Morning, and, welcome everybody to this, presentation of, the Q2 and the first half year for NCC. I'm Tomas Carlsson, since, the last two months, the CEO of the NCC group. And, with me here today, I have Mattias Lundgren, CFO of NCC. And the general key message for this quarter is this: There's absolutely nothing to be excited about. Not good, not bad, there's absolutely nothing to be excited about. It's mainly business as usual, and Mattias and I will spend some time here demonstrating, that to you in some detail. So let's start with the first or the Q2 . We have orders received that, that are slightly lower than last year, and on the back of good order backlog of Q1 and also preceding quarters, good order orders received Q1 .
This is sort of the cycle that you see in the business, so absolutely nothing to be excited about. On the back of the same good order backlog, we have increased net sales at the higher revenues, but that is, kind of what you should expect given the order backlog we have, so there's absolutely nothing to be excited about that, about the net sales. And then we have a healthy, order backlog, with following on many quarters with good orders received. There's fundamentally nothing to be excited about here as well. And that gives an earnings before tax of SEK 427 million, which is slightly lower than last year. And then I will explain why I think this is only slightly lower, and why I think there's nothing to be excited about here. So let's break that down into the business areas.
We had building, NCC Building, NCC Infrastructure, and NCC Industry, with fundamentally the same earnings as we had last year. Now, nominally, building may look as they have a material improvement, and if you look into that improvement compared to last year, it is a small improvement in the Swedish business. But the majority of that delta is that we have reached a settlement with a customer in Denmark, and hence, we've had the opportunity to release provisions that we made before. So underlying business is on the same level as we had before. Nothing to get excited about. NCC Infrastructure is basically on the same level. We still have challenges within the Norwegian civil engineering and within the road services. But then you have to remember that infrastructure last year reported a slightly higher earnings than maybe was justified.
So it's fundamentally underlying the same type of, of, earnings that we had last year. Nothing to get excited about. Then industry, performing on the same high level as they have before. They had a slow start Q1 because of the winter. That spilled over a little bit into April, so part of the difference that you see now is April. But in addition to that, we have integration cost of Hercules in Norway. Fundamentally, the same business as we had last year, nothing to get excited about. The big delta, though, is property development, where we had a positive result last year, Q2 , and we have a negative result this year.
And this is in line with the nature of this business, where you have a limited number, a discrete, limited number of relatively large projects, where we have a really conservative way of recognizing revenue and profits. Which means that even though you have an underlying business, which is basically the same as last year, nothing to get excited about, same business as last year. And then finally, we have other ramifications, and that's more or less a consequence of that we are building more for our own development business, which is fundamentally a good thing, but it's, the deviation is really small. So fundamentally the same. So nothing to get excited about. Business as usual, the same as last year. Adding this quarter to the Q1 , we get a first half year that looks like this.
Orders received, higher than what we compared to the first half year of 2017. Net sales on par with last year, a healthy order backlog, and a lower earnings before tax, but that is mainly driven by the Q1 and the differences in property development that was even more pronounced in the Q1 and the slow start in roads. So the business as such is fundamentally running in the same way as it did last year. Having said that, I will now talk a little bit about the markets and about orders received, and I will start with building. Building had, in the same pattern as we see for the group. They had lower orders received following a number of quarters with high orders received. This is primarily a Swedish thing, where you have lower orders received in Sweden.
If we compare to previous quarters, we've had extraordinarily high orders received last year. I will demonstrate that in a little while. We have a still healthy and, or good order backlog, and the net sales increased the same way as we saw for the group on the back of the good order backlog for building. If you look at the geographical distribution, this is for the first half year, we can see that Sweden is converging towards the sort of average that we see around 60%. Last year they had a disproportionately large part of the orders received. Now they have slightly lower, while net sales is around 60%. So nothing to get excited about that. The encouraging part here is Finland, where we have slightly higher orders received, which is good for Finland.
So no real change in the underlying business in the geographical distribution. There is one part of where we have a change. We have a shift in the orders received for residential. Last year, orders received for residential was 35% of the total orders received. This is half year, so it's more or less the same orders received as we saw last year. But refurbishment and conversions are on par or actually a little bit larger, so residential is going down. Now, lower orders received, primarily Sweden, primarily residential. I can imagine there's a question coming after this, so let me address that question immediately. Is this a good or bad orders received for residential in Sweden, which is basically what we're talking about here? I would say it's good.
This is the orders received for residential in Sweden since we spun out Bonava. The orders received in the Q2 of 2018 is basically bang on target for the average over the last two and a half years. It's actually only Q3 s where we have had materially better orders received over this period of time. And so if the last two and a half years has been a good residential market, this must be a good market because it's exactly on average. Last quarter or last year's Q2 was extraordinarily good with two specific projects that explains this. So that was actually the deviation. So residential order, orders received are actually good. Now, two really important caveats around that. There's a change in the type of projects that we have in these orders received.
If you look at the beginning of this period, it was primarily Swedish co-ops, and only a small fraction was rental. While the last quarter now is primarily rental residentials, while Swedish co-ops is really only a small fraction. From a residential market, we see no change in the overall volume, but in the distribution between different types of developments, we see a quite drastic difference. Second caveat, residential building is always important for the overall construction market, so we are, of course, monitoring this really carefully to see the development going forward. So far, we have actually not seen a decrease in overall orders received for residential. To further drive home that point, I will show some project examples. This is rental apartments in Tensta, Sweden.
This is pretty typical of what we can see today. This is Svenska Bostäder, SEK 250 million. Pretty typical of what you can see in, in the orders received that we have today. We also have in Denmark, rental apartments. This is student apartments in Aarhus, also pretty typical project, SEK 340 million . But then not to get stuck on the residential, residential is roughly a third of the business that we have, or slightly less than a third of the business we have within building. So, finally, a project that is office and retail in Tampere, in Finland. That's examples of, a number of typical but rather large projects that we see in the orders received. So good, nothing to get excited about. Infrastructure, same type of pattern.
We have a number of quarters with good orders received. So we have slightly lower orders received in this quarter, but we have a really healthy backlog. Now, there's an important piece of information that you need to add to this order backlog. If you compare the order backlog that we have for infrastructure today, is that the proportion of really large projects is higher than we've seen before. Q1 , we finally won Centralen in Gothenburg, which was just short of SEK 5 million. We've also previously won Korsvägen, we have had Arlöv, Slaggharp, a number of large projects. This means that those projects will be longer, and revenues will be recognized over a longer period of time compared to what you normally would see in the infrastructure order backlog.
And then in the same pattern as we've seen for the group and for building on the back of high order backlog, we have higher, high net sales. If you look at the geographical distribution, note that it's from a net sales perspective, it's Sweden, and to an extent, Norway, that really drives this business. Those are the fundamental drivers for the business. If you look at orders received, Norway has just decreased a lot. That's an effect of us being more careful with tendering in Norway compared to what we have been before. However, we are still tendering in Norway. We have not abandoned Norway, but we are being more careful with what we tender for in Norway.
The big shift for the product mix is that railways is the big runner-up from orders received, representing 35% compared to 2%, and that will, over time, of course, reflect, be reflected in the net sales. This is also a reflection of the Swedish market, the Swedish infrastructure market, but also the type of projects that we have won recently. I will show you 2 projects. This is expansion of the railway within Umeå Harbor. That's my hometown, and this area has a particular significance for me, because if you see the oil terminal in the upper right corner, that was my second project as a project manager to extend the pipeline to that oil terminal.
This is a pretty typical small project, adding to the infrastructure in a way that we normally don't think about the infrastructure. And then, as a second project, a dam in Hyltebruk, in southwest part of Sweden. This is part of the ongoing dam safety program that has been going on for a very long time, where we reinforce the dam and make it more safe for higher water flows. That's something going on in the whole country. From infrastructure, moving on to industry. Also a variation of good market in all countries. If we look at the two big segments here, we have solid volumes in Q2.
Stone has an improving trend of stone material sold in tons, while asphalt is pretty flat on par with what we've seen before. This, we have a good order backlog for asphalt, and this is partly a reflection of the slow start that we've seen. It's important to remember that the deliveries for asphalt really starts mid-May, and mid-May and June, that's when you get the ramp-up of the volumes. And what will be determining for the end of this year is not how we started, what will be determining is how we can end it, i.e., when do we have a winter again? You know, a long season will be good for us, short season will not be as good.
And we can also see that, how that is translated in a pretty consistent business, but asphalt starting later on, and particularly Sweden asphalt starting a little bit later, which translates into our numbers. And finally, property development. We sold four projects in this quarter. And the way we recognize profits, which is super conservative, I will get back to that, means that we are not recognizing profits at the same time as we sell. So let me turn your attention to this column of sold projects. We sold these four. We have only recognized profits from Zenit 2 in Denmark, which is the smallest one.
We estimate that we will be able to recognize profit from Alberga E, which is the last in a series of offices that we've built in Helsinki, and from Mölndal Galleria in the Q3 . Now, it's important to recognize that Mölndal Galleria will be sold as participation in a company, and we will get our share, but it has also been risk sharing with the final customer. That will happen in so it will not generate any revenues, only profit. We expect to recognize the Lisaseket PP11 in the beginning of 2019. We have today roughly 100,000–70,000 sq m of leasable space. Half of that in Sweden, in 21 projects. This is pretty much what we've seen over a period of time.
So it's sort of business as usual, nothing to get excited about. If you look at the number of square meters that we have leased in the quarter, it's admittedly on the lower side. But to me, the remaining unlet area is what I'm looking at, and that has been consistent over a long period of time, and it's unchanged, more or less unchanged in this quarter as well. This is a moving material, depending on what we sell and how we close deals. So it's on the lower side. We think we have a good market, particularly in Stockholm and Gothenburg. This means that we are now at a letting ratio and completion ratio on both of them on 61%. Nothing to get excited about, pretty much business as usual.
That was order intake and market for the group. Before I hand over to Mattias, I would show you two slides that I think you could benefit from. One is the review of the current trading. This is what we are looking at when we look at the current trading, and we do it in a pretty detailed fashion, and thorough fashion. Of course, we look at the order backlog and the order value in the projects we have. We have roughly 50% completion rate of the projects we have. We look at project forecasts, if they are accurate or not. We look at claims, receivables, and provisions.
But we also look at balance sheet items, a large list of balance sheet items, actually, but most importantly, maybe properties for development, but also other assets, like fixed assets in the business that we have. And then finally, we are also reviewing management and governance, primarily of our own projects, tender processes, how do we tender, and how do we assess risk, but also project management processes. So that's the scope. Depending, and I expect this to be finalized during the Q3 , and depending on what we find, we will come back to you in an appropriate way. That was the review of the current trading. Then I will add something that may be obvious to some of you, but my experience shows that you can never talk about this too frequently, so I will.
My point is here, we have three different type of business models, where we recognize revenue and profit in three different ways. Volume-wise, the largest is contracting, and you can see the properties of the contracting business. What we do is that we recognize revenue and profit through a percentage of completion, which means it is based on forecasts on a large number of projects that on average has approximately 50% completion ratio. That means that this is based on forecasts, it's based on what people think about what will happen with the project, and that there's a very loose connection between recognized profit and cash flows, and I think that's important to think about. The second is industry, where we have technically there's a percentage of completion recognition.
But for all practical purposes, and I think that's, that's the way to think about it, is that it's very correlated to the volumes we sell. So you buy a ton of asphalt, and then we send an invoice for, for a ton of asphalt, and we recognize that as income. Which means that, revenue and cash flow are closely connected to the volumes that we sell, while profits are really closely connected to the utilization rate on fixed assets. That's asphalt plants, quarries, asphalt, production equipment, et cetera.
So moving from, you know, a forecast-driven percentage of completion to a volume-driven percentage of completion to the super conservative completed contract, and it's not only completed contract, it's completed contract with a twist, where we have to have built the house, we need to have sold the house, we need to have been paid for the house, not necessarily in that order, before we recognize revenue or profits. So super conservative methods. And this all impacts the way you can look at the overall business. With that, I hand over to Mattias to give you the finer details of this quarter and the first half years.
Thank you, Tomas. So now you know all about my work and the profit recognition methods in the group. I will continue before I go into the actual numbers, I will continue in basically that direction with what you've probably all read in our accounting principles on page 15 in the report. We have now concluded our analysis of property development, income recognition, and our conclusion is that we will not change anything, so we will continue to recognize profit as before, at completion and handover to the customer. So no changes in property development. We will, of course, make an individual assessment of each and every project, so this can be applied there. But as a general rule, this is the way we're going to handle it.
So having said that, let's look at the income statement. As usual, I will start from the bottom, and there we have the profit for the period, which is lower, SEK 64 million lower than the Q2 last year. And if you look at how that was generated, then we start at looking at the net sales, roughly SEK 1 billion higher. And we have a general increase in net sales in all business areas except for property development. And Tomas has shown you the lower profit level in property development. That is a business where we recognize at handovers; it can go up and down. Last year, we had a lot of land sales, which generated profit.
We have had only one project recognized this year, so that means a lower net sales, but also a lower profit level, and that is impacting the gross profit. So you don't see the increased net sales in an increased gross profit due to property development. Selling and admin is lower than the Q2 last year, so we are moving in the right direction here, and we have currently in the quarter, 5% cost ratio. So all in all, a lower level of EBIT, but as Thomas said, nothing to get excited about. And then we have financial items on the same level as last year. This is despite a higher net debt.
The reason we can have a financial item that is on par with last year, despite higher net debt, is in part lower interest rates for the group, and in part, the fact that we activate costs, interest costs, in the ongoing property projects. All in all, financial items on the same level. Moving over to cash flow. Here you can see that we have a seasonally negative cash flow, and if I look at the cash flow from operating activities, that is positive, but on a lower level than last year. This is, in part, directly correlated to a lower profit level, but also due to the fact that part of the profit this quarter comes from reversal of previously made provisions in building, and those are not cash generating, so a lower cash flow from operations.
Then we are investing more in the property portfolio, so higher investment level in property projects, and a seasonally negative working capital development. Not as negative as last year, but still seasonally negative. Finally, a bit more investment, and that is mainly in the industry business area, which operates on a higher level, and we are investing for growth there. So all in all, cash flow of -SEK 1.7 billion in the quarter. Seasonally negative, but not as negative as last year. So looking at the EBIT per business area, Thomas has already said this is nothing to get excited about.
It is higher in building due to mainly the reversal of provisions, and then it's lower in property development, and there we have quite clearly communicated that we have currently a low level of projects to be recognized, so nothing to be excited about. I will go into other eliminations, where we have a high HQ costs. It is slightly higher than last year, and we have shown you one example of why, which is our development of Loop Industries. We have a higher level of elimination of internal gains or internal profits, mainly when building is constructing the projects, the property development.
So, in this quarter, SEK 27 million, and as long as we are mainly investing in this portfolio and not recognizing that we cannot dissolve old provisions for these internal gains or eliminations for internal gains, so it will be negative as long as we keep net investing in this portfolio. Finally, other group adjustments that is mainly related to pensions, where we have local GAAP accounting in the business areas, and then we account according to IAS 19 in the group. That has a negative impact, SEK 14 million is less negative than last year, but still negative. So other than ELIM, a bit more negative, and that is due to the fact that we eliminate internal profits on a higher level than last year, and will do so going forward. So moving over to business areas and starting with building.
We do have higher net sales that is driven by the Swedish and the Danish operations in building. The Swedish operations increase in net sales has a positive impact on the EBIT level, but the main variance from last year is due to these reversed previous provisions made in Denmark. So we have made financial settlements in two projects, and that led to the previous IFRS 15 provisions we made has now been reversed. So that is the main reason. EBIT margin in the quarter, 2.7%. For the 12-month period, 2.2% is still under the target level, so we are working on improving this in the business area, of course. But basically on the same level as last year, except for the one month.
Infrastructure, again, growing net sales, and here it is growth in actually all divisions, but it is mainly driven by the infra part and the civil engineering part in the quarter. However, it is a lower profit level if you look at the EBIT level, and also lower margins in the quarter, and we do have a low margin in mainly the Norwegian civil engineering operations and in road service. So we don't get a higher profit from the increased net sales. And for the twelve-month period, it's still negative if you look at the EBIT level and the negative margin. So there is a clear, a clear improvement case in this business area. Industry, again, increased net sales. This is to the largest part driven by asphalt, but the asphalt, and it is asphalt prices.
Tomas showed you, volumes are pretty stable, so the increased net sales is higher prices. Now, market prices corresponds to increased energy and bitumen costs. So, we have an increased cost level as well, if you look at the gross cost. That means, the increased price does not show in higher margins. Actually, it results in a bit lower margin, so you have the same cost increase. And all in all, in the quarter, slightly under 9% EBIT margin, which is partly due to this asphalt price and cost effect, but also due to integration costs for Hercules in Norway and a slightly lower level of volume in Hercules, Sweden. For the twelve-month period, the margin is 3.7%, so slightly under our target of 4%.
As you know, we've had a pretty late start of the season, so this should not reflect on the full year, but we'll see what happens after December. Finally, property development, a lower net sales. Last year, the net sales came mainly from sale of land, and of course, then you get a high margin when you sell plots. However, this year we have had one project, Property, Recognize Zenit 2 in Denmark, that was completed Q1 last year. So it has been completed, but not sold for a while, and it's a smaller project. This year, it doesn't cover the fixed costs, the - SEK 16 million as EBIT in the quarter and a negative margin.
For the full, or rather for the twelve-month period, it's basically the same story. So low level of recognized projects. We have a negative EBIT and a negative margin for the twelve-month period in property development. I should also say that, we had planned to recognize one logistic project in Gothenburg, Arendal 3. That has been postponed to the Q3 , if you look at the property table. So, we are now estimating a profit recognition in Q3 for that project. So, looking at the total then, how this impacts our group objectives. The EBIT margin has decreased during the first half of this year as an effect of not recognizing any large projects in PD and a slow start in industry. So we're now on 0.7%.
We are not focusing on growth, we are focusing on margin expansion, but we have had a growth of roughly 1% on an annual basis, average growth, during the strategy period. If we then look at the Equity Asset Ratio and the Return on Equity, the dark blue bar is the return, there we have had an increase that corresponds to the lower profit level. We have a decrease in the Equity Asset Ratio after paying dividends, so we are now down on 15%. We also have a seasonally increased balance sheet that impacts the Equity Asset Ratio seasonally in the Q2 . Finally, something to be excited about, I think. We are still having a very solid balance sheet. So we do not have a net cash position currently.
We had that in the end of 2017 when we exclude pension debt. Now, we do have a net debt position, but we are still way under our target or, or rather our restriction of 2.5% EBITDA. So there's a lot of headroom, when it comes to, to the net debt. So we have a very, very stable balance sheet, and that is something I, as CFO, get excited about. And with that, I hand over to you, Tomas.
Thank you very much. And just to sum up, nothing to get excited about. Business areas performed pretty much like previous years. We have variations of good throughout all markets, so it's not market. And my analysis of current trading will be finalized in the Q3 , and then after that, depending on what the findings are, we will come up with a way to communicate that. So with that, thank you for listening, and we open up for questions.
Yes, Albin Sandberg, Kepler Cheuvreux. So Tomas, coming back to your comments about your review of the business, should one take it that as long as you have seen so far in Q2, it has not caused you to kind of push through any write-downs or, or similar? Or are you saying that I will do a complete review, which could include things up until Q2?
What's important, I think to understand is that I will not jump to conclusions, but I will not take a statement from the organization at face value. So I want the whole portfolio to be reviewed, and I want it to be thoroughly motivated why the situation is like this. So Q2 has fundamentally not been impacted by this, this review. And at this point, I have absolutely no opinion on where it will lead.
Also you've said numerous times during the presentation today, nothing to get excited about.
Yeah, I tried to drive home that point.
Yeah. And obviously also looking at your target of the margins and so forth. So would you say that there are any reasons to believe that the 4% margin target you have is reachable, or is that also too soon to say anything about?
I heard two questions in that. The first one is about enough to get excited about. Now, it's, you know, without doubt, we are not performing good enough. That's one thing not to be excited about. The second is that 4% is absolutely doable. I've run a business within NCC that did 4% over time. We have units that do 4% even in this mix, so it's doable. But it requires a long series of behavioral changes in the organization. So it's doable, but my assessment at this point is that it will take some time because you need to change behaviors in an organization.
My final question is, your predecessor here, who was just in for a Q2 , said that they were quite not fully focused on the revenue growth and obviously taking a bit too cautious when it comes to new project intake. Is that something that you feel the organization has done in Q2, given that you say that the market is obviously quite good, but are you holding the team back, so to speak, taking orders?
Well, not holding the team back, but being more careful with how we tender, and that tends to decrease the order intake a little bit. So I would be happy for, you know, growth is always good, but it has to be quality growth. And the mantra now is that, you know, growth comes a distant second. What we now focus is on improving operational margins.
Thanks.
Oh, and you're right to go.
Hi, Tobias from ABG. I would first like to ask regarding cost inflation from subcontractors. Do you see any, any shift there? Is, is that a problem for your profitability, and do you see some kind of ease with a slower residential market in, in the co-op segment?
With a whole of two-month recent experience, no, I don't see that, but maybe that's a question for Mattias.
No, we actually have not seen a dramatic cost inflation to start with, partly due to an international market for construction materials, but also that there has been subcontractors available. And we have not seen any dramatic impact from the change in the residential market. From a theoretical point of view, it should be a better market for us to purchase goods and services going forward. But it might also lead that some companies start to tender for other kinds of projects. So we will see, we'll see what happens. We haven't any data that shows us any dramatic differences now.
Another question regarding the balance sheet. Your receivables increased by 15% year-over-year, which is a much faster growth than, than the revenues. Why is that?
In part, I would say the receivables grow in Norway, and it's related to what we have talked about previously regarding a claim situation in Norwegian civil engineering projects. So that's where we have overdue receivables, and the rest is a timing thing, really. What did we have in the end of the quarter? So, and it's balanced if you look at the capital part. So we do have short-term interest-free liabilities as well that is growing and balancing that. So nothing to be excited about, really, except for perhaps the situation in Norway, and there we'll see what we find in the hard close coming.
The increase is SEK 1.3 billion year-over-year.
Yes.
Does that kind of give some indication of the risk of write-downs if you wouldn't be able to reach any settlement?
No, no, no, no, no, that is a timing effect. It is partly in the construction pro-projects, when did you invoice, when do we get paid? And partly in the stone and northeast asphalt business. When did they send the invoices in June? So, timing effects.
Okay. Thank you for taking my questions.
Yes, next question will be, a couple of questions from my side as well. Firstly, if we start with the infrastructure, I would like some, some more flavor on the sort of, underlying profitability trend right now. You're talking about, well, poor earnings related to Norway, and the road services operations. Have there been any, could you talk about the delta from the Q1 , where we saw some, improvement, at least on a year-over-year basis on infrastructure? How do you look on the sort of Norway operations? When will the project be finalized, and also on road services? Thank you.
I would start like this: It's obvious that we have challenges with civil engineering in Norway and with road services. And if you do—if you then exclude what's left, that means civil engineering in Sweden and infrastructure, they are performing, but on what I consider to be a too low level, but they are performing. I don't see any type of inherent difficulty with the Norwegian infrastructure that wouldn't make it possible to make money in Norway. I see it more of a leadership question, and we have also, we have a new manager in Norway since beginning of May. And I see it as a behavioral issue for our Norwegian organization.
I, you know, fundamentally, I think you should be able to make money on Norwegian civil engineering in the same way as you should be able to make money on Swedish civil engineering.
Well, to follow up, well, let me talk about specifics.
Mm-hmm.
Could you, could you share some, some numbers on the sort of losses in Norway related to the civil operations? Could you share some, some numbers on how, what the delta were on road services compared with last year? I mean, higher losses or, or lower earnings.
You will have to help me out on last year, but I'd say they are significant. But I would actually not give any specific numbers now, because part of the assessment on the current trading is to understand whether forecasts in the projects today are correct, if they are too low or if they are too high, and how that impacts the earnings. And we need to understand that on a pretty detailed level before you can actually draw some conclusions from it.
And we, in our financial reporting, we disclose figures on the business area level, and we do not break it down on division level. So, for the time being, I think, I should stick to that.
Okay. And then going to building, what you're talking about, rather unchanged profits, excluding these provision reversals. When you're taking these provision reversals in Denmark, isn't that a good thing, that you're now seeing?
It is. You know, we were anticipating a larger loss, and we could release the provisions. Absolutely, that's a good thing.
On the sort of ongoing operations from Denmark, is it fair to expect that the underlying profitability will improve now when you've seen taking these provision reversals as well?
That would be awfully close to a forecast. But, we are working with a lot of things to improve performance in Denmark as well.
Okay.
But just, just from the, accounting perspective, if, if you or when you do what we, we did now, you, you have a, a final agreement with the customer, and then we can have a provision reversal. That has a positive impact on profits, and, and of course, the customer also pays, so it, it releases some of the receivables, or it will release some of the receivables. Which is a good thing, of course, but it does not impact margins in the ongoing project volume. It is completed projects already handed over, so it's the final financial settlement that we now have, got signed, basically. So that, this does not impact any future, performance.
A follow-up on building. You previously talked about pretty poor profitability also related to Norway within building. Could you confirm that you're... Are you break even on Norway, or is it on losses?
It's performance on a not acceptable level.
But still in black or what?
When we start breaking out divisions like that, we actually tell too much of the rest of the business. So let's stay with that it's not on an acceptable level.
Then my final question: If we disregard the Q2 or the first half, what is it to be excited about? I guess, if you could share some thought of why you took the job.
No, I think that's a fair question, and to me, NCC at its core is a very good business, and it's really, it's really easy to focus on the negatives. But to me, this is a company that knows what to do and is good at its core. But given the nature of the business, small variations in a limited set of the business, and small variations on how you look at the business and the impact of that, can have pretty dramatic effects. I'm convinced that this is a company that can perform much better because it has a good core, and that's what made me take the job. And that's what make me convinced that we can perform long term.
But we need to understand that it's only a limited number of, you know, drastic effects or actions that we can take that have a short-term impact. Most of it is about building behaviors in the organization, how you focus on the projects, and that's what I've said from the beginning. We've spent, we've lost focus on the projects and spent too much time on other stuff, and now it's time to focus on the projects again and do what we do best, really good, and perform on the level that we can. I've seen it happen before. We do it in large parts of the organization. We can do it for the entire group.
Can I have a follow-up regarding the settlement in Denmark? Did you have any effects in Q1 as well, or is it only related to Q2?
No, this is in Q2.
Q2.
It's two, two projects, and both have been agreed upon in Q2.
Thank you.
Let me see if there is any question on the telephone conference.
Thank you. Ladies and gentlemen, if you do have an audio question for the speakers, please press zero-one on your telephone keypad now. Once again, that is zero-one on your telephone keypad if you have an audio question for the speakers. Our first question comes from the line of Fredrik [Uncertain] from Carnegie. Please go ahead. Your line is now open for your question.
Good morning. Fredrik here from Carnegie. A few questions from my side as well. First of all, just a clarification on the building unit. Should we interpret it as the underlying profitability, adjusting for the reversal of provisions were basically flat on a year-to-year comparison?
Basically, yes, small improvement in Sweden.
Okay, then, moving over to the infrastructure unit. Obviously, you're very clear on mentioning the weakness in the Norwegian civil engineering operation and also the road services. But if you look at the operating margin, it's actually weakened compared to last year. Is the performance in those two units worsening compared with last year?
It's bad compared to bad.
Okay. And then on the industry unit, the capital employed grew by 18% year-over-year in the Q2 , where sales didn't grow as much. Obviously, there was a late start to the season. Is this purely related to the weather impact and delayed volumes, or is there an under absorption of costs also expected for the second half of this year?
Well, I won't guide you or give a forecast for the second half of the year. But what you see in the Q2 is a ramp-up of production, where there was still actually winter going on first half of April. Then we got a very nice and warm summer starting in May, and in June we've had very good production volumes. And that, of course, has an impact on when we invoice our customers, and you can see the effect in the balance sheet and receivables. So in Q2, you see the ramp-up, and of course, that increases the absorption of fixed costs as we ramp up production.
Then it's very much up to having the production going on as long as possible for the remainder of the year to keep that cost absorption going. But we'll see what happens.
Okay, but the capital employed increase, shouldn't that be a kind of a leading indicator to what you're foreseeing in the near future?
The capital employed increase is in part due to investment in fixed assets and acquisitions. And then it is of course in part in the working capital, which reflects high production levels in June.
Okay. Thank you. All for me.
To go back to what I said about, increase of production in, in second half of May and, and June. Only a small number of days' delay in that ramp-up can have pretty, dramatic effects on the capital employed, meaning basically nothing.
Okay, thank you.
Thank you. As there are no more questions registered, I now hand back to our speakers.
Thank you. Is there a final question?
No final questions? Then once again, business has performed like previous years, nothing much to get excited about. We have good market conditions throughout our countries, and stay tuned for some kind of communication about my analysis of the Q3 . Thank you very much, and have a pleasant summer. Thank you all.