Review of 2010 – USD version - Skanska

Our new office building projects are distinguished by a strong green
profile; they are energy-efficient and built using environmentally
sound materials, giving them higher value to both tenants
and investors.
Large future green market
But new projects represent only a small fraction of the total property
stock in a given country, which is dominated by older buildings.
These non-green buildings account for a high proportion of greenhouse
gas emissions. Existing older properties will not retain their
value − they must be environmentally upgraded if their owners
want to safeguard the value of their assets. There is major potential
for improvement, and a large future market for us.
For many years, we have been developing green solutions that
we apply to our new projects. We are in the forefront when it
comes to creating green projects. Now we are taking a further step
and developing the technology and the concept of Green Refurbishments.
We are currently implementing some pilot projects to
upgrade properties for better environmental performance. I am
convinced that we will be rewarded for this. As the demand increases,
we will be the natural choice for forward-looking customers
and investors.
Two giant projects that stand out
Looking back at 2010, two projects stand out among our thousands
of successful assignments. I am naturally thinking of New Karolinska
Solna in Sweden and the Autopista Central in Chile. All in the same
year, we landed the assignment for the New Karolinska Solna
university hospital − where we are investing USD 88 M (SEK 600 M)
and received a construction contract totaling about USD 2.0 billion
(SEK 14.5 bn), our largest-ever project − and signed an agreement to
sell our stake in the Autopista Central toll highway concession. The
latter transaction, to be completed during 2011, will result in a very
good capital gain, confirming that our investments in public-private
partnership (PPP) projects make good sense.
New business plan
But 2010 was not only a year when we harvested the fruits of early
investments. We also adopted a new business plan for profitable
growth during the next five years.
We are now aiming at growth after several years of successful
consolidation. Skanska has a stable base for profitable growth in its
four business streams. We have risk management and monitoring
functions in place. We have shared values, procedures and processes.
Our analyses show that we have the capacity to grow faster
than our markets, thereby capturing market share. At the same time,
profitability remains a top priority.
Shareholding program boosts employee dedication
In order to achieve our goals, we will need to sharply increase our
recruitment efforts in the next few years. This is made easier by
Skanska’s strong brand and our ability to offer exciting job assignments
and global career opportunities. Through the Skanska
Employee Ownership Program (SEOP), all employees have the
opportunity to participate in sharing the Group’s earnings. This
boosts employee dedication and creates closer affinity with the
Company. Employees who participate in SEOP are collectively the
Company’s fifth largest shareholder.
Our competitive advantage
Let me return to the Autopista Central and New Karolinska Solna,
because I think they are good examples of how we should take
advantage of our strengths in order to grow in the future. These
projects demonstrate the opportunities we create by utilizing
our strong finances and intra-Group synergies. Both projects are
evidence of our unique competitive advantages.
During our ten-year Autopista Central journey, we invested
USD 147 M (SEK 1 billion), landed a construction project worth
USD 588 M (SEK 4 billion) and sold our stake with an after-tax gain of
approximately USD 735 M (SEK 5 billion).
We won the Nya Karolinska Solna assignment because we
gathered a dream team of Skanska experts in project development,
hospital construction and financing from Sweden, the U.K. and the U.S.
Expanding in project development
And now to my point: This is the way that Skanska will move
forward. We will take greater advantage of our financial strength −
strong cash flow from our Construction operations is the engine −
in order to do even more. We will expand in project development,
where we earn a high return on our investments. We will increase
our pace of development in residential, commercial property and
PPP projects. At the same time, this will provide our Construction
operations with new assignments.
Better health and safety
Careful planning to identify and deal with potential dangers before
we start a job, is among the objectives of our efforts to improve
health and safety at construction sites. As a result, accidents so
serious that they cause absence from work have been halved in five
years. This is a clear improvement and shows that we are moving in
the right direction. But we will not be satisfied as long as a single
person is injured on the job. Our safety work will thus continue to
be one of our major challenges.
Increasing needs in growing cities
We are already well into 2011 and global trends are holding steady.
The cities of the world are continuing to grow, and there is an
increasing need for buildings and infrastructure. Construction markets
in the Nordic countries remain strong, along with the markets for
hospitals and educational and transportation facilities in the U.S. We
foresee slight improvement in U.K. private construction, while developments
in the Czech Republic and Slovakia are difficult to predict.
The housing market is expected to remain healthy, and the markets
for commercial property projects are expected to continue improving
− especially when it comes to green projects. In public-private
partnerships, both wind power and energy production using waste
combustion are future markets with major potential.
But what is the most exciting about 2011 is not what the market
offers us − it is what we do in the market. We are not sitting and
waiting for invitations. We are now taking the first steps to implement
our new business plan − we are expanding into new markets and new
cities in the U.S. and Poland; we will put our names on the housing
map in London and in selected Polish cities; we will enter new areas of
public-private partnerships. We will invest even more in green property
projects and take a leading role in Green Refurbishments.
So follow us into a future of growth and profitability, helping
to create a greener and safer world of construction and
project development.
Solna, February 2011
Johan Karlström
President and CEO
Skanska Review of 2010 – USD version Comments by the President and CEO 5