Skanska AB (publ)

André Löfgren - Senior Vice President Investor Relations Johan Karlström - President and Chief Executive Officer Peter Wallin - Executive Vice President and Chief Financial Officer

Niclas Höglund - Nordea Jonas Andersson - Danske Bank

Good, sunny morning to you all. My name is André Löfgren, heading up Investor Relations of Skanska.

And I would like to welcome you all to the presentation on Skanska’s Six-Month Report for 2016. It will be presented by our CEO, Johan Karlström; and also our CFO, Peter Wallin.

And you will all be able to ask questions after the presentation, so just follow the instructions from the operator. With that, Johan, welcome.

Thanks, André. And I don’t know if you see the presentation promptly, but if you take a look at the very first page and the picture there, you can see the LaGuardia Airport.

And I will comment and dig a little bit deeper into the project referring to my presentation here. But before I do that, I want to give you some highlights from the six months report.

So you can see that revenue is basically flat. If you look at local currencies and operating income is significantly up SEK 3.6 billion versus SEK 2.5 billion, due to very strong performance in our development operation, in commercial development, and resi – residential development.

We do see lower profit in the construction, I will comments on that a little bit further down here. Return on capital employed for the project development, businesses is well above the 10% level.

And we think that we can continue to deliver with a very good performance here on – and on that level. If you take a look at the earnings per share is significance up.

I think it’s 63% compared to same period last year. And order intake is very good, but it’s not only been due to the big order LaGuardia that we landed.

And we can see that we have booked several other large projects in the construction sector, especially in the U.S. I don’t know if you remember, about six months back, we saw some project, especially in U.S.

building that was postponed. We expected the market – we expected the market to come back.

And the market is now behaving in accordance with our expectation regarding that ballpark. So let us take a little bit of a deeper dive into the LaGuardia project.

I’m on Slide #3 now. And there we have a construction order of $2.8 billion.

And the $2.8 billion that we have in construction value corresponds to 70% of the total contract. The 70% is then equally divided between the two business units that we have in the U.S.; USA Building and USA Civil.

On the equity side, we are three equal partners; Skanska and two others. And we have done one-third of the investment, and our part is equal to $70 million.

The construction has already started and will continue to 2022. And it’s the same thing with operations, so also started, because we have taken over the existing terminal.

But we have to stay a little bit longer there until 2050 until we have ended that part of the contract. The model for the PPP and the income there that’s coming from – in the – on the PPP side is that, the income coming from airlines and then some portion from retail at the airport.

So it’s a very limited market risk. The financing of the overall projects, you can say that it’s both coming from the PPP side, but big part is also coming directly from Port Authority.

And on the PPP side, it’s the same typical setup that we always have on these ones with debt and equity and then there’s milestone payments from Port Authority. And we’re building here the new Central Hall, a new terminal, a parking facility.

And we have also – we’re also building up a lot of infrastructure around. And this is – the contract that we’re having now, that is a part of the redevelopment of the new – of the LaGuardia Airport.

There’s a lot of other discussions of other terminals and other investments that will come later on. And I think that we are well-positioned to be in competition to land, maybe some other projects in the future here.

If you take a look at the overall situation for our PPP operations or infrastructure development operations that we have in the U.S., we have three large contracts; LaGuardia is one, and then we have two others. The two others are the Elizabeth River Tunnels in Virginia and then the huge highway the I-4 project that we have outside Orlando in Florida.

Let me say some words about the Tunnel project in Virginia. Our equity there corresponds to our equity, a portion of that corresponds to 50% of the total investments.

On the equity side, we have an external partner, and our investment will be $136 million. But a construction value that is over SEK 660 million for Skanska and we have 45% share on the construction side, now we have two other partners there.

We’re building a tunnel on the Elizabeth River. But we will also take over existing tunnels.

And the whole facility, all the tunnels there, we will then run the operations to 2017. The PPP setup here that is traffic risk, which means up, it’s – the revenue is coming from the tolls that we have on the project.

The third project, the I-4 in Orlando in Florida, and it’s a huge construction and several express lanes and 20 miles long project with 140 bridges. So it’s – a lot of projects out there that over a very, very large in over a very large area.

And our investment there is also 50%, and we have an external partner and our 50% corresponds there to $73 million. And the construction value for us is $920 million, and that that corresponds to 40%.

And we also have some other external investors on the equity side. The PPP model here, that’s availability, so we don’t take any traffic risk on that project.

If you look at the geography or the overall market for ID in the U.S. If you look at the map here, you can see all the green states.

All the green states, they have the legislation in place for PPP projects. So they have started up to invest a lot of infrastructure here and have it in place.

We are not focusing on all these states. There’s a lot of projects out there in the market.

And the project that you can see that is highlighted on the picture here. That’s the project that we have decided that we will go for and we will tender for it.

I will not go through all of them, I just want to point out some few projects that we will focus on the – in the near future. That is the I-66 project, Virginia, another highway project in Colorado, Colorado, Culver I-70, and then there’s few other airport projects at the LAX airport in Los Angeles that we think that we have a good chance to win.

So there’s more projects in the market than we can focus on, which is good, because we can pick the ones where we see the greatest opportunity for. So on the next slide, you can see the total ID operation that we are having in Skanska, and it consist of – we have around 100 employees, highly skilled, and they are specialized in PPPs.

We’re basically covering all the markets, where we have construction operation. And we see great synergies between the investment side, the PPP side, and the construction.

So we never go for a project – for a PPP projects with an investment, if we don’t have the construction side in collaboration. So we never go for just the investment.

And we see great synergies between the two units there. We have experienced from – with 33 projects, both – within both the Civil and the social infrastructure.

And currently, we have nine projects in the pipeline. So, on the next slide, you can see the financial outcome during the first six months in the ID operation.

And you can see that we landed SEK 217 million in the year-to-date number. And that we have also increased market value all the portfolio by SEK 400 million up to SEK 5.2 billion.

And we have a very healthy return on capital employed of over 60% in this business. And besides the financial close that we reached at LaGuardia during the second quarter, we have also headed over to first phases of the Karolinska hospital in Stockholm to the County Council.

And they plan to open up for the first patients at the end of this year. So with that, I want to move over to the other streams that Skanska starting with residential development.

And already we have had – you can see that we have a slightly lower revenue compared to the same period last year. That is not the sign of how the market reacts or goes in the various countries.

It more relates to the mix of projects and also when we plan to start the sales and the construction. It can always differ a little bit.

And you can see on the number of homes is basically the same number in the first quarter last year. We plan to have it quite stable numbers here, because we want to be in this business.

We are here for the long run. Good operating margin, the return of capital employed, and we have surpassed the 10-10 level that we strived for several years.

We definitely think that we can stay above the 10-10 level going forward. The number of unsold completed apartments is on the way to creep down.

And we have and that’s, especially in two places, and it’s on the West Coast in Norway and is also in Finland. So it’s on the way to come down to healthy levels.

The new amortization rules that we have seen in Sweden, that has reduced the number of speculative buyers. And we think that is healthy.

We think is good, because we don’t want to buy to speculative buyers. We wanted to – so we don’t want to sell to speculative buyers.

We want to sell to real families that moving into an apartment going to use them themselves. So we view now the market is more balanced going forward.

I’m now talking about the Swedish market. So with that moving over to commercial development.

So that continues to deliver a very good profit. And so far we have divested SEK 5.9 billion of assets with a total capital gain of around SEK 2 billion.

And that corresponds to a return on capital employed over 16%. And today we have 47 ongoing projects in this stream.

And you can see that pre-leasing and completion ratio is basically imbalance. And we expect to continue with a high activity level.

We have started 12 new projects during the period. And you can also see that the leasing is creating further value creation in our operation that, which leads us into our view about the future here.

And the plan here and the strategy and the way we perform around operation in commercial development is that, we will continue to expand and deliver profitable project in the future with good gains – capital gains. And you can – I don’t know if you have already seen that we have announced another divestments today, and that’s – that is the Hagaplan hotel just outside the Karolinska hospital that we divested and it will be booked in the third quarter.

So with that, I want to move over to construction. And you can see that revenue is slightly lower compared to the last year.

The order bookings that was considered will be up. And it’s primarily in the U.S.

I talked about, but also in Norway and I will say that we have had a good order intake in Sweden. We have had no visible impact of Brexit in the order bookings.

And I will come back to Brexit and make some more general comments on what we see here and how we expect the Brexit to have an impact on our business going forward when I go over the market expectations here at the end of our presentation. We can see lower operating income in the USA Civil and in Poland.

And in USA Civil, we continue to have some challenges in the problematic project that we have talked about earlier. We had done some minor settlements and agreements with the clients.

But the big settlements, the biggest customers is still ongoing. And I expect that is going to take sometime before we end them as it is a really big number that we discussed.

In the Polish market, we have seen a shift from small and medium-sized projects EU funded ones on the public – in the public sector. That is exactly the market that we have focused on the regional side.

And that means that there have been a dramatic shift or a slowdown exactly in that niche in the region operation that has impacted our business. And we know how to right-size our operation.

And as we have overcapacity and we’re also shifting over to other segments in the market and focusing our tender operation for that part like larger civil project and also the private sector. The other operations outside these two units, I mentioned; the Nordics and especially USA Building, they’re performing very well.

And there’s a stable business and we have high expectations going forward for those businesses. So with that, I hand over to Peter and to dig a little bit deeper into the numbers.

Thank you, Johan. So let’s start with the construction and order situation, the famous May chart showing that we are heading over and above revenues now with the book-to-build the 107% for the rolling 12 months.

So a very strong increase on the order bookings due to LaGuardia, as we have talked about. Backlog is also up considerably.

And apart from LaGuardia, we have booked many very good projects in the quarter and the U.S. market and specifically USA Building has been very strong.

Going over to the order bookings in numbers for the construction stream, you can see them the SEK 84.2 billion in order bookings over SEK 58.3 billion corresponding to the 107% book-to-build rolling 12, as I mentioned. In this chart you also – it’s worth mentioning them that the only units, which are below 100% value, which are not building backlog is that the Czech and UK.

And I would say that in both markets we have a strong pipeline projects, where we’re the preferred bidder. And we expect to turn a part of that pipeline of preferred bidders into actual orders during the second-half.

Another interesting part of this table if you are a numbers guy like I’m, you look to the months of production. So on average, we have increased the months of production we have in backlog to 15 months.

But you can also see the differences across the various business units, which – where you find the highest durations in UK and the U.S. businesses.

Poland on the other hand have a very short production time and that is also one of the explanations for the impact you can see on revenue when we are lacking the smaller regional projects to bid for us Johan mentioned. Turning into the income statement for the construction stream, the top line was SEK 64.2 billion, which is a reduction by 2 percentage points adjusted for currencies.

Gross income was SEK 4.6 billion, and operating income was SEK 1.3 billion. As you can see the gross margin is 7.1%, the same as in the comparative quarter.

The selling and admin is increasing its amount on the back of incurring bid costs for future projects, as well as increasing cost for the ERP systems that we talked about in the first quarter. That gives an operating margin of 2.1% for the first-half compared to 2.5% for 2015.

So to go deeper turning into the various markets in construction, we – if we comment on the various markets, Sweden have very good operations, and there’s nothing in terms of losses that explain the deviation. You can see that we have increased the margin considerably in the second quarter and the operation is doing very well.

The same is true for Norway and Finland and the Czech, even though Czech here is still reporting a negative margin for the first-half, which is due to the seasonable impacts. They do post a very good margin for the second quarter.

Poland on the other hand, as we have talked about due to a much lower sales level because of the shift in markets means that we are too heavy on either resources, of course, in the operating margins to go down considerably in the second quarter. On the other hand, it is even more important to not bid for projects, which are bad from the start.

So we want to take some either costs rather than some bad projects. For UK, the margin has been at the same level as in the first quarter, stable operations.

And we have a good backlog and pipeline to build from in the UK. USA Building back on track take time and also increasing margin considerably.

And we see a very good pipeline and good market for the building operations in the U.S. Civil post a reduction in margin.

This is a combination of bid costs and design fees and the fact that we are posting that revenue. If one you look at the gross margin in the Civil business, it’s actually increasing compared to the similar quarter last year.

On the other hand, the S&A is much higher due to the ERP system and bid costs. Turning into residential development, sales was SEK 6.1 billion for the first-half of the year, which corresponds to a reduction in revenue by 8%.

Volume is up 1%, but the price mix impact is negative 9%. In other words, we are selling much more affordable houses in the comparative period, and the – which you also can see on the price per unit.

On the other hand, the margin is still continuing up, and we posted an increase on the EBIT line by 7%. Gross margin is 15.9%, and operating margin is over and above the 10% mark at 11%.

So we are beating the 10-10 as Johan stated. If we turn to the various markets, you can see the continued very good performance in the Swedish market, where we have good and strong execution and take – can take advantage of the very good market in Sweden.

And that’s why it’s important to not to start projects until they’re ready to be started to the market. Norway, improving performance.

We have started a lot of projects and we are executing them well. Finland shows a lower margin compared to last year.

The market is unchanged compared to previously, and there’s no major performance issues at all in the comparative period. We’ve sold some land thesis, which explains the difference and then we also do bundle these, which means that we sell investor packages and those are sold at a lower margin compared to developing at full risk.

Central Europe shows somewhat lower margin. And if you look on the isolated quarters, we have adjusted the accounting for land, and that gives an impact of around SEK 10 million in absolute terms in the second quarter.

The underlying profitability in the business is good, and the key to increase the numbers is, of course, execution and how we are starting up the Polish RD business. Turning into the home started and sold in the chart, you can see that we are hovering around stable just above the 4,000 mark on both sold and started.

And the trick is, of course, to only launch projects, which are ready to be launched at – in the market. Turning over to homes in production, you can see that that has increased.

However, the sales rate continues to be very high 7% to 8% on average. So in order to drive sales, we might start up new projects.

The unsold completed that Johan has talked about is a very low now compared to the overall volume. So it doesn’t post any major risks and we are continuing to sell homes in the various markets, as Johan mentioned, specifically West Coast, Norway, and Finland.

Turning into the commercial property development stream, operating income on SEK 1.8 billion, which is quite considerably higher compared to last year. The – we have continued to divest properties in the south of Sweden in the second quarter at very good levels.

And as you can see, we are still over and above 30% in gross margin, if you compare capital gains to the sales prices. That is, of course, the fact that, we have very good assets to be sold with very good cash flow profile.

So, if you turn into the next part, the divestments, you can clearly see that we have over many years ramped up the volume of this business, higher investments and higher divestments, and taking advantage of our market position and the positive market momentum. And we are a record high in terms of capital gains, as you can see on a rolling 12-month basis.

If you turn into the next part, this tells you both about the history and about the future. The bars, they show the future and the line shows what we have done.

If you take the future dam, despite the fact that we have sold assets, we continue to increase the bars, i.e., the unrealized development value. And in the quarter, we have increased with the net of two projects.

So – and we are still selling at higher than our internally assessed market values. Going over to a very important part of the CD business, that is leasing.

And if leasing was important before it’s even more important now, because the attractiveness of our assets is linked to the attractiveness of the cash flow of our assets. So we continue to be active on the leasing side and we are looking for quality comments.

Turning over to infrastructure development and the income statement, the operating income was SEK 217 million for the quarter, and it’s a good level of profits. Turning over to the project development, the value of the portfolio has increased, despite the fact that we have had some headwind on the currency side, which of course, is predominantly derived from the British Pound.

The unrealized equity value is increasing compared to year and as you can see. In 2015, Barts and the Royal Hospital in London was included, but that was sold in the last quarter as of 2015.

That summarizes and let me go into the group income statement. The centerline, which have included costs related to the close of Latin America is now completely clean.

From that, we see a reduction in the central costs. The operating income for the group amounted to SEK 3.6 billion for the first six months.

And in the second quarter, as we also alluded to in the first quarter, we have turned interest net to a net positive. That, of course, also is a function of mark-to-mark changes due to interest rates and currencies.

But in this quarter, we have not had any major positive or negative one-offs. Tax line is 21%, which gives us an earnings per share of SEK 6.89 million.

Cash flow is important, so turning to the cash flow, we have a negative cash flow from operations in the first-half, which is typical for the construction business because of the working capital outgoings in the first and second quarter. However, they are at a relatively low level and we have also some net divestments in the development streams.

And as usual, we also pride ourselves of being a steady dividend giver to our shareholders, so the dividend went out in the second quarter, producing a negative cash flow of SEK 5.3 billion more or less equal to that of 2015. The free working capital chart, which I know is of interest for me and for many of you, as it continues to show a positive momentum with cash flow increasing on the back of increasing business volume.

But we are also increasing the relative proportion of free working capital compared to the construction revenue, the green line. So the green line is now at around 13%.

Going forward on the back of increasing volumes in our construction business, don’t expect the green line to continue to develop in this very favorable way, because I think that we are operating on a good level now. The absolutes on the other hand should be trending in relation to that of the business volume in the construction stream.

Going into the investments, divestments and capital employed in the development streams, we are maintaining the level at and around SEK 29 billion, increasing somewhat compared to year end. This trend will continue, as we have a good pipeline of starting up new projects in old development streams.

And also the fact, if you – if I remind you about the residential development, where we have a very high sales rate compared to the completion rate in those projects. So you will see a buildup of capital employed there.

That is, of course, possible if you have a strong financial position. So coming to the next slide, you can see that we have a continued very strong financial position and the interest-bearing net increased to SEK 1 billion in the – into the second quarter, partially because of the Brexit impact.

Long-term interest rate fell as a function of the Brexit outcome. And that made us take down the interest discount rates for the defined benefit obligation plans in the UK and in Sweden.

But apart from that, the important part is that on-sell operating net financial assets/liabilities for our business and it continues to be on a very good level. With that, I hand over to Johan again.

Yes. Let’s have a look on the bottom market off before we open up for questions.

And I think it’s important to Google a little bit of the short-term implications on what we expect from the market regarding Brexit. So far, we haven’t seen any cancellations on any of the projects in UK.

But we expect though that the market for private developers interest in the non-residential building area in UK will start to slowdown. We saw some hesitation from the investors prior to the referendum.

And they will continue – they have continued to have just according to wait to start project even after waiting for more information what’s going on in the markets, where – what will the tenants do and so on. And but I think it’s important for everybody here to understand if you have a very good visibility of the pipeline in UK, in total.

And we are the preferred bidder, as Peter mentioned on some projects outside the sector I’m talking about here in UK. So we expect there’s going to be a quite a good order intake in the second-half.

We think though that Brexit could have a positive impact on the Skanska business outside UK. If the banking and financing sector in London moves out to other places in Europe, we believe that that some of the places where we have a commercial development could be interested areas for those tenants.

For example in Warsaw, we have seen the banking sector moving their back office functions to Poland. So that could be a potential market for investors to move to, if they decide.

So from a more macro perspective, we believe that the low interest rate environment will continue not longer with Brexit that is good for buyers of homes in the Nordic area, of course. But we also see continued and the increased interest of our assets that we sell from our commercial development and but also from the ID operations that we have.

And so that is like the positive impact from Brexit that we see. And so if I then move over to the more general outlook for the market and talking – starting with construction we see strong building market in Sweden, stable in Norway, especially good in, I would say in Oslo, a little bit of a mixed picture in Finland.

And as we mentioned already, there’s a very tough competition in – on the Civil side in the Nordics, so a lot of international players moving into the markets. And we don’t see the same competition that are coming in – on the building side.

It’s harder to actually move international operation as part of an operation on the building side. And talked about UK, so I would mention that again.

And in Poland, we expect that the market will be somewhat slower due to the delays of the EU funded projects, which is projects on the public side. In the U.S., we see a very good and strong market going forward, both on the Civil and on the Building side.

And on the resi side – resi market unchanged market conditions. And, in general, Sweden has continued to be a strong market, but we believe that it’s going to be – it’s more imbalance now with a new amortization regulations that are taking out the speculative buyers.

A very mixed picture in Norway was due, of course, it’s very difficult market on the West Coast, and we’re not planning to start any projects there. But we have started to sell some of the unsold ones that we have in the stock.

On the other hand in Oslo, there’s a very good market and we definitely see opportunities to startup new projects, as we are preparing them for sale start and construction starts. Finland, stable market, we believe that we have reached the rock bottom, and we can see some uptick in the overall resi market there.

And Central Europe, which for us is a program whereas so continued to be stable and good. Commercial development overall very good and strong demand, no vacancy rates, and overall, we see not Brexit as a threat, as we are mostly located in operations, where we see – we can see – we could have a potential positive impact.

And I think I’m there, it’s more or less the same picture in the other submarkets in commercial development. And ending up with infrastructure development very good market as I mentioned before in the U.S.

more projects that we can handle and we can pick the one that we’re going to choose for – go for it. Outside that is outside the U.S.

market, there’s much fewer parts to go after. We are monitoring the businesses that we think will come up in Norway.

So with that, André.

Thank you, Johan and Peter. Let’s open up for questions.

So please state your name and the company you work for.

Yes, thanks, Niclas Höglund, Nordea. So obviously can I start out with the ID operations and you’re reporting a very strong results.

Could you share some thoughts on the success fee related to LaGuardia, how much approximately are included in the second quarter and more maybe underlying run rate now with a lower pound sterling sort of picking the contribution from [indiscernible]? Thank you.

Okay, Niclas, you were on that topic already post before the – this quarter, I know, already of the Q1. And we have had the success in the either stream over and above SEK 100 million profit.

Okay. Over and above SEK 100 million in the quarter, that means that the run rate is pretty slow.

What should we expect going forward here as more of a general contribution?

Well, you should – it depends on the level of the projects. But I think you should expect a lower and slower level, since we have fewer projects in the portfolio.

And with Barts, I remind you that the amount of sterling-related project has decreased compared to the previous year. So it’s predominantly the M25 that gives the contribution to sterling.

And on that note, you were talking about the opportunity to refinancing and which had a good interest in the project. Would you announce or finalize – have you heard any sort of negative implications from the Brexit, people are stepping away or more difficult to refinance the project with the bank?

Well, when it comes to specific projects, I will not come into to comments. But I would like to strengthen some of the things that we have listed up into the interviews and into this presentation, which means that if you think about the implications of Brexit, it does – it’s actually played to the – even more to the advantage of this kind of assets, which poises a very strong and stable cash flow.

And with the continued low long-term interest rates, this also plays to the advantage of this. So if anything, it has been to the support of the ID projects.

Fair point. Maybe if I may, just a couple of questions on the construction side.

You seem to be very happy with the Sweden development. To be honest, my expectations were higher, that should link to the margins and we’re now seeing a – the rolling 12-month margin is trending down, despite you’re talking about the very favorable environment, and we’re now down to 4.3% down while we were at 4.5% in the second quarter last year.

Is this the new normal levels, or should we come back to 4.5%? What’s your thought on this sort of delta in the underlying and profitability at Sweden?

Niclas, it can always fluctuate between the quarters depending on how we close out big projects. And I think that maybe one of the things that that happened in 2015 in one of the two first-quarters there.

The – I think that the margin and the businesses in Sweden is a very healthy and it’s a very stable operation. So I don’t think that you have to be worried about that project.

Okay. And you mentioned that you delivered sort of the first phase into – in the New Karolinska project.

There hasn’t been any positive sort of and while one of positive effects in the quarter is for us to bear in mind or any other?

That we never comment on individual projects. So I think that we rather stick for that sort of thing.

Okay.

And then if I can only comment on that, one of the important points in the construction business is, of course, how they’re trading in terms of loss projects. And Sweden’s track record of loss project is very good.

So it’s a clean, good Swedish quarter.

Fair enough. And talking about the key [ph] quarters, U.S.

Civil, it’s below 3% margin, and you’re talking about ERP system and maybe affecting the margins more heavily than the – be around what could be second and first quarter around 7.9 on an annualized basis. Could you share some light on the sort of the specific quarterly impact and also related to the material that haven’t closed some of the problem contracts although the smaller ones, what were the sort of and the effect from those closures?

Thank you.

We have had some margin erosion on some minor projects in the UK, as always, sorry, in USA Civil it goes a little bit up and down. We have this on some of the minor discussions on several of the problematic projects that we talked about in 2015.

The major discussion is still out there for negotiation, and we expect that is going to take longer time. I do think though that if and when we settle that part, I don’t think it’s going to come luckily a big bang positive impact just in one quarter.

It’s very seldom complexity [ph]. It’s going to be in smaller chunks as we solved the problem of the problem with the client.

And your recurring costs?

And, Niclas, can I come to the cost side, because what we stated is also the combination of bid costs and costs for the ERP system. And if you also combine that with the lower volume business, volume report in the second quarter, that’s, of course, also gives an impact on the percentage impact.

So with the buildup of the backlog we have now, we’re ramping up business.

Okay, fair point. And my final question is related to a commercial development.

We’ve seen a very, very solid divestment of project. We’re now approach this sort of record levels we’ve seen last year.

Could you – would you like to give some guidance, especially with the hotel projects which is sold today, we’d be able to meet or exceed last year’s gains in the CD operations, what’s your thoughts?

Okay. I would say that we’re clearly heading towards last year’s result.

The bottom up.

I didn’t say we would limit ourselves to that result. But your question was, will you be able to record the same record level?

And I think we will. Will we stop there, if we have good deals?

No, of course, not if it’s the right deal to do. But long-term this is a business that we gradually buildup, and you can see the number of projects that we have in the pipeline.

The capital employed that is on the way to go up and so on. So and then it can always be a little bit bumpy between the quarters depending on which project we divest.

But if you take a longer time horizon then you look at, it’s like a – you can easily see that it’s a trend that’s going in the right direction, and that is the plan that we will continue on that trend.

And a follow-up, if I may, when you look at the investments and starting new projects, should we expect that the cost for land and then, of course, the cost inflation related to construction should normalize this sort of return on capital employed down to the 10% already in the next couple of years, or is this a sustainably high level thinking?

I think it’s a combination of a lot of different factors here. And that is, we will be able to buy the right piece of land.

And what we’re trying to do here is not to go out and lock in a full competition just to buy a piece of land just for a pure CD operation. What we see as a very strong strategy and a good opportunity for us that only go for complex projects.

It can consist of a residential part. It can be a commercial development part.

It can be something else like Fredriksdal area in the southern part of Stockholm or [indiscernible] very few companies can come in and compete on those terms to take a complete – invest to go for like in a complex project like this. So that is our strategy regarding buying land.

Then, of course, it’s also a question of how long will the low-volume interest rate environment stay? It helps us with low heels.

So it’s a lot of different factors here that we have to factor in. Fighting, we’re fighting hard to make sure that we are very competitive on the construction side to make sure that we have the costs as efficient as possible on our own profits.

Okay. Thank you.

Yes, good morning. Jonas Andersson here at Danske Bank.

You asked the question on construction in Poland. The margin last year was about 6%, and now it’s 1%.

And can you elaborate how much is the volume driven and how much is write-down of projects explaining this drop?

I think it’s like, the dominant part is coming from volume drop. And due to the few projects that we have seen exactly in that niche of region operations, we have funded projects on the public sector.

So we have had some margin fade, not loss makers, some margin fade on some projects that have been like kind of one part of the impact there. But the dominant part is coming from the lower volume and overcapacity.

Thank you. And one more question if I may on the residential development part.

As you said the ticket size you sold was really high in the quarter. And is that an unusually high level and it’s also the profitability unusually high for the Q2?

I think it’s a good market now for the – for apartments and depending on where the sales are coming from. And if you dig a little bit deeper into the numbers, you can see that there’s differ – the profitability differs somewhat there between the units in the Nordics.

Sweden is good. Norway is also good as well as also good if you talk about the capital area, Finland is a little bit lower.

But I think that this is a good level and we plan to stay above the 10-10 level that we have strived for.

Okay, perfect. And as a follow-up on the US Civil, has the new ERP system impacted unusually much in this quarter versus what you expect for coming quarters, or is it in line with the average for coming quarters?

Again, Jonas, it is also the function of design and bid costs.

Yes. So but the costs for the ERP system, is that on the level that you have guided on, or is it having started to come up to that level?

That is trending according to what we alluded to. And remind you that ERP is a function of amortizing, depreciating the already made investments in combination with Skanska.

So it doesn’t fluctuate that much. So the level we have, we gave in the close of the Q1 is the same level.

Then, of course, it also depends on the underlying business volume, which could make the percentage to increase somewhat in the specific quarters, but underlying costs and also the fact for what we are making the investment for, that is to be able to operate the business even more effectively. So we should be able to also going forward to drive some benefits from it.

Today, it is an investment into becoming better in the future.

Very clear. Thank you.

All right. If there’s no further questions, I think we’re done for today.

Thanks for your attention and have a great summer.