets, both completed one, but we also have a good pipeline in the ongoing. And for the future, we have during the last year made some really good investments in building rights. One example, so we bought just before year-end building rights in the center of Back Bay of -- in Boston, really interesting area. There are very few competing projects in that area. So I'm confident that we will be able to contribute to the profitability in the future as well.

[Operator]

Our next question comes from the line of Stefan Andersson from SEB.

[Stefan E. Andersson, Analyst]

Two questions from me. And sorry if I missed if you already touched this. But first on the CD and the starts, your balance sheet is very, very strong. You have the ambition to increase your portfolio. It's been shrinking here for a while. So I'm a little bit curious on how forward-leaning you could be. And how are you willing to start without preleasing? Or should we monitor the market when it comes to the leasing side to understand how quickly you can ramp up that side of the business?

[Magnus Persson, CFO & Executive VP]

Stefan, this is Magnus here. That's almost impossible to give you a general answer to that because every property and every opportunity, project opportunity is unique. So we do make that assessment on a project-by-project basis. We have some submarkets that are really good today. Then we have some submarkets that are sort of weaker in terms of leasing. So those are things that we need to take into account when we make that assessment on a project-by-project basis. But of course, the slower leasing overall, that's not necessarily something that makes you accelerate the project start. But we do have the balance sheet for it, and we do have the risk appetite to sort of believe that we can handle a slightly weaker leasing market as we have as well. So our ambition to grow the investment in commercial development, that is definitely still here. And we have to recall also that we started 7 projects in the first quarter. So we're definitely not inactive in this. We do see quite a lot of opportunities, and we act on them. These 7 projects then contribute with around SEK 3 billion in total investment that we add to our portfolio.

[Stefan E. Andersson, Analyst]

Yes. And then also connected to that, on the land side, how do you see opportunities there price-wise, both residential and CD and the residential? I mean, residential I guess has eased given the demand. But on the commercial side, do you see great opportunities to find new plots here? You mentioned the one you did just before year-end, but how does the market look right now?

[Magnus Persson, CFO & Executive VP]

I think the market is not bad for that. Of course, land prices has gone up, has been a trend over quite a few years, which is why it is so important to have the stable financial situation that we have as a group with our balance sheet and the sort of strong funding that is secured to the group because that gives us the ability to really take opportunities that come -- that seldom come out on the market. And when they do, sort of we can be there and we can be a serious player and sellers can trust us that we have the capacity to fulfill the deals. So I think this situation here has created a few opportunities for us that we have acted on. And that's, of course, doesn't show in the P&L today. I'm very convinced it will show in the P&L out in the future.

[Stefan E. Andersson, Analyst]

Okay. Great. And then the second part of the question or the second question. Looking more to the Nordic market, I guess, but just trying to get some sense of your competitive situation. When we're looking at the bigger plays in the Nordics, Peab, NCC, you, Veidekke, YIT, I guess -- think we should include Serneke, I don't know, but I mean seeing that on the construction side that you all have been moving in the same direction in last 3 years saying that we should avoid big complicated projects, guard our margins, stay away. I guess we've seen some [ low-level ] announcements in Sweden where there's been some road projects where there weren't even tenders handed in. So my question is, and this is for Nordic primarily, has this dynamic changed the pricing in any way? Have you seen that pricing is becoming better in the tenders? And the second part of this question is, of course, has the international players instead taken that gap and therefore the situation has not improved?

[Anders Danielsson, President & CEO]

I would say that the competition is still fierce, especially on the civil side, when you -- where we see more international competition. That's -- but we also see a fierce competition on the building side. I think that has been for a while. It's quite many years. So that's nothing new. And if I talk about our strategy, we are not afraid of large complex projects. That's not it. But it has to be the right risk balance in the project, the risk balance between us as a contractor and the client. So we are -- and we are working with that, and we're prioritizing projects that -- where we can see the right risk balance. And so we're not afraid. That's our conclusion. And we're going for quite large project in the Nordic as well. So that's both in civil and building. And the key for success here is to prioritize projects where we can see that we have a competitive advantage. It could be that we have a strong team; we have a good track record in that type of project. That's #1 key for success. And then, that -- you of course have the right contract and the right client as well.

[Stefan E. Andersson, Analyst]

Okay. So my understanding of your answer is that no real change in price really, still competitive.

[Anders Danielsson, President & CEO]

Yes.

[Stefan E. Andersson, Analyst]

And then a follow-up, sorry, on that as well. But on the raw material side, the input side, are you -- and we see some movements here on the raw material side, as you know. Is that something that could have an impact? Or are you handling that in a good way?

[Anders Danielsson, President & CEO]

Yes. I think we're handling that in a good way. We have seen price increases on steel, timber, for example, and -- but we are mitigating that in the ongoing project, of course, that we secure the prices as early as possible in the project. And now we are also very careful when we bid for new ones that we secure the prices before we even bid for the projects. So I think we -- so far we have been able to mitigate that in a good way.

[Operator]

[Operator Instructions] And there are no further questions, so I'll hand back to the speakers.

[Andre Lofgren, Senior Vice President of Investor Relations]

All right. Great. Then we wrap it up. Thank you very much for your attention, and enjoy the rest of the day. Thank you.