ANNUAL REPORT 2006 - Skanska

tive effect of about SEK 90 M due to a transition to defined-contribution
pension plans. The earnings of the California-based portion of
Skanska USA Civil increased as planned, and the unit showed a small
profit for the full year. However, Construction operations in the Czech
Republic and Finland showed somewhat poorer margins.
Czech operations took a charge of SEK 67 M for an order to
pay a fine and recognized an impairment loss of SEK 68 M on a
property that is leased to an external party.
In Denmark, operating income included project impairment
losses and restructuring expenses totaling about SEK 395 M.
A supplementary review of the Danish operations was undertaken,
and the business was reorganized in order to improve profitability.
In this context, Skanska is ceasing to accept new commercial
building assignments for external customers in Denmark, but construction
for Skanska’s residential and commercial development
businesses as well as civil construction operations will continue.
Residential Development
The business stream increased its operating income by 36 percent to
SEK 852 M (625). The operating margin rose to 12.6 (10.6) percent.
The strong housing market in the Group’s main markets in the
Nordic countries continued, and all units showed improved operating
income. In the Czech Republic, the residential market is showing
good demand, but due to greater supply it is taking longer to
conclude sales agreements. This resulted in somewhat lower operating
income for Czech residential operations. Starting in 2006,
Skanska resumed residential development in Denmark, which
showed positive earnings for the year.
Commercial Development
Commercial Development reported an operating income of
SEK 1,210 M (1,740). The lower earnings are explained by lower
divestments of commercial projects as well as lower operating net,
the latter as a consequence of Skanska’s reduced property portfolio
compared to prior years.
Of operating income, SEK 1,300 M was related to divestments
of fully developed properties, with a total sale price of about
SEK 3 billion. Property divestments occurred at prices averaging
25 percent above the fair values assigned at the end of 2005.
A number of large property divestments were carried out,
including the sale during the second quarter of a portfolio of five
properties, one of them in Malmö and four in the Stockholm
region. The sale price totaled SEK 750 M, with a gain of more than
SEK 500 M. During the same quarter, Skanska sold a property in
Stockholm for SEK 480 M, with a gain in excess of SEK 200 M.
Infrastructure Development
Operating income amounted to SEK –8 M (–9). During 2006,
Skanska divested eight percentage points of its holding in Maputo
Port, Mozambique, its entire 20 percent holding in Bridgend Prison,
United Kingdom, and its entire 33 percent holding in Kings
College Hospital, with an overall gain of SEK 125 M in the Group
financial statements.
Central
Costs reported under “Central” rose from SEK 345 M to SEK 514 M.
This item included the cost of Group headquarters, earnings of a
number of central companies as well as central provisions. This
also included the International unit, with a number of businesses
that are being phased out or shut down, among them Skanska’s
Russian operations.
Eliminations of intra-Group profits
Elimination of intra-Group profits amounted to SEK –114 M (–73).
This included net eliminations of intra-Group profits related to
Infrastructure Development projects in the amount of SEK –100 M,
net eliminations related to Commercial Development in the
amount of SEK –18 M and other items totaling SEK 4 M.
Infrastructure Commercial
SEK M Development Development Other Total
New intra-Group profits –123 –58 –181
Reversals 16 4 20
Projects and properties divested 7 40 47
Total –100 –18 4 –114
Income after financial items
Net financial items totaled SEK 223 M (120). As a consequence of
rising interest rates and higher average financial investment volume
than the preceding year, interest income improved from SEK 308 M
to SEK 406 M. Interest expenses shrank to SEK –107 M (–137),
which was explained among other things by lower average borrowings
during the year. During 2006, interest expenditures of
SEK 34 M (39) were capitalized, mainly in ongoing projects for
Skanska’s own account. The change in the fair value of financial
instruments amounted to SEK –118 M (19), which was mainly
related to negative interest rate differences in currency hedging of
investments in Infrastructure Development in Latin America as
well as Skanska’s 50 percent currency hedging of equity denominated
in American dollars. Other financial items amounted to
SEK 42 M (–70) and were related, among other things, to currency
rate effects plus various financial fees.
Profit for the year
After subtracting Resultat per the aktieyear’s tax
expenses Kr of SEK –1,330 M (–1,230),
10
profit for the year attributable to
equity 8 holders amounted to
SEK 3,635 M (3,879). The effective
6
tax rate was 27 (24) percent.
4 The year’s tax rate was again comparatively
low, which is explained by
2
a favorable mix of countries from a
tax 0 standpoint and a low tax burden
on
–2
property divestments in the form
of companies. Earnings per share
–4
amounted 2002 2003 to SEK 2004 8.68 2005 (9.27). 2006
SEK
10
8
6
4
2
0
–2
–4
Earnings per share
2002 2003 2004 2005 2006
Residential Development, Commercial Development and
other commercial properties
Residential Development
At year-end, there were 6,487 (4,485) residential units under construction.
Of these, 81 (79) percent were pre-sold. The number of
completed unsold residential units totaled 119 (142). During the
year, construction started on 4,715 (3,842) units. In the Nordic
countries, the number of residential units started was 4,234
(3,609), while in other markets they totaled 481 (233). The number
of residential units sold was 4,486 (4,297). In the Nordic countries,
the number of units sold totaled 3,862 (3,856), while sales of
residential units in other markets rose to 624 (441).
The carrying amount of current-asset properties in Residential
Development totaled SEK 5.3 billion (3.3). Of this, undeveloped
land and development properties totaled SEK 4.3 billion (2.4).
This was equivalent to building rights for about 19,100 residential
Skanska Annual Report 2006 Report of the Directors 55