Skanska AB (SKA B), the global construction and development company, reported a mixed financial performance in the first quarter of 2024. While the construction sector exhibited lower results, the company saw a strong order intake and increased sales in residential development, particularly in Central Europe.
Despite no divestments in commercial property development, the operating margin for investment properties remained solid. Skanska also highlighted a robust financial position and a significant reduction in carbon emissions.
Key Takeaways
- Skanska's construction sector showed lower results, but residential development sales increased, especially in Central Europe.
- No divestments in commercial property development were recorded in the first quarter.
- The company maintained a solid operating margin for investment properties.
- Skanska reported a strong financial position, with SEK 4.6 billion in net cash and a 35.3% equity-to-asset ratio.
- A 58% reduction in carbon emissions was achieved compared to the base year of 2015.
Company Outlook
- Increased activity in residential construction in Central Europe was noted, with signs of improvement in the sector.
- The recovery in residential and commercial property development markets is expected to be slow due to cost of living pressures and impacts on the low-price segment.
- The leasing market is stable in Nordic and Central Europe, while the US market remains weak.
- Long-duration projects in the large order intake from Q1 provide some visibility for the future.
Bearish Highlights
- The commercial property development sector had a silent quarter with no transactions and a loss on operating income due to an asset impairment in the US.
- Unrealized gains were slightly lower, with negative effects in US properties.
- A weak outlook for commercial property development was noted, with low transaction volume and a hesitant investor market.
Bullish Highlights
- Skanska has a strong team in place to handle projects in the US and Norway, with no anticipated additional charges.
- Divestment discussions are ongoing despite a slow market.
- The company has completed a thorough analysis of all ongoing projects, including legacy projects.
Misses
- The company did not record any divestments in commercial property development during the quarter.
- A supplier bankruptcy affected the quarter's charges.
- No revenue forecast was provided.
Q&A Highlights
- Skanska addressed questions about the margin profile of their order intake in the US and the revaluations of completed commercial properties in Europe and the Nordics.
- Historical working capital averages of 13% and 15% were mentioned, but not as indicators of future performance.
- The company confirmed that one specific project was isolated and not representative of the current contract model.
- Technical difficulties during the call led to an apology and an invitation to contact the IR team for further questions.
Skanska's first quarter of 2024 reflects a company navigating through a challenging market environment with a cautious but stable approach. While certain sectors like commercial property development face headwinds, the residential sector shows promise, especially in Central Europe.
The company's robust financial position and commitment to sustainability, as evidenced by the significant reduction in carbon emissions, position it to weather the slow recovery anticipated in the property development markets. Investors and stakeholders are encouraged to follow up with the IR team for any further clarifications.
Full transcript - Skanska (SKAb) Q1 2024:
Antonia Junelind: Good morning and a warm welcome to the presentation of Skanska's First Quarter Report for 2024. My name is Antonia Junelind. I'm the Senior Vice President for Investor Relations here at Skanska. And here to present to you the main events, operational and financially from the first quarter is our President and CEO, Anders Danielsson; and our CFO, Magnus Persson. They will provide their first presentation and after that, we will move over to questions and we will open up for questions for those of you that have gathered here in the room for us, but also those of you that are joining us online. And we will then recommend that you use the HD audio link to call to us and ask the questions. But we will give back to with more information on that. So, with no further ado, I then leave it to you Anders to start with the presentation.
Anders Danielsson: Thank you, Antonia. Welcome, everybody. It's good to see you. Before we start, I wanted to look at the picture here, our beautiful building in Seattle, it's called The Eighth, and it was also here that we had our record lease earlier this year. First quarter for 2024, it's a mixed performance, we have the construction with somewhat lower results, but we do have a strong order intake. Residential development, we can see increased sales compared to last year, but it's from a low level still. Commercial property development, no divestment in the quarter recorded. We have improved the leasing that is helped by this lease we made in Seattle. Operating margin in investment properties has solid performance, so, no transaction in the quarter. Operating margin in construction, 1.8% compared to 2.8% last year. And return on capital employed in project development overall is negative due to the write-down we communicated in the fourth quarter last year. The same for investment properties, we took impairment charges in the fourth quarter there as well. Return on equity is also impacted by that. Of course, the rolling 12 number is 5.9%. We do maintain a robust financial position and that is essential for the company and really important for us going forward as well. Carbon emission, we managed to reduce those with 58% if you compare to our base year 2015. If I go into each and every screen, now we start with construction, so the revenue is slightly below last year but pretty much in line. Order book is really strong, SEK 47 billion and we have a book to build of 117% which is on a very good level. So, the order backlog is on record level right now, over SEK 250 billion, really strong. Operating income, SEK 670 million, lower than last year giving us an operating margin of 1.8%. Strong order intakes is mainly from the strong U.S. operation and also the civil operation in Norway. And the order backlog is high as I said and result in the quarter is impacted by costs related to UK project that we won 10 years ago and we have a thorough analysis of that project and take the impact of the consequences and write it down with the SEK 370 million. Rolling 12 months operating margin was 3.3%, slightly below our target of 3.5%. If I go to residential development, the revenue has increased, we have SEK 2 billion in revenue in the quarter. And that's because we have sold more apartments, of course. So, we have seen an increase from a low level though so - but it's encouraging to see that it's starting to go in the right direction. And we also managed to start more projects since we have sold more as well. We try to keep a good balance between those. Operating income, SEK 23 million, and return on capital employed was negative due to what I just said. So, increased volume still from low level, but we can see that the strongest market here is continue to be Central Europe. And we also took losses in our low-price segment BoKlok of SEK 146 million in the quarter. So, if we exclude the BoKlok operation, we have a healthy operating margin of 8.9%. So, we can see the underlying performance in our residential development operation is on a healthy level. Going to commercial property development, we have operating income SEK -166 million in the quarter. We had impairment charges here of SEK 156 million related to a U.S. project. And return on capital employed gives us a -2.6. Twenty one ongoing projects correspond to SEK 27 billion upon completion in total investment and we have 73% leased. We have completed 22 projects. And that is equal to SEK 12 billion in total investment, so, a lot of good projects to divest in the future. No divestment of property starts in the quarter and leasing activity was solid total 70,000 square meters. And again, a record lease here in Seattle earlier. Investment properties, no investment during the first quarter, and the stable performance and the solid operating income of SEK 50 million. And we have occupancy rate at 91%. So, that is on a good level. And we, again, targeting high-quality office buildings in the three largest cities in Sweden, and the ambition is to build up a portfolio of between SEK 12 to 18 billion for some years. I'm moving back to construction now and look at the order bookings. You can see here the blue bars, they represent the order backlog quarter by quarter, and you can see the line - different lines here on the order bookings on rolling 12, the grey line revenue on the green line rolling 12 and book to build percentage-wise on the yellow line. So, you can see the development over time over some years and we are on historically very high level here. And if I look into the geographies, it's more of a mixed picture. We have overall a strong book-to-build over 100%, 113% total in the Nordic, but that is driven by the strong Norway civil market, Norwegian civil market. You can see here, Sweden is slightly below 100%. We have a weak order intake in Europe total 76%, but very strong in the US as we can see, 135% book-to-build. So, overall, 19 months of production in the backlog is on historically high level as well. With that, I hand over to Magnus.
Magnus Persson: Thank you. So, we start with the P&L for the construction part. Top line, we decreased revenues with 3% quarter over quarter and that's in local currencies. We had a gross margin 6.2% compared to 7.2% same quarter last year. And the difference between the quarters in terms of gross margin is basically all explained by the charge we take in the UK here. So, if we exclude that, we are performing at the same level as last year. And I have to say overall, the construction portfolio is continuing to perform at a very high level. We have the stability that we have been looking for and that we have developed over some time so quite pleased with that. S&A as you can see, 4.3% well under control, and then the operating margin, 1.8% is basically a consequence of gross margin under S&A. Looking at different geographies, Nordics came in at 3.2% margin, so up a bit then from same quarter last year. And Sweden is flat at 2.3%, so stable performance there. Then we have the European part and this is of course where we find the charge from the UK project here. And as Anders has already said, the background to the charge it's a contract that we bid and won for 2014, which is ten years back. And the risks in this contract are of a kind that we do not - we have not mandated our organization to bid for jobs like this today since we enforced a new stricter bidding regime in 2018. So, this is very much a legacy from the past that comes up now. And unfortunately, it hits us now in this quarter and that's sort of the background to the charge. And if we look in the US, 3.3%, still performing very well slightly lower than the same quarter last year, but there's no read-through in that normal quarterly variation. So, with Oregon, if you look on this on a rolling 12-month basis, we are now at just above 4% margin in the US. And of course, it's very pleasing to see that we have such a strong financial performance in our strongest markets where we're also successfully booking a lot of new jobs. If we look at residential development, a fairly big change in revenue here moving up to SEK 2 billion from around SEK 600 million in the comparable quarter. And the market, it's not a super good market today either, but it's quite clear that the market is improving. We are now selling units again to slightly higher pace. So, this is very positive and it's indicative, of course. In the revenue numbers and in the sales figures, you will see a little bit further on them. Gross income 165 million to 8.2% gross margin, and this is weighed down also by the losses that we have in our low price offering to the market. That's called the BoKlok product that we have. S&A, 7%, of course too high to be stable for us. But if you look on the nominal values here, we have around SEK 140 million in S&A. We have quite successfully taken down the structural costs in the organization to meet an expected lower market there. So, I think we've handled this in a good way and we continue to adapt where we feel with the need to do that. And then, operating margin, 1.1%, and operating income of SEK 23 billion - million that should be. Looking at different geographies, essentially, none of the geographies are performing financially, but it is all due to the BoKlok losses here of SEK 146 million that impact all over the place here. They are present in all the different geographies. And the majority of the costs come from BoKlok comes in the European part. If we strip out the effects from BoKlok, you can say we are at the stream level performing with a gross margin of around 12% to 13% with a bit higher in the European part and a bit lower in the Nordic part. And this is of course quite important for us and also of course to communicate that when we sell units to the market today we can achieve a decent profitability on that given the costs that we carry with us when we're going to the projects. So, a lot here in terms of the financial results has to do with our low-price offering. Home started and sold, we sold 511 homes quite a lot more than than last year, 130, and we started in 459 new homes, which is also not fully double the amount of the comparable quarter, but quite close to. So, you can see as we manage to sell, we also feel confident that we can start a bit more new projects, which of course is good. And you can see in the graphics on the slide also in the chart, the sales and the start curves are starting to turn and move into a bit more positive direction. So, that feels quite good. And of course, we hope that this morning's announcement from the Swedish Riksbank will also be further positive to the housing market in Sweden. Effects are not to be seen yet, but in the coming weeks, hopefully, we'll be able to see how that reads through into the market. If we look at homes in production, we had 3,700 homes in production at the end of the quarter. Significantly down than since one year back, which is not so strange. With the low sales, we have not wanted to start a lot of new projects. Of this, we have sold already 51% and had 772 units that were completed but not yet sold. Of these 770 units, 370 of them belongs or is part of the low price offering in BoKlok. So, that's a majority of what is lagging in terms of our sales here. And it is still so that that part of the market is and has been hit the worst by the current situation on the housing market. You can also see here in the chart that despite that the sales rate is low-ish and the homes in production is coming down, we still have a significant amount of units offered to the market. To see that, you can simply add up the light blue part and the green part of the bars here. Which is comfortable as we see and hopefully the market will continue to improve a bit going forward it's important to have an inventory to offer from. Then you can capitalize a bit quicker on any changes to the market. Commercial property development, a very silent quarter, we made no transactions. We booked a gross income of SEK 31 million and then an S&A of 195, take us down to a loss on the operating income level of SEK 166 million. And in that, you can say that we had a write-down or an impairment of one asset in the US in the isolated quarter driven by an overall increase of expected yields in the market, but also as in the specific properties case, a change in leasing expectations in that micro market that has led us to make this impairment, but no transactions in the quarter. If we look at unrealized gains, the roughly in line with last quarters, we are SEK 300 million lower, coming down a little bit. And in that, we have some gross impacts whereas I just alluded to in the US parts of the portfolio, we have due to the changes of the interest curve in that market decided to up the yields a bit, which leads to a change in the surplus values of the US properties to the tune of SEK 600 million. But then we have some positive effects actually in the same respect for some Nordic and European properties where we increase the surplus values based on the market outlook and also current discussions with potential investors. So, that's positive. And then we have the realized gains, which you can see on the orange line here that are hovering around SEK 1.5 to 2 billion on a rolling 12-month basis. The completion profile, we had at the end of the quarter SEK 12 billion invested in properties that are completed but not yet sold. These were leased to 74% - 73%, which is roughly in line in the terms of leasing with what we had in the fourth quarter, so, not a lot of change in that. We completed one property during the quarter that moved into this bar here. Then you can see, we expect to complete in Q2 properties for close to SEK 2 billion and closer to SEK 3 billion in the third quarter and then a fairly large bar, a large amount of expected completed investments in the fourth quarter. And those of you who follow us and remember the fourth quarter report, you note that this larger bar was actually placed in Q3 when we presented the fourth quarter results. So, we've had delays in three US-based projects in terms of when they are expected to be completed. It's a mix of reasons, its delays in some of the supplies, we have been hit by a strike in one of the cities and we also have to make further adaptations to accommodate tenants. And when you have this situation, that's something is expected to be completed close to the end of the quarter it only requires a few weeks slippage and then you end up in the next quarter. So, that's the reason, there's no structure change to it, just moved between quarters there. And these are now leased to 51%, those that we expect to complete in Q4. In terms of leasing, we leased 70,000 square meters in the quarter. Of that, we had this major lease that took up in the property, The Eighth, that was to 50,000 square meters early on in Q1 and we are on a rolling 12 months basis, which is the best way I think to look at leasing also, now leasing around 240,000 square meters. So, it is improving, but the status of the leasing market remains the same if we look across our different geographies with the European parts still being the strongest, after that we have the Nordics and then we have the US market that is still considerably weaker than the others here with a return to office trend that is going quite slow to be frank. Investment properties, well performing properties so there's not a lot of things that are happening every quarter here. We booked an operating income of SEK 50 million. In the isolated quarter, we made no changes to the expected market valuations. And the occupancy ratio on the average for the portfolio remained at 91%. If you look at the whole group, then we had the operating income from our business streams of SEK 576 million and then we have the central stream including the headquarters that comes in at SEK 60 million - SEK -60 million, quite a lot down then from the SEK -159 million last year but this is more due to a periodization effect. So, those of you who try to forecast where we are with this, I can assure you there's no structural change to the costs in the central stream here. It's just a movement between different quarters even if the Q1 comes in quite low here now. Net financials goes up to SEK 225 million, and the whole reason for that is essentially that we are able to place our excess liquidity in a more favorable interest rate climate. So, we get better paid for the excess liquidity that we have. That explains the uptick here. Taxes, SEK 197 million, and a tax rate of 27%, it's unusually high for Skanska. And the background to this is that we've had over the last few years in several markets slightly increasing nominal tax rates, but this has not been seen too much in our numbers because we are normally so heavy profit-wise on selling properties in the Nordic countries and especially Sweden that is very tax efficient way of earning your profits. In this quarter, we don't have any such divestments. So, the whole nominal effect here comes right through into the P&L for us, which is why that explains the majority of the high tax rate here. Cash flow, we had a cash flow in the quarter of SEK -4.9 billion, and inside that you will see that we have slightly lower net investments; nothing strange with that, because we have started few new projects over the last year or two. And at the same time, we're working hard on divestments here. So, that is coming down. But then we have working capital that has a quite substantial negative impact in the isolated quarter here and I will come back to that, so, SEK -4.9 billion in the quarter. And then, we come to working capital, we had SEK -2.7 billion cash flow from working capital from construction in Q1. It's an unusual large cash flow impact from that and I think it warrants an explanation. But if you recall the fourth quarter, we had a quite substantial positive impact from working capital then as many clients sometimes would like to advance certain payments before they close out their financial year. Then in the first quarter, we have to pay that back by doing work to a lower pace of invoicing from our end. So, what comes in in the fourth quarter goes out in the first quarter. So, this large part of the flows that you see in Q1 is a consequence of what happened in the fourth quarter. Overall, in terms of working capital, if we stretch out the time perspective a little bit, we still have the same observation as we have communicated over a number of quarters now that we are slowly moving down in the free working capital level in the company. It is becoming harder to negotiate the front-loaded payment profiles for us. We still do a very good job with it, but this is probably attached also to the fact that money is associated with the cost these days also for the clients. So, still a high level here, but as you can see, this is very slow but still noticeable trend downwards that we are keeping our eyes firmly peeled on to be able to handle that in a good way. Investments and divestments, here you can see that we are moving from being deep down in net investment territory now into becoming more neutral. The green line here is approaching zero, which essentially means that over the course of the last 12 months, we have invested as much as we have divested then. And in terms of capital employed in our property development and the investment property streams, we close the quarter at SEK 65.2 billion up then from SEK 60.2 billion in the fourth quarter. We had SEK 22 billion or SEK 21.5 in available liquidity at the end of the quarter. And of that SEK 9.4 billion, were constituted by credit commitments from banks and third parties. We have of that around SEK 9.8 billion is financial liabilities that we have external debt. That is sourced 50% approximately from banks and 50% from the credit markets. And you can also see the maturity profile that we think is well assessed against our own capital commitments over the coming years here. Finally, financial position, we closed the quarter with SEK 56.7 billion in equity and SEK 4.6 billion in net cash and an equity-to-asset ratio of 35.3%. So, we remain with a very solid financial position noticeable in terms of capital and liquidity. Something that is very important with the line of business that we are in. Anders?
A - Anders Danielsson: Sure. So, I will go through the market outlook and if I start with construction is mostly in line with previous quarter. We have improved one of the building market and that is central Europe and we can see increased activity in the residential construction but also some encouraging signs from the industry there. So, that has increased. U.S. remains the strongest market definitely together with the Norwegian civil market. Residential development, we have seen increased activity, which is encouraging and I expect that to continue if we see lower interest rate. But it is from very suppressed level. So, our outlook over time is still weak market even though we see signs of improvement. Expected recovery will take time and that's due to cost of living pressure. And we also have as you have seen impact on our low-cost or low-price segment that can't expect it to continue. Commercial property development, same here, the outlook is still weak. Low transaction volume and hesitant investor market, and we can see that interest rate cuts and improved access to funding could improve and stimulate the market over the next 12 months remains to be seen. And the Nordic and Central European leasing market is mostly stable. And the US leasing lagging a bit due to the back office is still lower than a comparable figure in Europe. Investment properties polarization in the occupier market is still there. Their demand for high-quality spaces are really clear. And we can offer that of course because we have the right location, high-quality building and the rents are expected to be remains stable here. So, if I summarize this performance in the first quarter, residential lower result, very strong order intake, residential development improving in volumes but from low levels. Commercial property development, no divestment recorded, we have seen improved leasing and solid performance in the investment properties. And very important here, we are maintaining a robust financial position. So, I hand over to Antonia open up the Q&A.
Antonia Junelind: Yes, thank you, Anders. So, now, it's time to open up for the question section. And as mentioned before, there are two ways that you can ask questions to us. If you are here in the room with us, then just please raise your hand and we will bring a microphone so that you can ask and the online audience can hear your question as well. And if you are watching, then you can join us and I would recommend that you use the HD audio link as that provides better sound quality for us here in the room so that we can hear your question perfectly but also to you. Another alternative is to use the phone conference number, which is also provided. And we will start with questions from the online audience, and I ask you, the operator, to please introduce the first caller.
Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Graham Hunt with Jefferies. Please go ahead.
Graham Hunt: Thank you very much. For the questions, I'll just ask two. First one on U.S. construction, I'm just interested to see here how you're seeing the margin profile of some of the order intake that you're getting there? I think one of your competitors in Europe is guiding to an improving margin outlook in the US specifically. I just wonder if you're seeing a similar outlook in your order book and operations there especially with some of those datacenters coming in? And then, second question, could you just help us understand how to think about these commercial revaluations upwards in Europe and the Nordics? How should we think about that in terms of your ability to sell those completed properties? And what is it that's holding you back from closing transactions there if you're seeing values actually increasing on a mark-to-mark basis? Thank you.
Anders Danielsson: Okay, thank you, Graham. I will start with the first question regarding the U.S. construction operation. We have seen over time that the quality in the backlog has improved significantly. If we go five, six years back, we had a lot of dead revenue in the backlog and that's completed those projects. So, the quality is much higher now and we perform on a very high level. I will not give you any forecast about the future order intake, but I'm very confident with the quality in the current one. And the second question, Magnus.
Magnus Persson: Yes, hi, Graham. This is Magnus. In terms of the revaluations there, it's quite simple actually. It's based on discussions that we've had with potential investors. That's essentially it. And it's not immediately transferable into imminent deals. Closing a property transaction these days can take some time obviously, but that's the whole background to it.
Graham Hunt: Thank you very much.
Operator: Our next question comes from Arnaud Lehmann with Bank of America. Please go ahead.
Arnaud Lehmann: Thank you very much and good morning. I have two questions, if I may. Firstly, on UK construction, you had this write-off in the first quarter. Is the project now completely de-risked at those levels or is there potential for more write-offs going forward? That's my first question for UK construction. And secondly, on the working capital, as you mentioned, it was very positive in Q4. And now, you have the reversal in Q1. Could you give us an indication of what to expect for working capital for the next six months and potential implications for your net cash position? Thank you.
Anders Danielsson: All right. I will start with the first one and Magnus will take the second one. UK construction, this is an isolated project we won 10 years back. We have been taking on some risks that we would not take under the current strategy. And it's getting closer to completion now. It's not completed, but we are in a position in that project that we can oversee the cost to complete, we can oversee the revenue from the project. We have done a thorough analysis of the project, so I'm confident that we have a good position there in the books. And we took the consequences this quarter.
Magnus Persson: Hello, this is Magnus. In terms of question of network capital, we don't give any guidance like that. And it's actually pretty hard to foresee it, even for a person like myself who spend a lot of time with this and have access to all the information. So, I think a very good guess is to just see it as it is today, right? And I think just to elaborate a little bit, the networking capital in construction is constituted by thousands and thousands of payment plans in all our projects. So, they change or the networking capital position change essentially only with projects with a new payment profile coming into the portfolio, and other projects with a different profile exiting the portfolio when we are completed with them. So, because of that, changing the networking capital position is a very slow process because it means you have to churn the portfolio of jobs. So, it's quite stable. And I guess within six months, the best guess is just to guess the same.
Arnaud Lehmann: Thank you very much.
Operator: [Operator Instructions] Our next question comes from the line of Gregor Kuglitsch with UBS. Please go ahead.
Antonia Junelind: So, there seems to be a disruption with the operator, but we have more people waiting to ask questions in the queue. So, let's see if we can get them through to us here in the studio. I believe that Gregor Kuglitsch from UBS was next in line. Could we try to get him through to us in the studio? Okay.
Operator: Mr. Kuglitsch, your line is open, you may proceed.
Antonia Junelind: Sorry, Gregor. Can you hear us? Your line should be open.
Operator: Maybe your line is on mute, sir.
Antonia Junelind: Okay, so in the meantime, I will take one written question that have been posted from the web. So, let's see, it comes from Sven Nordell, and the question goes, growing so much in the U.S. and Norway, do you have the organization already in place to handle these projects or do you see risk for new loss makers when needing to hire people from the market? When do you plan to be finished with the turnaround of BoKlok? So two questions, really.
Anders Danielsson: Two questions?
Antonia Junelind: Yes.
Anders Danielsson: Yes. The first one is - it's a relevant question, obviously, since we have taken on a lot of work in the US and Norwegian operation. But our strategy is clear. We only bid for project where we can see that we have the team in place. We don't running for volume, we prioritize profitability before volume. And we definitely are selective. So, we turn down projects where we don't see we have a competitive advantage or where we see we don't have the right team in place. I'm confident that we can fulfill and execute the projects we take on. Regarding BoKlok, that's mainly market-driven. We had also some supplier issues in the U.K. So, it's market-driven. It will take time. Also, the segment, the low price segment that has been hit most by the slow market. It's very difficult for clients in that segment to get finance or buy apartments.
Antonia Junelind: Thank you. Okay, so I will continue to ask those of you that didn't manage to get through to us via the phone conference, please, continue to post your questions on the text field on the webcast page and I will read them out here in the studio. So, I will now move to the next question, which is from [Stefan Bilo] (ph) at Nordea. How large share of your order backlog are projects with high-risk profile? Should we expect more charges?
Anders Danielsson: I would say that we are very disciplined. We don't take on projects where we don't understand the risk where - and all the risks that we see, we price them. We also have healthy margins when we bid for projects. So, I'm confident that the quality in the backlog is much higher today than it was five, six years back.
Antonia Junelind: Okay. So, we have not received any more questions in the text field. So, Operator, I will ask one last time if you can see if you can put the last people in the queue through to us here in the studio.
Operator: Of course. We have Mr. Kuglitsch again. Your line is open, sir.
Gregor Kuglitsch: Can you hear me now?
Antonia Junelind: Yes.
Magnus Persson: Yes, we can.
Anders Danielsson: Yes, we can.
Gregor Kuglitsch: All right. I think everybody could hear me by you, so I don't know exactly what happened. Anyways, I've got a few questions. So, firstly on the BoKlok, can you just give us a sense what you could do here? Obviously, you're wearing losses. I think that's been going on for a while now. Are you drawing - I mean, I guess the question is, can you do cost cutting of some sort, maybe shut the U.K. or something else, or you're just going to wear it and hope that the market comes back? The second question is, can you just elaborate a bit more on the divestment discussions you're having? I mean, it sounds like there's a bit of sign of life in Europe. Maybe you care to comment also in the U.S. Is anything going on? On the working capital question, I think you've historically talked about a range of working capital to sales. Can you just remind us what you think is now reasonable to expect given the orders you're booking now? And then maybe a final question for construction. So, you've had obviously a very large intake in Q1. I think Q2 also looks looking at the announcements look pretty strong. The question to you is, are those orders basically longer-duration orders? In other words, does that gives you longer-term visibility, or does it also mean we should be expecting a step up in the revenue level - I don't know, let's say from next year onwards? Just looking at the sort of cadence of those orders. Thank you.
Anders Danielsson: Thank you. I can start with the first and the fourth question and then Magnus can step in. BoKlok, what do we do? We're doing a lot of things. We don't have the market with us and we are having done major reduction in the organization and reduction in cost to mitigate that and find a healthy core of the business. This quarter, we also hit by I mentioned, the supplier issue. We have a bankruptcy on a supplier that supply modules who have taken provisions for that. So, the majority of the charges in the quarter is from that provision. So, that's what I can say by that. The order intake, its large projects, obviously, and usually, larger project has a longer duration and that's the normal case. I'm not going to give you any forecast regarding the revenue development coming forward that remains to be seen. And you take the amount --
Magnus Persson: Hi, Greg, this is Magnus. Divestment discussions, I mean, obviously, we have quite a lot of divestment discussions with the different investors. Some are more advanced than others, but it is still so that the divestment market is slow, I'd say across the board. Maybe mostly slow in the U.S. and in the Nordics and in Europe, it's slightly better. But we have some discussions that are quite advanced. And then, of course, the number of lead contacts that we hold discussions in, generally speaking, we work a lot with that. So, lots of discussions. In terms of networking capital, I guess you're also looking for the same thing, what to expect there. But my answer to the last question is quite difficult and we don't give an indication. The levels you are referring to are 13% and 15%. I've said them myself on calls before. But just to a word of warning, they are simply averages of the last five years. So, it doesn't mean anything in that sense. But you need to have something to put into models. I think it's wise to use some average over a few years in that. I think what's most important is what we bring up in these calls that we are - we consider ourselves to be lucky and strong in this, we are at the high level, but we can also see a slow trend that it is coming down a bit.
Gregor Kuglitsch: Thank you.
Operator: Our next question is a follow-up from Graham Hunt with Jefferies. Please go ahead.
Graham Hunt: Thanks for the follow-up. Just one coming back on U.K. construction, I understand that you've done deep analysis of that specific project. But maybe you could just confirm that you've also looked at all of the other legacy or projects that were taken on under the legacy framework, and you're comfortable with the provisioning on those projects as it today? Just to give a bit of comfort around the order book. Thank you.
Anders Danielsson: Yes, of course, we have always done thorough analysis of all ongoing project. This one is a special project, isolated project, we don't have that business set up. A contract model that we have seen in this project that was 10 years back, we would not accept the similar setup in the contract today.
Graham Hunt: Understood. Thank you.
Operator: [Operator Instructions]
Antonia Junelind: So, I do believe that we have reached the bottom of the line of people that have tried to call in and have succeeded. I do apologize for the technical problems during the call. If there are any questions that have been left unanswered, please don't hesitate to reach out to the IR team and myself afterwards. But with that, I will now conclude this earnings call. So, thank you, Anders and Magnus, for your presentation and answers here today. And thank you for joining us here in the studio in Stockholm. And lastly, thank you to those of you that have been watching online. A recorded version of this broadcast will be available on our web page shortly. And we will be back with more comments on the second quarter report in July. Until then, have a nice one. Thank you.
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