The Construction business stream Construction is <strong>Skanska</strong>’s largest business stream. In addition to projects for external customers, its business units perform contracting assignments for <strong>Skanska</strong>’s other business streams. The order backlog, which totals SEK 113 billion, is divided into about 12,000 projects. SEK M <strong>2004</strong> 2003 Net sales 107,977 114,417 Operating income 1,211 1,551 Operating margin, % 1.1 1.4 Capital employed 3,782 7,799 Return on capital employed, % 20.1 17.3 Operating cash flow 3,966 3,236 Order bookings 116,008 113,794 Order backlog 113,498 109,316 Order backlog, SEK 113 bn Buildings for the world’s largest paper machine being erected for Stora Enso in Kvarnsveden, Sweden. <strong>Skanska</strong> proposed solutions to shorten construction time, lower costs and improve safety, thereby landing a contract worth some SEK 600 M. 8 Construction business stream – <strong>Skanska</strong> Annual Report <strong>2004</strong>
Non-residential building and civil construction, as well as residential construction, are the core of <strong>Skanska</strong>’s Construction business stream, which also includes constructionrelated and maintenance services. Non-residential building construction accounts for 58 percent, civil construction 34 percent and residential construction 4 percent of order backlog for the business stream. <strong>Skanska</strong> performs construction operations in selected home markets: Sweden, Norway, Denmark, Finland (and Estonia), Poland, the Czech Republic (and Slovakia), the United Kingdom, the United States and Latin America. During <strong>2004</strong>, <strong>Skanska</strong> divested its partly owned construction businesses in India, Hong Kong, South Africa and Canada. In its selected markets, the Group is regarded as being the leader or as having the potential to become the leader in terms of size and profitability. <strong>Skanska</strong> also endeavors to be the industry leader in sustainable development, ethics, safety and environment. By virtue of its size and leading position, <strong>Skanska</strong> can undertake the largest, most complex assignments for the most demanding customers. Working together with project development To a large extent, <strong>Skanska</strong>’s construction units work together with the Group’s project development business streams, which generate construction assignments for commercial space, residential projects and privately financed infrastructure. Some project opportunities are also created by taking advantage of the Group’s financial expertise. <strong>Skanska</strong> Financial Services can help arrange financing solutions at the customer’s request. Customers that operate in more than one market, such as Pfizer and Hydro, can be offered the same service in all of the Group’s home markets via the <strong>Skanska</strong> network. <strong>Skanska</strong>’s construction operations also carry out assignments of a service nature, both construction-related services, repairs and the like as well as operation and maintenance of industrial and transportation facilities. Local conditions Since conditions vary between home markets, the operations of <strong>Skanska</strong>’s local units differ. Some units specialize in selected market segments, while others operate in a broader spectrum. The earnings at <strong>Skanska</strong>’s construction units must be evaluated in light of the changing conditions that characterize the operations of each respective unit; these units may deal with different types of products, undertake different responsibilities and work with varying contractual mechanisms, regulations or customer demands. Non-residential, civil and residential construction Non-residential building construction is generally characterized by high capital turnover, limited capital employed and low margins. Civil construction usually goes on for a longer period, has a higher risk profile and is more capital-intensive. This also justifies a somewhat higher margin. Specialized units Construction operations in Sweden, Norway, Denmark, Finland, Poland and the Czech Republic comprise both building and civil construction. <strong>Skanska</strong> UK operates both in building and civil construction. About 40 percent of its operations consist of public-private partnerships, with <strong>Skanska</strong> BOT participating as an investor in privately financed infrastructure, mainly hospitals, schools and correctional facilities. In the U.S. market, <strong>Skanska</strong> has two separate, specialized business units. USA Building constructs commercial space throughout the United States in the pharmaceutical, biotechnology, high technology and educational sectors, as well as for public organizations and agencies. USA Civil builds transportation infrastructure and facilities for energy and water supply in the most heavily populated regions of the eastern United States as well as in Colorado and California. In Latin America, <strong>Skanska</strong> primarily builds infrastructure and performs construction and related services in the energy sector. <strong>Skanska</strong> Latin America provides technical operation and maintenance services at numerous oil and gas extraction facilities for international energy companies. Its operations focus on the markets in Argentina, Brazil, Chile, Mexico and Peru. In several <strong>Skanska</strong> home markets, the Group’s construction units deliver construction services to Commercial Project Development business units. This is true in Sweden, Denmark, Poland and the Czech Republic. In Sweden, Norway, Finland and the Czech Republic, these units also provide construction services to the Residential Project Development business stream. In Norway, Finland, the United Kingdom, Poland and Latin America, the Group’s construction units work together with <strong>Skanska</strong> BOT, which invests in public-private partnerships. <strong>Skanska</strong>’s home markets GDP/ Construction/ Construction USD capita capita as % of GDP United States 38,819 3,219 8.4 Sweden 31,662 3,146 9.9 United Kingdom 29,921 3,092 10.3 Norway 48,433 4,966 10.3 Finland 30,955 3,722 12.0 Czech Republic 8,825 801 10.7 Denmark 39,342 4,544 11.5 Poland 5,428 368 6.8 Argentina 10,653 219 2.1 Sources: The Swedish Construction Federation, EcoWin The largest global construction companies 1 Total sales 2003 Company Country USD bn Vinci France 20.5 Bouygues France 17.2 <strong>Skanska</strong> AB Sweden 14.1 Bechtel United States 13.2 Grupo ACS Spain 12.2 Hochtief AG Germany 12.0 Centex, Dallas United States 9.0 Royal BAM Groep The Netherlands 8.6 1 Excluding Japanese construction companies Source: Engineering News Record <strong>Skanska</strong> Annual Report <strong>2004</strong> – Construction business stream 9
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