Hello, everyone, and a warm welcome to this telephone conference and webcast, where we will present Skanska's six-month report. My name is Magnus Persson, and I am responsible for investor relations. The presentation will be held by Johan Karlström, CEO, and Peter Wallin, CFO, and you will all have the opportunity to ask your questions to Johan and Peter after the presentation. I should also say that a recording of this conference call will be available on our website. With that, I hand over to you, Johan.
Thank you, Magnus. Welcome, everybody. I will start with the very first slide, and I hope that you have that one in front of you. It's a photo over the south end of the bypass project in Stockholm. You can see there the big intersection and also the entrance of the tunnel. That is also a part of the big project that we have signed for the Bypass Stockholm that we have included in the order bookings in the second quarter. So if we then turn the page and look at some highlights from the six-month report, you can see that we have a very solid group result.
If we adjust for currencies, the revenue increased by 6%, and we also have improved profitability and a solid financial position for the group, which is, of course, very healthy. Operating income increased by nearly 50% in local currencies to 2.5%, and I'm talking about the first six months now. Earnings per share, we had in the same period, 4.22%, and if you look at the rolling twelve EPS, that was 11.56%, and you can compare it with last year, 2014, where we were at 9.98%. A healthy increase of EPS.
One other thing that we also focus quite a lot on, and you can see it also on the financial target, that is the return on capital employed for the combined PD streams, the property development streams, which is slightly over 15%. The market, we have a continued positive market outlook, and we will comment on that a little bit more in detail later on here in the presentation. I hope that you also have seen that, after we closed the period, we have also announced that we have divested our operations in Argentina, which is a part of the overall strategic decision of leaving the whole Latin American continent.
The whole process of doing that, it's going according to plan. If we now move over to the various streams, so I will briefly comment on them, stream by stream, and we start with construction. You can see that the revenue is up and in construction and to 6.9. The order bookings ended at SEK 58, and in Sweden and U.K., which we see good markets in, that you can see that's also reflected in our numbers for the order bookings. If we're looking at the book-to-build number on a rolling 12-month basis, it's 99% for the entire stream.
I'm sure that you're also aware of that, that during the quarter, we have also had a cancellation of a large order in USA Building. And if we adjust for that, and if we adjust it in a way that we just take it out, the whole project that was canceled, the rolling twelve months number for the stream will go up from 99%- 105%. Operating income ended at SEK 1.7, same as previous year, and we can see good results from Sweden, in Poland, and in Finland, despite the headwind in the market. So I think that in Finland, they are doing a very good job in Skanska.
In Czech Republic, and it's important for us to mention Czech Republic, because that has been a business unit we have struggled with for some years due to the situation in the market. The business has stabilized, and the market is turning in the right direction. In the U.S., we have had a write-down in one of our products, which is also mentioned in the report, and it has impacted both USA Building and USA Civil, as they have both been involved in that project. Turning over to residential development, you can... I'm sure that you've seen that we have increased revenue and increased also number of sold and started homes.
We have said that in the RD business, that business, we will keep it on the same level. And when we talk about the same level, we are talking about the capital that is injected, that we deploy in that industry. The revenue, though, sold and started, can fluctuate a little bit up and down, depending on how the sales goes, but also how the projects are scheduled to be started. We have a good performance, and you can see that operating income is up significantly to over SEK 630 million. And especially in Sweden, which is where we have a favorable market.
But we also have worked with getting control over design processes in the project and cost control of other projects that we have in already there. In Norway, there's a little bit of a mixed picture. The market is, I would say, like in a very much down; it's has more or less stopped in the Stavanger area, which is on the west coast of Norway, due to the situation on the oil market. But on the other hand, in the capital area, in Oslo, it is ongoing. So it's a mixed picture in Norway. We have talked a lot about our overall target of which we call ten-ten in the residential development operation, which means that we are aiming for 10% operating margin and 10% return on capital employed.
That is the level where we delivered the business now, and the results. Switching over to commercial property development, in we have been in that stream, we have made a lot of divestments and of total SEK 2.4 billion, with a gain of SEK 856 million. And what we can see now in the market is that the low interest rate environment continues, and the demand for good projects in the real estate sector is very strong. So we have been able to close the deals when we divest the products that is up for divestment, on an even better level compared to what we expected half a year ago.
We will continue with a very high activity level, and today we have four ongoing projects with a total investment volume of SEK 15.6 billion. With the strong leasing and transaction market that we see now in most of the metropolitan areas and cities where we have the city operation, we can take on some more risks, slightly more risks, which means that we can start some of the projects without the pre-lease. You can see that in the key ratios here, that the completion ratio is now slightly ahead of the leasing one. The leasing activities has been very high and good in the quarter, and we have signed leases for 166,000 square meters.
I'm going over to infrastructure development now, and in that stream, the value of our portfolio has went up by SEK 600 million, which of course is important for the entire portfolio. And during the last quarter, we have been announced as the preferred bidder for LaGuardia, and we expect to reach financial close in the second half or the first half of 2016. The project is very important for us, and it's gonna be the single largest orders in Skanska history when we sign it. And the construction value of that project is around SEK 30 billion, and we have 70% of that.
It's not until we reach financial close that we put it into the order bookings. If you look at the new orders in construction, you can see that we have landed several of them during the second quarter here. Some examples here is a power plant in the U.S. We have the Bypass tunnel, the one that you saw on the very first slide, outside Stockholm. And we also booked another piece of the big ESS, the R&D facility in the southern part of Sweden, and it's gonna be more to come as we have an overall agreement to build the entire facility there.
I'm also glad that you can see one project in Czech Republic, and it's a sign that the market is on the way to pick up there. Paint facility for Boeing in South Carolina in the U.S., and a hospital in the healthcare sector in New York. So if we turn into the order situation and look at the graph there, you can see that the rolling twelve months book to bill 99%. And if we adjust for the canceled project, as I mentioned before, we are at 105%. And looking at the breakdown of the order bookings that you see on the following slide, you can see that the Swedish number is very strong. In Norway, we have a good civil market, but the competition is extremely tough.
I would say that almost all of the big international players in Europe, they're now in Norway are competing for the big market on the civil side that's now coming up. Finland, on the other hand, is a weaker market, but there's less international player there. It's not attractive to go there, and we are local, and we play in that market, and we think it's worked well for us. In Poland, we see some products with funding from EU, but we expect even more products to come to the market with the financing from EU. So we expect an even higher activity level there.
Czech Republic, I've already comment on, and in U.K., you can see, the market there is, like, continue to be good, and, we, expect a good order intake even coming in the coming quarters. In the U.S., there's a strong pipeline of products, both on the civil side and on the building side. On the building side, we see the aviation sector is very active, healthcare, education, but also corporate headquarters. And if we adjust for the canceled projects for USA Building, the book-to-build number will then pop up to 87%, versus the 63% that you see here in the graph, if the canceled project is included. So with that, Peter, over to you.
Thank you very much, Johan. Starting with construction income statement. As Johan has talked about, the top line is growing on the back of the healthy backlog that we have. Top line is up, visibly increasing 19%. The underlying growth in local currencies is 5%. As you can see on the margins, the margin is softer compared to last year, principally due to the write-down we made in USA Civil and USA Building, in the quarter. I will talk more about the businesses going forward. You can also see that the selling and admin as a proportion of revenue is dropping, and we are posting an operating margin of 2.5% for the first six months.
Turning over to each and every one of the various business units in construction, Sweden are posting very good and strong, stable results. Norway, Finland, and Poland are stable as well. Again, worth noticing that Czech Republic for the six months now are in the black, and this business is improving its performance from a weak level, and we are starting our journey towards normalized earnings in that business. The UK business are showing lower margins, and it's the same trend as we have noted previously quarters, i.e., we are starting up a lot of new projects where we have a conservative profit take, and also the very profitable projects taken in the good old days are nearing completion and an end.
Then turning to, first of all, the two U.S. business units, both of them, where we have now taken then a write-down on a project where the two business units do the same project. And there we have taken a write-down in the total of SEK 120 million in the quarter, and it's split 50/50 between civil and building. And then if you look into the U.S. civil margin, we have continued to experience cost increases in a number of projects. Costs that we think to some extent, to a large extent, then belongs to the client, where we are negotiating with the client, but we have not taken any revenue on unresolved discussions into the numbers, but we are eating the full costs.
This is, of course, diluting the margin, and our experience is that these processes take some time to resolve. Going into the next stream, residential, looking into the income statement, top line increases by 48%. 8% is the price mix impact, and 40% is volume-driven. We are continuing the work of improving profitability in the business, maintaining good project execution, whilst also benefiting, of course, from the especially very strong Swedish market. Posting an operating margin then for the first six months of 9.5% compared to 7.8%. If we turn to the various businesses, geographically in residential, you can see the strong performance in Sweden, who more than doubles its result and posting an operating margin of 11%.
And we are also in Norway, we have started up some new projects in Oslo and in Trondheim, and where we have been very conservative in the profit take. Finland is improving compared to Q1. We have not sold as many discounted packages as we did in the first quarter, and even though we have a conservative profit take of newly started projects, the margin is improving. The market is, however, still tough. And last but not least, you see a very good performance from the Central European business, which is essentially a business in Prague and a business in Warsaw, where the Prague business is in full-fledged, and the Warsaw business is in startup. But it's good performance overall, and both of these markets, Prague and Warsaw, are having a benefiting from improving residential markets.
Then looking into homes started and sold, the trick is to be at a consistent level. So even if we are increasing quite a bit in the quarter, this is due to the fact that timing and market, plus the fact that we are prepared to launch a number of projects, we can see increasing numbers. But we still intend to keep this listed at a consistent level. The key is to secure project execution, and we do not start any projects until they are ready to be started, even if the market is good. Turning into homes in production, next slide, you can see that we are continuing to increase the sold percentage, and it now is 78% of ongoing projects. Where we see...
Where we are, we see projects and we want to most often see a default presale level in the project, and we do not start the projects before hitting that default presale level. Then turning into the unsold completed homes, which were amounting to 358 units at the back end of the quarter. We have been very actively dealing with the situation in Finland, and we have reduced that stock. We will see how the unsold completed homes will increase in Norway, in the Stavanger area, and we have a very firm action plan to deal with that. Turning into the next stream, commercial property development. We are posting very good results, as Johan said, on the back of very, very favorable market conditions.
And the increases on prices also makes our margins go up quite considerably. So if we turn to the next slide, on the CD divestments, you can see high bars and a high green line showing an increasing operating income. And even though it's gonna be very hard to replicate the volume that we saw last year of SEK 10 billion, margin is going up. So we see an upside potential to the previous guidance of capital gains of SEK 1.5 by SEK 1.6. We see an upside there. Then turning into the portfolio of ongoing projects in CD, you can see the bars representing the value of ongoing projects upon completion, each of the various time sequences. And you can see how our wholly owned projects, which is 41 different projects, with an estimated market value of SEK 18.5.
In addition, and there, and there you can see that the occupancy rate is almost then bang in line with the completion degree. If you then turn into the JV projects, it's three projects, of which two is U.S. residential projects. And, the first line, is, what the value looks like in the unleveraged value looks like in the specific project companies. And the low occupancy rate here is explained by the fact that the two residential projects in the U.S. are not leased until they are completed. That's the way the market works. They are located in very good locations in Boston and in Seattle, so leasing will not be an issue. If you then look to the next line, of which equity investment, there you can see what will actually end up in our balance sheet, of the JV companies.
Then turning to the next slide, gives you an overview of the total CD portfolio of SEK 25 billion in investment value upon completion. You can see the ongoing projects to the left, which I talked about. You have completed projects then, and then you have the undeveloped land and development properties. In total, a surplus value at completion of SEK 5.8 billion, of which SEK 0.7 billion is already in the bag in terms of sold projects. Turning to the leasing, you can see that when you start a lot of new projects, you will also need to increase the leasing, which we do. So we are at an all-time high level in terms of the rolling twelve-month number, as you can see here.
The mix between Nordic, Europe, and U.S., will to some, some way dictate the shape of this curve going forward, because U.S. projects is normally leased later in the construction process than the European and Nordic projects. Then going into infrastructure development and the profit and loss, we are posting an operating income of SEK 252 million. And principally, this is due to the fact that we have a maturing portfolio with growing income in the project companies. Then an overview of the project portfolio. You can see how the market value has increased to SEK 5.9 billion at the end of June, compared to SEK 5.3 billion in the beginning of the year.
If you take away the FX and add SEK 0.1 billion in terms of payments, cash flow from the project companies to Skanska, we are, we have a net improvement of SEK 400 million, SEK 0.4 billion, over capital employed of SEK 2 billion, which is a pretty good return. Which means that we come into the total group income statement. I have talked about the various streams posting operating income of SEK 3.1 billion. We have then a central of SEK 600 million. Within that number, we have Latin America, and we took charges into the first quarter. We have increased them marginally into the second quarter, and have now in total SEK 0.2 billion in cost relating to Latin America, compared to SEK 0.5 billion in the corresponding period last year.
In the full year number, Latin America was SEK 0.8 billion in costs. And we have sold the O&M business in Argentina. The sale will lead to a gain on the sale itself. But due to the high level of unforeseen risks in Latin America, we are offsetting this by providing an amount equal to the gain. So you will not see any P&L impact of this sale. This leads to an operating income of SEK 2.5 billion. We have a rather high net financial items due to the fact we have a number of non-recurring closure of hedges in those numbers, so we should expect them to come down. Then we have an income of the financial items of SEK 2.3 billion.
We have a reduced tax level to 23%, leading to a net profit of SEK 1.7 billion. Turning to the cash flow. Cash flow is improving. It is negative in the first half, as it usually is, due to the fact that construction do not have its strongest period during the beginning of the year, and the fact that we are investing in our development operations. This year, you can see an improvement in construction and RD and ID, whereas we are investing in CD. We then, on a net level, have a positive divestment in the development streams. Then we, in April, to our shareholders, also paid the dividend, which leads to a negative SEK 5.2 billion for the first half.
Turning to the free working capital in construction, you can see the bars representing the absolute amount of working capital in construction, which we have inversed, so they look positive. It's, however, negative, as you know. The line represent then the bars in relation to the revenue. And since we are improving revenue faster than working capital, the line continues to decrease, however, at a decelerating pace, and it's flattening out. So we are stabilizing the working capital now because we are seeing the very cash-rich projects, which have been part of the reason why working capital has reduced, then being mitigated by new projects being booked and thereby improving capital, working capital in absolute terms. The big key to improving working capital then is to continue to land ID projects and design and build projects.
Turning to financial position, on a group level, you can see our that we have a solid financial position, and we are improving our, net financial, situation to SEK 2.8 billion, compared to SEK 0.8 billion, the similar, period last year. Then, in addition to that, it's worth noting that we have already then closed CD deals that we will, settle during the second half of SEK 2.1 billion. And in addition to that, then comes the sale of the Argentinian O&M operation, which is an additional SEK 600 million. So in total, SEK 2.7 billion, that will come into the cash flow into the second half. Turning to the change in financial position, cash flow is the first one.
Then we have a positive change in pension liability due to the fact that we have an increased long-term interest rate in Sweden, which has meant that we have reduced the defined benefit obligations in Sweden. Other changes principally refer to FX and mark-to-market changes, and that leads to an improved interest-bearing net debt, and then we adjust for the pensions and the debt in the co-op. So we end at SEK 2.8 billion compared to SEK 0.8 billion, as I have said before. And then turning into the change in equity, the dividends to the shareholders and profit for the period, that means that we maintain more or less the same level as the opening balance, and we are in a good, solid position.
Then going and turning into the investments and capital employed in our development areas, you can see the three streams represented. So we are more or less hovering around the same capital employed. You can really see the reallocation, we have talked about for a long time between RD and CD, big time. RD will pick up as we are starting to complete and construct some of the projects we have already
... sold, so this number will pick up. But again, we intend to keep that on a very consistent level, hovering around SEK 10 billion-SEK 11 billion. With that, Johan, I turn over to you.
Okay, thank you. Let's have a quick look at the market outlook. I think that we touched upon it during the presentation here, but if we then summarize, we can see that the market is overall positive. If you start in the Nordics, very strong market in Sweden, both on the building side and on the civil side. There's a lot of products coming, and the underlying situation in the economy in Sweden is also good. Mixed picture in Norway. The oil economy is impacting now, but we expect the government to continue the investment on the infrastructure and the civil side. The competition, though, in Norway is extremely strong.
Finland weak, but I think that we have reached the rock bottom, and we think that the market will continue on the level where we are now, and then slightly pick up as if you talk about the coming quarters and years. UK strong, Poland also strong. We expect it to increase somewhat more on the civil side when the EU funds will fully kick in. Czech and the Slovak economies and the market will turn up in a positive way, even if it's coming from very low levels.
And in North America, where we have two units, USA Building, USA Civil, it's, there's a lot of products, both on the civil side and on the building side, as I mentioned. But we are not the only one that has seen it, so it's a very tough competition and pressure on the margins there. Turning over to the market, as for residential development, Sweden strong, and it's not only the big cities like Stockholm, Gothenburg, and Malmö. We can also see in some region cities that there is like a healthy market which we can capitalize on. Norway's mixed, Finland weak, even if we see a market where we can start products in the capital there in Helsinki.
In Central Europe, we have businesses in both Prague and Warsaw, and we view these two markets and cities as very favorable and good now for the residential operation. In commercial development, the overall market is good, and it's the Nordic is stable, with Sweden, I would say, like, kind of sticking out as especially good compared to the two other countries. And when we're talking about Norway and Finland, it's about Oslo and the Helsinki region. Poland continues to be strong, and the regional cities, we are in five, six regional cities in Poland. The activity level has really picked up, and it's very interesting to be there where we see a lot of opportunities.
It's not only in Warsaw, we see opportunities in Poland. The other cities in Central and Eastern Europe, like Budapest, Prague, and Bucharest, are also improving. And in the U.S., we are in four cities, Seattle, Boston, Washington, D.C., and Houston, and we see a good market in the U.S., even though if it's slower due to the oil price in Houston. But overall, we view the market situation and opportunities for us in the U.S. as very good. And on the ID side, there's a good market in the U.S., fewer products in Europe, though. So with that, I think I will end here. Let's talk about the market outlook, then turning over to Magnus.
Okay, thank you, Johan. We will now move into the Q&A part of this telephone conference. And, we will do it like this, we will start with the questions from the participant of the telephone conference. And, after that, we will see if there are any questions from the webcast. And, if there are, I will read them, and Johan and Peter will give their answer. Now, to all of the participants in the telephone conference that wants to pose a question, please remember to state your name and the company you work for before you state your question. Operator, do we have any questions on the line?
Okay, yes, indeed. We have a first question coming in from Mr. Niclas Höglund from Nordea. Please go ahead.
Yes, good morning. It's Niclas Höglund here from Nordea. Firstly, could you please shed some light on the divestment of the operation and maintenance in Argentina? It's very clear that it will not have any P&L effect from the divestment, but could you elaborate on the contribution from that unit so far this year in 2015, and maybe also compared to last year? Thank you.
In one way to actually view it is that, you know, the contribution that we used to get from the O&M operation, because it has been a profitable one, is now being, like, you know, that has, like, you know, left the company going forward as we have divested it. The contribution from the gain that we pocketed here is like in a balance. From that standpoint, like in, the overall situation of exiting the Latin American operations looks the same. Of course, it's according to the strategy that we wanted to be divested, so this is like in a very important part for us.
So you mean for this year, it has all been sort of compensating the write-downs that you have posted in other areas regarding the Latin American operation. What I'm alluding to is more the ongoing profits that this unit has contributed on the other elimination line so far this year. That's just what I wanted to know.
Well, I'm talking about the ongoing profit that we could expect to get from that business. It has now been, like, compensated, so we get more or less the same amount, but from a capital gain.
Okay. Thank you. And then moving on to the order cancellation in the U.S. Building, has that had any impact on the write-downs, or have you seen any disturbances relating to productivity or costs in the second quarter, or well-
No, in the US, we are in most product, we are a CM, contract manager, which means that we manage the product subcontracted by others. And then we are paid a fee and some others, like, in a cost for our staff there. And that's the type of setup on the product that has been canceled. So, we have, of course, lost future revenue from that product and related profit to that revenue. But if you look at the overall number here in Q2, has not really been impacted by that cancellation.
Okay, and then-
If I can add there, just to clarify, since this is a project which were under construction, the impact on future revenue will be visible directly in the second half. So you should expect sort of the volume drop to be visible in the USA building business, and then the corresponding volume reduction of EBIT.
Okay, and then maybe a follow-up, if I may, on the sort of write-downs that you have in the U.S. operation. Would you say that the competitive environment have been even fiercer, so to speak, or harder? And also maybe if you could shed some light on the comment regarding the U.S. civil, that you are taking more costs, and that you expected to get paid for later on. Could maybe a magnitude compared to last year or maybe some more light, please?
Yeah, if you start with the write-down first, on the project that we have been mentioned, that's a project, it's not the construction management type of set up. It's more like in a lump sum design build project. Both USA Building and USA Civil have been involved in that. And the write-down that we have taken this quarter has been, like, an equally split between the two units. The part of that additional cost, our view is that the client should compensate us for that. But as long as we don't have an agreement with the client, we take 100% full cost, so to speak, and no income there, because we always want to be on the conservative side.
The time it will take to come to an agreement with a client in a situation like this, our experience tells us that it takes quite a long time. So we don't think it will be settled in the near future. The projects are very long because we are talking about huge projects, so that's like another reason why it also takes time there. And then as we go, we eat 100%, 100% of the cost until we have settled.
If we then look at the US market more in a bigger picture, the underlying market and the competitive situation is the same as we have phrased it and talked about it in, I would say, in the last quarters. Not as it looked like if you go many years back, when it was a different story. But if you talk about the situation that we had during the last quarters, it is the same. It's a lot of products coming to the market, both in a traditional way, but also on the PPP setup. That's the reason why we have increased our activity level in ID, so we can support the product there that we want to go for.
Okay, thank you very much.
Let's move to the next question.
Okay, our next question is coming in from Mr. Tobias Kaj from Carnegie. Please go ahead.
Yes, thank you. Tobias Kaj from Carnegie. I also have a couple of questions regarding this write-down in U.S., and then also a question regarding residential development. But starting with the project, you take a write-down in U.S. Can you comment when the project will be completed, and also if this is a project in a new geographic market for you in U.S. or not?
This is, it's a long project, and we don't- I don't want to go into any specifics regarding it, because I think it's wrong to do that. We don't have the policy, and
... we have ongoing discussions with the client, and this, for commercial reasons, we don't want to do that.
Okay, so you don't want to comment in which geographic area it is located?
No, it's in the U.S., of course, but-
Yeah. Okay, and regarding residential development, as Peter were indicating that you still expect to see relatively stable volumes, should we view that as an indication of declining number of sold units for the second half? Or is it more a long-term indication that over time it will be stable, but it could deviate in individual years?
Hello, Tobias. Yes, it's a sort of a medium to long-term indication that we will not charge and increase the volumes dramatically just because we have a good market right now. But as it happened, we have had a number of good projects that we could take to the market right now. And the sold number of units, just looking at this isolated year, it does, of course, depend a lot of how our ability to start up new projects as the pre-sold level, as you can see, of 78% is very high.
Yeah. Okay, thank you.
Okay, and we have a last question online coming from Mr. Jonas Andersson from Danske Bank. Please go ahead.
Yes, good morning. Just a follow-up question on the write-down in the U.S. As I take it, it's one specific project you're writing down, but it seems that you have similar problems in other projects. How many projects do you have these kind of problems where you have higher costs, and you expect that to be paid by the client later on?
The product portfolio in the U.S., as you well know, is like consisting of several mega projects. And it's very common that we have discussions with the clients and the clients on the different type of settlements and discussion about claims and extra cost. And so this is a normal situation, and of course, we have it in some of the other projects as well.
Okay, but you—it's a reason for a slightly lower margin, even if excluding the 120 write-down, you say that you have more of this than before. Is that true?
Yeah, but there is another reason why you can find a slightly lower margin. One is like another thing that we just talked about. The other thing is that we have somewhat of a shift of the portfolio in the U.S. civil operation. We were starting up more new mega projects compared to what we had before. And we are always more cautious as in the beginning of the project.
Okay, perfect. Another question on the infrastructure development business. The EBIT is down from SEK 153 in Q1- SEK 99 in Q2. Is that relating to LaGuardia bidding costs or something like that? Or how should I read the drop?
There's no specific reasons behind the drop. It's just, it's just a fluctuation. So you... It should be sort of over the years, it should be a very stable, stable development, and then you can have some fluctuations in the quarters.
Okay. And a last question, if I may. It seems like the selling value per unit for the residential business is quite high. It's like SEK 3.1 million per unit. In Q2 last year, you had some divestment of land that boosted the number. Is that the same now, or is it just the value of the units are higher?
Value of the units is higher, so that's why I referred to the price mix. You also have a mix shift in the portfolio.
Okay, perfect. Thank you very much.
Thank you. Let's move to the next question.
Our next question is coming in from Mr. Tobias Loskamp from HSBC. Please go ahead.
Yes, good morning, gentlemen. Just three questions I would like to ask. The first one is a follow-up on the Latin American legacy activities. Can you give us an update on where we stand in the EPC projects? How many projects are still ongoing, and when do you expect them for the moment to end? Then second question on your RD business in Stavanger, can you let's say give us some more detail on how you view the market at the moment, how you're positioning yourself, and whether you consider also exiting the market like one of your competitors? And then third question that I have is on the RD business in general.
I mean, you have seen, quite a nice, pickup in the number of, housing, homes started in Q2. Do you feel comfortable that you can, you know, keep, keep on running at a higher level, here? Or is it, let's say, one bigger project that has, significantly increased the number in this quarter, and we should see a normalization in the, homes started over the coming quarters?
So let me start with Latin America, and if that, I think it was your first question there. And we have now 3 EPC-4 EPC projects that is on the way to be completed, and we expect all of them to come to an end before the year end. The other part of our Latin American operation, which is the O&M part, which we haven't sold yet, the O&M in Brazil and in Peru and a small little piece in Colombia. They are also out for divestment. So, depending on how these divestment and discussion goes, it's that that is like in a maybe, nothing that we don't have full control over the timing of, but that is the overall situation.
Mm-hmm.
-in Latin America. In our residential development in Stavanger, we are very cautious when we think about, like, kind of what prices we can take out from that, the unsold apartments that we have here, there. We have some products that we will go work on. We will not exit the market, but we will not start any new products until the situation has changed in the marketplace. And the residential development, overall, the biggest contributor to the profits, that's the business from Sweden, and the market in Sweden is good. And overall, we have a target of 10%-10%, 10% margin, 10% return on capital employed, and that's where-- that, that's the level that we're aiming to keep.
Mm-hmm.
I can add on the last point also, that there is not any specific product that boosts the number. It's an overall improvement, and we have sized the level of the organization to meet that consistent level we have been talking about. So there, again, coming back to the development of the volumes, the in the remainder of the year is due to the fact of how many projects we can start in the current market. And we do not start any projects until we are completely ready to launch them.
Mm-hmm. But is it a challenge at the moment to find the right land plot and to get the permissions, or do you have this basically all in place so that you have a good visibility on what's going to happen in the next, let's say, one and a half years in Sweden?
We have a good visibility if you talk about the land plot and the land bank that we have. But you should know that it takes a very long time before until from that you have acquired a land, if it's unsold, until you can start a project. In Stockholm, the average time for us is around seven years. So and we are selling and starting up new projects. We always have to start up new ones. Sorry to buy pieces of land to fill up the land bank.
Mm-hmm. Okay, and then, the last question from my end, on RD, the reduction in the capital employed, which is, let's say, quite sizable, does it reflect a higher level of prepayments because you have a higher number of sold units? Or what is, or is it, the portfolio rather immature, so you haven't invested much in the individual homes on average yet, or what is the reason for the declining capital employed at the moment?
Okay. It's... So when you have a very high sales rate in the portfolio, and, as you also can see in Q1, that's also due to the fact that if you look on the maturity of the portfolio, meaning that we have handed over a lot of projects over to the clients in the second quarter, and we have yet not built and put so much investments down in newly started projects. And that is why I alluded to the fact that the SEK 8.5 billion will increase as we are starting to sort of construct the new projects. So again, you should, you should expect us to be close to the SEK 10 billion as, as we have been hovering around now.
Mm-hmm. All right. Sounds good. Thank you.
Tobias, do we have any more questions online?
Yes, we have two more questions, and the next question is coming in from Mr. Martin Wachtel from Bank of America. Please go ahead.
Yes, good morning. Thank you for taking my question. I have actually a couple of questions. The first one is on the tax rate, which fell to 23%, as you highlighted in your presentation. Can you explain what was the reason behind the reduction, and is that a sustainable reduction? Should we expect around 23% in the rest of the year? And my second question is just very quickly coming back on residential, where the margin in Q2 was 11%, so you already hit your—you're already above your target of 10%. So is that the new normal now? How should we think about that?
Okay. Starting with the tax rate, 23%, you should expect that to be the full year level for this year. And the reason why it becomes 23% is because of the mix of profits from various businesses and various countries varies over time. And as you know, U.S. represent the highest tax rate from a corporate tax rate point of view. So, again, if we post more gains into the U.S., the tax rate, percentage-wise, will go up, everything else being equal. Then, turning to your RD, is 11% the new black? Well, as long as the market is very good, we do not see any reasons why we shouldn't beat the 10%.
But the 10-10, as we have now stated a number of times, is sort of the long-term levels where we believe that this business can be operated in.
Okay. Thank you.
Thank you.
... Do we have any more questions?
We have one last question online coming from Mr. Niclas Höglund from Nordea. Please go ahead.
Yes, thank you. Just a quick follow-up. Firstly, on commercial development, where you're talking about the prices on properties are moving up, and that's helping your profit, of course. Could you elaborate a little bit on the rest of products that you had so far this first half? How much did you sell them above your reported market value, so to speak? And what's the magnitude and the trend that you've seen in the first half? Thank you.
That, that's a good question, and the number is 10% over and above the market values that we had estimated at the end of 2014.
So the number. And then just follow up also on the interest net. You in the presentation, you said that you had a hedging cost. Are you referring to the hedging costs that you reported in the first quarter, or have you seen any hedging costs also related to the second quarter? Thank you.
We have, we also have some hedging costs, in you know, impacting financial net in the second quarter. Not to the same tune as we had in the first quarter, though, but it's impacting the comparison if you look on the quarterly numbers.
Okay, so should the comparison be rather straight between the second quarter and the first quarter, excluding these costs, i.e., SEK 20 million-SEK 30 million, or is it lower than that?
It's to the tune of SEK 20 million-SEK 30 million.
Okay. Thank you, Lars, for my questions.
Thank you, Nicholas. As I understand it, there are no more questions from the telephone conference. We will now see, before we close this conference call, if there are any questions from the webcast there that have not yet been answered. We have received one question from Mr. Simen Mortensen from DNB that reads: "The sale ratio of units in production for residential development is very strong in Sweden. Will we start more projects over the next 12 months than guided? Of course, we will start new projects, and depending on, like, you know, how they are scheduled and when they are ready to be started, if you talk about design and so on. But from a market standpoint, we see opportunities to starting projects.
It's more like in a when our own products are ready to go to market. I hope this answer was sufficient to you, Steven. With that, I think we close this conference call. I would like to extend a warm thank you to all of you that has participated, and hope to see you again in the near future. Thank you.