Good afternoon, and welcome to this presentation of the Q2 report from Skanska. This is a combined audio cast and telephone conference. The presentation will be held by our CEO, Johan Karlström, and our CFO, Peter Wallin. After the presentation, we will open up for questions. By that, I hand over to Johan.
Thanks, Pontus, and I want everybody to start to take a look at the very first page of the package that I hope that you have all got. And that is a picture, a very nice picture of Bayonne Bridge outside New York. And it's a project that we booked in the second quarter for US Civil. And what we're gonna do here, we will build a new road, a new deck, much higher up over the existing one, and then we will take down the existing one and build new approaches. It's a very good example of what's going on in the U.S. market for the time being.
There is a lot of bridge work that's coming up, and during the second quarter, we booked two major projects in that sector. So with that as an example, I think that we turn the page to the second to the second one. And I will give you some highlights regarding the report. Overall, it's a very stable report with strong order bookings in several of our business units. In the U.S., I can summarize the situation that we have that is a very strong operation that we have in many different ways. Increased revenues and profits, and order bookings.
In construction, we also improved the profitability in the Finnish and the Norwegian operations, and we are on the way back to the normal profitability level that where we should be. We also improved the results in the RD business, especially in Sweden. But there, of course, we have also been helped by a good market during the first half of the year. And we have also divested several products in the PPP or the ID, yeah, ID part of our business and in the commercial properties. And we can see that we create a lot of value once in these streams and these areas. Turn the page to construction. Here we can see that we have a top-line growth in local currencies of 7%, up to SEK 58.9 billion.
We booked in the first half of the year, SEK 60.3 billion. And, in Poland and in US Civil and also in the building operation in the U.S., we have had a very good order bookings, and we will take a look at that a little bit further down here, so you can see the breakdown. The operating income was SEK 1.6 billion, compared to SEK 1.3 billion, and that corresponds to 2.7% year to date, and in the isolated quarter, we had 3.3%. And as I mentioned, we improved the earnings and the profit in Finland and Norway.
In LA., we continue to work with risk management and processes to make sure that we have the businesses under control and to improve the profitability. If you turn the page to number four, you see some examples of the orders that we booked during the quarter. We booked an additional order, large R&D facility within the IT sector in the U.S., with a value of SEK 4.3 billion. And then here you also see the Bayonne Bridge, the SEK 2.6 billion project for us. Railway project in Norway is a good example of what's going on there. It's a large infrastructure market, and it's several projects that will come out for bids there as well.
And we also see some projects coming up in U.K. on the private side, and here you have one example of that, an office project in U.K. The office market, talking about the office market, we also see that the vacancies is on the way down in the U.S., and which is good for both construction, but also for the commercial development operation. And here you see one example of a project that we booked in U.S., in the office market. So with that, turning over to residential development, and here we can see that we have increased the revenue and the numbers of homes sold with around 500, up to 1,900. And we also started more projects compared to the same period last year.
And with that, we have increased the operating income. And we have been helped here by higher volumes, and one thing which is important to understand here, and that is that when we have a higher volume, the margin also goes up, because the overhead is flat throughout all the quarters. In the second half of the year, we expect to have lower volumes, especially if we talk about Sweden. As it was a favorable market during the first half, we managed to take advantage of that and start some of the products that were planned for the second half of the year.
That means it's gonna be fewer products start second half of the year, and with that comes also lower, lower volume, lower revenue. If turning to commercial property development on the next page, you can see here that we sold three major properties during the second quarter, with a total divestment value of SEK 1.9 billion, and we booked a gain of SEK 381 million coming from the three projects. Now we also have started three new ones, so we have 29 ongoing projects, and you can also see here that we have SEK 8.5 billion in total investment.
In the quarter, we also leased 77,000 sq m, 60,000 sq m, 77,000 sq m for the first half of the year. We see, especially, that the U.S. market, we see opportunities there and, going forward regarding the leasing. Turning into infrastructure development, the net present value of the portfolio remain at the same level, SEK 4.5 billion, despite that we sold five projects, as you see here. The underlying value creation in the projects is good. Turning to the business model that we have on page number eight. This is a very important model for us, which we work on quite a lot.
The synergies that we get from this is- and here you can see that we have 12% of the revenues coming from internal product, from Product Development, and then the funding for that is from the positive cash flow in construction. The 12% revenue corresponds to SEK 7.1 billion. So that's good for good business for Product Development, and it's also good for construction as we have a healthy profit on both sides. Let's turn into the order situation, and if you look at the rolling twelve numbers, the graphs that you see on page number nine, we can see that the book-to-bill ratio for the rolling twelve, that's 94%. Year- to- date is 102%, the book-to-bill, and in the isolated quarter is 112%.
So we have a positive trend there. If you turn the page, you can see the breakdown on page 10. So let me comment a little bit on the various countries there, starting with Scandinavia, the Nordics. You can see that it's quite a good order bookings in Sweden, Norway, and Finland. It's hovering around 91%-100%. Poland, surprisingly high number, I will say, 120%. What we are doing in Poland is that we are focusing - we have started to focus on the regional businesses. So we have, we are not only looking at the large products, we also look at the mid-size product out in the region.
So we are on the way to build up a similar type of organization and structure as you see here in the Nordics, which is very important. In Czech Republic, it's a completely different picture. The market, we can see a decline in the market, and we expect that it will continue, and it's coming from big public deficits and big cuts in the public spendings. U.K., 91% in book-to-bill on a rolling twelve basis. We have a very, very strong and good backlog here to work from, which is good in these times. There is a lot of talks from, especially from the politicians, to stimulate the market in a traditional way.
I think it's, it's a little bit of a wait-and-see mode from our side before we change our view on the market, because we want the project that, that we hear a lot about to materialize and come to the market so we can start to work on them in the bid requests. U.S. is a very good market. There's a lot of products coming, there, both on the building and on the civil side. A lot of bridge work in infrastructure and also, other, civil infrastructure projects. Also, the energy sector is on the way up, and we see several projects there coming to the market. And the interesting thing with this, with the energy sector, that is, it's, the dominant part of that is the private market versus the civil infrastructure is the, the, the public side.
So that is a very good way to balance the different type of client groups there for US Civil. For the building organization, we see several projects, especially in the various sectors where we have a focus, and that is healthcare, it's IT facilities, it is ordinary offices. We see that the vacancies is on the way down, and we see several ordinary headquarters type of projects coming to the market. In Latin America, we focus on two sectors. The one is mining, and the second one is energy. And as you all know, the mining sector is way down, so we see lower activities there. But in the energy market, we see several opportunities. So overall, we have a book-to-bill of 94%, and I believe that we have a very good and strong order book to work from. So with that, I hand over to Peter.
Thank you very much, Johan. Let's start to take a look on the income statement in construction. Revenues posted were SEK 58.9 billion, corresponding to a 3% increase in SEK, or 7% growth in local currencies. The operating income was up to SEK 1.6 billion, corresponding to an operating margin of 2.7%. Now, this is up compared to 2012, and as you can see, it is primarily a function of a lower S&A compared to revenue. And it's also partly a mix impact. Because of the very high growth we have in the USA B uilding lower risk business, that part of the business has actually increased from 20%-25% of the revenues, thus creating a somewhat lower margin in the comparison with the previous year.
Turning to the next page and taking a look at the various business units within construction, the Swedish business had an operating income of SEK 311, corresponding to a 2.3% operating margin for six months or 3% for the second quarter. That is down somewhat compared to last year, and that is mainly due to the fact that we completed some very profitable projects in the comparable period last year. Sweden is a very stable and good business, and it is a 4%+ business for us on a yearly basis. Norway, we are continuing the turning back to black into turning the black numbers into higher numbers. So you can see the sequentially improvement in profit, both in Norway as well as in Finland.
So the turnaround plans are put into effect very nicely. Poland posting a very strong operating margin of 7.2% in the second quarter, 3.6% for six months, which is a very good margin, given now that we are without an impact from A1. Czech Republic is still negative over six months, but posts an operating margin for the second quarter of 4.7%. That is weaker compared to the last year, but we have a business and a market which is bleeding, and we are still doing a pretty good job of cutting overhead above in order to be able to turn the business into a positive profit over the year.
For the U.K., we are posting a 3.2% operating margin for the first half, 3.2% for the second quarter. It's a very steady business in the U.K. Last year, we completed a number of profitable projects in front of the Olympic Games in the U.K., so we had a little spur in the second quarter, 2012. USA Building, a 1.3% steady margin in the second quarter, steady margin, somewhat lower than last year, but there is very good, steady profitability in this business, especially as we also have seen the top line in USA Building grow by 34% in local currency year-over-year.
Skanska USA Civil, another good quarter for a fantastic business, posting 8.4% for the second quarter, 8.1% for the six months. Very good profitability in that business. Last, but not least, Latin America, turning into a positive territory now. We are very much focusing on turning the business into a profitable business, and thus being a bit careful of producing high returns to the numbers we have seen in the past. Turning the page and also turning to another stream, residential development, we saw the revenue increase by 31% to SEK 5.2 billion, where we have sold the volume impact is +35%, but we have sold -4% in a mix impact, selling somewhat cheaper apartments compared to last year.
The gross margin is up to 11.2%, 11.8% in the second quarter. And as you, I'm sure you will remember, what we've stated is that you should look on the gross margin in terms of the development in the order stream, turning it into a ten-ten business over the years. The selling and admin is down to 5%, and the operating margin for the first half is 6.3% or 6.7% for the second quarter. And turning the page, you can see that the big return, of course, is from the Swedish business and also in other European countries. The Nordics, we took SEK 300 million in charge in 2012.
So we are gradually now coming back to better and better numbers in the RD. The other European countries, which consists of Czech, Poland, and U.K., will be in the black for the second half now, when the businesses are becoming larger. In 2012, we took a SEK 80 million write-down in Czech last year. If we turn the page and look on the volumes of started and sold, we started 1,663 units, and we sold 1,907. As you all have said and stated, we will have a hard time maintaining this volume for many reasons. Warranted that the market keeps up the way it does now, I think the full year number will be in the tune of 3,500 tops.
And that is, we don't want to compromise on the very thorough processes we have in order to make sure that the profitability in the projects we put on the market is sufficient with our 10-10 target for the business. Turning the page, looking at the production status, we have 5,185 homes in production, of which we have sold now 65%. So it only remains 35% to be sold of the existing stock. And there, you also can understand the challenge when it comes to maintaining the sold volume in the second half. A very good number for, is the reduction we can see of the unsold completed homes of, equating to 325, down 110 units from year end.
This is a stock number, so the net, it's a net decrease of 110. When we complete projects, we, we... if we have any unsold completed, we increase the volume, but then we sold from this. So, so it's a good, strong number. Turning the page, coming into the CD business, commercial development. We had a revenue of SEK 2.1 billion, and an operating income of SEK 258 million. We have not had the same volume of sales as we had in the corresponding period, but we are working diligently to continue to have a good turnover in the area. We can see that clearly on the next page, if we take a look on the investments and divestments.
We are now on a rolling 12 level at SEK 1.4 billion in gains, and approximately SEK 5 billion in sales. That is something which, we, also think that we will be able to repeat for the full year 2013. Taking a look on the portfolio, it's a net change of two additional projects, and, we have still a very good relation between, occupancy rate and degree of completion in the ongoing project portfolio. And a key to that, turning the page into the leasing, is even if it is, decreased somewhat compared to a year, maintaining a good leasing is also the source of containing risks and also creating new opportunities for new projects. So you should continue to look at this graph. Then turning the page, coming into, the fourth and last business stream, ID.
As we reported after the close of Q1, we sold five projects and thus bolstering a very good operating income by a further SEK 118 million from gains. These sales were over and above the internally assessed market values for the business. If we turn the page to the project portfolio, you can see that we have created SEK 0.2 billion in value in the projects, and then we have sold the equal amount. So we are at the wash compared to in the beginning of the period. The unrealized development gain has dropped by SEK 100 million, corresponding exactly to the gain we have posted in the P&L.
Then turning the page to the group, we have a total operating income for the six months of SEK 2 billion, and a profit for the period of SEK 1.4 billion, which equates to 3.40 SEK per share. That's a 39% increase over last year, which is pretty decent. Taking a look on the next page at the group cash flow. Cash flow was quite favorable. The big thing, of course, is the dividend that goes after the AGM, SEK 2.6 billion. If we look on the cash flow from operations, we had a very positive net investment compared to last year, a better profitability, creating better cash flow, surprise, surprise, and then also lower outflows of working capital. Which turns into the next page of the free working capital in construction.
The orange line is continuing to level off, and as we stated previously, we will start to level off to roughly at the same level we are currently operating in. But if we are growing the revenue as quickly as we do now, the percentage between working capital in absolute terms and revenue, that percentage number could drop somewhat. Then looking at the group financial position on the next slide, we have an interest-bearing net debt of SEK 4.5 billion, and SEK 1.2 billion in the operating net financial assets/liabilities. The numbers for the second half will consist of a better cash flow from construction, and we also have SEK 1.1 billion of proceeds in sale of commercial developments that we will pocket.
So we have an improving equity to asset ratio to 22.5%. Looking on the next slide, on the change in financial position, the cash flow and a positive change in the defined benefit obligation and some other changes puts then the change in interest-bearing net receivables to SEK 2.6 billion, which is equal to the dividend posted. So the interest-bearing net debt is somewhat lower compared to the previous year. And with adding back the DBOs and the interest-bearing debt from the co-ops, we are at SEK 1.2 billion in total. And then turning to the next slide, a change in equity. With all the changes and the profits, we have unchanged equity compared to the start of the period of SEK 19.4 billion.
Then coming into the group investments and capital employed. Capital employed in the development streams corresponded to SEK 26.3 billion, and that is up somewhat compared to last year, at year-end. If you look on residential development, it's dropping somewhat because we are making use of the capital there. And also the composition of capital in RD is quite different now because we have much more ongoing projects, active capital employed, than money pulled into land bank being idle. So that's improving our return on capital employed in that business.
And then ID is coming up a bit, and that is due to the fact that the cash flow hedges we have on some of the projects have increased in value, or rather, their losses there have been recouped on the back of growing long-term interest rates. With that, Johan, I'll turn over to you again.
Yeah, let me say some words about the market and the outlook going forward. It's basically the same situation as last quarter when we discussed it. So we are keeping the same outlook there, but maybe I should highlight some thing here that we think is very important to understand. So overall, the market is stable, but of course, it's big differences between several of the markets here. The U.S. operation is, in general, very positive, as I mentioned, in the sectors where we operate.
One thing which is important to understand, that is, you know, even if there is an enormous number of projects coming to the market on the civil side, a healthy pipeline, and we have a good overview of the pipeline coming, I would say, 12 months ahead. Despite that, that there is a, you know, very strong pipeline of project, we also, we also see a very intense competition. More or less all the global international players are there as there as we, and they have entered the market, and several of them has acquired smaller local players. So they are both strong from an international standpoint, but also have a local presence. In the Nordics, a little bit difference between the countries. Norway is very good.
It's driven by the underlying oil economy, Sweden stable, Finland declining. Turning into residential development, in Norway, we see that the prices for apartments is leveling off. So the price increases are flat for the time being, but it's on a very good level. Sweden, stable, especially in the Stockholm and Gothenburg, and Finland, it's in decline. So we expect a lower volume there going forward. Czech Republic, which is Prague for us, has improved somewhat, but from a very low level. In commercial development, we see maintained interest for the products we are coming with to the market, modern offices in good locations.
In the U.S., we can see in the four major cities we have an operation, that the vacancies continue to decline. Growing interest for PPPs in the U.S. It's the same situation as in the, on the construction side. There is many players out there that want to go for them as well, but it's a very good sign that there is more products coming to the market. U.K., the pipeline has been thinner, and the rest of the Europe, we see some projects coming in, I would say more or less all the countries, except for, but not here in Sweden. So going forward, turning to the very last page.
We focus very much on the U.S. operation to see how can we leverage the good situation in the market, in the sectors we focus on, including the energy sector. And, of course, to turn Latin America around, to make sure that we are back on the level where we should be, in profit. Residential development, you can see in the numbers that we are on the way back to the 10-10 number, which is the long-term target, and we're working really hard to make sure that we have an efficient and good design, so we can lower the cost. Commercial development, we're focusing very much on leasing, and I think that in the second half of the year, you will also see more activities on the divestment side. Infrastructure is a very much a situation of being active in the bid rooms. So with that, I hand over and hand back to Pontus. Yes, and then we open up for questions from the telephone conference.
Thank you. Hit star one if you wish to ask a question. That's star one to ask a question. The first question comes from the line of Peter Trigarszky of Danske Bank. Please ask your question.
Yes, thank you. First of all, Peter, you mentioned that you are seeing Sweden as a + 4% business. Do you also mean that for the current year? Then secondly, is there any of the construction units where you want to highlight, you know, that you had a lack of project finalizations or, say, where there was a boost or something? Then finally, if you look at your financial position, how do you look at your financial position, considering that your net cash now is down to SEK 1.2, when you're looking ahead, when it comes to investments in the development arms, and that, you know, combined with the negative working capital you have? Thank you.
Okay, thank you. It was three questions. I did capture two of them, and so I first start with the first question regarding Sweden and the view of Sweden being a 4% business, the answer is yes. Taking the third question, financial position. Well, the second quarter is not the starting point on how we view our financial position. We know that we have a very strong second half in terms of cash flow, and we also have money on the way in on sales we have done and reported in the second quarter. So, this does not in any way diminish our opportunities within development or for that sake, in construction. The second question I didn't...
No. Can you repeat it, please?
Yes. If you want to highlight any of the construction units, you know, either is there... Even if you don't say any sums, is there any pluses or minuses that we should think about when it comes to project finalization, or lack of them, or high bidding costs?
It's an interesting question. Well, it's more or less the same situation as you have seen in the past. Talking about high bidding costs, of course, there is a lot of bid costs in USA Civil. It's a very strong market. We're bidding a lot of products. They are large, complex design products, very expensive, and we have high bid costs, and we will have high bid costs, and we have had high bid costs. So, that's already embedded in the numbers. So yeah, that's what I can mention about that one.
Thank you.
Thank you, Peter. Do we have any more questions from our telephone participants?
Next question comes from Fredric Cyon of ABG. Please ask your question.
Hi, guys, Fredric from ABG. Four questions from my side. Start with on the Swedish division and margins. It improved quite considerably compared with Q1, the profitability, but still it, it's quite far from the levels you've had in the past few years. Is there any effect from the Karolinska, the Karolinska Hospital? Can you mention perhaps the proportion of turnover that is related to Karolinska? And then secondly, USA Building has delivered steady margins here in the last few years, but we also saw Q2 was a bit weaker than what we've seen in the past in Q2. Were there any one-off there? Thirdly, looking at RD, already in Q1, you mentioned and and we're quite cautious on RD margins, and despite this, you had quite an improvement now in Q2.
Was there any surprise for you in the second quarter? And then finally, one of your local peers have complained that planning processes take a longer time, particularly in Sweden, than in the past. Is this something you have noticed in the Swedish market as well?
Okay, so, may I should see if I can address all of your questions here. Starting with Sweden, yes, Karolinska has a big part of the revenue, of course, and we are very cautious about the profit recognition there. So it's like, you know, one thing. Then one other thing that also have a minor impact, and that is that we have moved the asphalt business that we have in Finland and in Norway previous year, so it's now in the Swedish number. It's a minor operation in these two countries, but it's now combined together with the big asphalt operation we have in Sweden.
The asphalt operation is very cyclical, low first quarter, and this year, the winter actually continued into April, so that has some minor impact as well. The Swedish operation is a very stable business. It's more cyclical than several of the other business units. But I view the Swedish operation as a profitable and stable and very strong and good operation. In USA Building, I think that your question was about the lower profitability in EBIT margin. And don't look at the margin between the quarters. It jumps a little bit up and down, depending on how we close out projects. It's more of a long-term trend.
And one other thing that I think that you should look at when talking about USA Building is maybe not only the margin, but the actual profit. So even with a lower margin, we have an higher profit as the top line have increased quite substantially. Third question regarding RD. Yes, it was a good profit in the first half of the year, and it's coming from a high volume or higher revenue, and that is coming from good sales. And with an overhead level that is completely flat over the year, you distribute it in four equal pieces in the quarters.
When you have, well, when we have a higher volume, then, of course, the operating margin goes substantially up. So with a lower volume in the second half of the year, the margin will go down, coming from the equal distribution of the overheads. So I think that is very important to understand. Planning, well, it takes around, in, on average, it's like in seven years before we start a project from we acquire a piece of land. It's one of the main reasons why it's a high cost, why we have high costs in Sweden to produce and build residential buildings.
It's also one reason why it is not easy to quickly change the revenue from one year to another, because we have a planned volume year by year, and we have that in our internal pipeline. So it's hard to start up more projects as they have been prepared and designed and ready for sale.
Okay. Thank you.
Thank you, Frederick. Do we have any more questions over the phone?
Yes, your next question comes from James Butland of Goldman . Please ask the question.
Hi, guys, James from Goldman. Just a couple of questions from my side. Just on the US Civil side, obviously, quite a big improvement in the margin in this business again. I'm actually just interested in the margins you're seeing in the projects you're taking to your order book today. And then you comment on the outlook for orders remaining favorable going forward. Can you just give a few comments by the different European markets? I'm obviously it's positive in the U.S., but I'm just wondering what you're thinking for the second half in Europe. Thank you.
Can you repeat the second part? Do you want us to comment the European market and what-
Yeah, just the different trends in terms of what you're seeing on the ordering side, because, well, Poland looked pretty strong, so I was actually interested in what was going on there, driving the sort of triple-digit increase year-over-year, and how that looks for the second half?
Okay, good.
Okay, thanks.
Let me start with the US C ivil market. Yes, we have a—you know, very good and strong operating margin in that business unit. And it's coming from the order stock and the very good product that we have. I know that I have said for some time that the margin will gradually go down, and I'm maintaining that view. But we have postponed it, and it's gonna take several years before it goes down to a lower level. Because we see what the market, how what margin we can get on new products. Why hasn't it slid down then? Is you can ask us.
Well, the products are developed in a favorable way, the new ones as well, and the old ones have also turned out to be even better than we expected at that time. But over time, it will gradually go down. It's gonna take some time, though. Some comments regarding the European markets. Norway, very healthy pipeline of projects. Sweden, quite stable. Finland, declining. Poland, we're waiting for the next tranche of EU funds, and I think that once we see them coming, they have been announced that they have the EU funds, but it takes some time before it goes down, it passes the authorities there and coming out to the market for bids. But I expect it will come.
So I'm very very positive regarding the Polish market, but we'll wait and see before we change our view of the Polish market until we really see that it materializes. We are quite negative regarding Czech Republic. It will continue to decline. In U.K., that's an interesting one, because it's a little bit of a wait-and-see mode right now. There's a lot of talks about the new projects, especially on the public side. We see some signs of that, but there's a lot of talks.
If it materializes, if it comes to the market in the same way as the politicians talk about it, then maybe we're gonna change our view about the situation in U.K., but we will wait and see to the next quarter before we do that.
Okay, just, just one follow-up. When you look at Poland, what were you seeing in the second quarter? I mean, the orders must have been pretty small, given you didn't announce any on the ISO anyway. So we-
No, it's an interesting thing here, because in the Polish market, the lack of large mega projects has caused several of the major players big problems. We saw that coming some years ahead. So we have organized ourselves in a slightly different way. So we have moved more towards mid-sized projects out in the various regions. Poland is a country with a lot of different regions, a lot of major cities out there, and it's not only one city like Budapest in Hungary. It's a completely different structure of that country. So we have reorganized our business in Poland some years back, and prioritized the regional market.
It's a little bit of a copycat of how we have organized our business in the Nordics. So I think that you can see an impact coming from that change of strategy.
Okay, thank you.
Thank you. Then we continue with any more participants.
Thank you. Your next question comes from Niclas Höglund of Swedbank. Please ask your question.
Yes, good afternoon, Niclas Höglund here, Swedbank. A couple of questions, if I may. Coming back to US B uilding, well, I hear what you say, I'm not focusing on the margins, but on a rolling 12 basis, the margins have declined from 1.8 one year ago to 1.6. And one year ago, we met in New York, well, approximately one year ago, and you were mentioning that you were aiming to increase the risks in the building business, which should have a positive implication on margins. Could you highlight on what you have in the order backlog at the moment, and what you're seeing for the full year?
We see an increased backlog and increased volume, especially on the construction management side, and that is diluting the margins somewhat. For us, it's more important to have a higher EPS, which means that the dollar is more important than percentage.
Okay, so we should expect it to be on this level rather than a rebound to 1.8, then?
I think that it can fluctuate between the quarters, the margin, take out.
Okay, and then moving on to USA Civil, stellar performance also this quarter. And in the first quarter, you mentioned that you sort of were more optimistic that you could keep these higher margins for a longer time. And you definitely beat my expectations. What would you say when you look at the order backlog right now? Should we expect the higher levels to continue also into 2015, or?
We have a very strong and good order backlog, as you can see in the numbers, and we are happy with that one, and we expect to keep the high number for some time, for some years. But over time, it will slide down to a lower level.
Okay, and then moving on to Sweden, I think I missed the question on the NKS. If you maybe could specify or give some more highlight on NKS, the dilution and pro... And then maybe a clarification. I might have heard Peter wrong, but are you guiding for a 4% margin for the full year, 2013?
Hi, Niklas. Well, to start with, NKS is roughly now turning out some SEK 2.5 billion in turnover per annum at the current production level. So for the first half of the year, a little more than SEK 1 billion of the revenue. And what I want to reinforce is, even though the first half percentage in Sweden is lower compared to last year, it is a 4%-5% business, and it has been so over many years. And I'm confident that that will be the case even this year.
Oh, great. And then also maybe a confirmation. In the presentation you said that, well, you said that you're running on SEK 1.4 billion, a 12-month basis from the commercial development, on gains. And you also, if I was not hearing wrong there, that you said that you expected to reach that in this year as well. Can you confirm that?
We have been on average hovering around that level for many years, and that is clearly in the ambitions we have for this year as well.
Okay. So looking forward to good pipeline from commercial development then?
I do, too. Yeah.
But then what can you say on the ID streams? You're now realizing some of the gains, keeping the values. What's the outlook for selling more projects in the ID stream?
The outlook for selling more projects in the ID stream is good, albeit not this year. I think that the portfolio of projects is such that we get a better bang for the buck if we wait a bit more. And also you have restrictions on projects because of completion, construction, and handovers, et cetera. So don't expect any more sales this year.
Okay. That was my, that was my question. Thanks very much.
Thank you, Niklas. Then we go for the next question.
Thank you. Your next question comes from Chetan Udeshi of Goldman Sachs. Please ask your question.
Yeah, hi. Thanks for taking my question. I just have one question with regard to Poland. Your Q2-
Excuse me, could you just repeat where you were from and who you were? I didn't catch it.
Yes, I'm Chetan from Goldman Sachs. Thanks for taking my question. Can I go ahead?
Yes.
Yeah. So I just have one question with regard to Poland. This is with your Q2, your second quarter, and your first half numbers for Poland are, you know, very strong. But the underlying profitability, your margins are really strong as well. That is, you know, you would say, close to double of all your other regions. So do you have any, you know, anything going on there, like you have some exceptions that you guys have recognized or some sort like that? So if you could just throw some light on that, it'd be great.
No, there is nothing special there, and that the margin can fluctuate between the various quarters. So, well, so that's the only thing I can say.
Okay. Thank you.
Thank you. Then we continue. I think we have some more questions.
The next question comes from Tobias Loskamp of HSBC. Please ask your question.
Yes, good afternoon. Three questions, please. The first one is also on Poland, a follow-up question. I mean, we've seen now the turnaround basically in the order intake situation, but when do you expect this also to turn around? Or when do you think this will lead also to sales growth? And also, if you could comment on whether the margin level on the more regional business, in the more regional businesses, whether the margin level is different to more national business. And then on Latin America, I mean, in light of the more selective order intake, to what overall sales level do you expect the business to level down to?
And lastly, I wanted to ask you, in the risk section of the quarterly report, you're mentioning that there was a settlement regarding a construction in Panama, which was completed in 2003. But then, has there been any major cash outflow related to that?
Okay, so let me start with the very last one, the hydropower plant in Panama, the old project where we had the claim. There is no impact on the cash flow and or the profit there coming from that project. Regarding Latin America, we are very cautious about the profit... Oh, sorry, the order bookings, to make sure that we go for the right ones. And on top of that, we have a mining sector that is in decline. And that over time, of course, that will impact the revenue. Regarding the Polish market, it's basically 12 months from order intake until you see it trickles down to revenue. The margin is basically the same on the regional and national level.
Okay, but, just to clarify on the Latin American business, would you say it's, it's fair to assume that you will move, let's say, from the, from a billion level of SEK 8 billion, more to what, a level of SEK 6 billion in two years from now?
We don't give a forecast going forward.
Okay, fine. Thank you.
Thank you, Tobias. Then I think we have one last participant that have a question on the phone conference.
Thank you. You have a question from Manu Rimpelä of Deutsche Bank. Please ask your question.
Hi, good afternoon, gentlemen. Can you hear me well?
Yes.
Excellent. Just one question from me. More general, related to the construction business. Can you just give us some indication in terms of the margin target you have of 3.5%-4% EBIT margin over the cycle? So where do you see that you stand today? I mean, if I look at the numbers excluding all the one-off costs that you've been reporting, so I think you reported 3.5% margin in 2012. So are you kind of thinking that in the next couple of years we could get closer to the higher end of that range, or are we still at the lower end of that range? Just give us some thoughts around how you see yourself positioned this year and maybe a couple of years forward, where do you hope to be?
We maintain the target of the range of 3.5%-4%. If we can improve the profitability in the various operations that we have to where they should be, we are sure that we will come into that range. One other thing that also impacted this is that the USA Building is increasing the volume.
Yeah
... which means that it's gonna have an impact on the overall percentage mix. But that is, of course, a very good business. We don't tie up any capital, and it produces profit, but it will have an impact on the overall percentage.
So if, if I rephrase my question a bit differently, so, I mean, where do you sell—where do you see your business in terms of the cycle? Because the margin target is for over the cycle, so are you still at the bottom end of the cycle, or do you see that your business is maybe closer to kind of the half, half way of the cycle?
We are in different cycles in different countries.
Okay, thank you.
Thank you, Manu. I think that was the last question from the telephone conference. We have had some questions posted on the web also, but I think that we have answered those questions as well with the other questions. So by that, we thank you for listening to our presentation here in Solna, Stockholm, and we wish you a good summer. Bye.
Thank you. That does conclude our conference call today. Thank you all for participating. You may all disconnect.