Good morning, everybody, and welcome to this report of the quarterly earnings and first half year for 2020 for the NCC Group. My name is Tomas Carlsson, and I also have our and I'm the CEO of NCC, and I also have our CFO, Susanne Lithander, with me here. I'm gonna give you the overview of the quarter and the half year, while Susanne will give you the finer details directly after me. But if you want to think about the first, second quarter and the first half year, this is the way to think about it. We have earnings improved 18% up for the operational earnings for the group, for the group. This is true for all business areas, except Industry, and I'll get back to Industry later on.
So earnings improved for the group and all, business areas, except Industry. Net sales on par with last year, completely within normal variations, and orders received on normal levels. In Sweden, actually strong. What's important to remember here is that we, when we compare to the second quarter last year, we had SEK 3.4 billion of orders received in Denmark. That's not something that we should expect every quarter or every second quarter. It's actually not even desirable to have, but Denmark is also back on more normal levels. I'll get back to that. Orders received in the first half year is significantly higher than net sales, so we're building order backlog, and the order backlog remains strong.
And then finally, from the highlights, we have a good cash flow from operations, really strong compared to last year, even though this is seasonally a quarter where we have negative cash flow, but significantly better this year compared to last year. And if we move on to the market update, the big thing that most people are thinking about is the coronavirus, and our message here is that we have, for our ongoing projects, no material impact by the corona crisis to date. What we do know though is that the construction industry trails the general economy long term, and the long-term effects from the coronavirus is still hard to assess. But as I said, no material negative effects today. Property market, in the outlook, there are some uncertainty.
Letting resumed in June, but the long-term sur- effect needs to be monitored. That was the highlights and the market. This week's news, and that's not really part of the quarter, but we think it's important anyway, is the divestment of Road Services. Road Service is the business that deals with snow clearance, cleaning, adjusting signs, et cetera, for the group. It's a business that is vital to society, but we decided in term, in connection with the Capital Markets Day, in the fall 2018, that this was up to, to, for divestment. It's non-core business for the NCC group, and it's a different type of business than we normally do.
I'm happy to report that we have managed to divest the Road Services Denmark and sold it to Arkil, a Danish company. We think it will have better opportunities to perform within that group. And then a couple of days later, we reported that we have been able to sell Road Services Sweden and Finland to the fund Mutares from Germany. And with that, for all practical purposes, the Road Services businesses have been divested. We expect to close this in the third quarter this year. And then combined, there are no earnings effects from this deal and a marginally positive cash flow effect to be expected in connection with closing. Now, for those of you who remember the details of Road Services, we still have some business in Norway.
That will remain, that is fundamentally fixed contracts. They will not be reported separately anymore. They will be a part of business area Infrastructure Norway, and we will continue to run them within Infrastructure while we consider different types of divestment opportunities for the individual contracts, one by one or as a group. So that was divestment of Road Services. Let's get into orders received. If we look at the slide of orders received quarter by quarter, we see that nominally this might look like it's somewhat low. I would say it's rather normal. We have to remember that we had SEK 3.4 billion in orders received for residential projects. It was fundamentally three large residential projects in Denmark. That cannot be expected to happen every quarter. It shouldn't be expected to happen every quarter.
It's actually not something that we want to happen for every quarter, because that would stretch our capacity beyond the limits we have. Orders received in Denmark, as well as any other business areas, are now back to normal levels or within normal variations. So, I am pretty happy with the orders received actually in this quarter as well, and I'm really happy about the orders received for the first half year. A question that we normally get is residential orders. So let's talk about that immediately, and let's talk about the overall group, and leave it to Susanne to talk about the residential orders in Sweden. We can see on this slide that we are pretty close to the average. The average is lifted by these three large orders in Denmark last year.
This is within normal variation on the high side for a quarter of residential orders within NCC. And as you will see, when Susanne presents, this is pretty much a Swedish thing. That leaves us with order backlog. It remains strong in all business areas. We have been, and we are still on a really good level with the orders, with the order backlog. And on the back of that, net sales, moving on to the slide with net sales. We have a net sales on par with previous years, and pretty much where we've been for some time now.
Steady moving forward, good earnings, normal orders received, net sales on par with last year, continuing the development well, that we're at, which we see at this slide with operating profit increasing from SEK 411 million to SEK 483 million. This is driven by all business areas except Industry. All the Construction and Infrastructure business areas are improving their earnings, as well as Property Development. Industry has slightly lower revenues, as well as slightly lower earnings. This is to a large extent, the effect of bitumen price in different ways.
It has an effect that we, earlier this year, when the uncertainty around Nynas was really high, filled our inventories with high-priced bitumen in January, and not as a price hedge, but as a hedge to be able to deliver to continue to deliver would Nynas not be able to supply bitumen. What has happened during the spring, though, is that Nynas is continuing to deliver, which we are super happy about, but at a significantly lower price, trailing the general price development for oil, and our contracts are regulated according to current bitumen price. That has an impact on earnings, and it also has a pretty significant impact on revenue. So that is all bitumen connected. And finally, as my last slide, I will talk about health and safety.
We remain at the low level where we've been for some years now, and focus on work accidents is the top priority for NCC, since this is the business where you have to have that as a top priority. And with that, I hand over to Susanne Lithander to give you the details of the second quarter and the first half year.
Thank you, Tomas. I will start with our largest business area, I nfrastructure, that ended the quarter with a continued really strong backlog of SEK 19.2 billion, even though they are working off some really large orders from previous years. They had an order intake in the quarter of SEK 3 billion, which is a bit below last year, primarily in Sweden and Norway, but it's a normal quarterly variation, we think. Some examples of new orders are for the Lund-Arlöv railway extension, worth SEK 400 million, and the Tvärbanan light rail line in Stockholm, Sundbyberg, worth SEK 265 million. In connection to that, I can mention that the share of orders received and net sales in railroads has also increased 11 percentage points in the first six months compared to last year.
Net sales increased 8% to SEK 4.5 billion, and the increase for the first six months come from all divisions, and is primarily due to the high workup rates in the really large projects. Operating profits and margins continue to improve, and it's the business area's sixth consecutive quarter with improved earnings compared to previous year. EBIT was SEK 92 million in the quarter, margin 2%. Q2 last year included a positive effect of SEK 45 million for closed claims in Norway. The significant improvement comes from volume, of course, but also improved margins in the project portfolio. We still have a cautious approach to profit recognition, and we continue to recognize some of the large, complex projects that are in early stages to zero margin.
Below, you can also see Road Services, and as Tomas said, and as we have announced, Road Services have been sold, or we have signed agreements to sell. We expect it to close in the third quarter. Quarterly numbers. Here, it is evident that the business has shrunk due to the prudent tendering we have had for, during last year. Overall, they perform in line with our plans. As said, closing expected during third quarter, and the remaining part in Norway will be incorporated in business area Infrastructure after that, until further notice. Moving on to Building Sweden, who had a very strong order intake in the quarter.
They improved to SEK 3.7 billion in the quarter, and for the first 6 months, the order intake have increased to SEK 3.2 billion, and the backlog has grown to SEK 17.9 billion. Here we have some orders worth mentioning. For the quarter, an office building for Fabege in Solna, with an order value of SEK 750 million, and we also had a number of residentials. Here, public buildings account for almost 40% of the orders booked in the first half of the year, and that increase is primarily driven by the two hospital projects in mid-Sweden region, Sörmland, from the first quarter. Net sales decreased in the quarter due to the lower order intake in the end of last year.
Earnings are positively impacted by improved margins in the project portfolio, but of course, the negative volumes have a negative impact. Margin in the quarter was 2.6%, and we should remember also that last year's earnings included a negative impact from an old claim from project Rågården. Next slide, regarding the residential market in Sweden that Tomas alluded to, and we usually get a lot of questions about the residential market in Sweden. This slide shows that our order intake in residential varies a lot between the quarters. In the second quarter this year, in comparison, a very good quarter with SEK 1.1 billion, and more of that, more than 70% of that was for rentals in the quarter. I will now repeat what you have heard a couple of times already.
In Building Nordics last year, we received three large housing orders, residential housing projects, with a value of SEK 3.4 billion in the quarter. That explains the down trend in, or the, the decrease in orders received for Building Nordics. Orders worth mentioning in the quarter, two projects in Finland, residential building worth SEK 440 million, and a preschool and school worth SEK 280 million, both in the Helsinki area. In Norway, Oslo, we booked an order for Manglerud swimming facility worth SEK 370 million. The order backlog decreased in Q2, but is still on a high level for Building Nordics, SEK 15.2 billion. Housing and refurbishment accounts for almost half of the orders received. Net sales in the quarter increased to SEK 3.1 billion, driven by the Finnish and the Danish units.
A large part of net sales come from housing and refurbishment in primarily Finland and Denmark. As shown on the slide, Finland is the largest market with 52% of the sales, followed by Denmark. Earnings in the quarter increased to SEK 62 million. That improvement is due to increased volumes, but also project margins continue to be subject to cautious profit recognition, and the margin in the quarter improved to 2%. Now we move over to Industry, and this time, we start with a volume picture. We can conclude that the volumes are on par with last year's second quarter, slightly up for asphalt and slightly down for stone material. The business area Industry had a decrease in the order intake that was SEK 3.7 billion in the quarter.
The decrease is primarily due to the asphalt business in Denmark that received a really large state order last year. Net sales, SEK 3.6 billion, is a decrease in the quarter compared to last year, primarily driven by, as you've already heard from Tomas, the asphalt business due to the decline in bitumen market pricing. And as you heard, our customer pricing is linked to the pricing for bitumen. That explains the decrease in net sales.
And the earnings was SEK 258 million, which is SEK 64 million lower than last year due to the lower net sales caused by the bitumen pricing, but also in addition to that, that Tomas has already explained as well, we stocked up extra on bitumen at higher prices at the end of winter, early spring, to ensure that the delivery capacity was there, and we did that due to the uncertainties around Nynas supply capacity. So we had high cost for the bitumen that we used in the beginning here. The margin decreased to 7.2% in the quarter, and on Rolling Twelve, their margin is 3.7%. Return on capital employed is in line with their target of 10%.
Property Development, their net sales reached SEK 679 million in the quarter, and we recognized profits from two projects, offices in Helsinki, Fredriksberg B and C. Earnings was SEK 68 million in the quarter, and in addition to the two Finnish projects, we also had some land sales and earnings from previous sales that contributed to profits. After the second quarter, the Rolling Twelve Margin is at 14.9%, and return on capital employed, 12.9, which is above the targets on both indicators. During the quarter, we have started one new project, Project Bettorp, which is a care home in Örebro, Sweden. With two projects sold, we end the quarter with 14 ongoing projects. Of these 14 projects, five are sold, and we expect to take two more to profits this year, Björkalundsskolan and Arendal 4.
Letting amounted to 25,600 sq m in the second quarter, which is a quite normal level for a second quarter, actually. There was pretty much a stop in letting in April and May, but it came back in June and resumed on good levels, and that brought us back to an okay level for the full quarter. And this slide shows that we continue to have a healthy relation in our portfolio between our letting and completion ratios, with a higher letting ratio of 55% than completion ratio of 46%. Adding. Now we come to the lower part of the income statement, adding it all up for the group. We have reviewed the business areas and their earnings that in total had a positive contribution of SEK 574 million in the quarter.
After that, we have some negative impacts in our other and elimination area. First, we have the cost for headquarters and smaller subsidiaries and companies that don't belong in a BA, that had an impact of negative SEK 47 million, which is less than last year, and that is explained by the fact that the subsidiaries have a better result this year, but also last year's Q2 included cost for turnaround activities and restructuring cost. The next line item is internal gains, where we eliminate the profits in PD projects during the construction phase, and we reverse them when we recognize the profit in our PD projects. The net effect here is SEK -18 million in the quarter. In other group adjustments, we have various accounting adjustments, and the main impact in the quarter is adjustments for pensions according to IAS 19.
If you look at the accumulated numbers here's for the first six months, you have a major impact from IFRS 16 adjustment that we had to make for the sale-leaseback of our new head office in Solna. This adjustment we reverse over the lease period of 10 years that we rent the office. That brings us to an EBIT of SEK 483 million, to compare with SEK 411 million last year in the quarter. Looking at six months number, we're at SEK 414 million, compared to SEK 59 million last year. That improvement on the half year number is driven by the profit recognition in Q1 from our head office in Solna, K12. Worth notice here is also that we have a lower financial net due to our lower corporate net debt.
Also, our tax cost is very low in both the quarter and accumulated, by the fact that a large portion of our profits come from the first, from Property Development projects. Net profit for the period, SEK 435 million. As Tomas mentioned, we had a strong cash flow in the continued strong cash flow in the second quarter. Also for the first six months, it's been very strong. Cash flow from improved profits from P roperty Development and our construction units had a positive impact, as you can see on the line from operating activities. Cash flow from property project is positive, of course, due to the sales of K12, our head office in Solna, in Q1, and also Fredriksberg here in the second quarter.
We have a negative impact in the quarter due to the start up from working capital, due to the start up of the Industry operations in the second quarter. That is a seasonal variation that we see every year. And if we look at the six months number, we have a positive impact from improved capital, working capital, and that is explained by, to some extent, by settlement of claims in Norway. On investment activities and the effect there, we have pushed Industry investments in asphalt in time, so they've been postponed and delayed. That have a positive impact compared to last year. And last but not least, our net debt was SEK 5.2 billion, compared to last year's Q2, when it was SEK 6.4 billion. The corporate net debt is a positive net cash of SEK 73 million.
Our pension liabilities, as you can see, have increased to SEK 3 billion due to actuarial changes. The remaining net debt, SEK 2.2 billion, is leasing liabilities according to IFRS 16, and the increase is driven by the sale-leaseback of our head office. Net debt, or we have a target, as you know, of net debt to EBITDA to be below 2.5x. After the second quarter, we're pretty much on zero, - 0.03x, to be exact, due to the positive corporate net debt, of course. With that, I hand back to you, Tomas.
Thank you, Susanne. And I'm just gonna wrap it up and, just, conclude saying this, a good quarter continuing on the improvement path that we have for the group. Earnings for the group up 18%, all business areas except Industry contributing to this. And then when you think about the Industry, it's largely related to bitumen, both for sales and earnings. Net sales compared with last year, orders received on normal levels, and then for Building Sweden, actually on a rather high level. But to understand that, you need to remember the SEK 3.4 billion orders in Denmark last year in the comparison. Orders received for the first half year, significantly higher than last year, so our order backlog remains strong.
Cash flow, as Susanne just explained, strong from operations compared to last year in this normal, seasonally weak cash flow quarter. And with that, operator, we open up for questions.
Thank you. If you do wish to ask a question, please zero one. If you would like to raise your hand, please zero two. Now, I've got a question from Tobias Kaj, ABG. The floor is yours.
Yep. Thank you, and good morning. I would like to start with a couple of questions regarding the Industry operation. You mentioned that you had some negative effect due to buffering of bitumen in the beginning of the year. Will this continue to have a negative impact on Industry for Q3 as well, or is it solely an impact for Q2?
No, we consider this to be a one-off effect. We are now back to normal procedures, where we are filling our inventory on a more regular basis, and we're filling them with bitumen at the current low price.
Okay, thank you. And, you show that volumes for stones and asphalts are stable year-over-year, but we also had a very, very mild winter. Is that indicating that the demand is actually declining? Should we expect stable volumes for the second half as well, or is it a risk of a decline?
I think you can expect pretty stable volumes. Where we've seen some impact on something that is not weather-related is Norway, where you have a change in the procurement system, but it's pretty stable.
Regarding the-
We have good volumes in the end of quarter one, so that was the warm weather impact.
Okay. And regarding the divestments of the Road Service operations, did you have any additional central expenses because of that in Q2, or will you have that in Q3?
Susanne, can you answer that question?
We really don't expect to have any extra cost. I think we have, when we say that the effect on our profits will be basically null, we have included all the costs that we also have.
Okay, excellent. And regarding your order intake, I mean, you talked a bit about it, but one way to look at it is that you actually had a little bit more announced orders in Q2 this year compared to last year, but still a significant decline. So excluding the announced order, order intake fell by more than 30%. Is this an indication of the underlying demand trend in the market, or is it more like temporary volatility between the quarters?
No, it's not the way we see it is, that it's not an indication of the market. Demand is still good in all our markets, in all our countries. It's more of the normal volatility. And I've talked about that and tried to exemplify it with residential order intake, where you even in a really high good market, you can have individual quarters or several quarters with lower intake, and then you have higher order intake. So there's a built-in volatility in this, and we're in that normal territory.
Regarding the trends in the market, do you see any signs of lower cost inflation due to COVID?
No.
Okay, that was all my questions. Thank you.
Next question is from Erik Granström, Carnegie. The floor is yours.
Thank you very much. Good morning. I have a few questions as well. Starting off with Building Sweden, could you remind us what would the underlying profitability have been last year in Q2?
Basically meaning-
Yeah.
Well, I'm sorry. You had extraordinary negative effects in your EBIT last year in Q2, in Building Sweden, because of the provisions you took, which gave you a margin of 2%. Now, the margin is 2.6%. So I was just wondering, what if we do the same exercise as we did within Infrastructure, what would this show for Building Sweden, the 2.6% versus than last year?
The cost-
Building Sweden would have been higher, but it's still increasing.
Okay, so above 2%, above 2.0%, but below 2.6%.
It, it, it...
Yeah. Okay.
That's fine. Then my second question is regarding the divestment of Road Services. Obviously, Norway will be a very extremely small part of Infrastructure going forward in terms of volumes, but should we expect profitability to be impacted for that entire business unit because of the implementation of Road Services Norway?
You know, it's a really small part, but it's not a high profitability, so marginally, you could see dilution of margin for Infrastructure Norway.
Okay. But for the business area Infrastructure, which has, you know, turnover of somewhere around SEK 8 billion-SEK 9 billion, we shouldn't expect to see much?
No. We have to be clear on that we're talking now about six contracts.
Yes. Yep, and do you expect to sort of, that's a runoff, and then, you're looking to divest it, or will you continue to look for orders as long as you're keeping that unit?
No, this is not our core business. We've been very clear on that. We're looking for opportunities to divest either project by project, or if someone wants to buy the entire portfolio.
... Okay. My final question was regarding Property Development. You had a turnover of SEK 679 million, and I believe that the sales price for the projects in Finland were SEK 680 million. Is this basically the turnover that we see in Q2, is basically simply the divestment, or has there been some sort of FX effect.
Susanne?
Sure. The PD, the two projects that we sold accounted for, for, where do I have it? For, SEK 600 million , yeah, basically, it was SEK 587 million . I think it was SEK 587 million , the Fredriksberg B and C accounted for.
Okay, so the change, the effect versus the press release is because you've reported it earlier, or it might have been some other difference?
We have some really, really small land sales and earnings from previous where we have guarantees that we have booked to sales, but it's very minor. So it's basically the two Finnish projects that goes into sales.
Okay, fine. I, one final question on, then on, on Industry, it seems like a little bit of a blast from the past to talk about, bitumen prices again. But, if I understand it correctly, that the volumes that you've, you bought early on in the season is now completely used up, so now you are running, basically-
Yes.
on spot prices going forward.
Yes.
Okay. Okay, good. Thank you very much. Those are my questions.
Just to finalize that question, there are two effects here that we see. We see the effect that you just described on earnings. We bought expensive bitumen, and then when we get compensated for the work we do, that's according to the current bitumen price. And that, the reason for that was the uncertainty around the whole Nynas situation. So that has an impact on earnings. If you look at the volumes, the actual tonnage of asphalt, that's pretty much the same as last year, last year, while revenues are down, and that's because the prices are impacted by the bitumen price. So unit price for asphalt is lower due to bitumen not impacting earnings as much.
Crystal clear. Thank you.
If you'd like to ask or re-ask a question, press zero one, and we have no more further questions at that time. And back over to you.
If we have no further questions, at this time, I can't ask for further questions in the room. I will just, finalize, say that this was a good quarter, increasing earnings, for the entire group, Building Sweden, Building Nordics, Infrastructure, PD, contributing to the increase, while we had some challenges with Industry deriving from bitumen. Good normalized orders received, good, healthy order backlog, and good cash flow in the quarter. And with that, I wish you all a nice summer going forward. Thank you all.