CEO Comment from Annual Report 2017
Skanska’s ﬁnancial position remains strong, powered by continued high performances from Project Development. We are taking actions to improve Construction proﬁtability, while our values and sustainability expertise provide competitive advantages. In 2018, we will advance further with our Proﬁt with Purpose Business Plan.
Guiding Skanska until 2020 is our Profit with Purpose Business Plan, which has two core elements: delivering an industry-leading total shareholder return, while building for a better society through the important projects we undertake and our innovative, sustain- able solutions. These ambitions arise from what we have long done. We are determined to resume providing an industry-leading return, while increasing our positive contributions to society.
Profit with Purpose is based on Skanska’s strengths. We are strong through our business model, which has consistently provided significant financial returns. We are strong from how our 13 Business Units in eleven countries increasingly collaborate and share expertise to provide customers with the best solutions. And we are strong through our values, which more and more customers appreciate. These strengths form our foundation. They position us to create longterm value for Skanska and our shareholders.
Our performance in 2017 consisted of solid accomplishments, but also significant challenges that we are urgently addressing. Overall, Group operating income for the year was lower at SEK 5.5 billion. Our financial position remains strong, so the Board of Directors proposes to maintain the dividend at SEK 8.25 per share.
Residential Development’s top performance
Our Residential Development stream’s performance was even stronger than in 2016, with returns significantly above our targets and operating income reaching an alltime-high of SEK 1.7 billion. We started 4,318 homes, and sold 4,285 homes. This stream’s geographic breadth provides resiliency to market shifts and local fluctuations in demand. Also, we mainly operate in the affordable and core segments, where demand tends to be durable.
New Commercial Development records
Commercial Property Development set a new record in 2017 with divestment gains of more than SEK 3.5 billion from divesting 27 projects. At the same time, we continue to increase investments in new commercial developments - starting 24 projects in 2017 - and secure major leases, with leasing also achieving record high levels last year. These actions improve our ability to create value to be realized in future years.
Signiﬁcant Infrastructure Development gains
We made significant gains in Infrastructure Development from divesting three public-private partnership (PPP) projects, most notably the A1 highway in Poland. We are selectively pursuing new projects as well as bringing existing projects into a fully operational state, increasing their value.
Improving proﬁtability in Construction
In Construction, our Nordic units and Skanska USA Building continued to achieve top results, but it was not enough to offset weaknesses in several other units. Consequently, we did not reach our target Construction margin of 3.5 percent – a result that is not acceptable.
To improve profitability across the Group, we are downsizing operations with continuously low profitability or that are no longer strategically important. In the Construction stream, this involves restructuring Polish operations, exiting the power sector in USA, increasing focus on the core business in the UK, and continuing to adapt to tougher market conditions in the Czech Republic. Further- more, with a thin pipeline of PPPs in Europe, we are focusing Infra- structure Development operations on the US market.
Overall, we are increasing our focus on cost control and risk management. During 2018, we will implement a new Group management structure, including a new Group Leadership Team (GLT). This model is intended to increase organizational effectiveness including bringing leadership closer to operations and reduce costs.
Growing Project Development
Boosting profitability also includes increasing investments in Commercial Property Development and Residential Development. This is key to securing Skanska’s strong financial performance into the future. Investments include acquiring additional land and building rights, and bolstering our capabilities. In 2017, Commercial Property Development delivered 42 percent of Skanska’s operating income, and Residential Development 26 percent.
Synergies through collaborations
We continue to drive One Skanska collaborations between and within Business Units, resulting in operational and financial synergies. These synergies enable Skanska to self-finance Project Development activities, while raising efficiencies, lowering risks and strengthening customer offerings. Ultimately, both Profit and Purpose are advanced. Deepening these synergies is a key priority.
Values attract employees and customers
Everything we do at Skanska is grounded in our four values: Care for Life, Act Ethically and Transparently, Be Better Together and Commit to Customers. Through our people living the Skanska values in their daily work, we become more attractive as an employer, as people want to work for companies that stand up for larger beliefs. And we become more appealing to customers, as they can trust us.
Creating a sustainable future
Skanska’s values are essential to creating a sustainable future for our people, customers and communities. Our sustainability agenda consists of five focus areas linked to our values and to our core activities in Construction and Project Development: Safety, Ethics, Green, Community Investment and Diversity and Inclusion.
In 2017, we continued to make important progress with sustainability, including launching a business-focused Green strategy and driving vital conversations about diversity and inclusion. Core to the Green strategy is significantly reducing carbon emissions by 2030 to align with the Paris international climate agreement. Beyond environmental benefits, lowering carbon emissions will help us both lift our operational efficiencies and deliver solutions that help customers meet their own carbon and energy objectives.
Even with those forward steps, the three work related fatalities on Skanska sites in 2017 make us deeply aware of the importance of continuous focus.
Supporting global priorities
Our sustainability expertise is a key differentiator in our markets, and an important part of how we contribute to society.
For 17 years, Skanska has actively supported the universal sustainability principles defined by the United Nations Global Compact. More recently, the UN’s member countries adopted 17 Sustainable Development Goals to transform the world by 2030.
In 2017, Skanska began using these goals to measure the performance and contributions of the Group’s sustainability work. The UN goal of sustainable cities and communities – making cities inclusive, safe, resilient and sustainable – is most relevant to Skanska, providing us with the greatest opportunities to effect positive change.
Ongoing good market conditions
For 2018, we see continued robustness in the world economy, and stable to strong conditions across all home markets. Plentiful opportunities enable Skanska to focus on pursuing projects right for us, while our strong balance sheet allows us to capitalize on development possibilities. At the same time, Skanska will continue to monitor ongoing political uncertainties in our home markets.
Sweden’s favorable environment
In Sweden, we anticipate strong market conditions continuing for construction and commercial properties. The Swedish residential market, our largest housing market, has returned to a sounder and more stable condition.
Almost half the homes we sell in Sweden are through the BoKlok affordable residential business. We are investing about SEK 250 M to increase production capacity nearly 50 percent at BoKlok’s main plant. That will grow an important part of Skanska, while enabling us to provide even more people with the opportunity of homeownership.
Benefiting customers and shareholders
I am fortunate to lead a company with deeply embedded values that is guided by Profit and Purpose for these I thank my predecessor, Johan Karlström.
Together with our great people, my new Group Leadership Team (GLT) and I are committed to improving Construction profitability. We are also dedicated to leveraging Skanska’s extensive Construction and Project Development expertise and strong balance sheet to provide customers with the most compelling solutions. I am confident our actions will benefit shareholders too.
I look forward to earning the trust of Skanska’s shareholders, customers and communities in the years ahead.
Stockholm, February 2018
President and CEO