Good Sunday morning to you all. My name is André Löfgren, heading up Investor Relations at Skanska, and I would like to welcome you all to the presentation of Skanska's six-month report for 2016. It will be presented by our CEO, Johan Karlström, and also our CFO, Peter Wallin. You will all be able to ask questions after the presentations, so just follow the instructions from the operator. With that, Johan, welcome.
Thanks, André, and I don't know if you see the presentation in front of you, but if you take a look at the very first page, and the picture there, you can see the LaGuardia Airport. And I will comment and dig a little bit deeper into that project further into my presentation here. But before I do that, I want to give you some highlights from the six-month report. So you can see that the revenue is basically flat, if I look at the local currencies, and operating income is significantly up, SEK 3.6 billion versus SEK 2.5 billion, due to very strong performance in our development operation, in commercial development, and residential development.
We do see lower profit in construction, and I will comment on that a little bit further down here. Return on capital employed for the Project Development businesses is well above the 10% level, and we think that we can continue to deliver with a very good performance here on that level. If you take a look at the earnings per share, it's significantly up. I think it's 63% compared to same period last year. Order intake is very good, but it's not only due to the big order, LaGuardia, that we landed. We can see that we have booked several other large projects in the construction sector, especially in the U.S.
I don't know if you remember, but six months back, we saw some project, especially in U.S. building, that was postponed. We expected the market to come back, and the market is now behaving in accordance with our expectation regarding that part. Let us take a little bit of a deeper dive into the LaGuardia project. I'm on slide number three now. There we have a construction order of $2.8 billion, and the $2.8 billion that we have in construction value corresponds to 70% of the total contract. The 70% is then equally divided between the two business units that we have in the U.S., USA Building and USA Civil.
On the equity side, we are three equal partners, Skanska and two others, and we have then one third of the investment, and our part is equal to $70 million. The construction has already started and will continue to 2022, and it's the same thing with the operations. It's also started because we have taken over the existing terminal, but we have to stay a little bit longer here until 2050, until we have ended that part of the contract. The model for the PPP and the income there, that's coming from on the PPP side, that's income coming from the airlines, and then some portion from retail at the airport. So it's a very limited market risk.
The financing of the overall project, you can say that it's both coming from the PPP side, but a big part is also coming directly from Port Authority. And on the PPP side, it's the same typical setup that we always have on these ones, with debt and equity, and then there is some milestone payments from Port Authority. And we're building here the new central hall, a new terminal, a parking facility, and we are also building up a lot of infrastructure around. And this is what the contract that we have here now, that is a part of the redevelopment of the new LaGuardia Airport.
There is a lot of other discussions of other terminals and other investments, that will come, later on, and I think that we are well positioned to be in competition to land maybe some other projects in the future here. If we take a look at the overall situation for our PPP operations or infrastructure development operations that we have in the U.S., we have three large contracts. LaGuardia is one, and then we have two others. The two others are the Elizabeth River Tunnels in Virginia, and then the huge Highway, the I-4 project that we have, outside Orlando in Florida. Let me say some words about the tunnel project in Virginia.
Our equity there corresponds to, our equity portion there corresponds to 50% of the total investment. On the equity side, we have an external partner, and our investment will be $136 million. But the construction value, that is over $660 million for Skanska, and we have 45% share on the construction side, and we have two other partners there. We are building a tunnel under the Elizabeth River, but we will also take over existing tunnels, and the whole facility, all the tunnels there, we will then run the operations to 2017.
The PPP setup here, that is traffic risk, which means that it's the revenue is coming from the tolls that we have on that project. The third project, the I-4 in Orlando in Florida, it's a huge construction and several express lanes, and a 20-mile long project with 140 bridges. So it's a lot of projects out there that are over a very large area. Our investment there is also 50%, and we have an external partner, and our 50% corresponds there to $73 million. And the construction value for us is $920 million, and that corresponds to 40%.
And we also have some other external investors on the equity side. The PPP model here, that's availability, so we don't take any traffic risk on that project. If you look at the geography or the overall market for ID in the U.S., if you look at the map here, you can see all the green states. All the green states, they have the legislation in place for PPP projects. So they have started up to invest a lot of infrastructure here, and have it in place. We are not focusing on all these states.
There's a lot of projects out there in the market, and the project that you can see that is highlighted on the picture here, that's the project that we have decided that we will go for, and we will tender for. I will not go through all of them, I just want to point out some few projects that we will focus on in the near future, and that is the I-66 project in Virginia, another highway project in Colorado called I-70. And then there is two other airport projects at the LAX Airport in Los Angeles that we think that we have a good chance to win.
So there is more projects in the market than we can focus on, which is good, because we can pick the ones where we see the greatest opportunity for. So on the next slide, you can see the total ID operation that we have in Skanska, and it consists of, we have around 100 employees, highly skilled, and they are specialized in PPPs. And we are basically covering all the markets where we have a construction operation. And we see great synergies between the investment side, the PPP side, and the construction. So we never go for a PPP project with an investment if we don't have the construction side in collaboration. So we never go for just the investment.
We see great synergies between the two units there. We have experience from over 33 projects, both within the civil and the social infrastructure. Currently, we have nine projects in the pipeline. On the next slide, you can see the financial outcome during the first six months in the ID operation, and you can see that we landed SEK 217 million in the year-to-date number, and that we have also increased the market value of the portfolio by SEK 400 million, up to SEK 5.2 billion. We have a very healthy return on capital employed of over 16% in this business.
Besides the financial close that we reached at LaGuardia during the second quarter, we have also handed over the first phases of the Karolinska Hospital in Stockholm to the county council. They plan to open up for the first patients at the end of this year. With that, I want to move over to the other streams in Skanska, starting with the residential development. In order, we have had, y ou can see that we have a slightly lower revenue compared to the same period last year. That is not a sign of how the market reacts or goes in the various countries.
It more relates to the mix of projects and also when we plan to start the sales and the construction. It can always differ a little bit, and you can see the number of homes is basically the same number as in the first quarter last year. We plan to have quite stable numbers here, because we want to be in this business. We are here for the long run. Good operating margin and return on capital employed, and we have surpassed the 10-10 level that we strived for several years. We definitely think that we can stay above that 10-10 level going forward.
The number of unsold completed apartments is on the way to creep down, and that's especially in two places, and it's on the West Coast in Norway, and it's also in Finland. So it's on the way to come down to healthy levels. The new amortization rules that we have seen in Sweden, that has reduced the number of speculative buyers, and we think that is healthy. We think it's good, because we don't want to buy to speculative buyers. We want to, sorry, we don't want to sell to speculative buyers. We want to sell to real families that that's moving into an apartment, are going to use them themselves. So we view now the market as more balanced going forward, and now I'm talking about the Swedish market.
So with that, I'm moving over to commercial development. So that continues to deliver a very good profit, and so far we have divested SEK 5.9 billion of assets with a total capital gain of around SEK 2 billion. And that corresponds to a return on capital employed over 16%. And today we have 47 ongoing projects in this stream. And the pre- and you can see that the pre-leasing and completion ratio is basically in balance. And we expect to continue with a high activity level. We have started 12 new projects during the period, and you can also see that the leasing is creating further value creation in our operation, w hich leads us into our view about the future here.
And the plan here, and the strategy, and the way we to perform and run the operation in commercial development, is that we will continue to expand and deliver profitable products in the future with good gains, capital gains. And you can, I don't know if you have already seen that we have announced another divestment today, and that's, that is the Hagaplan hotel just outside the Karolinska Hospital that we divested, and it will be booked in the third quarter. So with that, I want to move over to construction, and you can see that the revenue is slightly lower compared to the last year.
Order bookings, though, is considerably up, and it's primarily in the U.S., I talked about, but also in Norway, and I will say that we have had a good order intake in Sweden. We have had no visible impact of Brexit in the order bookings. And I will come back to Brexit and make some more general comments on what we see here and how we expect the Brexit to have an impact on our business going forward when I go over the market expectations here at the end of our presentation. We can see lower operating income in US Civil and in Poland. And in US Civil, we continue to have some challenges in the problematic project that we have talked about earlier.
We have done some minor settlements and agreements with the client, but the big settlements and the big discussions is still ongoing, and I expect that it's going to take some time before we end them, as it is really big numbers that we discuss. In the Polish market, we have seen a shift from small and middle-sized projects, EU-funded ones in the public sector. And that is exactly the market that we have focused on, on the regional side. And that means that there have been a dramatic shift or a slowdown exactly in that niche in the regional operation that has impacted our business.
We now have to right size our operation, and as we have overcapacity, and we are also shifting over to other segments in the market and focusing our tender operation for that part, like larger civil projects and also the private sector. The other operations outside these two units I had mentioned, the Nordics and U.S. and especially USA Building. They are performing very well, and there is a stable business, and we have high expectations going forward for those businesses. So with that, I hand over to Peter to dig a little bit deeper into the numbers.
Thank you, Johan. So let's start with construction and the order situation, the famous snake chart, showing that we are heading over and above revenues now with a book-to-build of 107% for the rolling 12 months. So a very strong increase on the order bookings due to LaGuardia, as we have talked about. Backlog is also up considerably, and apart from LaGuardia, we have booked many very good projects in the quarter in the U.S. market, and specifically, USA Building has been very strong. Going over to the order bookings in numbers for the construction stream, you can see then the SEK 84.2 billion in order bookings over the SEK 58.3 billion, corresponding to the 107% book-to-build, rolling 12, as I mentioned.
In this chart, you also, it's worth mentioning then, that the only units which are below 100%, i.e., which are not building backlog, is that of Czech and U.K. And I would say that in both markets, we have a strong pipeline of products where we are the preferred bidder, and we expect to turn a part of that pipeline of preferred bidders into actual orders during the second half. Another interesting part of this table, if you are a numbers guy, like I am, you look to the months of production. So on average, we have increased the months of production we have in backlog to 15 months, but you can also see the differences across the various business units, which, where you find the highest durations in U.K. and the U.S. businesses.
Poland, on the other hand, have a very short production time, and that is also one of the explanations for the impact you can see on revenue when we are lacking the smaller regional projects to bid for, as Johan mentioned. Turning into the income statement for the construction stream, the top line was SEK 64.2 billion, which is a reduction by two percentage points, adjusted for currencies. Gross income was SEK 4.6 billion, and operating income was SEK 1.3 billion. As you can see, the gross margin is 7.1%, the same as in the comparative quarter. The selling and admin is increasing somewhat on the back of incurring bid costs for future projects, as well as increasing costs for the ERP systems that we talked about in the first quarter.
That gives an operating margin of 2.1% for the first half, compared to 2 .5% for 2015. So to go deeper, turning to the various markets in construction, if we comment on the various markets, Sweden have very good operations, and there is nothing in terms of losses that explain the deviation. You can see that we have increased the margin considerably in the second quarter, and the operation is doing very well. The same is true for Norway and Finland and the Czech, even though Czech here is still reporting a negative margin for the first half, which is due to the seasonal impact. They do post a very good margin for the second quarter.
Poland, on the other hand, as we have talked about, due to a much lower sales level because of the shift in market, means that we are too heavy on idle resources, causing the operating margin to go down considerably in the second quarter. On the other hand, it is even more important to not bid for projects which are bad from the start, so we'd rather take some idle costs rather than some bad projects. For U.K., the margin has been at the same level as in the first quarter, stable operations, and we have a good backlog and pipeline to build from in the U.K.
USA Building back on track big time, and also, increasing margin considerably, and we see a very good pipeline and good market for the building operations in the U.S. Civil posts a reduction in margin. This is a combination of bid costs and design fees, and the fact that we are posting dead revenue. If one look at the gross margin in the civil business, it's actually increasing compared to the similar quarter last year. On the other hand, the S&A is much higher due to the ERP system and bid costs. Turning into residential development. Sales was SEK 6.1 billion for the first half of the year, which corresponds to a reduction in revenue by 8%. Volume is up 1%, but the price mix impact is negative 9%.
In other words, we are selling much more affordable houses in the comparative period, w hich you also can see on the price per unit. On the other hand, the margin is continuing up, and we posted an increase on the EBIT line by 7%. Gross margin is 15.9%, and operating margin is over and above the 10% mark at 11%. So we are beating the 10-10, as Johan stated. If we turn to the various markets, you can see the continued very good performance in the Swedish market, where we have good and strong execution, and can take advantage of the very good market in Sweden. And that's why it's important to not start projects until they are ready to be started to the market.
Norway, improving performance, we have started a lot of projects, and we are executing them well. Finland shows a lower margin compared to last year. The market is unchanged compared to previously, and there is no major performance issues at all. In the comparative period, we've sold some land pieces, which explains the difference. And then we also do bundle deals, which means that we sell investor packages, and those are sold at a lower margin compared to developing at full risk. Central Europe shows a somewhat lower margin, and if you look on the isolated quarters, we have adjusted the accounting for land, and that gives an impact of around SEK 10 million in absolute terms in the second quarter.
The underlying profitability in the business is good, and the key to increase the numbers is, of course, execution, and how we are starting up the Polish RD business. Turning to the homes started and sold. In the chart, you can see that we are hovering around stable, just above the 4,000 mark on both sold and started. And the trick is, of course, to only launch projects which are ready to be launched in the markets. Turning over to homes in production, you can see that that has increased. However, the sales rate continues to be very high, 7% to 8% on average. So in order to drive sales, we must start up new projects. The unsold completed, that Johan has talked about is very low now compared to the overall volume, so it doesn't pose any major risks.
We are continuing to sell homes in the various markets, as Johan mentioned, specifically West Coast Norway, and in Finland. Turning into the commercial property development stream. Operating income on SEK 1.8 billion, which is quite considerably higher compared to last year. We have continued to divest properties in the south of Sweden in the second quarter at very good levels. As you can see, we are still over and above 30% in gross margin if you compare capital gains to the sales prices. That is, of course, the fact that we have very good assets to be sold with very good cash flow profile.
So if you turn to the next part, the divestments, you can clearly see that we have over many years ramped up the volume of this business, higher investments and higher divestments, and taking advantage of our market position and the positive market momentum. And we are record high in terms of capital gains, as you can see on a rolling 12-month basis. If you turn to the next part, this tells you both about the history and about the future. The bars, they show the future, and the line shows what we have done. If you take the future, then, despite the fact that we have sold assets, we continue to increase the bars, i.e., the unrealized development value. And in the quarter, we have increased with a net of two projects.
So, and we are still selling at higher than our internally assessed market values. Going over to a very important part of the CD business, that is leasing. And if leasing was important before, it's even more important now, because the attractiveness of our assets is linked to the attractiveness of the cash flow of our assets. So we continue to be active on the leasing side, and we are looking for quality tenants. Turning over to infrastructure development and the income statement. The operating income was SEK 217 million for the quarters, and it's a good level of profit.
Turning over to the product development, the value of the portfolio has increased, despite the fact that we've had some headwind on the currency side, which of course is predominantly derived from the British pound. The unrealized equity value is increasing compared to year-end, as you can see. In 2015, Barts Hospital and the Royal London Hospital in London was included, but that was sold in the last quarter as of 2015. That summarizes, and let me go into the group income statement. The central line, which have included costs related to the close of Latin America is now completely clean from that, and we see a reduction in the central costs.
The operating income for the group amounted to SEK 3.6 billion for the first six months, and in the second quarter, as we also alluded to in the first quarter, we have turned the interest net to a net positive. That, of course, also is a function of mark-to-market changes due to interest rates and currencies. But in this quarter, we have not had any major positive or negative one-offs. Tax line is 21%, which gives us an earnings per share of SEK 6.89. Cash flow is important, so turning to the cash flow, we have a negative cash flow from operations in the first half, which is typical for the construction business because of the working capital outgoings in the first and second quarter.
However, they are at a relatively low level, and we have also done net divestments in the development streams. And as usual, we also pride ourselves on being a steady dividend giver to our shareholders, so the dividend went out in the second quarter, producing a negative cash flow of SEK 5.3 billion, more or less equal to that of 2015. The free working capital chart, which I know is of interest for me and for many of you continues to show a positive momentum with the cash flow increasing on the back of increasing business volume. But we are also increasing the relative proportion of free working capital compared to the construction revenue, the green line. So the green line is now at around 13%.
Going forward, on the back of increasing volumes in our construction business, don't expect the green line to continue to develop in this very favorable way, because I think that we are operating on a good level now. The absolutes, on the other hand should be trending in relation to that of the business volume in the construction stream. Going into the investments, divestments, and capital employed in the development streams, we are maintaining the level at and around SEK 29 billion, increasing somewhat compared to year-end.
This trend will continue as we have a good pipeline of starting up new projects in all development streams, and also the fact, if I remind you about the residential development, where we have a very high sales rate compared to the completion rate in those projects, so you will see a buildup of capital employed there. That is, of course, possible if you have a strong financial position. So coming to the next slide, you can see that we have a continued very strong financial position, and the interest-bearing net increased with SEK 1 billion into the second quarter, partially because of the Brexit impact.
Long-term interest rate fell as a function of the Brexit outcome, and that made us take down the interest discount rates for the defined benefit obligation plans in the U.K. and in Sweden. But apart from that, the important part is the ONFAL, operating net financial assets liabilities for our business, and we continues to be on a very good level. With that, I hand over to Johan again.
Yes, and let's have a look at and about the market outlook before we open up for questions here. And I think it's important to go over a little bit of the short-term implications on what we expect from the market regarding Brexit. So far, we haven't seen any cancellations on any of the products in the U.K. But we expect, though, that the market for private developers in the non-residential building area in the U.K. will start to slow down. We saw some hesitation from the investors prior to the referendum, and they have continued to have just continue to wait to start project, even after waiting for more information, what's going on in the market, what will the tenants do, and so on.
But I think it's important for everybody here to understand that we have a very good visibility of the pipeline in U.K., in total, and we are the preferred bidder, as Peter mentioned, on some, some projects outside the sector I'm, I'm talking about here in U.K., so we expect it's going to be, quite a good order intake in the second half. We think, though, that Brexit could have a positive impact on Skanska's business outside U.K.
If the banking and financing sector in London moves out to other places in Europe, we believe that some o f the places where we have commercial development could be interested areas for those tenants. For example, in Warsaw, we have seen the banking sector moving their back office functions to Poland. So that could be a potential market for investors to move to if they decide to. From a more macro perspective, we believe that the low interest rate environment will continue now longer with Brexit. That is good for buyers of homes in the Nordic area, of course.
But we also see continued and increased interest of our assets that we sell from our commercial development and, but also from the ID operations that we have. So that is, like, the positive impact from Brexit that we see. So if I then move over to the more general outlook for the market and talking, starting with construction, we see strong building market in Sweden, stable in Norway, especially good in, I would say, in Oslo. A little bit of a mixed picture in Finland. As we mentioned earlier here, there's a very tough competition on the civil side in the Nordics. There's a lot of international players moving into the market. We don't see the same competition coming in on the building side.
It's harder to actually move, you know, international operation and start up an operation on the building side. I talked about U.K., so I won't mention that again. In Poland, we expect that the market will be somewhat slower due to the delays of the EU-funded projects, which is projects on the public side. In the U.S., we see a very good and strong market going forward, both on the civil and on the building side. On the resi side, resi market, unchanged market conditions in general. In Sweden, there's continue to be a strong market, but we believe that it's going to be, it's more imbalanced now, with the new amortization regulations that are taking out the speculative buyers.
A very mixed picture in Norway. We of course, it's very difficult market on the West Coast, and we're not planning to start any projects there, but we have started to sell some of the unsold ones that we have in the stock. On the other hand, in Oslo, there is a very good market, and we definitely see opportunities to start up new projects as we are preparing them for sale start and construction starts. Finland, stable market. We believe that we have reached a rock bottom, and we can see some uptick in the overall resi market there. Central Europe, which for us is Prague and Warsaw, continue to be stable and good. Commercial development, overall, very good.
Strong demand, low vacancy rates, and overall, we see not Brexit as a threat, as we are mostly located in operations where we see we could have a potential positive impact. I think I end there. It's more or less the same picture in the other submarkets in commercial development. And ending up with infrastructure development, very good market, as I mentioned before in the U.S. and more projects than we can handle, and we can pick the one that we're going to choose for, go for. Outside the U.S. market, there's much fewer projects to go after. We are monitoring the businesses that we think will come up in Norway. So with that, André? Thank you, Johan and Peter. Let's open up for questions. Please state your name and the company you work for.
Thank you. Ladies and gentlemen, if you wish to ask a question, please dial zero and one over your telephone keypad. Thank you. We have a question from Nic las Höglund, Nordea. Please go ahead.
Yes, thank you. Niclas Höglund for Nordea. Firstly, can I start out with the ID operations? You are posting a very strong result. Could you share some thoughts on the success fee related to LaGuardia? How much approximately are included in the second quarter and more the underlying run right now with the lower pound sterling sort of taking the contribution from M25 into consideration. Thank you.
Okay, Niclas, you were on that topic already post, before this quarter I know, already after Q1. We have had a success in the ID stream over and above SEK 100 million, roughly.
Okay, over and above 100 million SEK in the quarter?
In the quarter.
That means that the run rate is pretty, pretty slow. What should we expect going forward here, as more of a general contribution?
Well, you should. It depends on the level of the projects, but I think you should expect a lower and slower level since we have fewer project i n the portfolio. And with Barts, I remind you that the amount of sterling related project is decreased compared to the previous year. So it's predominantly the M25 that gives the contribution in sterling.
And on that note, you were talking about the opportunity to refinancing and that you had a good interest in the projects which are now well finalized. Have you had any sort of negative implications from the Brexit, people stepping away or more difficult to refinance the project, do you think?
Well, when it comes to specific projects, I will not come into comment, but I would like to strengthen some of the things that we have lifted up into the interviews and into this presentation, w hich means that if you think about the implications of Brexit, it has actually played even more to the advantage of this kind of assets, which poses a very strong and stable cash flow. And with the continued low long-term interest rates, this also plays to the advantage of this. So if anything, it has been to the support of the ID projects.
Fair point. If I may, just a couple of questions on the construction side. You seem to be very happy with the Sweden development. To be honest, my expectations were higher, especially linked to the margins, and we're now seeing the rolling 12-month margins trending down, despite you talking about the very favorable environment. We're now down to 4.3%, down, well, we were at 4.5% in the second quarter last year. Is this the new normal level, or should we come back to 4.5%? What's your thought on this sort of delta in the underlying profitability in Sweden?
You know, Niclas, that it can always fluctuate between the quarters, depending on how we close out big projects. And I think that that's maybe one of the things that happened in 2015 in one of the two first quarters there. I think that the margin and the businesses in Sweden is a very healthy and it's a very stable operation, so I don't think that you have to be worried about that part.
Okay. And you mentioned that you delivered sort of the first phase to in the new Karolinska project. Have there been any positive sort of, well, one of positive effects in the quarter for us to bear in mind or any other?
You know that we never comment the individual projects, so I think that we rather stick to that strategy.
Okay.
If I can only comment on that, one of the important points in the construction business is, of course, how they are trading in terms of loss projects. Sweden's track record of loss projects is very good. It's a clean, good Swedish quarter.
Fair enough. And talking about the clean quarters, US Civil, it's below 3% margin. You're talking about the ERP system that may be affecting the margins more heavily than the around, what did you say in the first quarter, around 0.9 on an annualized basis. Could you shed some light on the sort of the specific quarterly impact and also related to that, that you have closed some of the problem contracts, although the smaller ones, what were the sort of the effects from those closures? Thank you.
We have had some margin erosion on some minor projects in the U.K., as always. Sorry, US Civil, it goes a little bit up and down. We have resolved some of the minor discussions on several of the problematic projects that we talked about in 2015. The major discussion is still out there for negotiation, and we expect that it's going to take a longer time. I do think, though, that if and when we settle that part, I don't think it's going to come like in a big bang positive impact just in one quarter. It very seldom comes like this.
It's going to be in smaller chunks as we solve the problem of the problem with the client.
Niclas, can I come to the cost side? Because what we stated is also it's a combination of bid costs and costs for the ERP system. If you also combine that with the lower volume business volume reported in the second quarter, that of course, also gives an impact on the percentage impact. So, with the buildup of the backlog we have now, we are ramping up business.
Okay, fair point. My final question is related to commercial development. We've seen a very, very solid divestment of projects. We're now approaching the sort of record levels we see last year. Would you like to give some guidance, especially with the hotel projects which is so today, will you be able to meet or exceed last year's, well, gains in the CD operations? What's your thoughts?
Okay. I would say that we are clearly heading towards last year's result.
But not above?
I didn't say we would limit ourselves to that result. But your question was, will you be able to record the same record level? And I think we will. Will we stop there if we have good deals? No, of course not, if it's the right thing to do. But long term, this is a business that we gradually build up. And you can see the number of projects that we have in the pipeline, the capital employed, that is on the way to go up, and so on. And then it can always be a little bit bumpy between the quarters, depending on which project we divest.
If you take a longer time horizon, when you look, it's like you can easily see that it's a trend that's going in the right direction, and that is the plan, that we will continue on that trend.
And a follow-up. I mean, when you look at the investments and starting new projects, should we expect that the costs for land and then, of course, the cost inflation related to construction should normalize this sort of return on capital employed down to the 10% already in the next couple of years o r is this a sustainably higher level we're seeing?
I think it's a combination of a lot of different factors here, and that is, will we be able to buy the right piece of land? And what we're trying to do here is not to go out there, like, in a full competition, just buy a piece of land just for a pure CD operation. What we see as a very strong strategy and a good opportunity for us, that we go for complex projects. It can consist of a residential part, it can be a commercial development part, it can be something else, like Fredriksdal area in the southern part of Stockholm or Malmö Live in Malmö.
Very few companies can come in and compete on those terms, to take a complete to go for, like, a complex project like this. So that is our strategy regarding buying land. Then, of course, it is also a question of how long will the low interest rate environment stay? It helps us with low yields. So it's a lot of different factors here that we have to factor in. We're fighting hard to make sure that we are very competitive on the construction side, so to make sure that we have the cost as efficient as possible on our own projects.
Okay. Thank you.
Thank you. We have no further questions over the phone for the moment. Ladies and gentlemen, I would like to remind you that you need to dial zero and one to ask a question by phone. Thank you.
Nope.
We have a next question from Jonas Andersson from Danske Bank. Please go ahead.
Yes. Good morning, Jonas Andersson here at Danske Bank. Just a question on construction in Poland. The margin last year was about 6%, and now it's 1%. Can you elaborate how much is volume driven and how much is write down of projects explaining this drop?
I think it's like the dominant part is coming from a volume drop due to the few projects that we have seen exactly in that niche of regional operations, EU-funded projects on the public sector. So we have had some margin fade, not loss makers, some margin fade on some projects. So that's been like one part of the impact there. But the dominant part is coming from the lower volume and overcapacity.
Thank you. And one more question, if I may, on the residential development part. As you said, the ticket size you sold was really high in the quarter. Is that an unusually high level, and is also the profitability unusually high for the Q2?
I think it's a good market now for apartments, and depending on where the sales are coming from. If you'll dig a little bit deeper into the numbers, you can see that the profitability differs somewhat between the units in the Nordics. Sweden is good.
Norway is also good as well, also good if you talk about the capital area. Finland is a little bit lower, but I think that this is a good level, and we plan to stay above the 10- 10 level that we have strived for.
Okay, perfect. Just a follow-up on the US Civil. Has the new ERP system impacted unusually much in this quarter versus what you expect for coming quarters o r is it in line with the average for coming quarters?
Again, Jonas, it is also the function of design and bid costs.
Yeah. But the cost for the ERP system, is that on the level that you have guided on, or is it hasn't started to come up to that level yet?
That is trending according to what we alluded to. And, mind you, that the ERP is a function of amortizing, depreciating the already made investments in combination with some costs, so it doesn't fluctuate that much. So the level we have we gave in the close of the Q1 is the same level. Then, of course, it also depends on the underlying business volume, which could make the percentage to increase somewhat in the specific quarters. But the underlying costs, and also the fact for what we are making the investment for, that is to be able to operate the business even more effectively. So we should be able to also, going forward to derive some benefits from it.
Today, it is an investment into becoming better in the future.
Perfect. Very clear. Thank you.
Thank you. We have no further questions over the phone for the moment.
All right, if there's no further questions, I think we're done for today. Thanks for your attention, and have a great summer!