ANNUAL REPORT 2002 - Skanska

Report of the Directors
The Board of Directors and the President of
Skanska AB hereby submit their report on
the operations of both the Company and
the Group in 2002.
Structural changes
and important events
Prioritized tasks during the year were consolidation
and a focusing of operations on
profitability.
In keeping with the Group’s strategy of
construction operations in selected home
markets, focused project development and
facilities management, the Company carried
out an analysis to assess how its business
units can fulfill its strategic goals.
As a consequence of this analysis, a number
of decisions were made on steps to adapt
the Group’s operations to these strategic goals.
In construction operations, Skanska will
phase out units that are not consistent with
its strategic emphasis on home markets or
that operate in certain small markets. It will
phase out project export operations in the
Skanska International Projects business unit
and its operations in Hungary, Lithuania
and Latvia. In light of the strategy of being
number 1 or 2 in each submarket, and in
order to reduce capital employed, residential
project development in Denmark will be
gradually discontinued. For the same reason,
Skanska intends to divest the Project Development
USA business unit.
After a thorough analysis, Skanska has
also decided to adjust acquisition goodwill
to currently estimated profitability conditions.
Together with goodwill writedowns of
SEK 1,495 M and acquisition premium
writedowns of SEK 150 M on properties, the
cost totals SEK 1,645 M.
Goodwill writedown
Skanska Selmer Gammon
SEK billion Poland Skanska Skanska Total Other Group
Effect on
capital
employed –0.5 –0.6 –0.4 –1.5 –1.5
Remaining
goodwill 0 1.7 0.2 1.9 3.7 5.6
After the writedown, the remaining goodwill
in the consolidated financial statements totals
about SEK 5.6 billion.
The restructuring programs initiated in
2001 continued during 2002 and have yielded
results in the units affected.
In Danish operations, the program to
trim overhead and improve financial control
and follow-up systems is progressing as
planned, although operations still showed a
small operating loss.
Polish operations are still running at a
loss, among other things due to a continued
downturn in the construction market and to
non-core businesses that will be divested.
The loss provisions made in 2001 in the
joint venture projects that were carried out
together with Costain Plc in United Kingdom
proved sufficient. Most of these projects were
completed during 2002.
In light of decreased activity in the construction
of telecom and information technology
(IT) infrastructure, the operations of
Skanska Telecom Networks were gradually
discontinued.
Acquisitions
The Skanska Services business area, which
carries out the Group’s facilities management
operations, continued to broaden its
client base. In April, it received a three-year
service contract from Pharmacia representing
total sales of about SEK 660 M. Under
this agreement, Skanska is taking over Pharmacia’s
services unit. Its operations consist
of restaurants; office, graphic and technical
services; as well as laboratory and production
services. All 220 employees were offered
continued employment.
Through the acquisition of E.L. Yeager
Construction Company – a civil construction
company based in southern California – Skanska
became one of the few American infrastructure
builders with nationwide coverage.
Yeager focuses primarily on civil construction
projects and has extensive holdings of well-situated
rock and gravel quarries. Most of its
operations in the U.S. take place in southern
California, but Yeager also has projects in Arizona,
Nevada, New Mexico and Utah. In 2001,
the company’s sales were nearly SEK 3,000 M,
with operating income of more than SEK 100
M. The investment, including net debt
assumed, totaled about SEK 430 M. Yeager
was included in Skanska’s consolidated financial
statements beginning in the third quarter.
Divestments of shares
In February, Skanska sold its shareholding
in the hotel property company Pandox AB,
equivalent to 6 percent of share capital and
voting power. The sale price totaled SEK 125
M, with a capital gain of SEK 47 M.
In conjunction with the listing on Stockholmsbörsen
of the kitchen interior manufacturer
Nobia AB, the Skanska Group sold
about one third of its shareholding in the
company at a price of SEK 170 M, with a capital
gain of SEK 41 M. After this sale, the
Group’s holding in Nobia AB amounts to 12.5
percent of share capital and voting power.
CityCronan
Skanska signed an agreement with the
German real estate fund DEKA Immobilien
Investment GmbH on the sale of the City-
Cronan property in central Stockholm. The
sale is conditional, among other things on
the approval of authorities in Germany, and
the transaction is expected to be reported in
the financial statements during the first half
of 2003.
The sales price totals about SEK 2,330 M,
with a capital gain of about SEK 1,100 M.
Provisions for pensions
Due to the continued negative trend in
stock markets, Skanska made provisions of
SEK –322 M to safeguard the commitments
specified by the pension plans in force in its
Swedish pension funds.
Together with provisions in prior years,
SEK 411 M has thus been reported as liabilities
in the balance sheet to cover the downturn
in asset value. Including provisions for
regular new pension rights earned, a total of
SEK 683 M, of which SEK 417 M during
2002, has been reported as liabilities in
28 Skanska Annual Report 2002 – Report of the Directors