ANNUAL REPORT 2006 - 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
2006.
Skanska’s operations performed favorably during 2006. A strong
construction and real estate climate characterized the operations in
most of the Group’s markets.
Residential Development operations showed improved earnings
and higher sales volume. The Commercial Development business
stream continued to deliver good earnings.
Construction operations improved their overall margins and
earnings.
There is great interest in public-private partnership solutions in several
of Skanska’s home markets. One result was that several major orders
related to the financing, design, construction and operation of hospital
properties in the United Kingdom were signed in 2006.
The task of recruiting, evaluating, developing and retaining employees
was in focus during the year. Efforts to increase diversity among the
Group’s employees continued.
Market
Market conditions in the Group’s main markets were favorable.
In commercial building construction, the market for office construction
remained favorable, especially in the Nordic countries. In
these markets, retailing was also one of the stronger segments. In the
American market, the healthcare and education sectors continued to
show strength. Higher material prices, especially for metal-based
products, had some restraining effect, especially in the U.S. market.
The Nordic as well as Central European civil construction markets
performed favorably. U.S. civil construction showed strong
growth, especially in the New York region. As in building construction
operations, higher material prices had some adverse impact.
The level of residential construction remained high in the Nordic
countries. In the Czech Republic, the housing market was strong but
showed initial signs of oversupply.
Vacancy rates in modern properties in the Scandinavian and
Central European office markets declined slowly. In Scandinavia as
well as Central Europe, there was continued good demand from the
investor market for properties with efficient space in the right locations
and with high occupancy rates. The yield requirements of
property investors continued to fall in all markets where Skanska
carries out commercial development, which led to a very good market
for divestments.
The volume of public-private partnership (PPP) projects in the
U.K. was still large both in school and hospital projects. A decline in
the number of major PPP hospital projects coming out in the market
is expected. In Skanska’s other European markets, the range of projects
was more limited.
Order bookings and backlog
The Group’s order bookings rose by 15 percent to SEK 134,392 M
(117,097). Order bookings were not influenced by currency rate
effects.
A large number of major contracts were signed during the year.
In the Czech Republic, during the first quarter Skanska received
two large Orderingång highway och assignments orderstock with
a
Mdr
total
kr
contract amount of about
150
SEK 2.4 billion.
125
In the U.K., during the same
125
quarter Skanska was commissioned
to 100
construct an office building at 100
PaddingtonCentral in London, a
75
75
contract worth about SEK 1 billion.
Later in the year, Skanska received
50
50
an assignment to upgrade and
renew 25
portions of the British electricity
transmission network. Skans-
25
0
0
ka’s share of the five-year contract
Kv 1 Kv 2 Kv 3 Kv 4 Kv 1 Kv 2 Kv 3 Kv 4
Q1
totals -05 about -05 -05 SEK -05 1.3 -06 billion, -06 -06 -06 of
-05
which • about Orderstock SEK 540 M was included
in 2006 Orderingång order per bookings.
kvartal
Orderingång, rullande 12 mån
During the third quarter of 2006,
Skanska Sweden was commissioned
to build Entré Malmö, a new central
shopping, entertainment and recreation mall in Malmö.
Order bookings and backlog
SEK bn
150
Q2 Q3 Q4 Q1 Q2 Q3
-05 -05 -05 -06 -06 -06
•
Order backlog
Order bookings per quarter
Order bookings,
rolling 12 months basis
The contract amounts to some SEK 800 M. Skanska Norway
secured an assignment to construct a new office building for the
Norwegian Tax Administration, with a contract value of about
SEK 420 M. Skanska USA Civil received an assignment to expand
a service and maintenance facility for trains in upstate New York.
Skanska’s share of the contract value totals about SEK 1.2 billion.
The same business unit was awarded a contract to upgrade a water
pollution control plant in Queens, New York for about SEK 1.4 billion.
During the fourth quarter, Skanska Sweden was commissioned
to build a biotech plant in Strängnäs for the Pfizer pharmaceutical
company. The contract amounts to approximately SEK 600 M.
Skanska Norway secured two contracts to upgrade the E18
highway to expressway standard at Sandefjord, for a total of about
SEK 780 M. Skanska USA Building was engaged as the construction
manager for a new research facility in California. Skanska’s
share of the contract totals about SEK 840 M.
Skanska received several major public-private partnership (privately
financed infrastructure) orders. The largest of these was the
42-year contract signed for St. Bartholomew’s and the Royal
London Hospital, U.K., which also paved the way for the signing
of a construction contract totaling SEK 13.6 billion. The construction
assignment is the Group’s largest ever. Skanska is investing
about SEK 650 M, corresponding to a 37.5 percent holding in the
project consortium company. The consortium is responsible for
financing, design, construction and facilities management of the
hospitals.
In Bristol, U.K., Skanska was awarded a project contract for a
public-private partnership covering four schools. The Group will
invest about SEK 65 M, equivalent to a 44 percent holding in the
project company. The construction contract totals about
SEK 1.6 billion, while the facilities management contract is worth
about SEK 38 M per year for 25 years.
Q4
-06
Skanska Annual Report 2006 Report of the Directors 53