Review of 2012 – EUR - Skanska

◀◀◀◀◀Business modelProjects are the core of Skanska’s operations. Value is generated in the thousands of projects the Groupexecutes each year. The goal is for every project to be profitable while being executed in line with Skanska’sgoal of being an industry leader in occupational health and safety, risk management, employeedevelopment, green construction and ethics.In the Skanska Group multiple synergies generateincreased value for shareholders. The main synergiesare operational and financial.Operational synergiesSkanska generates operational synergies mainly bytaking advantage of the local specialized expertisefound globally in various business segments. Sharedpurchasing activities in procurement and productiondevelopment also boost efficiency and promote greatersynergies in the organization.Financial synergiesSkanska’s construction business stream operates withfree working capital and generates a positive cash flow.This cash flow is invested in the Group’s project developmentoperations, which generate an excellent returnon invested capital. These investments also enableConstruction to obtain new assignments that generate aprofit for the operations. Refer to the illustration below.ConstructionThis business stream includes residential and non-residentialconstruction as well as civil construction, and is Skanska’slargest business stream, in terms of revenue and thenumber of employees.Residential DevelopmentSkanska initiates, develops and invests in residential projectsfor divestment, primarily to individual consumers.Commercial Property DevelopmentSkanska initiates, develops, invests in, leases and divestscommercial property projects, primarily office space,shopping malls and logistics properties.Infrastructure DevelopmentSkanska develops, invests in, manages and divestsprivately financed infrastructure projects, such as highways,hospitals, schools and power plants.Free working capital in Construction enables thefinancing of investments in project development.Revenue from external customersConstructionRevenue with associatedconstruction profit.Revenue from project developmentoperations:Residential Development: EUR 0.5 billionCommercial PropertyOperating margin target 3.5–4.0%Development: EUR 0.3 billionInfrastructure Development: EUR 0.9 billionOperating profit, internal constructioncontracts: approximately EUR 115 MAdvance payments: approximately EUR 0.8 billionReturn on capital employed in project developmentoperations including these synergies:15 percent, 9 percent excluding synergies.Performance target in project developmentexcludes synergies while the target for return onequity includes synergies.◀◀Investment opportunitiesInternal constructioncontracts generated bythe investments in projectdevelopmentReturn on equity target 18–20%Dividend policy 40–70% of profit◀Project developmentDevelopment gains are generated,which are realized upon divestment.Return on capital employedtarget 10–15%8 Business model Skanska Review of 2012 – EUR version