Annual Report 1999 - Skanska

Skanska SwedenSkanska Sweden includes the Group’s Swedish operations in the fieldsof building and civil construction-related services. The business areaalso includes a number of specialized subsidiaries with constructionrelatedoperations. In addition, Skanska Sweden is responsible for theGroup’s exports of large civil construction projects to countries not regardedas main markets. Operations are grouped into six divisions.● 24 Skanska Annual Report 1999Business orientationSkanska Sweden’s operations include buildingand civil construction-related servicesand construction systems as well as projectdevelopment of both commercial and residentialspace.Skanska Sweden is the largest constructioncompany in Sweden, with an estimatedmarket share of 10.5 percent. More than halfof the business area’s sales are generated inthe three largest metropolitan regions, whereits operations are increasingly concentrated.One element of Skanska Sweden’s strategyis to expand in the project developmentfield. By joining projects at an early stage, itcan take full advantage of its collective competenceto create client benefit and valueadded.This ambition has led to a higherproportion of projects where Skanska participatesfrom concept to completion.Another important element of its strategyis to expand in the operation and maintenancestage, also called facilities management.The acquisition of Ericsson RealEstate & Services, which provides facilitiesmanagement to the Ericsson telecommunicationsgroup in Sweden, is one step in thisstrategy. To underscore the importance thatthe Group is assigning to facilities management,effective in March 2000 these operationsare being organized into a separatebusiness area – Skanska Service.Earnings in 1999Net sales rose by 12 percent to SEK 23,561M compared to 1998. Meanwhile operatingincome climbed 49 percent to SEK 737 M(496) and operating margin rose to 3.1 (2.3)percent. Earnings were adversely affected byproblems in the Dutch subsidiary of thesubsidiary Myresjö, a manufacturer of prefabricatedhomes, and by nonrecurring expensesat the steel frame subsidiary SkanskaStålteknik.All divisions showed improved earningscompared to 1998.The main explanation for the improvementin earnings is the restructuring programand related reorganization that beganin 1998, with the grouping of Skanska Swedeninto specialized divisions as one importantelement. Its effect has been lasting costreductions, greater efficiency and a changedproduct mix, with a larger proportion ofprojects with high value-added and margins.The Skanska Commercial Buildings Divisionshowed significantly improved earningsdue to concentration in Sweden’s threelargest metropolitan regions and an emphasison project development. Constructionservice operations are performing well andtoday account for about 15 percent of divisionsales.During 1999, the Skanska ResidentialConstruction Division acquired more than3,000 new building rights, half of them inthe Stockholm region, worth SEK 500 M.During the year the division completedabout 1,100 homes. Its ambition is to lowerthe average throughput time for developmentland from the current five to fouryears. The Skanska Sweden business areanow has an inventory of 10,000 buildingrights, half of them in the Stockholm region.The Skanska International Civil EngineeringDivision, which is responsible forexports of heavy civil construction projects,reported higher order bookings and earningsthan in 1998.Important business eventsThe Öresund BridgeIn August, the Öresund Link united Swedenand Denmark when the last element of theÖresund Bridge was lowered into place. TheLink will be inaugurated on July 1, 2000,which is earlier than planned.Gamla FilmstadenSkanska Residential Construction acquired50 percent of Gamla Filmstaden in Solna,former site of a well-known movie studio. Itwill build 550 apartments in partnershipwith the HSB cooperative housing organizationplus 12,000 sq m (130,000 sq ft) ofcommercial space. The project includes renovationof all the historically protected moviestudio buildings as well as new constructionfor two companies in movie-related businesses,SF Bio and Svensk Filmindustri.Physics CenterDuring 1999, the Skanska CommercialBuildings Division began construction ofthe Physics Center in Stockholm, a researchcenter for the Royal Institute of Technologyand Stockholm University. The investmenttotals SEK 1 billion. Skanska is also responsiblefor project financing.Bo KlokDuring 1999, Skanska Sweden continued itsinvestment in Bo Klok (Sensible Housing),which targets clients who prioritize relativelyinexpensive housing. At the H99 housingfair in Helsingborg, Bo Klok attracted heavypublicity.Södra LänkenSkanska Underground Construction andBridges, together with Skanska Road Construction,is building two more stages of theSödra Länkan (South Link) bypass in Stockholmfor the National Road Administrationin a contract totaling SEK 755 M. This includesrenovating and lowering a 1,500 m(4,900 ft) stretch of the Nynäsvägen highwayand building access ramps to highway tunnelsnear the Stockholm Globe Arena.Hydroelectric power projectsSkanska International Civil Engineering receivedtwo orders for hydroelectric powerprojects, one in Peru where Skanska’s sharetotals SEK 580 M and one in Sri Lanka,where the contract value totals SEK 450 M.Agreement with BredbandsbolagetSkanska and Bredbandsbolaget signed a letterof intent to jointly develop and buildbroadband networks. Skanska is therebytaking a further step into the growing marketfor IT-related infrastructure.Agreement with National Rail AdministrationThe Swedish National Rail Administrationand Skanska reached an agreement on the al-