Welcome to the presentation of Skanska's six-month report for 2017. I am André Löfgren, heading up Investor Relations. As you probably have figured out, this is an audio cast, presentation on the web. The presentation will be held by our CEO, Johan Karlström, and our CFO, Peter Wallin. Questions, you can ask them after the presentation, just follow the instructions from the operator. And with that, I think we just should get started. Johan, please.
Thanks, André, and I want to start with the very first slide, the nice footage over a part of Kalmar that you can see there. But it's not only Kalmar, it's one of the major projects that we are executing in Sweden right now. And the building for the local university, and it includes both construction and the development part. And the development part consists of three buildings already sold, and I can assure you that it's gonna be a fantastic project for both the local university and the Skanska shareholders. So with that, I want you to turn the page and take a look at the highlights for the six months report, and you can see that the operating income came in at SEK 3.3.
That includes the write-downs that we announced last week in Skanska U.S.A. Civil and Skanska U.K. Construction. We will comment on that a little bit further down in the presentation. But of course, it also includes a very strong performance in the project development businesses. Earnings per share increased to SEK 7.35 per share, which is an all-time high for the first six months year-to-date number in Skanska. Order bookings, slightly over SEK 200 billion, and you can also see that we have a very good return on capital employed in the project development operation, and a strong financial position that Peter will dwell upon and talk a little bit more into later here.
So turning to construction, you can see that the revenue is slightly up, and the order bookings for the first half of the year is close to SEK 85 billion. Strong in all geographies, and the book-to-bill ratio is over 100%, and you can see it is 118%, which means that we are building up the backlog. The operating income is only SEK 0.5 billion, and that, which means that the operating margin is down to 0.7%, and that, of course, is due to the write-downs of SEK 420 million in Skanska U.S.A. Civil and SEK 360 million in U.K.
Which overshadows the very strong performance in the Nordics, and especially in Sweden, which is a very healthy unit in Skanska. And we will focus on restoring the profitability in U.S.A. Civil and in U.K., of course, and that's the highest priority that we have now in the business. We will be very selective in new bids going forward, and we will also take an even further look into risk management and the internal processes of cost follow-ups. Turning over to residential development, you can see that we are maintaining a quite high level of units, over 2,000 units for the first half of the year, both on homes sold and started.
The operating margin is climbing up, and as we can see that we have a very strong performance in all the markets, but of course, especially in the Swedish one. Return on capital employed close to 20%, which is a very good and impressive number. The market conditions going forward looks promising. Turning over to commercial development, you can see that we have pocketed gain of on sale of SEK 1.6, which means that the operating income comes up to SEK 1.3. And we have already sold some additional projects, which we have announced, but they will come into the third quarter, and we will come back to them, of course, when we present the third quarter number.
When you look at the comparable number for the same period last year, I just want to remind you that it's a very hard number to beat, as we had a very good divestment in one of the properties that we sold in Boston, in the U.S., last year. The return on capital employed, 12.2%. If you look at the ongoing projects, we have a record number of ongoing projects, 53. If you talk about numbers, and SEK 28.3 billion, if you talk about the total investment value at completion of these 53 projects. That is also an all-time high number for commercial property development, and it also shows the strategy in Skanska to gradually build the business up, which we are doing.
Of the 53 projects that is ongoing, we have already sold 15, so it's the remaining, the big part of the ongoing ones is still there and are waiting to be divested. The pre-leasing and the completion ratio is close to each other, and which we follow these key ratios, which is very important for us as a risk mitigator. And the leasing has also picked up during the first half of the year. Turning over to infrastructure development, you can see that the profit for the six months is SEK 910, and that, of course, is coming predominantly from the divestment of the highway A1 in Poland, which we announced in the first quarter.
You see a very impressive return on capital employed here as well, and the majority of the product that we have in the portfolio is under construction. So with that, I want you to take a look at the order bookings in construction, and we are maintaining a very high level, if you talk about the book-to-bill ratio. On a rolling 12-month basis, 118%, which you can see there on the very first slide, and if you turn the page, again, you can see the breakdown into the three main areas of construction operation, the Nordics, Europe, and in the U.S., and you can see also what Sweden has there.
In all these areas, we are above 100%, 100%, which means that in all parts here, we are building up the backlog, and we are maintaining quite a good backlog, which is a good platform going forward. So with that, I'll turn over to Peter to talk about the income statement and income in construction.
Thank you, Johan. So, the income statement on construction, the revenue amounted to close to SEK 71 billion, which represent a 10% increase in SEK, 7% in local currencies. And as you can see, we are really turning a growth in revenue from the very good order backlog that we have. Gross income SEK 3.9 billion and operating SEK 0.5 billion. So the period, six-month period has been impacted by write-downs in the tune of SEK 880 million, representing close to 1.2% of the revenue. So turning into the various markets, as you can see, the Nordics, and predominantly then Sweden, is representing a really good performance, and that is also with a very good growth in the revenue line.
Europe, where U.K. is embedded, is then, of course, impacted by the write-downs in U.K. The ongoing turnaround in Poland is going according to plan, and the Czech business is turning out a good result in the second quarter. U.S. is, of course, then overshadowed by the write-downs in U.S.A. Civil. The building business in U.S. is doing quite well. So I would say that the other businesses that we have represent either growing margins or stable margins with a growing revenue line. Turning to residential development, revenue increased by a whopping 31%, volume increase was 9%, and price mix, 22%. So we have continued the sequential improvement in gross margin, which is 17.7% for the first six months.
As Johan said, the return on capital employed is 19.4%, and that is, of course, thanks to the very high churn of the portfolio, 1.3x capital employed. Turning into the income statement per geography, you can see we almost are doubling the profit year-over-year. And we are continuing to reap the benefits of good market in northern Finland and Sweden, and we have no extraordinary in the period, so it's a clean, good performance. And turning into the homes started and sold, you can see that we are hovering around 5,000 units on a rolling 12-month basis.
We will only start projects that are ready to be sold, which means that they will have to go through the serious vetting and testing before we are launching the projects. So the volumes will be dependent on how many projects we will be able to start in the second half of the year. We are still continuously developing our affordability segment, BoKlok, which is a very good, resilient part of the market. Turning to the homes in production, you can see that we are close to 8,000 units in production, and the off-plan sold is higher than it's ever been, 80%. And then you can understand that we have very little left stock to sell from, and we must be able to start new projects.
Turning over to our commercial property development business, you can see a steady stream of deals taking us up to close to SEK 7 billion in revenue, somewhat higher compared to last year. But since the second quarter was closed, we have already announced sales of SEK 1.7 billion, which will be reported in the third quarter. The gain, as Johan said, is SEK 1.6 billion. It's a tough comparison compared to last year, when we sold the Seaport project in Boston in the first quarter of 2016. Turning into the divestment, you can see that we are trading around a divestment volume of SEK 10 billion.
In general, in the first six months, we had a markup of 25%, which is somewhat lower than compared to last year, but it's still on a very good level. We gave a guidance of around SEK 10 billion as of the first quarter, and we will clearly be in that range. We can—which you can understand, given the already announced Q3 deals. Turning into the unrealized to realized gains, this is from a segment point of view, so you can see that the green curve is heading up, representing the close deals from a contract point of view. And we have also moved the bars correspondingly.
If you look on an IFRIC point of view, we have never had as much investment in ongoing projects. So they represent SEK 28 billion at completion and a market value of SEK 36 billion. And then, going over to leasing, which is a key component of managing risks and opportunities for the CD part. We had a strong second quarter leasing, and as you can see from the chart, we have rarely seen such a strong growth in leasing in the second quarter. And we need to be here, given the size of the development portfolio and given where we are heading as well in terms of growth in this segment. Going over to infrastructure development, not much has happened in the second quarter, given that we sold A1 in Q1.
As we are selling a lot of mature projects, we will see less income from these projects in share of income from participations. We can clearly see that some of the estimates in the marketplace right now are a little bit on the high side, given that we have a lot of immature projects in the portfolio. The project portfolio then is sort of knocked down, of course, by the sale of A1, but then we are also gradually growing and de-risking the ongoing portfolio. And then for the group income statement, summing it all up to the operating income of SEK 3.3 billion, we have a good cash management and we have a positive interest net.
We have a higher income after financial items. Taxes is 9%, given the low contribution from the high tax U.S., and also a very high component of capital gains from CD, which then lowers the visible tax rate. And that gives us an earnings per share, which is growing by 7%. As Johan said, that's the strongest number, despite the write-downs for five years. Cash flow. Cash flow from operations amounted to SEK -0.3 billion, which is impacted, of course, by the continuous net investments in our development streams. We are better on working capital, principally as we have received the M25 proceeds in the beginning of the year, but also a better working capital development in construction.
Then, of course, we have also, to our benefit to our shareholders, dividended out SEK 3.5 billion, then creating the SEK 3.8 billion in cash outflows for the first six months. Going over to the free working capital in construction. Despite the strong growth in revenue, we are maintaining the ratio of free working capital, and the second quarter working capital in absolute terms is record high. So it's good cash management in the construction part. Going over to the capital employed in property development, which was close to SEK 36 billion. And if you compare that to year beginning, that number were, of course, inflated in infrastructure development, given that we carried the M25 at market value, which was then realized in the beginning of the year as we got the proceeds. So you can see that we are growing CD and RD.
The sales in RD are going quite quickly, so that means that we will continue to build up capital employed in ongoing projects in RD to a large extent. Financial position. Skanska's financial position continues to be really strong, despite the fact that we have increased the defined benefit obligations in the second quarter due to the low interest rates. In addition to this, we also have close to SEK 7 billion of already closed CD deals to be captured over the next 12 months, of which SEK 4.3 billion will be captured during 2017.
So we are in a very good place. If we look to the changes of the financial position, as you can see, the cash flow and the pension liability, as Johan loves to dwell upon, is knocking down the interest-bearing debt. But the operating net financial asset liabilities continue to be in a very strong position. And going over to the change in equity, the same is true here. We have a profit for the period benefiting dividend to shareholders, and then the pensions, which is creating the differences compared to the opening balance. So Johan, over to you.
Yeah, some words about the market before we open up for Q&A. Very strong and good overall market conditions across the board. Extremely strong in on the building market in Sweden, and stable in Norway and Finland. Also very good market for the civil side in Sweden, and we can see that Finland also it's on the way up on the civil side and the market is improving. Some uncertainties due to the Brexit and long winding discussions regarding that part and after and also as an outcome of the election in U.K.
But on the other hand, we can see in the Central European markets that the civil market has started to improve. In the U.S., there is a strong pipeline of projects, and we have not seen any impact from the new administration, from the Trump effect, so to speak. But despite that, there is enough projects coming from the various states, and so all in all, the market in U.S. is very strong. Residential development markets, also very good, across the board. Sweden, strong, and Norway's a little bit mixed, and Finland, stable. And on the commercial development side, no changes since the last quarter. Overall, a very good picture for both leasing and especially for the divestment side.
Infrastructure development, we see the major pipeline of projects in the U.S. and also to some extent in Norway and in the U.K. So over to André.
Thank you, Johan and Peter. Now let's open up for questions. So just please follow the instructions from the operator.
Thank you. Ladies and gentlemen, if you do wish to register for a question, please press zero, followed by the one on your telephone keypad, and you will enter the queue. There will be a brief pause whilst questions are being registered. Once again, it's zero, followed by the one on your telephone keypad. Our first question comes from Tobias Kaj from ABG Sundal Collier. Please go ahead. Your line is open.
Yes, thank you, and congratulations, a very strong trend in your development streams. However, I would like to ask a question regarding your U.S. construction operation. I mean, you had a focus of growth, which you presented on your capital market days some six years ago, and since then, you have had very strong growth in revenues, but very weak trend for EBIT. I'm very pleased that you changed your focus to more focus on profitability and less on growth in U.S.
However, when we look at the book-to-bill, both for last year, for the full year figure, but also now in the quarter with a book-to-bill of 145% in U.S., it seems like you've said that you changed your focus away from growth and with more focus on profitability, but it seems like that it's still very high growth. And how can we be confident that we will not continue to see the repeated write-downs in your U.S. operation when you continue to see the very high growth or the very strong figures in order intake?
Thanks, Tobias. A good question, and, and, which leads me to, to dwell upon the situation and clarify it so, so everybody understands here. It's absolutely so that profit goes before volume. That is a mantra that, we are hammering in and, and, it's a leading part of the strategy for, for U.S. and Civil. And, and by the way, if we have a turnaround case, and if we have to restore profitability, that's always the medicine that has to be put in. If you are right, when you look at the numbers, it looks like, we are growing the business, but I can assure you that the product that we are signing, the deals that are coming in, have been scrutinized a lot.
We are focusing on our core geographies, our core competencies, and selecting the projects very carefully. One of the major projects and or in order bookings for U.S.A. Civil is has been projects in Manhattan, which is a core definitely the core geography and a core competence area. So I'm confident that these are the right products for us going forward.
Okay. Thank you. And, also, if I can ask regarding your European operation, you did have the write-down in U.K., which of course, had a big negative impact on your EBIT... But in Poland and Czech Republic, can you say something about the profitability there? Do you have some other losses, let's say, in the quarter or?
In Czech Republic, we delivered a profit according to expectation. And it's a small unit, but it seems that we have it up and running on the right level where it should be. And as you know, Poland is a turnaround case, and we have some seasonal impact, but also we have also taken some additional costs in Poland. But I think it's also good to know that the order backlog is very short in Poland, and so at the end of the year, most of the projects will be finished, and we will be able to start up new ones.
The new ones is taken with a new regime, with another type of risk management profile, and also on a better profitability level.
Okay, but is Poland still running at red figures also in Q2, or, or is it at least a positive?
No, it's still running with a small negative.
Okay. Thank you very much for taking the questions.
Thank you. As another reminder, to register for a question, it's a zero followed by the one on your telephone keypad. There will be a brief pause while questions are being registered. Thank you. There appear to be no further questions. I'll return the conference back to you.
All right. Thank you for that. Since there were a few questions on the phone, I have actually one on the web from Simen Mortensen at DNB. He is asking the following: How much of the Q2 order backlog was impacted by the Q2 write-downs? And are these orders running with zero margin until completed?
Okay, thank you, Simen. The question is regarding dead revenue, as we say, i.e., products that are running with a 0% gross margin. Simen, there is a number of products which is going to be completed very during part of this year. So, it's a very small percentage of the backlog.
Great. Then there's another question from Simen as well, regarding the residential development market. The new rules for mortgages in Norway, how do you see that impact the performance in Q2? And then also the new legislation in Sweden that's being discussed, how do you see that impact the market in 2018?
Well, if you look at the new legislation and the new rules, if I start with the Swedish side, I think it's a healthy discussion, and we can see that the speculative buyers have disappeared from the market. So that's maybe the comment we should make regarding that one. I don't know, Peter, if you want to add something regarding the Norwegian situation.
Well, number one, when it comes to Sweden, this regulations in Sweden has been in force for quite some time, so, so it's not a change, per se. And exactly as Johan said, I think it's a, it's a good housekeeping. When it comes to Norway, the question was, have we seen any impact in the second quarter? The performance from the Norwegian RD is absolutely fantastic. So we haven't seen sort of any tails of negative things. Now, it all then, as we stated during the call, is we can only launch projects once we have found them being sort of well fitted to the market and also designed to cost.
So we will not launch any projects if we feel that there are sort of uncertainty lingering. However, we do not expect to see any major impacts in the products that we are ready to launch now in the second half of the year.
All right. Great. With that, we close this conference, and we wish you all a great summer, and see you hopefully in late October.