Review of 2010 – USD version - Skanska

Business streams
Record margins but lower revenue
Construction is Skanska’s largest business stream. During 2010 it
achieved a record operating margin of 3.9 percent. This was mainly
due to well-executed projects and good risk management as well as
rapid adjustment to lower volume.
Each day the Bjørvika sunken tunnel provides
about 100,000 motorists with a new short-cut
between eastern and western Oslo, Norway.
Revenue declined during the year as a result of lower
order bookings in 2008 and 2009, but an improvement in
order bookings was noted during 2010. At year-end 2010,
order backlog totaled USD 21.6 billion. This large order
backlog is equivalent to 16 months of construction.
Construction markets were mixed during the year.
Order bookings in the Nordic markets were good, and
Sweden showed the largest improvement compared to
the preceding year.
In the United States, the recovery in the private
building construction market remains slow. Demand
was stable in the civil construction market, but competition
was keen. In the United Kingdom, the market has
been adversely affected by sharp public budget cutbacks
− which will mean reduced demand for public sector
projects − but due to a strong order backlog in the U.K.,
a large proportion of the work that will be performed
during 2011 is already included in the order backlog.
The Polish market is good but competition is fierce.
Demand for both public and private sector construction
projects in the Czech Republic and Slovakia was
still suffering from relatively weak growth and strained
public finances.
Skanska Latin America was affected largely by the
positive trend in the energy sector. The market for publicprivate
partnerships also showed positive growth during
2010, which represents opportunities for Skanska.
First and largest
New Karolinska Solna, the new university hospital for
which Skanska was awarded a contract in 2010, is the
Company’s largest assignment ever and Sweden’s first
public-private partnership (PPP) hospital project.
Skanska’s success in landing the New Karolinska Solna
assignment also shows the advantages the Company can
generate by utilizing intra-Group synergies. The combination
of financial strength and global expertise in project
development and construction enables Skanska to take on
large projects such as New Karolinska Solna.
Financial strength leads to new assignments
Collaboration between Skanska’s construction and
project development operations also enabled it to land
the assignment to build a new congress, concert and
hotel facility in Malmö, Sweden. The construction
contract, which totals USD 194 M, will be expanded in
new phases for office and residential space that will be
developed by Skanska. This is an example of Bundled
Construction, where Skanska uses its financial strength
to generate new business opportunities.
Skanska is working on two
large subprojects for the
Norra Länken (Northern Link)
bypass, one of Sweden’s
largest highway construction
projects. Mainly using tunnels,
Norra Länken is part of a new
interconnected system of major
traffic arteries in Stockholm and
is expected to open for service
in 2015.
In the city of Biecz in southern
Poland, a 5 km (3 mi.) long bypass
road with five bridges was built in
18 months.
Customer focus and risk management
The general economic downturn of recent years has resulted
in fewer projects available for tenders, as well as more
intensive competition and reduced tender margins. Aside
from continuing efforts to increase cost-effectiveness and
improve risk management, greater customer focus is of
major importance in order to remain successful.
Maintaining good profitability requires increasingly
high working standards, both in the tender stage and
during project execution. Skanska thus makes a continuous,
focused effort to improve its risk management
and productivity.
The Group’s focus on eliminating risks and adapting
its organization to prevailing market conditions,
which was vital during both 2009 and 2010, will remain
important during 2011 as well.
Collaborating in clusters
Cluster collaboration between different business
units are another way of strengthening the synergies
within the Group. Skanska’s construction operations
in Poland, the Czech Republic and Slovakia have established
such collaboration, in which they share resources
and expertise in both construction and support functions.
Skanska’s U.S. building and civil construction units collaborate,
among other things, by sharing office space and
doing joint marketing and management development.
In the Nordic countries, there are collaborative arrangements
in information technology (IT) and procurement,
as well as in asphalt and industrial production.
Continued strong demand in the Nordic countries
Overall project opportunities in Skanska’s construction
markets are expected to be stable during 2011, with
strong demand in the Nordic countries but continued
relatively weak demand in the Czech Republic and
Slovakia. The outlook for the U.K. and the U.S. is somewhat
uncertain, although civil construction in the U.S.
is expected to remain at a healthy level. Latin America
will show continued good growth.
The residential market is expected to remain stable
in the Nordic countries during 2011. In some markets
there is a need for new homes, because relatively few
projects were started in the past couple of years. In the
Czech Republic, the improvement in the housing
market is expected to continue.
Green construction and refurbishment projects are a
growing market with major potential, where Skanska is
well positioned to win new assignments. In particular,
refurbishments of commercial space are expected to
24 Construction Skanska Review of 2010 – USD version