ANNUAL REPORT 2006 - Skanska

To the left:
At Norra Bantorget in
Stockholm, Sweden, a
hotel as well as office
and residential space are
being built with a high
degree of prefabricated
elements.
To the right:
In Poland, activity is
increasing in the country’s
regional growth centers
– including such university
cities as Lodz, where
Skanska constructed this
university building.
A leading builder in selected markets
The Construction business stream operates in a number of
selected home markets: Sweden, Norway, Denmark, Finland and
Estonia, Poland, the Czech Republic and Slovakia, the United
Kingdom, the United States and Latin America.
In its selected markets, the Skanska Group is regarded as a
leader or as having the potential to become a leader in terms of
size and profitability. Skanska also endeavors to be a leader in its
industry in sustainable development as well as ethics, safety and
environment.
Skanska is one of the largest construction companies in several
markets. The Company’s primary goal is to increase its profitability.
Growth at its business units will be prioritized only when
financial targets are achieved.
Strategic acquisition
In the U.K. there is a strong market in construction and servicing
of electrical power, telecom, gas and water utility distribution networks.
This includes both new construction and replacement of
century-old water and power distribution networks, for example.
To strengthen its position in this segment, Skanska, late in 2006,
acquired McNicholas plc. The acquisition makes Skanska a leading
company in the British market for utility networks.
Local conditions
Conditions vary between home markets, and the operations of
Skanska’s local business units thus differ. Some specialize in selected
market segments, while others operate in a broader spectrum.
The earnings at Skanska’s construction units must be evaluated
in light of local market conditions, the segments in which
these units operate and varying contractual mechanisms.
Non-residential, civil and residential construction
Non-residential and residential building construction is generally
characterized by high capital turnover, limited capital employed
and low margins.
Civil construction projects are usually underway for longer
periods, have a higher risk profile and are more capital-intensive.
This also justifies a somewhat higher margin.
The Company’s risk management processes are aimed at
identifying and managing operational risks and thereby helping
ensure higher profitability. Risk analyses are carried out before
deciding on a tender or commitment and then continuously dur-
ing the implementation phase. This is both a matter of avoiding
risks that may generate costs and of ensuring that the Company is
compensated for the risks that it chooses to assume (see page 8).
Competitive advantages
Skanska’s size enables it to compete for large, complex projects for
international customers with strict standards of quality and execution.
In the very largest projects, which require high-level performance
guarantees, few competitors can measure up to Skanska
in expertise and strength. This leads to increased room for good
margins.
Customers that operate in more than one market, such as
the pharmaceutical company Pfizer and the oil and gas company
Hydro, can be offered the same service in all of the Group’s home
markets via the Skanska network.
Due to a selective approach when choosing possible projects,
especially when it comes to lump-sum bidding, the Company is
increasingly distancing itself from projects with low margins or
projects where high risk is not offset by higher compensation.
Focus on safety
Workplace health and safety are extremely important areas for
Skanska. Construction work sites unavoidably involve various
risky aspects, for example working high above the ground or with
heavy lifting. The risks and frequency of injuries in the construction
industry have traditionally been higher than in manufacturing
industry, which has more easily been able to build up safety
systems and safe procedures. For some years, Skanska has engaged
in a focused effort to create safe working environments in order
to reduce the risks of accident and injury at construction work
sites. This effort includes the introduction of more systematic
safety-mindedness, various types of physical safety arrangements,
requirements to wear safety equipment and training of skilled
workers and other personnel. The long-term target is to carry out
operations entirely without accidents. The frequency of accidents
has declined every year (see page 48).
Coordinated purchasing reduces costs
Skanska’s ambition is to increase the percentage of projects in the
form of negotiated contracts, where price competition alone is not
decisive. Since a large share of project costs consist of purchased
goods and services, the Group also aims at achieving economies of
scale in purchasing work by coordinating its purchases.
Skanska Annual Report 2006 Construction 15