Annual Report 1999 - Skanska

location of clean-up costs and compensationfor damages after the 1997 environmental accidentin southern Sweden’s Halland Ridgerail tunnel, which led to the suspension of theproject.Skanska’s assignment includes lining theexisting tunnels with concrete. After that, thecurrent contract between Skanska and theRail Administration will end.New OpportunitiesThe “New Opportunities” campaign includednewspaper advertisements, TV spots anda drawing competition for children. SkanskaSweden wanted to show that it is takingsteps to become more attentive to outsideopinion, while conveying an image of Skanskaas the service-minded company that it is.Environmental certificationThe business area’s program to obtain ISO14001 certification for its environmentalmanagement systems continued during1999. All units will be certified no later thanthe end of 2000.Market situationThe Swedish construction market grew byabout six percent during 1999, and theSwedish Construction Federation expects itto grow by eight percent during 2000. Theincrease in demand for residential, officeand retail space is especially apparent in thethree largest metropolitan regions – Stockholm,Gothenburg and Malmö – and inother university cities.Residential construction is the sectorshowing the fastest growth. During 1999,there were an estimated 14,000 housingstarts. During 2000, projected housing startstotal 16,000.Opportunities and threatsMarket rents in commercial properties areexpected to rise further. The need for newhousing in the three largest metropolitan regionsexceeds the current level of construction.There are good opportunities for SkanskaSweden to help boost the rate ofresidential construction.Percentage ofSkanska’s net sales29 (34)%Percentage of Skanska’scapital employed18 (21)%In the residential market, a greater differentiationin housing demand is apparent.Skanska Sweden is endeavoring to meet theneeds for different types of housing productsthat the market is demanding. Together withthe IKEA home furnishings group, SkanskaSweden has developed a housing concept, BoKlok (Sensible Housing), aimed at clientswho prioritize relatively inexpensive housing.Other projects, such as Gåshaga outsideStockholm, have been adapted to clients whodemand more exclusive housing in a particularlyattractive and unique milieu.As for infrastructure projects financed bycentral and local governments, the publicsector has decided to cut back its investments.The National Road Administrationand National Rail Administration are thusexpected to offer only a limited range of newconstruction projects over the next few years,aside from certain projects in the largestmetropolitan regions.Outlook for 2000During the current year, Skanska’s volumegrowth is expected to be about the same asthat of the overall market. As a result ofchanges in demand patterns, both from privateand public sector clients, the productmix is expected to shift further toward productsand services with higher value-added,which Skanska Sweden believes will result incontinued earnings growth.Skanska SwedenBuildingCivilTotal construction constructionSEK M 1999 1998 1999 1998 1999 1998Net sales 23,561 21,118 13,950 11,645 9,611 9,473Operating income 737 496 297 97 440 399Income after financial items 752 533 285 77 467 456Operating margin, % 3.1 2.3 2.1 0.8 4.6 4.2Return on capital employed, % 18,6 15.3 12.3 5.6 27.7 28.1Cash flow from business operations 331 840Average number of employees 15,357 16,831 8,044 7,392 7,313 9,439Percentage of net sales in the business area, by divisionSkanska Underground Construction and Bridges 7Skanska Residential Construction 12Skanska Commercial Buildings 34Skanska Industrial Construction 19Skanska International Civil Engineering 5Skanska Road Construction 23● 25 Skanska Annual Report 1999