Good morning, everyone. It's 10:00 AM I am André Löfgren. I'm heading up Investor Relations at Skanska, and I would like to welcome you to the presentation of Skanska's six-month report for 2018. The presentation will be held by our CEO, Anders Danielsson, and also our CFO, Magnus Persson. After the presentation, we will open up for questions. And with that, I hand it over to you, Anders.
Thank you, André. Before we go into the figures, you can look at the picture here. It's a picture of our project in Lund, the European Spallation Source, ESS, which we are building. It's funded by 15 European nations. Let's go into the figures. Six months report. Year-to-date operating income declined 41% to SEK 1.9 billion. And in addition to the previously announced restructuring charges and the write-downs in our Polish operation during the first six months of this year, we had the write-downs of SEK 520 million in our US operations in the second quarter. The comparable period includes the divestment gain from our stake in Poland's A1 motorway that was divested in the first quarter last year. On the plus side, our construction operation in the Nordics remained strong and stable during the quarter.
The residential market in Sweden and Norway remains low. Later in the presentation, I'll talk more about it. In our Commercial Development stream, high levels of divestment and project starts continued. At the beginning of the year, we launched a number of strategic initiatives across Skanska to reach our target operating margin, and these initiatives are proceeding well. Also, we continue to maintain a strong balance sheet, which allows us to respond to shifting market conditions and capitalize on any more opportunities that arise. Construction. Construction revenue increased 6% over the last six months period, just over SEK 75 billion. Order bookings decreased 15% to nearly SEK 72 billion, and our book-to-bill ratio and order backlog also declined. These decreases reflects more disciplined bidding, and also in line with our strategic actions.
Operating income rose 6%, although there were large write-downs in the prior year's six-month period, distorting the comparison. Our operating margin remained below 1%, largely due to the charges and write-downs in I referred in referenced earlier. Our Nordic operation continued to perform well. The SEK 520 million write-downs in U.S. construction in the second quarter mostly relates to additional cost overruns in a civil project due to low production rates and delays. The recent write-downs in the U.S. demonstrates, again, the need for the action we've been implementing to mitigate the, to mitigate future write-downs and to rise our margin to an acceptable level.
We are seeing initial results in Poland, where our operation has stabilized during the quarter, even though we are in the middle of a major restructuring program, and that will be completed, most of it, this year, but we will also see some action next year. Residential Development. Residential Development has, the revenue has decreased versus last year to SEK 4.2 billion. The homes sold declined 37%, and we, while we started 8% fewer homes in light of current market conditions in Sweden and Norway. Operating income decreased 44%, although our operating margin improved slightly. Return on capital employed stood just above our target level, but is down substantially as a result of lower profit and higher capital employed.
The growth rate of the residential markets in Norway and Sweden, that's our biggest market, remain well below an exceptionally high levels in earlier years. However, the Finnish and Central European markets are still good. Also, on the underlying housing needs remains good, strong in the longer term, which is why we plan to continue growing this area of our business. Related to this, we will use our balance sheet strength to take advantage of current market conditions, including land bank opportunities. Let's go to the Commercial Property Development. In our Commercial Property business, operating income increased 6% with a slightly higher gain on sale of SEK 1.8 billion. Return on capital employed increased to nearly 17%, well above our target level, and despite a higher capital employed.
During the six-month period, we also saw a high level of project starts, bringing total projects to a number of 48. And in the investment value at completion stands for SEK 31.8 billion. Occupancy and completion rates are at good levels. Leased space grew 5% to 428,000 square meters on a rolling twelve-month basis. And across our home markets, there is still strong demand from tenants and investors based on our current demand forecasts. We plan to continue growing this business. Infrastructure Development. Operating income turned negatively, mostly due to the earlier communicated restructuring charges of SEK 120 million, and higher selling and administrative costs. Also, the revenue is uneven across reporting periods due to the nature of this business. Related to this, the prior year also included the divestment of A1 motorway in Poland.
The NPV and surplus value of our infrastructure portfolio both rose, while return on capital employed was much lower at 13.1% for the reason I just mentioned, but still above our target level. Lastly, the financial close of the RV3 PPP project in Norway represent a new addition to our infrastructure portfolio. Construction, the order situation. Here you can see the order bookings rolling 12, and comparing to the order backlog and also revenue rolling 12-month basis. As you can see in this graph, our order booking and backlog are trending downwards. We are taking a more selective approach to bidding in order to better avoid taking on project that becomes unprofitable. This, together with a greater operating discipline at the project level, are intended to raise our operating margin for construction.
If you look at the order bookings per geography, here you can see that the decrease in order bookings is mostly related to the U.S. market, where the bulk of our write-downs have occurred in recent, recent year, as well as the current quarter, requiring us to be more selective bidder. In Sweden, order, the bookings are slightly lower, but the pipeline looks promising, so, no, it's nothing I'm worried about. In Europe, the upward trend in booking was offset by a decline in Poland, where we have substantially reduced the size of our operation as part of our restructuring initiatives. Magnus will now review the business streams in more details, please.
Let's start with the Construction business stream then, and the income statement here. We accumulated revenues in the first half of this year to the value of SEK 75 billion, which is up a bit than 6% from the same period last year. And if you note the graph on the top part of the slide, you can see that on a 12-month rolling basis here, revenue is still increasing now. You just heard that our bookings are coming down a bit, around 15%, so this will, everything else equal, translate into revenue going forward here. We had operating income of SEK 540 million in the first six months, fairly large currency effect to that, to -12%.
Then we come down to operating margin of 0.7%, which is then the same as the same period last year. But the big matter in the quarter is obviously the write-down here of SEK 520 million in the U.S. Construction business here. Mainly related to one civil project, productivity issues and design issues leading us into delays there. We think some of this is recoverable, but it will take time, but we are, of course, protecting our contractual rights in this situation very hard here. As Anders pointed out, there's been quite a lot of movements in the first quarter here, or the first six months of this year.
If you take together all the sort of project-related one-offs here, with write-downs and the release of the money from the claim settlement in the U.S., we had a negative effect in the first six months of SEK 900 million here in the construction stream, and that is basically the same effect as we had the first six months last year here. We should not forget the non-operating one-offs here in the first six months either, which are the restructuring costs in the first quarter of SEK 430 million, and also the positive effect of the curtailment, basically the closing down of the U.K. pension trust there, that gave us SEK 300 million in the first quarter. Important figures to keep in mind if you want to do an analysis of the underlying development of the Construction business here.
So moving to the different geographical markets, you can see here that the Nordics are performing very, very well. A margin on, in the first six months of the year, of 3.9%, higher than last year. And in Sweden alone, 4.6%, in the first six months. The quarter isolated for Sweden was, even better than that, 5.3%. So very strong business here in the Nordics. In Europe, very tough first quarter, as you know, but so the margin here for the first six months is negative, but in the quarter isolated, we're actually back in black in Europe now. And as Anders pointed out, it's a tough situation in Poland, but the problems here are more ring-fence now, and they are easier to address.
It will take time to fix this and return to sort of where this business should be, but we do feel better in terms of the, the status of the operations there, despite the very disappointing development. In the U.S., obviously, very negative in terms of the write-downs here of $520 million. The quarter alone is quite similar to the quarter last year of around -$170 million here. And in total, for the first six months, as you can see, the margin in the U.S. business was 0.7%. Let's move over to Residential Development then, and this business stream is, of course, impacted by the market development here. And as you can see, we have a revenue decline of 48%, the first six months this year compared to the same period last year.
The biggest drop here we can see is quite expected one in Sweden and in Norway, while Finland has a good and stable market there. So it's a big difference in the market situation across the Nordics right now. Very, very strong gross margin in the first six months this year, 23%. Here, I want to point out that we have an unusually high positive effect of reserves that we have released in the first six months this year. And if you adjust the gross margin for those reserves to sort of a normal level here, we are about at the same level of gross margin as we had for the comparable period last year then.
Selling and admin at the -8.4%, that is quite obviously too high for the current volumes of this business here. We are obviously watching the market development very closely, and if needed, we are prepared to sort of act on that, to have an organization that is right-sized for the market here then. I want to take the opportunity also to comment a little bit on our revenue recognition principles in Residential Development, because different actors in the market do this differently. Our principle is that we recognize revenue at the contract date. Some see this as sort of aggressive.
We would disagree, and I think it's quite transparent, because as an external spectator to our numbers, you will very quickly see how the market is moving when you read our numbers, which is sort of very good if you want to understand where the company is going here. But because we do this, we also carry risks over sort of the entire completion period for each of these projects here, and that means that we set aside reserves when we start these projects to cover these risks. As we complete the project, and sort of handle the risks, we successfully release the reserves there. Now, when the market is very good, then we have a well-performing business. We end up in situations where we have big reserves left at the end of projects here, and this is the situation that we are in now.
So when these projects approach completion, we will have bigger effects of reserve releases there. If we then move to the geographical markets and look at the Nordics, we had an operating income for the first six months of SEK 550 million, of which Sweden then SEK 340 million. The European business here, SEK 70 million, performs very well on a very good market here, 14.5%. It's not a very old business, this, for Skanska, so a very sort of solid performance here. Quarter alone, I want to highlight then the margin in Sweden in the quarter alone, which you can see in our report, but you can see this in this presentation, which is 21.4%.
The majority of the reserve effects that you see are in the Nordics here and in Sweden. If we look at the homes started and sold, you can see that we sold around 1,500 homes this year now versus 2,400 last year, so that's around the - 37%. Started around 2,000 homes versus 2,100 last year. And if you look at the graph at the top, you can see that sales are coming down, and we are also reducing the number of starts here, but not at the same pace. We have done sort of very selective price adjustments on some projects and units in a very measured way here.
If you look at the number of homes sold also at - 37%, you can relate that to the revenue decline of - 48%. Very quickly, you realize that the sales price per unit is coming down here, which is quite normal if you reflect on the situation, because an increasingly large share of our sold units are coming from BoKlok, which is operating in the more affordable segment of the market, so the average price for the portfolio comes down. For the other units, you can say the market is weakest in Stockholm, in Sweden here. So the relative share of apartments sold from the Stockholm market also comes down, and that is the market that has had historically the highest prices.
So these two things together explain the shifts here in the price per unit. If we look at the homes in production, we currently have around 7,600 homes under production, a little bit less than the same time last year, 7,700 then, of which we have sold 71%, down from 80%, same time last year. We'll come back to that on the next slide and comment a little bit on that. Unsold completed homes is just usually a very important metric to keep both our eyes on and yours as well. Basically the same as the same period last year. We increased this with 11 units, which is not a lot, given the situation in the residential market here.
These 11 units are in Sweden. Now, if you look at the next slide here, you can see the development of the sales rate in our portfolio over time. And as you note, it has been increasing then from the beginning of 2014, steadily up to the mid part of 2017, and then it is coming down. Our view on this is that when we were up touching around 80% there, from a commercial point of view, that is actually too high. We would like it to be a bit lower, and the 71% we are at now, we're quite comfortable here. We're not worried in the sense that we have a too low part of the portfolio that is pre-sold there.
I also think it's important to point out that the right level of sales rate in the portfolio is quite different across different geographical markets, and also depending on which business model you are in there. We move to Commercial Property Development, and very solid performance here. We are keeping our own expected pace in this business, following a quite fantastic performance in the first quarter of the year. Q2 was also good, but a little bit slower. We have made five transactions in the quarter. Gain on sale in the quarter was SEK 700 million, and for the first six months, SEK 1.8 billion. In the quarter alone, we had a development margin here of 21%, which is slightly lower than what you are used to seeing, which is more 23%-25%, something like that.
But I want to emphasize that this is only due to the mix of properties or a mix of assets that have been divested during the quarter. So it's not to be interpreted as any trend that you should sort of, change your assumptions, based on that there. We still expect that, this year will be roughly the same levels as, for 2017. If we go to the next, slide, we have, today 48 ongoing projects in the business stream. We have, invested SEK 16 billion in those, of a total of SEK 32 billion that will be invested at completion. Of these 48 projects, 14 are already divested in the segment reporting here, representing a market value of a little bit over SEK 5 billion here.
So we have a very sort of good situation in terms of expecting continuing in divestments going forward there. And if you look at the graph, you can see the revenue from divestments here on a rolling 12-month basis, which are at a very high level, and the green line then represents the operating income from divestments, also that at a rolling 12-month basis. For the first six months of the year, if you do the math of the table at the bottom here, we have a development margin of around 25%, which is, I would say, more of what should be expected then.
Unrealized and realized gain, we continue to build up our unrealized gain in the portfolio here, and it is this development that leads us also to want to continue to invest in this business. We create these gains by doing project development work and leasing, not least. And of course, as we transact, sell these properties, we tap out or realize these gains from the portfolio. In total today, we have about SEK 9 billion in unrealized gains, of which SEK 7.7 billion is in our ongoing projects there. Leasing, which is one of the most value-creating activities here in this business.
As you can see, leasing is still at a high level, comes down a little bit in the second quarter, but the leasing market is still very good out there. You can also note, if you look at the red versus the green line, that we now have leased 45% versus a 52% of completion rate in our portfolio. Looking at the relationship between these two lines is a very good way to understand sort of the risk profile in the portfolio. Now we have a higher level of completion in the projects than we have leased out the spaces we have developed, but that is us taking the opportunity to work in a very good market here. So we think we're good, well in control here of the portfolio.
If we move to Infrastructure Development then, the main event in the quarter here was that we had financial close for RV3, which is the Norwegian motorway that Anders highlighted as well. We have then received success fees for that. And in addition to that, you may want to know that we have released some of the provisions that we took in the first quarter in this business stream, which impacts S&A. We've also divested the parts of the RV3 to the Norwegian Pension Trust, which then shows up as gains from divestment here. In terms of the portfolio for Infrastructure Development, very small movements. Obviously, we have added the RV3 to the portfolio, but the big change here is the risk, basically, the change in the time value of money here in the portfolio.
Apart from that, no major changes to that. We come to the group level. We take all the business streams together, the operating income then amounts to SEK 2.4 billion, compared to SEK 3.8 billion last year. You need to recall also the divestment of the A1 motorway, which was done in the first quarter of 2017, that distorts these comparisons quite a lot there. Central line, - SEK 454 million, includes then SEK 100 million on restructuring costs to get that comparison correct there. Net financial items, we have had effects of revaluations or fair market value of interest rate swaps, that impacts us here. That's the main part of that impact.
In terms of taxes, as you can see, the tax rate here is at 18% versus 9% last year. To forego questions on that, we can say that the previously mentioned divestment of the A1 motorway was made in a very tax-efficient way last year. So it's the change here is basically due to the mix of where the profits come from. So profit for the period, SEK 1.6 billion versus SEK 3 billion last year. We move to cash flow, I'd say a solid, a bit uneventful cash flow here, which is good from a CFO perspective.
We continue to hand over residential units and commercial properties, and we do expect to get another SEK 3.1 billion in inflow of cash during the second half of the year from commercial properties that is sold, but not yet handed over. We have a strong position in the working capital for the construction business stream. We remain high at 14% in relation to revenue, counted on a rolling twelve-month basis. And if you look at the absolute terms, we do have now around SEK 23 billion, up from around SEK 20 billion in the comparable period in terms of what we call a free working capital, which is a good way of both protecting ourselves in project circumstances, and also a good source of financing for the group there.
If we look at investments and divestments, the top chart here, you can see that we have been in a net investment territory since the beginning of 2017, which is entirely according to plan, and we're continuing to invest in the different product development streams there. We have increased the capital employed with around SEK 4 billion since year-end here. Short to medium term, of course, we are, as I said before, looking closer at the Residential Development market and how that develops. But long term, we are very set on continuing to grow this part of the business here. The financial position for the group, we're still in a very good position. We increased our net debt somewhat to SEK 4 billion from SEK 1.1 billion at the year-end.
Our own measure of dry powder available, which is the operating net financial assets and liabilities, comes in at SEK 6.5 billion, versus the SEK 9.7 billion at the year-end. And we have a very comfortable equity to assets ratio of 23.4% versus 24.8% at year-end. With that, Anders?
Thank you. I'm going to talk about the market outlook in our different streams here, starting with the construction. In the Nordic, it's unchanged. We have a mixed picture in the market in Sweden on the building side. The residential market is slowing down somewhat, while the commercial construction is still strong. It's a stable building market in Norway and Finland. It's a very strong civil market in Sweden and strong market in Norway, but with a fierce competition, the civil market in Finland is stable. In Europe, the Poland building market's stable. The Brexit continues to impact the UK non-residential market on the building side, commercial buildings. We still see a strong, stable civil market in UK and Poland as well. Somewhat weaker in Czech Republic, though.
We can see a rapid cost escalation in Poland and Czech Republic overall, due to very overheated markets and very low unemployment rate. U.S., it continues to be a good market. Fierce competition, very strong civil market, and also strong building market in the segments and areas, geographies where we are operating. Going to the Residential Development. In the Nordics, it's slowing down. More continued to be uncertainty in the market in Sweden and Norway. Slow sales pace in Stockholm. We can see that Finland is steadily improving. The economy, the GDP growth has improved the last years. In Europe, it's a robust, continued robust market in Central Europe. We go to the commercial market outlook, Commercial Property Development. In general, there's a strong demand. Tenants and investors, vacancy rates are low.
In the Nordic, we can see high interest from investors and low vacancy rates in, especially in Sweden. Finland is improving, to see the market. Europe, we have a strong demand in Poland and improving in other parts of Central Europe. And in the U.S., we have a strong investor appetite and good tenant demand, and we're also looking for more market opportunities there on the West Coast. Market outlook for Infrastructure Development. It's a good market for PPPs in the U.S., but the competition is considerable. It's a, it's tough competition. We can see a thin pipeline in other markets. We have a couple of projects in the pipeline in Norway, which are, we won one of them. So, but otherwise, it's very thin.
All right.
André?
Thank you, Anders and Magnus. And now it's time to open up for questions from the audience, so please follow the instructions from the operator. Thank you.
Thank you. If you do wish to ask a question, please press zero-one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero-two to cancel. There will be a brief pause where questions are being registered. The first question comes from the line of Miguel Borrega from UBS. Please go ahead.
Hi, good morning, everyone. I've got three questions, please. The first one is on your residential margins. Can you clarify that the impact from releasing provisions was actually SEK 230 million? So this would take your residential margins in Q2 to 7%. How does this fit into your full year expectations for residential margins?
Okay. In terms of, in terms of the residential. I'm sorry, I have an echo here. In terms of the Residential Development margin, what we said was that the underlying margin for the Residential Development stream this year, adjusted for the unusually large positive effect from the release of reserves, was approximately the same as last year. In terms of how that fit into our full year forecast, that, that I would like not to comment to. We don't give any guidance on that.
Okay. Can I just have a follow-up question? Then in construction, I believe your previous guidance was, was for like-for-like decline on revenues due to exiting Poland and the other businesses. Your like-for-like is still up, so when should we expect a decline in top line? And maybe if you could quantify how much you're expecting this over the next one, two years.
The strategic initiative decision in January earlier this year will be executed during 2018, and some of the actions in 2019. That's the action point. You can also see that we see already some result on the order intake, that we are more selective when we bid for projects in certain markets. Regarding Poland, we are in the middle of a major restructuring where we basically cut the company and the Polish operation in half. We're going to concentrate on six to seven cities where we have seed operation and order operations.
Thank you very much.
The next question comes from the line of Niclas Höglund from Nordea. Please go ahead.
Yes, good morning. A couple of questions from me as well. Could you please start out with the U.S. and to sort of help us out here? Could you elaborate what you talked a little bit about the write-downs, but what were the triggers? I mean, this was a product which you already had problems, and if I understand it correctly, when will it be finalized? How will it impact the sort of dead revenue? And why is the underlying margin in U.S. improving, when you look, when you adjust for these write-downs? Thank you.
This, the project that we took a write-down on in the second quarter is an old project that we have seen problems before. It's a large project, so we still have a few large projects with the so-called dead revenue. That will continue during 2018, 2019, and also 2020. So that still remains. So we are not satisfied at all with the margin in the U.S. operation, so we are much more careful today which project we bid for. We have done analysis going back 10 years for, and looked where have we made money, in what segments, which project types, and which geographies. So we know where our sweet spot are, and we are-...
Focusing on bidding in this, in the sweet spot going forward. But it will take some time to increase the profitability in the U.S. operation due to the large backlog.
Just a follow-up on that note, I mean, if you look at the underlying profitability or, well, made the right answers as part of your own business, of course, but if you adjust for this large write-down, we still see some improving profitability. Could you elaborate and why this is coming right now? Is it loss-making projects that is, well, excluding the write-downs, that is decreasing? Is it better underlying profitability on the sort of projects that come into the portfolio? Could you help us out, please?
Yeah, we have, I mean, the majority of the U.S. operation are performing on a acceptable level. But we need to get away from these write-downs, and we need to work us through the problem projects. And we are very careful, so we make sure that we are bidding for project where we can see we have a competitive advantage. And I expect the margins to increase over time.
If I may also go to Sweden, I mean, still in the construction stream. It was, as you mentioned in the presentation, very, very high and strong margin in the second quarter. Was there any provisions, reversals that, or finalization of some large project that come in with one-time positive effects in this quarter? Or how would you sort of characterize the Swedish underlying profitability?
Hi, Niklas, this, this is Magnus here. I mean, any given quarter in a construction business, you will have different projects that are closing out, and you will have various sort of provision releases here. So obviously, that is part of the strong margin. But I want to emphasize here that the Swedish business is performing steadily at a very high level, and this sort of level of margin would not have been possible if we had not had that situation here. So you can't really, you can't really attribute it to one single project or source there.
Okay. Then one more final question, if I may. On, we've seen peers, both Veidekke and NCC continue to do losses, although they don't quantify it fully, related to Norway and the sort of problems on the infrastructure side. What's your status in Norway, and risks or opportunities as you see it?
It's stable. I would say the performance is overall stable, and we had some issues there at, if you go back to 2011, we, you know, introduced a major turnaround program at the time, and, with which means we are, again, more careful where, which projects we go for. We make sure that we have the right team with the right competence before we bid, even bid projects. We also have improved a lot of processes, core processes that you need to have in place to have a profitable construction operations. So we have done that and worked in a systematic way for several years in Norway, so we have a stable business there now.
Okay. Thank you.
The next question comes from the line of Tobias Kaj from ABG. Please go ahead.
Yes. Thank you. I would like to start to follow up, regarding the U.S. write-downs. I mean, I understand that we will continue to see their revenues having a negative impact on the margin, but but can you say anything about the risk of more write-downs of the magnitude we saw now in Q2 this year, and we also saw in Q2 last year?
We always take all costs and all write-downs that we see, and we have done that. We went through the projects very carefully, including this one, and we are taking everything we see right now, as always.
Okay. Thank you. And, regarding, I think, your largest project ever, LaGuardia, the airport, can you say anything about the status of that project? Do you see big risk of problems with the profitability in that project?
It's a large project. We are in the middle of it, close, getting close to 50% completion there. And it's a tough project. We have put the best organization we can come up with on that project to make sure that we deliver to the client, the ultimate client, so, and on time and within budget. So we are... It's a tough project, but we are, we're having the best-- we have a lot of attention on it, and we have the best people we can come up with. So we are determined to complete the project successfully.
Okay, thank you. Regarding the Swedish construction operation, you turned from quite strong growth in revenues in Q1 to a decline in Q2. Should we expect revenues to continue to decline in Sweden, or should we more look at the outcome for the first half?
Hi, Tobias, this is Magnus. No, I don't think you should sort of continue to expect that decline. I mean, it depends on how the bookings are panning out over the year and when you start and the burn rate in some big projects here. So the market in Sweden in the big parts is fairly good, and we're a very solid backlog of large infrastructure projects here that are building up in completion here. So I wouldn't see that as a sort of a worry if I were you.
Okay, thank you. And, regarding your free working capital, which you talked about, we saw a very strong improvement in this quarter. But given that you expect revenues to decline when you leave parts of Poland and also segments in U.S., how big impact should we expect on the free working capital in relation to that?
Yeah, I mean, obviously, these two things are connected here. So, and the size of the impact, it depends on depends on the size of the business when we are completed with these strategic initiatives here. And I know that we guided you in Q4 to the size, the expected size at that point in time of that, and then you can sort of do the math. But you need to also to recall that that the underlying operation, the sort of operation that we would like to stay in and really be, you know, strong in and continue to be in, that is also shifting here over time. But, I mean, you're right in that that in absolute terms, the working capital should, of course, follow the revenue development there.
But should we expect the shift in free working capital to be larger or smaller compared to the shift in revenues?
You mean relatively speaking? No, I think you can expect it to be approximately the same sort of percentage. Then you will see some lags in when revenue goes down in comparison to free working capital, because you get more projects that are at a late stage of completion, when you sort of down scope the organization.
Okay, thank you. And final questions regarding Residential Development, if I may. In this quarter compared to Q1, you see strong growth both for revenues, EBIT, production starts, and sold units. Is this like temporary volatility between the quarters, or is it related to an improvement in the market? And what should we expect for Q3?
We have a strong quarter in Residential Development, and that's due to the fact that we have finished completed projects that have been very successful, and we have released some provisions that we have because we have this segment reporting. So going forward, we are focusing on the segments where we can see the market is trending, and it's... So we have seen the market is the lower part, the affordability segment is growing. So BoKlok is a higher part of our sales this year compared to last year.
Yeah, but, but the increase of number of sold units of 43% quarter-over-quarter, is that because you have been more active lowering prices? And, and, I mean, is that the reason, or is it something else?
Hi, Tobias, Magnus again. You're referring to Q1 versus Q2, or? I didn't really understand your question, to be honest.
Yeah, the number of sold units in this quarter compared to the previous quarter. In Q1, it was much lower activity.
Okay. Okay, then I get the question. Well, you can say that the residential market in Sweden takes off basically sort of May, and then even more in June before it slows down before the summer. It's a lot more active than the early parts of the year there.
Okay, thank you for taking my questions.
Sure.
Thank you. Once again, if you do wish to ask a question, please press zero-one on your telephone keypad. The next question comes from the line of Albin Sandberg from Kepler Cheuvreux. Please go ahead.
Hi there. I have three questions, please. The first one, on the US and the comment that you're making, that you possibly can do some recovery on the write-down. We did see some positive signs in Q1. Were there any recoverable amount in Q2, or they will come kind of lumpy, so you will let us know when that happens?
Albin, this is Magnus. Hi there. We commented on that in Q1 because the size of that claim recovery was so large that it distorted the numbers, and we wanted to give you sort of a sense of where are our underlying business. We will obviously do the same if that situation comes back here. Then, I mean, claims and claim settlement, that is in a way a normal part of the business, but at smaller amounts. So it happens all the time. But if we get such a big chunk again, we will very likely go and comment on that to give you a direction of where we are underlying.
Okay, thank you. And then on the construction stream in general, obviously now looking into the remaining part of the strategic period to 2020, and the comments you're making about the projects that you have with that volumes. Is 3.5% margin target still relevant, you feel, for this period? Or, have we kind of lost so much in terms of volumes not generating EBIT, that it is not really doable?
I think the 3.5% target is ambitious, but still reachable. But it will take some time before we can get there, due to the fact that we have a hurt backlog, especially in the U.S. operations.
Yeah. Well, thank you. And then finally, just Magnus, the comment you made about commercial property for the full year, expecting similar level as last year. Was that referring to revenue, or did it also include EBIT?
It refers to the profit and loss.
Profit and loss. Okay, thank you. That's all.
The next question comes from the line of Marcin Wojtal from Bank of America Merrill Lynch. Please go ahead.
Yes, good morning. Thank you for taking my questions. The first one, I just wanted to ask for an update on Infrastructure Development. Are you perhaps working now on some new divestments in that division for the rest of 2018, or perhaps for next year? Is there anything new on the Karolinska Hospital project, perhaps with respect to a potential divestment? And number two, I would just ask, perhaps just a follow-up, obviously, on the topic of provision reversals in the residential business. And I realize that you generally don't provide much of a guidance, but is that assuming stable market conditions, similar market conditions for H2, is that an effect that we should expect to continue to some extent in the next quarters?
Or that was more or less like a one-off impacting in Q2?
Thank you. I can start with the Infrastructure Development question here, and the divestment. We don't see any divestment during 2018. And when the rest of the product portfolio, the rest we don't give any forecast on. And can you take the residential one?
Sure.
Hi, Marcin, Magnus here. In terms of your question or the impact, can you expect that sort of impact from the release of reserves also going forward? I would say, no, you can't count on that as being sort of the any type of steady state. It's a lot less normally. There's always some, because if you close out profitable projects, you will have some, but a lot less. Should it happen again, we will make sure to sort of highlight that. It is important, I think, to give the message where we are underlying.
Okay. Thank you. Thank you, thank you.
Once again, ladies and gentlemen, if you do wish to ask a question, please press zero one on your telephone keypad. The next question comes from the line of Fredric Cyon from Carnegie. Please go ahead.
Good morning. A couple of questions from my side as well. First of all, on the U.S. writedown, you mentioned that there has been delays in this project before. What is the major shift in Q2 versus Q1, forcing the writedown?
It's further delays due to low productivity and also design changes. So that's the major issues that triggered this writedown.
Given those explanations, why should we feel confident that there are no further risks related to this specific project?
We have analyzed the projects and identified the risks that we can see. We also made a careful forecast how to complete the project. So we have a plan for that, and we also put more resources into the project, and made changes in the senior leadership.
And then moving over to the Residential Development unit. You started around 2,000 units in the first half, compared to 1,500 sold units, and the number of employees grew by 10% year-over-year. Why are you starting more units than you're selling? Is this because you believe that the market will improve, and/or is this related to that you're noticing that you're able to sell, once you get closer to completion?
The latter factor is of course quite important because it's a lot more difficult now to sell something that will be completed two or three years ahead in time. That's not really interesting for consumers any longer, which means that you need to have a higher, sorry, a lower sales rate on the average in the portfolio in those markets. But when you do that, and we can present consumers with that option, that is a sort of a relevant timeframe from today. There's actually quite some interest in the market from them. So that is part of that. We are coming from a situation where we've had very little to sell off the shelf, and therefore we need to compensate for that to some extent.
At the same time, as we are watching the market development very closely, because here we need to be forward-leant enough to make adjustments, depending on where we think the market will stay. If it stays low for an extended period of time, we need to make certain adjustments, obviously, yeah. So that is the reason to why you see this gap between the sales and the new starts.
But given that you have more projects reaching completion in probably the second half, shouldn't that also be a positive impact on sales in the near future?
No, but you're referring maybe to my comment before about the release of reserves, I guess. Reserves are not held at the portfolio basis, they are held at the project basis. So you can have very profitable projects that are coming to a completion, even if the sales rate on the average for the portfolio is coming down.
Got it. Thank you.
Thank you.
There are no further questions at this time. I'll hand the conference back to you. Thank you.
All right. Well, then that was it from us as well. And just wanna thank you for your attention, and enjoy the rest of the summer. Thank you.