Skanska AB

STO:SKA B

Earnings Call Transcript 2023-Q2

[Antonia Junelind, executive]

Good morning, and welcome to the presentation of Skanska's second quarter report for 2023. I am Antonia Junelind, Senior Vice President Investor Relations. Shortly, we will listen to a business market and financial update from our CEO, Anders Danielsson; and our CFO, Magnus Persson. Having gone through the Q2 performance and results, we will then open up for questions. [Operator Instructions]But with that, let's start with a Q2 update. I will now hand over to you, Anders.

[Anders Danielsson, executive]

Thank you, Antonia. And I wanted to look at the picture here to the right, one of the completed projects on the West Coast in Norway, Nordoyvegen, very successful and beautiful projects.Let's start with the highlights of the second quarter. We have a record high order backlog in the quarter. And if you go comment on the streams, construction is delivering strong results. On the project development, both on residential development and commercial property development, we have low sales volume due to the market condition, we'll go into that later on. On the other hand, on the commercial property development, we have a solid leasing in the quarter, which of course, creating value for the future. And the investment properties, we have no acquisition in the second quarter.Operating margin in construction 3.4% same level as last year, seeing an isolated quarter. Return on capital employed and project development overall at low 2.3% on a rolling 12. That's, of course, due to the low volume. Return on capital employed in investment properties 5.5% on a rolling 12-month basis, slightly below our target of 6%. Return on equity down to 11.1% on a rolling 12 months. We continue to have a strong financial position, and we have managed to reduce our carbon emission by 57% since the base year 2015.I will move on to the construction stream. We have revenue is pretty much flat. We have record high order bookings more than SEK 63 billion in the quarter. So we're ending up with a book-to-bill ratio of 115% on a rolling 12. So the order backlog is on a record high level, SEK 250 billion, and we have an operating income in line with last year in SEK, and we have operated margin again of 3.4%. So the record strong order intake is in general, but also boosted by large civil contracts in Norway and in the U.S.A. Order backlog is, yes, really strong. And on the rolling 12 months, operating margin, we're ending up at 3.8%, well above our long-term group target of 3.5%. So the strong performance continue in construction, which is really encouraging and important.Moving on to residential development. The revenue here is down to SEK 1.6 billion. We also saw that the number of homes sold is also down with around 50% compared to last year the same period. And the home started is also down accordingly. Operating income is SEK 49 million, and the operating margin of 2.9%. And we have a lower return on capital employed due to the low volume here of 0.2%. So the sales volume slightly up but remain low due to the market activity. And the measures we have taken in BoKlok to adapt the market situation also impacting the result in the quarter with SEK 128 million.I will move on to commercial property development. The operating income is minus SEK 15 million. We have a gain on sale of SEK 171 million. So quite a few transactions in the quarter. We have 33 ongoing projects that corresponds to almost SEK 33 billion upon completion in total investments. And we have 2 projects pre-sold and started in Q2. The positive thing in commercial property development is the leasing activity during the quarter. We have leased 78,000 square meters in the second quarter compared to 47,000 square meters last year, and that of course, creates value for the future. Transaction volume remains low overall in the market, and we can see that the the investors, they are hesitant.And investment properties, no transaction in the second quarter. Here, as you know, we're targeting high-quality, sustainable office portfolio building up between SEK 12 billion to SEK 18 billion over time to generate a stable cash flow. And we can see we have a stable operational performance. We also have a good interest from potential tenants for the very few remaining vacant premises.If I go back to the construction stream. And here you can see the order backlog and the development over time for the last few years. So you can see clearly that we are on the record high order backlog. You can also see that the book-to-bill ratio is up in the quarter, same for order bookings, of course, and the revenue is flat.And if we go in to look at the order book in the different geographies. Strong order intake in the Nordics, large civil projects in Norway, but overall healthy backlog here. Slightly lower in the book-to-build in Europe, which is due to the market conditions, so I'm not surprised over that and very, very strong order intake in the U.S. So overall, we have 18 months of production, which is on a high level and again book-to-build ratio of 115%.With that, I hand over to Magnus.

[Magnus Persson, executive]

Thank you, Anders. Now going to the income statement for construction, that's where we usually start also this time. As already been said, we grow revenues a couple of percent. If you take out the FX effect from that, we are down a couple of percent, so roughly flat in terms of development here. Gross margin goes up a little bit, up to 7.5%. So very much in line with the comparable quarter. Same thing with S&A ended the quarter then with an operating margin of 3.4%. So in a way, very stable performance. And as we have said in many quarters by now, a very strong portfolio in construction that we are working out of, which creates the possibility to have this stable performance. And so of course, the strong bookings that you can see is really sort of comfortable to have as a good volume for the future here as we know that we are still keeping to the strict bidding requirements and the risk controls we have in the bidding.If we look at the different geographies that we have. We have a stable delivery in all geographies. You can see Swedish margin is coming down a bit from 3.3% to 3.0%, which characterizes a very normal sort of intra-quarter type of deviation in terms of performance. Europe, 2.6%, a little bit lower than -- and underlying to that, you can say that we had a really good second quarter last year in the Central European operations, which is more normal this year. And in the U.K., it's a bit more sluggish this quarter actually. We've had sort of some issues with some commercial projects in London here that contributes to a bit weaker margin. The U.S. 3.5%, very strong performance. So overall, all geographies are performing really well.We go to residential development. Here, we have a continued weak market. Revenues were down about 45% down to SEK 1.6 billion in the isolated quarter. The sales remain slow, I mean we still have the customer uncertain that the selling during around it's a bit unclear how the Central Banks will continue to act and how inflation will develop of course and then we can see that banks are tied their landing requirement in terms of issuing mortgages to clients, especially in Sweden, Finland and Norway, that is impacting sales also here.We had an EBIT of SEK 49 million, which obviously is not a stellar result. The main impact there is a volume impact, you can say. We've had a one-off cost in the U.K. affordable part of the BoKlok operation. If we take that out, you can say that the actual project performance is quite stable in the operations still. But as we said, we are hurt here by the low volumes, where the volume really makes us unable to cover the organizational costs that we have here at the time.If we look at different geographies. Nordics are clearly performing sort of at the worst. And in the European part, it's quite clear here that the Central European part of the residential development operation is performing really well, actually. It's perhaps a bit surprising, but that's the way it is. And then as I said, in the U.K., the BoKlok operations have had to take a one-off cost in the quarter that have been then recognized. And all our units, because the volume is what it is right now, and we foresee a continued weak residential development market here for the coming 12 months. All parts of the residential development business are undertaking cost adjustment activities here to adjust for the future sort of expected volumes in the business.If we look at home started and sold, we sold 340 units, down 50% approximately from last year. We started 240 units then. And the situation is, by and large, the same as in the first quarter here. We have a lot of units to sell. So we don't need to start at the moment, and it's also harder today to find and underwrite strong and sort of credible business cases due to the market and the difficulty in getting the right event horizon in terms of future sales prices. That's more of an issue today than the cost side is, say, which is stabilizing.If we look at the homes in production, we had 6,400 units under production, slightly lower than the last quarter, as you can see in the bar chart. Of this, we had sold end of the second quarter, 58%, somewhat up from last quarter then, which was at 57%. This means that 2,700 units was unsold and potential to be sold out into the future. In addition to this, we had 306 units that were unsold but completed, up from 210 units.And as we have said also here many times, this is not an issue as long as we can see that these units are churning and not getting old in our balance sheet. And we are tracking this closely and we don't have an issue with this. And we do expect that this number will increase the coming quarters because the sales pace is slower than the pace at which we are completing units now. So that's the way it will look.We move over to commercial property development, a very uneventful second quarter. In terms of the P&L, we recognized 2 divestments during the isolated quarter both were smaller public buildings in the southern parts of Sweden. And in total, then we booked a loss of SEK 15 million in the isolated quarter.If we look at the unrealized and realized gains, we had unrealized gains, which is represented by the bars on the slide you see here on the screen of SEK 7.4 billion at the end of the quarter. So a slight increase in value, mainly due to currency effects and also that rents are developing in a positive way here.Then you have the completion profile of the commercial property development portfolio. We now have SEK 10 billion invested capital in completed unsold projects. This is in total 20 properties that are completed and not sold. These are leased on the average, then to 73%, up slightly from the first quarter, which was at 71%. So it's developing in the right direction. We have, for quite a few quarters, said that we are not in the business or not in a situation where we have to put properties to the market that are not leased well enough because it will inevitably force us into discussions around price with buyers. Where we are now, we have several properties that are leased in an adequate level to put them in the market. So we are in several transaction processes and working on this, but it is very clear that it is still a very hesitant transaction market here. So we have leads. We are working on it, but it just takes time to get the deals to be signed.If we look out into the future, then you see the dark blue bars, we will complete properties for approximately another SEK 6 billion during the third quarter according to plan and then another SEK 3.5 billion in the fourth quarter according to plan. And the green dots represents, as we do every quarter, I show this slide, the average leasing rates for the properties that are to be completed in the respective quarter. So the shape of the curve of the green dots are just fine, but we would, of course, ideally would have liked to parallel shift it upwards a bit to have a bit higher leasing overall, but that's where we are now.If we look at leasing, we had a completion rate in the portfolio of 58% at the end of the quarter and then leasing rate of 43%. And the leasing market continues to improve. As Anders said, we have leased 7,000 square meters in isolated quarter. This is actually by all comparisons, a very strong quarter in terms of leasing. 205,000 square meters on a rolling 12 months basis, and you can see, as shown now on the chart that the bars are starting to move in a -- trend in a better direction than what we have seen for quite some time.The shift in the leasing market is most clear in Central Europe. We can also see improvements in the Nordics, characterized by small leases but they are moving here. There's still a lot of requests from potential tenants in terms of flexibility arrangements in the lease agreements, and that can be resizing the size of the lease and various options in the lease agreements to give them flexibility to account for their own uncertainty about the commercial future, so to speak.We are working very productively in those negotiations to meet these requests and demands. On a very positive notice that rents are developing in the right direction. Of course, part of this is CPI adjustments that are built into the agreements, but also in terms of new leases, we can see it's moving in the right way. So that is very positive for the value creation of the commercial property business for us.If we look at the investment properties, as already been said, we didn't make any transactions in the quarter. We have increased the average portfolio yield there by 15 basis points, taking down or affecting the property value with around SEK 130 million in a negative way. This is by and large compensated by higher rents in the portfolio. So the net effect you can see in the P&L, there is a mere SEK 25 million negative way then. All properties are continuing to performing well and according to expectations.If you look at the group, we had an operating income from all the business teams of SEK 1.4 billion. Central cost stands out a little bit as being low, SEK 73 million compared to the SEK 155 million in the comparable quarter. In this, we have a positive one-off effect from the legacy businesses that we have and cater for at the central level here. So this should not be accounted for out into the future. But the underlying costs here are essentially stable in the quarter.Net financials, SEK 133 million, a lot up then from the comparable quarter. And the main difference here is that interest rates have gone up, which also means that when we capitalize costs in our project development business, those capitalizations become higher, that's the main impact we have here. And then taxes, we taxed out at a decent tax rate of 16%, quite a lot lower than 1% last year due to business mix, but also due to the possibility to use past tax losses in some of our legacy operations.Cash flow. We had a negative cash flow in the quarter of minus SEK 5 billion, slightly down from the comparable quarter of $4.8 billion. And you can see the 2 items in here. Dividend was slightly lower this year than last year, paid out in April this year. And then the operating cash flow from operations of SEK 1.8 billion. And the major shift to the comparable quarter is that we had a lower cash flow and more negative cash flow from working capital this quarter than we had in the comparable quarter. I'll come back to that in a slide or 2. And as you know, and we have pointed out many times, we are having today a very high investment pace into the project development business when we are working on and successfully completing the ongoing projects that we have started, I would say, the last 2 years or so.If we look then at the working capital, you can see the bars here represent a nominal value as we see them in the balance sheet. And there's essentially no change in the first quarter, and we remain at around 18% of revenue in terms of negative working capital. So the position has changed a little bit. And if you back up the full year, and you can see, since the second quarter and third quarter last year, where it seems to be sort of topping out this level. But any changes to this balance will be very gradual and go very slow as it is tied to the several thousands of projects that we have ongoing.Look at investments then, I alluded to this a couple of slides back. The dark blue bars represent the investments we make in each isolated quarter. And you can see that we are now averaging a quarterly investment base of around SEK 6 billion. On a rolling 12 months basis, the net investments are quite significant at minus SEK 7.5 billion. That's represented by the green line in the chart there. And the reason to that is sort of the sluggish transaction market where it takes more time today to monetize on the previous investments we have done by selling the project development units there. Total capital employed in RD, CD and IP end of the second quarter was close to SEK 66 billion.If you look at the funding, we continue to have a very robust financial position and low levels of external funding is needed and we also have a significant amount of available liquidity should this be needed. During the quarter, we also secured actually 2 new credit facilities and took up a small loan nominated in euros and dollars here to further bolster the sort of liquid capacity of the company, but a very stable position here.Financial position. We closed the quarter with SEK 57 billion in equity and adjusted net debt of SEK 4.4 billion in cash then. So there's a lot of staying power in this balance sheet to make sure that we don't have to be sort of forced out on the racetrack and selling properties too early here. But we do have the staying power we need to manage the transition to a better transaction market in a very responsible way for our shareholders.Anders, I'll hand back to you.

[Anders Danielsson, executive]

Yes. So I will go into the market outlook. Starting with construction. And here, we can see a mixed picture. We have a strong market outlook in the U.S. and also a stable market in the civil -- most of the civil operation in Europe. Swedish building market is expected to weaken if we look at the coming 12 months. And we have the active sector, civil infrastructure and social infrastructure is strong in the U.S. We can see a lot of large pipeline when it comes to civil infrastructure, but also in the other segments where we are operating, building schools, university, hospitals, airports and so on. So that's positive.Material availability has improved. So we say we can see less bottlenecks, and we can also see that material prices have leveled out in the last few quarters. Residential development, low activity in the housing market will remain in the Nordics. We can see a more stable outlook in Europe, driven by Central Europe and the increase in sales we have seen there. So the cost of living pressure, including interest rates increases, cost of living that remains and also impacting the market in a negative way. But the underlying need for homes is there definitely in the market where we are operating.Commercial property development, low transaction volumes and hesitant investor market remains in our outlook, but we can see that the leasing market is gradually improving, which is creating value. Investment property is stable. We can see a polarization in both the tenant market and the investor market. So we are confident that we have high quality, high sustainability standards in good places. So there's definitely a stronger demand for that.So to summarize this presentation, we have a group performance in the second quarter with a strong delivery from construction, residential development, low sales volume and same as commercial property development, encouraging though, with a solid leasing in the quarter and the investment properties, we haven't seen any acquisition in the second quarter. Record strong order intake and order backlog for the construction stream, and we continue to have a robust financial position. So the strategic direction remains. We will continue to focus on strong profitability and grow in a responsible way, the construction stream. And we are definitely aiming for being a leading residential developer in the market where we operate. And we also are increasing our commercial property development in line with the market allows us to do so. And we are determined to continue to build up the investment property portfolio as planned.With that, I hand over to Antonia to start the Q&A.

[Antonia Junelind, executive]

Yes. Thank you, Anders. So now we will open up for your questions. And as mentioned before, you can either use the conference phone number and call us and ask your question or you can send us a text using the text field on the webcast space. If we have a lot of questions, we will, however, prioritized people calling in. So with that, I will turn to the operator and ask you to please introduce the first caller.

[Operator]

[Operator Instructions] Our first question comes from the line of Graham Hunt from Jefferies.

[Graham Hunt, analyst]

Just 2 questions from me. First one is on the BoKlok business. You recorded a SEK 128 million loss this quarter, improvement from the SEK 331 million last quarter. Could you just -- is it possible to give any color on what drove that improvement? And then maybe just on your expectations for the rest of the year, are you expecting that business to be profitable again by 2024? Or could it be later than that? Or are you thinking earlier than that?And then the second question on commercial property. I just wondered if you could give a bit more color on your interest in increasing exposure to their life sciences. Properties, you've made an investment in Boston this quarter. How much of the portfolio are these projects today? And where would you like it to get to? And historically, I think you've primarily developed office space, particularly in the U.S. How do you feel that compares to the skill set required for these life sciences projects? Is it similar? Or do you have to bring in new skills?

[Anders Danielsson, executive]

Thank you, Graham for the question. I will start with the BoKlok question. You're right, we're taking a charge here of SEK 128 million in the quarter. And that is driven by volume, mainly volume, low volume, and we are working here in a segment with more low-cost, affordable housing. And that is a segment that has been most hit by the increased cost of living, increased interest rates. So it's definitely impacting that segment more than other segments. But we also have seen cost increases in some of the very few projects in the U.K. for BoKlok that is also impacting the quarter.And of course, we don't give any forecast how long it will take. I can say that we have a plan and we're following the plan and we are taking measures in all markets and accounts to BoKlok reduce cost and make sure that we're starting new fresh projects in a profitable way. But the market is not helping us in commercial development. Magnus?

[Magnus Persson, executive]

In terms of the CD question to life sciences, I mean, you're absolutely correct. Traditionally, we have developed mainly offices. We have over the last few years, started to develop a bit more multifamily residential as well. And we've always had a little bit of the life sciences over the last few years, but we are looking more and more at that sector. We have secured some very interesting pieces of land in a very good sort of the right places, especially in Boston to cater for this market. And we see this is a strong demand in the market, and it is sort of outlook also in that space that seems very attractive for us to position ourselves for the long run here. So we are doing some of it today, but we -- our intention is to explore this market segment more out in the future.In terms of skill sets, I say we have all the development skill sets to go after this. Of course, there can be certain specialty type contractors in terms of design when it comes to installations in such buildings that differs a little bit from a traditional office building, but that is more on -- in terms of what subs that we are buying in there. I'll stop there.

[Operator]

The next question comes from the line of Markus Henriksson from ABG Sundal Collier

[Markus Henriksson, analyst]

3 questions from me. First off, looking at the rest of Europe RD, you have started 0 units now 2 quarters in a row. This is also the market where you managed to sell. You are at 65% sold in production and the outlook was also raised somewhat here. How should we view the outlook for housing starts going forward? Should we just look at the market outlook or could you help us a bit on the potential bottlenecks on land, et cetera?

[Magnus Persson, executive]

Marcus, this is Magnus. I take your first question, and then you will have to come back with the second and third. In terms of order you are correct. We have a very good market down there at the moment. It's been strong for quite some time. And it has not followed the sort of development in the Nordics in terms of demand trailing off but the demand is still there, we get good prices.Now as you know, we haven't started anything there in the first or second quarter, but this is always a mix of what you have available to start and when you want to do it, right? So, we don't have any ambition to not start things there. We have things to sell, but we need, of course, to balance our exposure against the need to increase our inventory to sell from, so to speak. So our ambition is to continue to ensure that we have a good inventory to sell from in that market.

[Markus Henriksson, analyst]

And then could you also describe the difference in consumer behavior between Poland that you highlighted in the Nordics in RD? And also, if you get any signals of distressed sellers in your markets? And if so, where? And do you see more opportunities in RD or CD?

[Magnus Persson, executive]

Yes. I will go after this one as well. In terms of the difference in consumer behavior, I can't say we see any major difference in consumer behavior except that it's a lot easier -- it's a much bigger demand to actually sign sort of the sales agreements in Europe and the price development there is something completely different. So it's very clear that the consumers in Poland is stronger here than Czech Republic, but the consumers here they have a financial situation that makes it possible for them to buy. And banks are not as restrictive there as they are here also for whatever reason that is then.Then other things you can point out is that in the Nordics, when you develop and sell residential units, you fit them out to 100%. I mean you sell them with a bathroom with the kitchen and so on. The traditional residential development model in Central Europe is not to do that, but it's a leader shell or core, which means essentially that you hand over something that is not -- you don't have the fit-outs inside the apartment. You have no kitchen, et cetera, right? This is shifting a little bit, but still a very dominant part of it. But apart from that, there's no major differences, I would say, in terms of consumer behavior.And then you had a follow-up question on CD. But I'm sorry, can you repeat that, please?

[Markus Henriksson, analyst]

Yes. If you see anything as of distressed sellers in your markets? And if so, where in your markets and if you see any opportunities in RD or CD where they pop up, if any?

[Magnus Persson, executive]

Yes. It's a good question. I think we don't see yet any strong signals like pure distressed sellers. We see some structures, of course, that are in need to sell, but there's a difference to want to sell and need to sell versus actually selling in distress, which means that you need to secure cash flow very immediately or something very bad will happen. We don't really see that except in some very few select cases. But of course, there is sort of more available on the sales side than it would have been like 2 years back, yes.

[Operator]

The next question comes from Arnaud Lehmann from Bank of America.

[Arnaud Lehmann, analyst]

I have 3 questions, if I may. Starting with construction, as you mentioned, you had very large orders in the second quarter, in particular in the U.S. and Norway. Could you maybe elaborate on the margin outlook for these large orders? I appreciate that's not easy to forecast. Or do you balance this step up in orders with your, let's say, traditionally selective strategy? That's my first question.My second question is just coming back on residential development. More generally, we see a bit of a sequential improvement in sales, I think, in the second quarter compared to the first quarter. Do you think we have, let's say, turned the corner or seen the low point in residential sales and things could be improving a little bit from here? Is Q2 the new normal heading into the third quarter? That's my second question.And lastly, on commercial development. If I remember well, in the first quarter, you did mark down your portfolio by 4%. I don't believe you have done any markdown this quarter. Is it because you are more confident that you have the right valuation in the books or the right gains coming up? And related to that, you mentioned in your introduction that you had many leads for potential transaction. What are the sticking points? Is it valuation? Is it issues with the financing for the buyer or anything else?

[Anders Danielsson, executive]

I will start with the construction order intake. As you noted, we have seen large orders in the U.S., civil projects in the U.S. and Norway. But we overall have a high order intake of over SEK 60 billion in the quarter. And of course, I will not comment the margin on single projects, but we definitely sticking. We have the discipline to be selective in the market. We're going for a project where we can see that we have a competitive advantage. We're going for a project in the core geographies. We're going for a project where we can see that we have the team in place, the right team with the right competence in place, so we can execute, so that we are comfortable that we can execute the project in a profitable way. And I don't see any other target for these projects that we have won during this quarter.So Magnus, if we can continue with RD and CD.

[Magnus Persson, executive]

We'll do that. Your question on RD is, have we sort of turned past the bottom yet of the RD development market. That's a very difficult question to answer because each market is a little bit different in timing here. We can see some very, very early signs of a slight improvement in Sweden, for instance, on the second-hand market and also in price development. I say Norway and Finland is a bit after in terms of this. And of course, then in Central Europe, we have a very good market still. So it varies a lot. It's hard to say. But we think that we are not through the period of a weaker market in the sense that we can now expect these transaction volumes going out into the future. We think this market will bounce back to some extent, but that it will take some time before we understand what is actually the true underlying demand for new developments here. So that we believe would come up, but it will take some time now.In terms of your question for commercial development, it's true. In the first quarter, we adjusted the communicated assessed market value for the ongoing development projects that are not completed yet in the commercial development portfolio. And here, it's important to be a little bit precise that for those projects, we are not keeping to their market value in our balance sheet. This is only a communication we make, what do we think these properties will be worth once they are completed and sold out into the future, which means that this is our assessment of what will the rent levels be, what will the transaction yields be, say, 1.5 to 3 years out in time. And that is the assessment that we changed in the first quarter.And of course, since this is a very forward-looking thing, it's associated with fairly large uncertainties. And we made a step change to that end in the first quarter, and we have not made any changes to the communicated assessed market values at the time of transaction for the ongoing product in this quarter now. We have only made changes to the current market values of our investment properties, which follows then a different valuation logic, obviously. I hope that was an answer to your question.

[Arnaud Lehmann, analyst]

Yes. I just had a follow-up on the potential upcoming transactions. You said you had many leads. And I was after the sticking points, is it a discussion around the valuation? Or was it issues with the financing for the buyer?

[Magnus Persson, executive]

It varies across the different discussions, obviously. It's hard to find one common theme. But of course, the status of the financial markets is part of that in the background for the buyers. Then in terms of how that translates into our discussions, it varies definitely. I think in many cases, it's a bit uncertainty and it's a bit of a waiting game involved there.

[Operator]

Our last question over the phone comes from Gregor Kuglitsch from UBS.

[Gregor Kuglitsch, analyst]

I got a few questions as well, please. So I wanted to go back to the slide where you talked sort of about the net investment and divestment. And I guess I want to sort of explore in effect sort of if you can't sell anything, let's assume no disposals. What would that continue to look like? In other words, will you continue to kind of burn cash? And if so, at what pace? Because I'm guessing you still have sort of continued construction on the ongoing projects. First question.The second question is, I don't know, maybe I'm misinterpreting, but it sounded like you're a little bit more optimistic, let's say, on putting stuff on CD in the market onto the market because your pre-sale rates are now meeting your thresholds. So is that the right interpretation that there's more properties that meet the criteria to be disposed, in other words, I think it's like 70% or 75% pre-sale rate? And if so, should we be expecting a bit more activity?And then maybe a small question on RD. That loss in BoKlok, is that a restructuring charge? Or is it sort of a markdown? Or is it just sort of the lack of overhead absorption that means you're making an overhead loss? I guess I want to understand how much of it is potentially just a one-off? Or how much is sort of recurring, I guess?

[Magnus Persson, executive]

I will take the first 2 questions and Anders can deal with the BoKlok question then. Your question is sort of a bit speculative, but I think it's fair what happens if the transaction market continues to struggle, and we are then theoretically unable to sell anything and what will happen with our cash flow. It is true that in this line of business where you start large development projects, when you do that, you commit to complete the construction contract. Because if you stop in the middle, you will have essentially destroyed a lot of value. So we are fully committed, of course, to see these constructions to the end, which also is a key component in all of our capital planning, and it's a key component of why our balance sheet looks the way it looks.So we continuously all the time make sure that we have the financial means and capacity to complete the ongoing development projects without having to fire sell anything of what we have in the balance sheet because that would put us in a very awkward situation if the market becomes a bit weaker on the transaction side as it is now. So yes, we have a lot of capital committed to complete these projects, and you can actually find that number in the commercial development section in the Q2 report. If you flip over to that, you will see a table on the left bottom side where you can see these numbers as well. And you should relate those numbers then to our available liquidity and the limits we have in terms of net debt, where we have now an additional SEK 14 billion available capacity before we would hit our communicated limit.Your second question then, is it correct to say that we are a bit more positive in the sense that we have more to sell in CD now than what we've had. And that is correct because we are continuing to lease these projects as we complete them. And for more and more projects, we are reaching a leasing level, it's not a pre-sale level, it's a leasing level that are adequate for us to take them to the market without risking having the wrong type of discussion with buyers. And with these properties, then as said, we have many ongoing divestment dialogues and are actively working to complete these transactions. But we are from a financial position, so to speak, not in any rush, so we don't need to secure the cash inflow from these properties, which mean because we have the staying power that our balance sheet allows us.I hope this will answer for the 2 first questions, and Anders, you can.

[Anders Danielsson, executive]

Yes. On the BoKlok charge we take in the quarter here, it's mainly due to the low volume we can see in that segment. And that's the low volume giving us income that we cannot cover our costs completely. And we have taken measures. We are reducing the cost in all markets when it comes to BoKlok. And we're also adjusting ourselves to view our judgment of the future volume. But the quarter is also impacted by cost increases in very few projects in the U.K. that is ongoing and coming close to completion now.

[Gregor Kuglitsch, analyst]

Maybe a small follow-up on the cash flow. How much cash is due to come in on assets or CD properties that you've already agreed to sell in the past? I don't know, I think you disclosed this number somewhere, but if you could just remind me how much cash is due effectively from assets that you still need to complete them, but you have signed a contract, you should receive the cash at some point.

[Magnus Persson, executive]

But you're looking for SEK 7.9 billion.

[Gregor Kuglitsch, analyst]

The cash in? It was just the cash in.

[Magnus Persson, executive]

Secured cash in, yes. And that is then from the CD transactions I'm mentioning. You would...

[Gregor Kuglitsch, analyst]

A CD, yes, yes.

[Operator]

Ladies and gentlemen, this was the last question.

[Antonia Junelind, executive]

Okay. Very good. Thank you. We will now then turn to the questions that we've received by text. So I will read them out loud. And the first question comes from Peter at One Investment. He asked, can you please explain how the incentive terms are changing in your letting of commercial property comparing this period to last year? That's the first question.

[Magnus Persson, executive]

It's a little bit hard to understand Peter's question. I have to admit in the incentive terms.

[Antonia Junelind, executive]

Perhaps he is referring to rent-free periods or things like that. I'm just clarifying the question.

[Magnus Persson, executive]

Okay. Good clarification. Thank you, Antonia. I say since 1 year back, this hasn't changed materially, but if you compare it over a 3-year period, I would say that there's been an increase maybe in particular in Central Europe in terms of rent free and cash contributions for fit-out and what have you, not all of these incentives to sign the lease agreements. And which also means that you sort of have to sign a lease agreement on a headline price, but underneath that you have to toss in certain incentives. So that's definitely, I'd say, increased. But that has been an ongoing thing since the start of the pandemic. It hasn't been a material significant change over the last year, I would argue.

[Antonia Junelind, executive]

Second question from Peter refers to the rental yield in our portfolio of completed properties. Since we do not communicate that I will skip that question and move to the third question. Which is with the strong construction order intake, would you expect that the working capital of the construction division become more favorable in the coming quarters positive for cash flow?

[Magnus Persson, executive]

I'll take that question. I think the strong order bookings that we see now will not impact the net working capital in the coming quarters because it will take time to get this new bookings up into production, and that is when we have the impact on the working capital.

[Antonia Junelind, executive]

So that was all questions from Peter. And then I will move over to questions from Nicolas Mora at Morgan Stanley. So 2 questions. The first is trend in Swedish construction margin, considering weakening building outlook. Is there a risk of continued softer margins?

[Anders Danielsson, executive]

Anders here. No, I don't think so. We have -- the margin itself is somewhat impacted by settlement were made in Sweden. But the underlying margin, I don't expect anything else that they should be on the normal level going forward.

[Antonia Junelind, executive]

Then we have the second question refers to U.S. construction. Order inflow has been impressive in Q2 in mid and large-sized orders, but we also saw an order cancellation on failure to secure credit. Is this point something that you're monitoring, particularly in the U.S. non-residential market?

[Anders Danielsson, executive]

I would say that there is not a trend we can see as a problem for us. We are very conservative before we book any orders. We should have a binding agreement, binding contract with the client. And this is very unusual that we see cancellation. And in this specific case, the client couldn't get the financing in place. So the order was canceled. But again, it's very few examples of that in the large portfolio that we have.

[Antonia Junelind, executive]

So that was all questions from Nicolas and we will then move over to questions from Keivan Shirvanpour at SEB. His first question refers to commercial property development. And he asked, in terms of ongoing discussions, generally, what is the current discrepancies between Skanska and buyers in terms of pricing expectations?

[Magnus Persson, executive]

Yes, I can take that. This will come sort of a very boring answer, but I'm not going to answer that question. But of course, specifically because it's a part of the negotiations that we have, but of course, any negotiation between a buyer and a seller will always start with more bigger or smaller deviation in price expectations. And then over time and depending on how long that takes, you reach an agreement. So that's where we are. It's no change in that sense now compared to otherwise.

[Antonia Junelind, executive]

So next question here from Keivan is, due to the weak residential market, some more diversified builders are allocating resources towards, for instance, public segments. Have you noticed any form of pricing under cutting due to increased number of bidders? And do you see this is something that can impact margins?

[Magnus Persson, executive]

I can take that question. No, we do not see that.

[Antonia Junelind, executive]

And that was actually the final question for today. So that means that we have now answered all questions that you've had. Should there be anything left unattended at this stage or any questions come to mind afterwards, please do not hesitate to reach out to either myself or the IR function.So now I would just want to thank you, Anders and Magnus for your presentation and answers here today. We will be back with comments on our Q3 report on the 1st of November. And then we're also pleased to invite you to our Capital Markets Day on the 21st of November that we will be hosting in one of the buildings that we built in the city of London. So looking forward to seeing you at those upcoming events in the fall.And now I will just conclude this press conference. A recorded version of this audio cast will be available on our webpage shortly. And with that thank you very much for listening, and enjoy the rest of the summer.