Review of 2012 – EUR - Skanska

Financial review 2012Revenue showed an increase in both EUR and local currencies in comparisonwith the preceding year. A number of Skanska’s units deliveredpositive results despite operating in markets with reduced constructioninvestments and intense competition. Construction’s revenue increasedand earnings remained essentially unchanged in comparison with thepreceding year, primarily due to impairment losses in ongoing projectsand impairment losses of receivables in Latin American operations.The Finnish and Norwegian operations have been developing accordingto plan and these units are gradually resuming normal profitability levels.Profitability in Residential Development operations were adverselyimpacted by costs and provisions connected to restructuring of Nordicoperations and by land impairment losses in the Czech Republic andSlovakia. In 2012, Commercial Property Development divested propertiesworth EUR 0.72 billion for a healthy profit and at year-end 2012,had 34 ongoing projects. Infrastructure Development operations carriedout five divestments during 2012. Four of these pertained to hospitalprojects in the U.K., and one an expressway in Finland. In 2012,Skanska Infrastructure Development signed its first PPP (public-privatepartnership) contract in the U.S. – the Midtown Tunnel/Elizabeth RiverTunnels project. These divestments of the various development operationsconfirm the strength of Skanska’s business model, wherebycapital generated in Construction is invested in profitable and realizabledevelopment projects, which in turn generate construction assignmentsand future development gains.ConstructionThe market for construction is generally stable, but major differencesremain between various geographical areas and segments. While theresidential construction and commercial building construction marketsin Norway are performing well, they are weaker in Finland andSweden, particularly outside the major urban regions. The market forlarge civil construction projects in the Nordic Region is relatively stable,albeit with significant international competition.The other European markets developed weakly, primarily in termsof major civil engineering projects where the competition is particularlytough.The market for large and complex civil construction projects continuedto develop favorably in the U.S., but there is intense competition forprojects. In building construction operations, the segments are developingfavorably for healthcare, aviation and information technology(IT) industrial facilities, as well as for commercial buildings like offices.Residential DevelopmentThe residential market remained characterized by strict lending practicesand uncertainty among potential home buyers. In Sweden andFinland, the market was restrained but relatively stable. In Norway,demand remained healthy, with rising prices. The Polish residentialmarket was relatively stable. In the U.K., local markets were mixed,while the Czech market remained weak.Commercial Property DevelopmentTenants are continuing to demand modern, efficient and green premises,although the tenants’ decision process has become relatively longer. Thevacancy rate of office premises was relatively stable in most of Nordicand Central European cities where Skanska has operations.The vacancy rate was declining in the majority of the cities in the U.S.where Skanska has operations.Modern properties with stable tenants are resulting in attractive valuationsfor such properties particulary in Sweden, Norway, Poland and the U.S.Conditions are favorable for purchasing attractive land, particularly inregions of Central Europe where Skanska has operations.Infrastructure DevelopmentConditions for new projects in the U.S. continue to improve where anincreasing number of PPP projects are available for tender.However, the offering of projects in the European market is morelimited.Order bookings and order backlogOrder bookings, backlog and revenue in constructionEUR bn20151050Q108Q208Q308Q408Q109Q209Q309Q409Q110Order backlogOrder bookings, rolling 12 month basisOrder bookings per quarterRevenue, rolling 12 month basisQ210Order bookingsOrder bookings increased by 1 percent to EUR 13.8 billion (13.7).Order bookings in SEK were 4 percent lower than revenue in 2012,in comparison with 2011, when order bookings were 7 percent higherthan revenue.During the year, order bookings increased in local currency inSkanska’s Swedish, U.K. and U.S. operations, while other units showeda decline in order bookings.Among the contracts that were signed during 2012, a number ofmajor contracts in segments important to Skanska are mentionedbelow.Nordic countriesIn Norway, Skanska won the assignment by KLP Eiendom to constructan eco-friendly shopping center in Fornebu, Oslo; the order is valuedat approximately EUR 0.1 billion. The project is the first of its kind tobe environmentally certified to BREEAM NOR’s highest level, “Outstanding”.In Finland, Skanska signed an agreement to construct thePuuvilla Shopping Center in Pori; the order is valued at approximatelyEUR 110.3 M. In Sweden, Skanska won the assignment by StorstockholmsLokaltrafik, SL, to build a new bus terminal; the order is valuedat approximately EUR 0.1 billion.Other European countriesIn the U.K., a number of major assignments were secured during theyear, the largest of which was the joint venture with Morrison UtilityServices, to work with the National Grid’s program for replacing gaspipes. The contract runs for eight years and Skanska’s share amountsQ310Q410Q111Q211Q311Q411Q112Q212Q312Q41282 Skanska Financials Skanska Review of 2012 – EUR version