Year-end report 1996
The Group’s order bookings for 1996 rose to SEK 52,500 M, an increase of 19 percent compared to the previous year. Excluding the building product company Skåne-Gripen, which was acquired during 1996 and consolidated in the Group accounts effective from January 1, 1996, order bookings rose by 7 percent. Operations outside Sweden accounted for 55 percent (43) of order bookings.
SKANSKA GROUP
YEAR-END REPORT, 1996
FEBRUARY 25, 1997
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Order bookings rose by 19 percent to SEK 52,500 M (44,029)
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Income after financial items rose to SEK 5,172 M (2,573)
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Net profit per share rose to SEK 32.35 (12.80)
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New dividend policy- The board of Directors proposes a dividend of SEK 10.00 (5.00) per share
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Additional transfer of SEK 8-10 billion to shareholders is being planned
_______________________________________________Unless otherwise specified, comparative figures stated in parentheses refer to final results for 1995 adjusted for changes in the accounting principles regarding closely related associated companies._______________________________________________
The Group
Order bookings, invoicing and earnings
The Group’s order bookings for 1996 rose to SEK 52,500 M, an increase of 19 percent compared to the previous year. Excluding the building product company Skåne-Gripen, which was acquired during 1996 and consolidated in the Group accounts effective from January 1, 1996, order bookings rose by 7 percent. Operations outside Sweden accounted for 55 percent (43) of order bookings.
Invoiced sales rose by 24 percent to SEK 47,472 M, of which 46 percent (39) consisted of invoiced sales in markets outside Sweden. Excluding Skåne-Gripen, invoiced sales rose by 11 percent. Invoiced sales on contracts credited to income totaled SEK 47,872 M (38,608).
Year-end order backlog was SEK 37,566 M (30,161).
Operating income after depreciation amounted to SEK 4,118 M (3,232). Income after financial items totaled SEK 5,172 M (2,573). This included a capital gain of SEK 1,760 M (25) on shares sold.
Net profit for the year totaled SEK 4,074 M (1,610), which was equivalent to earnings per share of SEK 32.35 (12.80).
Return on capital employed was 21.9 percent (15.3), and return on shareholders’ equity was 31.4 percent (14.7).
Capital spending, liquidity and financial position
The Group invested a total of SEK 12,037 M (4,518) in real estate, shares and other fixed assets during 1996. After divestments totaling SEK 7,496 M (2,934), net capital spending amounted to SEK 4,541 M (1,584) during the year.
Cash flow after investments totaled SEK -2,125 M (-314).
The Group’s liquid assets and interest-bearing receivables declined by a total of SEK 579 M to SEK 5,203 M, while interest-bearing liabilities, including pension liabilities, rose by SEK 3,377 M to SEK 16,740 M. As a result, interest-bearing net indebtedness rose to SEK 11,537 M (7,581). For refinancing purposes, during 1996 Skanska arranged a five-year syndicated bank loan with a total credit ceiling of USD 700 M, of which USD 175 M had been utilized at year-end.
The visible equity/assets ratio was 32 percent (30) at year-end.
The market value of the Group’s shareholdings in listed companies totaled SEK 18,768 M on December 31, 1996. Excluding those holdings which are reported in Skanska’s accounts according to the equity method (Scancem, Norrporten, Piren) or are consolidated as subsidiaries (JM), the market value of the portfolio amounted to SEK 11,929 M, with a corresponding book value of SEK 1,272 M. Including this surplus value, SEK 10,657 M, and after subtracting deferred taxes, the equity/assets ratio was 39 percent (37). Adjusted for share purchases and sales during the year, the value of the portfolio climbed 52 percent during 1996. Divestments during the year include the entire shareholding in Graninge and the remaining holding in Custos.
Personnel
The average number of employees in the Group during 1996 was 38,304 (32,728). This included 17,745 (13,567) employees abroad. The increase was attributable mainly to the acquisition of Skåne-Gripen, which accounted for about 4,178 employees in 1996. The balance of the increase is due to the expansion of the Group’s international operations.
Organizational changes
Effective from 1997, Skanska’s construction activities within the two business areas Swedish Construction and International, respectively, have been reorganized into two new, product-oriented business areas - Civil Engineering and Building. In addition, a new business area - BOT Projects - responsible for Skanska’s financial involvement in privately financed infrastructure projects, has been established. The Skanska USA business area is not affected by the organizational changes of the Group’s construction activities.
Capital structure, new dividend policy and proposed dividend
Over the past few years, the Skanska Group has undertaken a series of restructuring moves aimed at narrowing its operative focus and making its core business more profitable. Meanwhile Skanska has declared that its non-core business-related shareholdings constitute a financial reserve and that over time, they will be divested. Its holdings in Protorp and Custos and Graninge have already been sold. The dramatic upturn of recent years in the value of both real estate and equities, along with a positive trend of earnings in Skanska’s core business, have resulted in a corresponding sharp upturn in consolidated adjusted equity. In light of this, the Board of Directors believes that Skanska’s capital base exceeds the requirements of its core business, even taking into account existing plans for the Group’s continued development and growth.
Group Management and the Board are thus studying the issue of how best to implement additional transfer of SEK 8-10 billion in excess capital back to the shareholders. Accordingly, in due course they intend to propose suitable mechanisms for additional transfer.
No break-up of Skanska’s operations is contemplated.
Taking into account the projected future trend of earnings and the capital requirements of the Group, the Board has also approved a new dividend policy. This policy states that the long-term intention of the Group is to pay a dividend equivalent to 3-4 percent of its adjusted equity at the previous financial year-end, as determined by the Board.
In 1997, this means that the Board is proposing that the Annual Meeting of shareholders approve a dividend of SEK 10.00 per share (5.00), for a total dividend amount of SEK 1,259 M (630).
Annual Meeting and Annual Report
The Annual Meeting of shareholders will be held at the Concert Hall in Malmö, Sweden at 4 p.m. on Monday, May 5, 1997. Skanska’s Annual Report for the 1996 financial year will be distributed in mid-April.
Danderyd, Sweden, February 25, 1997
SKANSKA AB
Board of Directors____________________________________________________
Construction sector
| Swedish Construction business area (SEK M) | 1996 | 1995 | |
| Operating income after depreciation |
479 |
384 | |
| Income after financial items |
624 |
632 | |
| Operating margin |
(%) |
2.8 |
2.4 |
| Margin after financial items |
(%) |
3.6 |
3.9 |
| Level of invoicing credited to income |
(%) |
105.5 |
102.8 |
The Swedish construction market remained weak during 1996. As a whole, construction investments were at an essentially unchanged level compared to 1995. Residential construction was again extremely low during 1996. Road and civil engineering investments, which have maintained a uniform, relatively high level over the past few years, showed some signs of slowdown during the latter part of the year.
Swedish Construction’s order bookings during 1996 totaled SEK 15,389 M (17,126). The decrease is partly explained by the Öresund Bridge project, connecting Sweden and Denmark, for which the contract was signed during the fourth quarter of 1995. Invoiced sales on contracts credited to income in the business area rose to SEK 17,162 M (16,118). Lower interest rates during 1996 reduced Swedish Construction’s positive net financial income, which largely explains its narrower margin after financial items compared to 1995.
| International Construction operations (SEK M) | 1996 | 1995 | |
| Operating income after depreciation |
293 |
291 | |
| Income after financial items |
303 |
316 | |
| Operating margin |
(%) |
1.8 |
2.0 |
| Margin after financial items |
(%) |
1.8 |
2.2 |
| Level of invoicing credited to income |
(%) |
98.5 |
102.2 |
Order bookings in Skanska’s international construction operations during 1996 totaled SEK 24,101 M (19,066), an increase of 26 percent. Operations in the United States were the main factor behind the increase, while the total level of order bookings in other international operations was largely unchanged. Invoiced sales on contracts credited to income totaled SEK 16,488 M (14,241).
Industrial sector
| Industry business area (SEK M) | 1996 | 1995 | |
| Operating income * |
356 |
75 | |
| Share of income in associated companies |
473 |
327 | |
| Operating income after depreciation |
829 |
402 | |
| Income after financial items |
565 |
268 | |
| Operating margin ** |
(%) |
9.4 |
8.9 |
| Margin after financial items ** |
(%) |
6.4 |
5.9 |
* of which Skåne-Gripen 319 (-), before depreciation related to the acquisition
** including share of income in associated companies
The weak Swedish construction market resulted in continued unfavorable market conditions for several of the operations in the Industry business area during 1996. Excluding the effect of the Skåne-Gripen acquisition, invoiced sales thus fell by 7 percent compared to 1995.
The item "Share of income in associated companies" in the earnings of the Industry business area comes mainly from the building materials group, Scancem. Skanska’s share of Scancem’s earnings is included in its accounts with a delay of one quarter. For comments on the trend of earnings in Scancem, the reader is referred to that company’s year-end report.
Real Estate sector
The Skanska Group’s property management operations take place mainly in the Real Estate business area and in the subsidiary JM. In addition there are minor real estate holdings in the construction operations notably in the US.
The real estate market in the Stockholm, Gothenburg and Malmö regions and several university cities in Sweden strengthened during 1996. The occupancy rate of the Group’s overall property holdings rose to 93.2 percent (91.7), in terms of leasable space. Rental revenues totaled SEK 3,476 M (3,516).
On December 31, 1996, the book value of the Group’s properties was SEK 21,589 M (21,475), of which investment properties accounted for SEK 17,773 M (18,544). During the year, the Group sold SEK 4,382 M (2,159) worth of properties, while capital expenditures on properties for Skanska’s own account amounted to SEK 3,596 M (3,782).
The 1996 yield on the Group’s investment properties, defined as operating net after administrative expenses divided by book value, totaled 11.1 percent (11.4). For comparable holdings, both operating net and yield increased.
| Real Estatebusiness area (SEK M) | 1996 | 1995 | |
| Operating income |
1,065 |
1,045 | |
| Share of income in associated companies |
241 |
118 | |
| Gain on sale of properties and new appraisals |
694 |
358 | |
| Operating income after depreciation |
2,000 |
1,521 | |
| Income after financial items |
1,289 |
698 | |
| Own investment properties | |||
| Operating net |
1,323 |
1,439 | |
| Book value |
10,055 |
10,795 | |
The occupancy rate of the Real Estate business area’s property holdings, in terms of leasable space, rose to 93.0 percent (91.3). One factor behind the improvement was a favorable trend in property holdings abroad, with the larger of Skanska’s two properties in the City of London now also fully leased. The business area’s rental revenues totaled SEK 2,408 M (2,665). The decrease was entirely attributable to divestments, primarily the sale of properties to the specialized real estate companies Norrporten and Piren. Capital spending on properties for the business area’s own account totaled SEK 1,892 M (1,274) during the year. The yield on its own investment properties amounted to 13.2 percent (13.3).
JM
| JM (SEK M) | 1996 | 1995 | |
| Operating income after depreciation |
649 |
741 | |
| Income after financial items |
175 |
290 | |
| Operating margin (construction operations) |
(%) |
2.9 |
3.1 |
| Margin after financial items |
(%) |
3.5 |
7.1 |
| Level of invoicing credited to income |
(%) |
105.5 |
114.5 |
Order bookings in JM’s construction operations rose by 13 percent to SEK 3,653 M (3,244). Invoiced sales on contracts credited to income amounted to SEK 4,070 M (3,294). In JM’s real estate operations, the occupancy rate in terms of space improved to 93.4 percent (92.6). Skanska’s holding in JM at year-end was 39.9 percent of the capital and 64.4 percent of the votes.
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Order bookings, order backlog and invoicing by business area
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