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Edited Transcript of SKA B.ST earnings conference call or presentation 24-Jul-19 8:00am GMT

Q2 2019 Skanska AB Earnings and Press Conference Call

Stockholm Jul 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Skanska AB earnings conference call or presentation Wednesday, July 24, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Anders Danielsson

Skanska AB (publ) - President & CEO

* André Löfgren

Skanska AB (publ) - SVP of IR

* Magnus Persson

Skanska AB (publ) - CFO & Executive VP

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Conference Call Participants

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* Gregor Kuglitsch

UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst

* Marcin Karol Wojtal

BofA Merrill Lynch, Research Division - Analyst

* Niclas Hoglund

Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator

* Tobias Kaj

ABG Sundal Collier Holding ASA, Research Division - Research Analyst

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Presentation

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André Löfgren, Skanska AB (publ) - SVP of IR [1]

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Welcome, everyone, to the presentation of Skanska 6 Months Report for 2019. I am André Löfgren, and I'm heading up Investor Relations at Skanska. And I would like to introduce today's presenters, which is our CEO, Anders Danielsson; and also our CFO, Magnus Persson. And after the presentation, you will all be able to ask questions over the phone.

And with that, I hand it over to you, Anders.

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Anders Danielsson, Skanska AB (publ) - President & CEO [2]

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Thank you, and good morning, everybody. If you look at the screen here on the first picture, I want to -- you see it's one of our Commercial Development projects in just south of Stockholm. It's called Stockholm 01, and it's under construction.

If you look at the overall 6 months' report for 2019, we have a strong second quarter. It's encouraging to see that the profitability in construction continues to improve, and also good to see that we're able to maintain good profitability in Residential Development despite the challenging market especially in Sweden. And we continue to have a very strong performance in Commercial Property Development.

Operating margin in construction, 2% in the first 6 months. We have a return on capital employed in Project Development, 10.9%. And the return on equity is just below our target of 18%, 17.4%. We have a slightly weaker but still supportive market outlook.

If we go into the streams, starting with construction. The revenue is SEK 76.2 billion. We have an order booking book-to-build of 89% on a rolling 12 basis. And that's not concerning for me. It's in line with our strategic action we took 1.5 years ago. And you also can see that is in a market where we have good performance in the history, we also have a higher order intake.

The order backlog is SEK 184 billion, and operating income is SEK 1.5 billion. And we have operating margin in construction again of 2%. So our action -- it's encouraging to see that our action is starting to work in the right direction. We see now for the third quarter in a row continued improving profitability, and I also expect that to continue in the future quarters. That's also that we continue to be more selective, and by that, reducing the risks in the backlog.

Residential Development, net revenue SEK 4.8 billion. We slightly improved, increased our homes sold to 1,585, reduced the homes started. And it's -- one reason is we're adapting starts to slower sales pace. And we also see some challenges with inefficient zoning processes in some of our markets, which restricts us from starting project. But the overall profitability is good. We have an operating margin of 12.4% and a return on capital of 11.6% on a rolling 12 basis, well above our target of 10% operating margin and 10% return on capital employed.

The market is still quite slow in Sweden. In Finland, Norway and Central Europe, it's strong. We can see now that the Swedish market has stabilized on a lower, lower level, and we have adjusted our costs to that.

Going to Commercial Property Development, very, very strong quarter again. We have a gain on sale of SEK 1.6 billion, and we have a return on capital employed of 10.5%. And we have 48 ongoing projects. And with the good occupancy rate, it's equal -- occupancy rate is similar to the completion rate, which it should be. And we managed to start 8 projects in the first 6 months.

The leasing activity is very high, continues to be very high. And we have a very good interest both from tenants and investors. And I'm glad to see that we deliver good results and we also managed to increase the unrealized gains for future profit.

The order situation in construction is as expected, I will say. We have a book-to-build of 89%, again, in line with our strategic action we took some 1.5 years ago.

And if we look to -- for the different geographies we have for order bookings, we can see that in the geographies where we have been profitable in the past and -- for example, the Nordics, we have a book-to-build which is above 100%. The big decrease in -- largest decrease in order book is in Europe. And that's also in line with the major restructuring in Poland and also some actions in Czech and U.K.

So we continue to be selective in bidding in Europe and in the U.S. The order bookings for the first 6 months in the U.S. decreased by 1% in local currencies. Magnus, please.

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Magnus Persson, Skanska AB (publ) - CFO & Executive VP [3]

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Dive into the financials, starting with the Construction business stream then the revenue, SEK 76.2 billion. We're down 2% in revenue year-to-date to down 3% in -- sorry, up 2% in revenue, down 3% in local currencies. And we are growing in the Nordics area in count in the Swedish krona. So U.S. and Europe are roughly flat in Swedish krona's count but, of course, coming down then in the local currencies.

We're improving the gross margin compared to same period last year by 40% here, which is a good development. And we continue to see here successive improvements in this area. And of course, this will take some time. We gave some more details to you regarding our dead revenue that we have to execute on at the Capital Markets Day sometime back here. And that is -- that execution on that revenue is done according to the plan here.

S&A. We're coming down in S&A expenses. Part of that is relating to the one-offs we had in the beginning of 2018, but also underlying, we're improving the cost situation in the construction business stream.

Operating margin at 2%, had a very strong quarter at 2.9%, if we look at the quarter isolated. A part of this was due to the damages awarded to Skanska from a court case in Norway. But if we adjust for that, we were 2.4% margin in the quarter isolated. Now this is the third quarter in a row now where we have no large audit write-downs, which is, of course, really, really good. Then we have an increased stability throughout the construction business stream.

If we then move to the different geographies. All construction units are back in black numbers here in the second quarter. Of course, that's something that's very good. If we look at the Nordics, we remain at a good margin. We have 3.6% operating margin year-to-date and 4.9% in the isolated quarter which then, of course, includes the SEK 200 million from the Norwegian court case here.

Sweden has an okay performance at 3%, 3.9% in the quarter isolated. And the comparable period here, I want to point this out, is quite tough because over 2018, we completed some very profitable projects in Sweden, which then gave us the ability to release accumulated risk provisions. So it's not an easy comparable quarter. I would say the underlying performance here of the Swedish construction business is at least at par with last year.

In Europe, Q2, see all black figures. And of course, in Poland and in Czech Republic, we almost always have a negative first quarter due to seasonal effect. So we're carrying some of that effect with us when we look at the year-to-date numbers. But if we look at the quarter isolated, this is 3%, which is then clearly a good number.

In the U.S., 1.2%. Whilst we are happier that both our construction businesses there are making money now, we're, of course, not fully satisfied with the level of this. But again, we're returning to the nature of the dead revenue and the projects that we are working to complete that have been challenging for us here. So it's a journey, but we're definitely on the right path there, and it feels more stable.

We move to Residential Development. Here, we can see we grew our revenues year-to-date 15% to slightly more than that actually in the second quarter isolated. The gross margin is coming down a bit here, but this is still a respectable level 19.5% given where we have a majority of our RD business now. The market in Sweden is, as Anders pointed out, considerably slower than what it has been.

S&A is coming down. This is largely driven by the increase in volume here. But we are once and have also undertaken actions to adapt sort of the organizational size to what we believe is the right market outlook. And the effects of that have already begun and will continue to have an impact there.

A good EBIT margin, 12.4%. The second quarter isolated was stellar at 14.9%. Revenue per sold unit is up somewhat versus the comparable period, but this is mainly because we sold more rental units in the first half of 2019 compared to the first half of 2019 (sic) [2018].

If we look at the different geographies, we can see good numbers across all different geographies: Nordics, 12.3% margin; Sweden, close to 12%; and Europe, 13% there. As all quarters, there are always some effects of release of risk provisions and we've been on this topic before. Doing this is quite a normal part of the business because if you have a well-functioning business, you also have some risk provisions. And if you manage to deal with these risks, you will get an added effect from that. If we make the adjustment here, the underlying performance is still at around 10%, which is sort of the level we think we should be at long term.

I can also point out here that year-to-date, BoKlok stands for us at close to 60% of the sold units in Sweden, which would be roughly the same level as in the comparison period.

Homes started and sold. On a rolling 12 months basis, you now see in the graph at the top that we are in balance there between the starts and the sold units. But if you look at the table at the bottom of the chart -- the slide, you can see the difference here. We sold 1,585 units year-to-date and started 1,140 units. Part of this is due to the adaptation to the market. And part of this is because it is a bit more challenging in some places to advance the zoning processes so we can start projects here.

We're still keeping the number of units on the production at the same level as in Q1, roughly 6,500 units. Down a bit, down 1,000 units from year-end, but compared to Q1, it's the same. Sales rate, 69%. We have decreased unsold completed homes quite a lot. At the end of Q1, we had just north of 400 units that were completed unsold, and now we're down to 270 units. And we have a good churn on this -- on the sort of backlog of completed unsold units. So this does not worry us at the moment here. Overall, we're quite comfortable with the risk profile and the volume that we have in the RD portfolio at the moment.

Commercial Property Development continued very strong performance. We had a gain on sale in the first 6 months of the year, SEK 1.5 billion, and in the quarter isolated of SEK 1.3 billion, and then additional gains from the divestment of joint ventures of SEK 133 million in the first quarter of the year. EBIT, SEK 1.2 billion year-to-date, SEK 1.1 billion in the second quarter.

And if we look at the development margin in year-to-date numbers, it's around 23%, which is, I think, maybe a little bit lower than what is sometimes expected. But this is, first and foremost, due to the mix of the units that we are selling. So it moves up and down a little bit there.

In addition to what we have realized in the quarter, SEK 1.3 billion, we have also grown, as Anders pointed out, the unrealized gains that we have in on our portfolio. We moved up to SEK 9.4 billion in unrealized gains in the CD portfolio from SEK 8.9 billion after the first quarter. So you see the value creation in total here during the second quarter was SEK 1.3 billion that we took the profits and SEK 0.5 billion that we have increased unrealized gains, so around SEK 1.8 billion there. And long term, we continue, and we have for quite a long time here continued to grow the unrealized gains in the portfolio at the same time as we're growing the level of realized profits here.

The recent development that we have seen in the market of the interest rates both in the Swedish kronas and dollars and the euro is, of course, positive and gives a good support to Commercial Development going forward. We're basically seeing that the rate curve is flattening out quite far out the curve here. So that feels really good to us. And we can't really feel any negative impact, neither on tenant demand, nor on investor demand in this business despite there's been a lot of talks about this, I would say, in the market and media.

If we look at the completion profile of the current portfolio, we have a comfortable situation here. The units that are up for completion over the coming 3 quarters all have a very good occupancy rate. And we have actually a fairly good occupancy rate even at -- in the units that are expected to be completed in late 2020, so a very comfortable situation there.

If we look at the leasing, good continued high pace of leasing. Both the percent of completion of the construction works of the portfolio and the occupancy rate is moving up in tandem here. They are quite synchronized. We have a portfolio that's becoming more and more mature. And of course, this would -- this feels good because we have supposedly a lower risk in the portfolio. And given what we see in the market here, it gives us a good commercial position to, I would say, take advantage of this.

If we then look at the group. Total operating income from the business streams at SEK 3.3 billion, up from last year that was at around SEK 2.5 billion. Central cost looks a bit strange here, minus SEK 60 million. But then you have to recall that around SEK 200 million of that are release of risk provision that we have held centrally due to a situation that was resolved with competition authorities in the Czech. And we have issued a separate press release regarding that during the quarter here.

Eliminations, SEK 17 million. Total operating income year-to-date, SEK 3.2 billion. Net financial items, minus SEK 100 million. A big shift from the same period last year, but the main reason for this are the interest costs that come along with the lease liabilities that we have received due to the introduction of IFRS 16. Taxes at 16% year-to-date versus 18% in the last year.

If we then look at the cash flow, cash flow from operations, that is down compared to last year. And the main reason to this is that we have a negative development of the cash flow from net working capital. We've had, as we've said on a couple of occasions there, some of the projects that we have been struggling with. When we take loss provisions, that increases, of course, the working capital on the balance sheet. But as we then execute on these projects, we'll have a cash flow impact of that, and that is what we see here. We also have considerably higher tax payments year-to-date 2019 than we had last year due to the fact that we had been sort of paying quite a lot of preliminary taxes in 2017. So we received a fairly big refund on that.

In the second quarter alone, we also have a fairly large difference in the net investment here. We're net investing more in the second quarter this year in Commercial Development than we did in the second quarter of 2018.

Working capital and construction. As you can see, the rolling 12-month ratio here is keeping up well at about 15%. So that's, of course, very good. But as I already said, this is impacted by the loss provisions in the balance sheet that we have here, and this will unwind over the coming couple of years.

Investments and divestments. We're still in a net divestment territory at the group on a rolling 12-month basis. Driven quite a lot here, if you look at the graph on top of the slide, the green line, by the significant divestments that we had in the fourth quarter of 2018. Year-to-date in 2019, we are not investing here.

Capital employed, coming down in Residential Development as -- quite as expected, around SEK 1 billion. In Commercial Development, we are increasing the capital employed quite a lot. But we have to recall also here that around SEK 4 billion of this increase is directly related to the right-of-use assets that come along with IFRS 16 introduction.

Financial position. We have total assets up to SEK 125.5 billion from SEK 116 billion, again, significant effect of IFRS 16. SEK 8.5 billion of this SEK 10 billion difference is due to IFRS 16. We have, say, a quite comfortable situation in terms of adjusted net debt, minus SEK 2.8 billion, compared to the external target we have here of minus SEK 9 billion and a good equity to asset ratio of 23.6%.

Finally, the PPP portfolio that we now carry and account for in the central stream, no underlying operational changes here. We're continuing to develop the unrealized development gain, a bit positive here, up to SEK 1.3 billion.

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Anders Danielsson, Skanska AB (publ) - President & CEO [4]

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Okay. Let's go into the market outlook, starting with construction. It's slightly weaker but still high activities in most of our markets. Starting with Nordics here, we have a mixed building market and a very, very strong steel market in Sweden. And the building market is strong on the commercial construction, weaker due to the weaker residential markets in Sweden.

Stable market -- building market and strong civil market in Norway, and Finland continues to be stable. In Europe, we can see that the Brexit impacts not only the nonresidential construction, we should have seen for quite sometime now, we can also see that the civil market is a bit slower due to the fact that the Brexit process sort of disturbs the decision for starting new projects on the civil market as well.

Poland, stable. We have a stable market -- building market but weak civil market in Czech Republic. And we can continue to see cost escalations in Central Europe even though it has flattened out somewhat.

Very strong market in the U.S. Continue to be good market both in civil and building but still fierce competition.

Go to the Residential Development. Slower market in Sweden. It has stabilized on the lower level now, and I don't expect it to increase in the next 12 months. Norway and Finland, stable market, quite, quite good market. And as in Central Europe, it has been very strong growth, and the growth has slowed down somewhat after a period of very strong.

And Commercial Development, very good market, very good appetite from investors and very attractive building for tenants. So we can -- we don't see any slowdown there in any of the market: Nordic, Europe or U.S. markets. Good tenant demand.

To summarize this on a group level then, construction is gradually improving, very encouraging, important, I expect it to continue to do that in the coming quarters. We're adapting to slower sales pace in Residential Development especially in Sweden. We're building up unrealized gains in Commercial Property Development and to harvest in coming years. And we can see a high market activity in many of our geographies and segments but still, again, fierce competition.

And with that, I'll leave it to André to start up the Q&A.

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André Löfgren, Skanska AB (publ) - SVP of IR [5]

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Thank you. Thank you, Anders and Magnus. Yes, let's open up for questions, which will be over the phone because it's just us here in the room.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we first go to the line of Tobias Kaj at ABG Sundal Collier.

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Tobias Kaj, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [2]

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I would like to start with a couple of questions regarding your construction margin. And you mentioned that you expect a continued improvement. Should we expect an improvement continue year-over-year or also compared to the level we saw in the first half and in the second quarter?

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Anders Danielsson, Skanska AB (publ) - President & CEO [3]

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Yes. You should expect improvement year-over-year. We have seasonal effects, as you know, especially in the first quarter. So that's my -- you should look at more on the rolling 12 basis.

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Tobias Kaj, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [4]

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Okay. And regarding your construction market in Sweden, you have for many years talked about that Sweden should be a plus 4% margin market. Now you're a bit below that level in the first half. Do you still think that Sweden should reach roughly 4% for the full year? Or should we expect a lower margin? And if so, for how long?

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Anders Danielsson, Skanska AB (publ) - President & CEO [5]

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We commented on the quarter we have seen, especially on the second quarter now, that we have the last year very profitable project that we completed. And that's quite normal in a unit like Skanska Sweden, well run, well organized and well performing. So that's -- so you should look more on the rolling 12 basis here as well. And I don't see any changes when it comes to performance. The underlying performance has not changed.

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Tobias Kaj, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [6]

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Okay. And I also have a couple of question regarding Residential Development. The first question is regarding your margin outlook. You've talked before about some 10% guidance as a normalized level. Did I understand it correct now that you indicate that you have roughly 10%, excluding the effect of reverse provision and that including that it should be slightly better? And, I mean, you were at plus 12% for the first half. Should we expect a similar level for the second half?

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Magnus Persson, Skanska AB (publ) - CFO & Executive VP [7]

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Tobias, this is Magnus. What we say is that the underlying performance will take away these effects of provision on land sales and so on, then we are trading at around 10%.

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Tobias Kaj, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [8]

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But do you expect positive effects of those provisions also for the second half or...

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Magnus Persson, Skanska AB (publ) - CFO & Executive VP [9]

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I mean there are always some effects from provisions in a well-run business. I can't give you any specific expectations on that. I think the important thing is to look at the underlying performance and that we are trading around 10% there.

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Tobias Kaj, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [10]

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Okay. And one final question regarding starts in Residential Development. You mentioned you have started less than you have sold, and you mentioned zoning is a problem. Do you see that as a problem for the second half as well? Or do you expect a recovery in the number of starts?

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Anders Danielsson, Skanska AB (publ) - President & CEO [11]

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Well, it's not a big problem, I would say. But it's 2 reasons: One, we're adapting to the market sales pace we have in different projects. And we start the project when we feel comfortable on the sales rate in that specific project. But we have some project, that it takes time in some of our markets that should get the zoning in place. And right now, we can see that stopping us from starting some project that we probably would have started anyway. But it's a cycle as well. So we have a pipeline. We have a good pipeline in the land bank, so it's not, as I see it, a long-term problem.

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Operator [12]

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We now go to the line of Niclas Hoglund at Nordea.

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Niclas Hoglund, Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator [13]

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Couple of questions then from my side as well. If we start with the construction stream and boil down to the U.S. operations, we're still not seeing any major improvement here if we sort of adjust for provisions for the last year. And I'm quite surprised on the very low margin level in the second quarter of 1.1%. Is this according to plan? Or have you seen any further provisions in the major projects on growth?

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Anders Danielsson, Skanska AB (publ) - President & CEO [14]

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Anders here. I would say it's according to plan. It takes time. We have a lot of dead revenue as we talked about on the Capital Market Day sometime ago. That influenced us. And the vast majority of the business is going as planned. And we can see that our project that's included in the dead revenue also executed as planned. But the issue is they don't contribute to anything for the profit or the S&A.

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Niclas Hoglund, Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator [15]

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Right. Okay. And moving on to Europe where, well, you recovered maybe a little bit stronger than I would expect. Are there any onetime gains here? Or have we seen a normalization of the underlying profits in Czech, Poland and U.K.?

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Magnus Persson, Skanska AB (publ) - CFO & Executive VP [16]

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Niclas, this is Magnus here. There are no major one-off effects. We have, as communicated, sold a couple of businesses in Poland, which had some effect, but it's quite small. It wouldn't sort of distort the picture when you look at the numbers here. Then the quarter is quite a strong quarter. We always have to be -- there's always a swing between quarters obviously.

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Niclas Hoglund, Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator [17]

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Okay. But now we're back to more of a normalized level, you would assume? Or is there any risk for a setback?

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Magnus Persson, Skanska AB (publ) - CFO & Executive VP [18]

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Well, the units in Europe are making money. They're all in black, which I think is a normal level that they make money.

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Niclas Hoglund, Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator [19]

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Right. And then I have a couple of questions on resi. I don't really sort of understand the delta here in Sweden in Residential Development. You're down to 4.8% margin in the first quarter, and now you're up at 16.3%. We're seeing a very strong development also in the underlying average selling price. I mean, if you were to sort of comment on the underlying trend and what you're seeing in sort of profitability in Sweden, is 10% really the level where it should be after 16.3% now in the second quarter?

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Magnus Persson, Skanska AB (publ) - CFO & Executive VP [20]

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I think what we said was that we're trading at 10% underlying for the stream. I don't want to go into and dissect the individual geographies here and sort of give underlying numbers for that. I think you can -- we can say that we think that it's a decent level where we are now. Then of course, we also invest in Residential Development. It depends on what happens in the individual quarter quite much. We can never forget that and need to look at some sort of average over time to really track the changes in the performance of the business. So I wouldn't write -- I wouldn't take it as too big of a signal what 1 individual quarter gives.

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Niclas Hoglund, Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator [21]

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Right. And a follow-up on that. You are sort of reiterating that 60% of the underlying sold units are related to BoKlok. And have we seen that materializing also in the completed? And the average selling price, should this have a negative impact on sort of the sales mix in the portfolio going forward? Or is it already sort of matched versus last year?

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Magnus Persson, Skanska AB (publ) - CFO & Executive VP [22]

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I'm not sure I understand your question, Niclas. Can you specify it a bit...

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Niclas Hoglund, Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator [23]

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Sorry. Sorry. Well, BoKlok being more affordable, i.e., lower price per unit, and being sort of the improvement in the strengthening of BoKlok relative to the other co-op production, would that imply lower sales price per unit? Have we seen that already in the numbers now and there's no sort of negative sales impact going forward? Or is that still to be expected?

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Magnus Persson, Skanska AB (publ) - CFO & Executive VP [24]

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Okay. In the year-to-date, we had roughly 60% of BoKlok of the sold units, and we had roughly the same level year-to-date last year. So any dilution of margins that I guess is what you are after here, that is already part of the results that we are reporting on.

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Niclas Hoglund, Nordea Markets, Research Division - Senior Analyst of Construction & Real Estate and Sector Coordinator [25]

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Right. I just wanted a confirmation on that. And one final one, if I may. On commercial, we're seeing very strong healthy underlying profitability, but there are only 2 new projects started. Do you have zoning problems also on the commercial side? What's keeping you on the sidelines on starting new projects?

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Anders Danielsson, Skanska AB (publ) - President & CEO [26]

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I can comment on that. No, I wouldn't say so. We have a very good pipeline. And it's always a challenge to find new land for the future, but we're working hard on that and quite successful as well. Also, if you look at the first 6 months, we actually started 8 projects. So we have, today, 48 ongoing projects. So it's not that we see any problems with that.

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Operator [27]

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We now go to the line at Gregor Kuglitsch at UBS.

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [28]

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My question is around cash flow. Can you help us out a little bit how you see the dynamics going forward, particularly as it relates to sort of your legacy project losses that you flagged will unwind? So I want to understand what -- where you see the trend in your defined net debt in a particular way, so that was SEK 2.8 billion as of Q2. Where you see that trending, I don't know, over like the next 6 to 12 months, say?

And then related to that, I guess, is the revenue outlook for construction. So construction revenues have continued kind of flat roughly. Do you expect them to decline in the second half and next year? If so, how much? Or is there offsetting factor to the sort of underlying shrinkage? Obviously, we can see order intake is trending down for the first time. So I want to understand how you see that shaping up.

And then finally, and I think this is probably a difficult question to answer, but do you expect material -- is there any sort of big divestments in commercial still earmarked for the rest of this year? Or you don't want to commit to timing?

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Magnus Persson, Skanska AB (publ) - CFO & Executive VP [29]

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This is Magnus here. I will try to answer your questions here. Let's see if I am successful with that. In terms of the cash flow and the net working capital, how that interacts with the projects is well communicated. I mean when we have a project that we forecast to be a lossmaker, then we have to book up a lossmaking provision in the balance sheet and that we do that as a noncash item. Then as we execute on these projects, of course, it takes cash to put the works in place.

So you're sort of leading the cash development with changes in net working capital here. So therefore, we do expect some negative impact from this in the -- first of all, in the cash flow but also that the net working capital, based on the balance sheet items, will come down as we complete this lossmaking project here.

In terms of the Commercial Development impact on sort of the projects that are for sale in Commercial Development, we never forecast anything with regards to the segment sales, i.e., when we sign sales contracts. What I can tell you is that we have sold Commercial Property Development projects but not yet transferred them. And when we transfer them, they -- we receive the cash. So the total cash impact that will come from transferred projects is in the tune of SEK 8.5 billion to SEK 9 billion, of which around SEK 3 billion will come our way during this year and the remainder in the coming year.

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [30]

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Any direction on the net debt, where you see it trending? I know that on the Capital Markets Day, you're saying it's no more than, I think, SEK 9 billion, but I guess that was kind of the limit. Do you have any indication where you think it'll end up?

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Magnus Persson, Skanska AB (publ) - CFO & Executive VP [31]

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We like to keep it below SEK 9 billion. Also the revenue for construction here, you're correct with the bookings. We have a book-to-build that is below 100% for Europe and for the U.S., which is exactly in line with the strategic initiatives that we are executing. Otherwise, we have booking that is above 100% in the Nordics where we have sort of overall in general more well-performing business then.

In terms of the revenue outlook, we never give an outlook. But we have said that we

(technical difficulty)

late 2017 or early '18 expected revenues to come down around 9%. We don't see any major shift to that. But of course one significant matter here is currency fluctuations. And as you know, the Swedish krona is moving significantly against some of the key currencies. So this is a bit hard to translate, but that's my answer.

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Operator [32]

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Okay. Before we go on to the line of Marcin Wojtal of Bank of America Merrill Lynch, (Operator Instructions). And we go to the line of Marcin.

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Marcin Karol Wojtal, BofA Merrill Lynch, Research Division - Analyst [33]

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So just one outstanding question on Commercial Development and specifically on development margins in the second quarter which, if my calculation is correct, it was about 22%, which is a little bit lower than in previous years. And you mentioned that it is due to mix effects. So can you maybe provide a bit more detail what are these mix effects? Is it because you're selling properties a bit earlier in terms of completion? Or maybe you're selling projects which are in smaller cities? And is the quarter, let's say, representative of the current market situation? Or it was just a little bit low due to these factors?

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Anders Danielsson, Skanska AB (publ) - President & CEO [34]

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I can comment. Anders here. I can comment on that. Yes, it's definitely due to the different mix between the different quarters. One example is we are in -- within the Commercial Development, we are mainly in the office building in large cities. But we also have logistics, which has a different setup. And we also have offices -- developed offices in smaller cities. So I will say it's due to that different mix simply.

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Operator [35]

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Okay. As that was the final question in today's call, may I please pass it back to you for any closing comment at this stage?

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Anders Danielsson, Skanska AB (publ) - President & CEO [36]

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Right. Thank you all for listening in and for your interesting questions that contributed to a good dialogue. So I just want to wish you a great rest of the summer. Thank you.