Ninemonthreport
Effective from the 1997 financial year, the Skanska Group bases its revenue recognition of work in progress on the percentage of completion method. This means that operating income from contracting assignments is reported successively as projects are completed over time, instead of being based on contracts completed during the year, as previously. Comparative figures related to final results for 1996 have been recalculated accordingly.
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SKANSKA GROUP NINE MONTH REPORT JANUARY - SEPTEMBER 1997 |
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| Changes in accounting principles
Effective from the 1997 financial year, the Skanska Group bases its revenue recognition of work in progress on the percentage of completion method. This means that operating income from contracting assignments is reported successively as projects are completed over time, instead of being based on contracts completed during the year, as previously. Comparative figures related to final results for 1996 have been recalculated accordingly. ................................................................................................................................................. Market As a whole, the market picture for the Skanska Group’s various operations was largely unchanged during the third quarter of 1997. The Swedish construction market remained very weak, with low residential construction. In Finland and Denmark, the trend was more positive, especially in residential construction. The Group’s construction operations in the United States benefited from growth in many regional markets. In Germany, which is the main market for several of Skanska’s industrial operations, demand for building products was again weak during the third quarter. The Swedish rental and real estate market continued to develop in a generally positive direction during the third quarter. The markets in the Stockholm, Gothenburg and Öresund areas, which account for 80 percent of Skanska’s rental revenues, are showing especially strong improvement. Order bookings and order backlog The Group’s order bookings for the period January-September 1997 totaled SEK 45,890 M (35,778), an increase of 28 percent compared to the same period last year. The increase was mainly attributable to U.S. operations. Of the increase in order bookings, 62 percent (53) was attributable to markets outside Sweden. Order backlog at the end of the report period was SEK 52,138 M (36,589). Net sales and earnings Consolidated net sales for the January-September period rose by 14 percent to SEK 37,948 M (33,201). The increase was mainly related to U.S. operations. Of net sales, 54 percent (47) originated in markets outside Sweden. The Group’s operating income amounted to SEK 2,493 M (2,827). The Group’s earnings included a provision of SEK 100 M in the consolidated accounts related to the Halland Ridge (Hallandsås) rail tunnel project in southern Sweden. Skanska believes that this provision will cover both its own costs and liability claims that may be lodged against the Group. At the same time, it should be emphasized that the cost situation is still unclear and that liability and insurance issues remain to be resolved. Operating income included SEK 498 M (577) consisting of Skanska’s share of income in associated companies. Operating income for the period included capital gains of SEK 202 M (-) from divestments of operations. Sale of properties was on a smaller scale than in the corresponding period of last year, with capital gains amounting to SEK 525 M (662). Income after financial items amounted to SEK 11,386 M (4,209). Net financial items totaled SEK 8,893 M (1,382). This included SEK 9,125 M (1,760) in capital gains on shares sold, mainly related to the divestment of most of Skanska’s holding in Sandvik, the cemented carbide and specialty steels company. Net interest items improved to SEK -536 M (-658). Order bookings in the Group’s combined construction operations amounted to SEK 40,868 M during the period. Net sales in construction operations reached SEK 32,343 M, with an operating margin of 1.1 percent and a margin after net financial items of 1.3 percent. Calculated on a rolling 12-month basis, the operating margin was 1.3 percent and the margin after net financial items 1.5 percent, compared to 1.6 percent and 2.0 percent, respectively, for the full year 1996. Results by business area Building business area |
| Building business areaSEK M |
1997Jan-Sep |
1996Jan-Sep |
Oct 1996-Sep 1997 |
1996Jan-Dec |
| Net sales |
11 042 |
11 133 |
15 265 |
15 356 |
| Operating income |
24 |
86 |
78 |
140 |
| Income after financial items |
49 |
115 |
134 |
200 |
| Operating margin (%) |
0.2 |
0.8 |
0.5 |
0.9 |
| Margin after financial items (%) |
0.4 |
1.0 |
0.9 |
1.3 |
The Building business area encompasses all building construction operations in the Skanska Group, except in the United States and in the subsidiary JM. Sweden and the other Nordic countries are its main markets. The business area also includes operations pursued on a project basis in Russia, the Baltic countries (Estonia, Latvia and Lithuania), Poland and elsewhere.
Order bookings during the January-September period rose by 4 percent to SEK 11,632 M (11,182). Of these bookings, operations in Denmark, Finland and other markets abroad accounted for 47 percent (39). In Finland, orders received during the third quarter included contracts for two large office complexes and a major residential project, all in the Helsinki area. Orders received in Denmark included a contract to build the CMC Center, a maintenance facility for mini-metro trains, an industrial construction project at Løvens Chemical Factory and a residential renovation contract at Lundegården, all in the Copenhagen area. Orders outside the Nordic countries included a contract related to a power station in Tanzania. In Swedish operations, order bookings fell by 11 percent compared to the same period of last year. Major assignments during the third quarter included a residential project in Eklanda (Gothenburg), a hospital in Torsby and a marine biological center in Kalmar. The order backlog of the business area was SEK 10,641 M (10,122) at the close of the period.
Net sales for the January-September period amounted to SEK 11,042 M (11,133). Earnings and margins in construction operations remained weak, and operating income was also burdened by nonrecurring provisions totaling about SEK 90 M. This was offset by successful project development operations for Skanska’s own account. During the third quarter, the Building business area sold a completed project to the Real Estate business area, thereby increasing the operating income of the Building business area by SEK 118 M. Calculated on a rolling 12-month basis, the operating margin of the business area was 0.5 percent, compared to 0.9 percent for the full year 1996.
Civil Engineering business area
| Civil Engineering business areaSEK M |
1997Jan-Sep |
1996Jan-Sep |
Oct 1996-Sep 1997 |
1996Jan-Dec |
| Net sales |
6 922 |
6 280 |
9 357 |
8 715 |
| Operating income |
165 |
180 |
223 |
238 |
| Income after financial items |
193 |
249 |
274 |
330 |
| Operating margin (%) |
2.4 |
2.9 |
2.4 |
2.7 |
| Margin after financial items (%) |
2.8 |
4.0 |
2.9 |
3.8 |
| The Civil Engineering business area encompasses Skanska’s construction of roads and civil works in all countries except the United States. Sweden and the other Nordic countries are its main markets, and it carries out project exports to numerous international markets. The business area also includes crushed stone plants, concrete mixing plants and asphalt plants.
Order bookings of the business area rose by 12 percent during the January-September period to SEK 8,542 M (7,650). More than 21 percent (28) of this originated outside Sweden. Excluding the effect of the acquisition of Geveko’s Gatu & Väg unit, which works in the Swedish road construction market, order bookings rose by 8 percent. Among major contracts landed during the third quarter were a section of the Southern Link highway project in Stockholm, a portion of the freeway expansion project on the E18/E20 highway between Örebro and Slyte and a waste water management system in Hong Kong. Order backlog was SEK 10,317 M (9,436) at the close of the period. The net sales of the business area increased by 10 percent to SEK 6,922 M (6,280). The increase for comparable units was 6 percent. In the Swedish portion of operations, the trend of earnings was weak during the third quarter. Calculated on a rolling 12-month basis, the operating margin was 2.4 percent, compared to 2.7 percent for the full year 1996. Skanska USA business area |
| Skanska USA business areaSEK M |
1997Jan-Sep |
1996Jan-Sep |
Oct 1996-Sep 1997 |
1996Jan-Dec |
| Net sales |
10 880 |
7 311 |
13 449 |
9 880 |
| Operating income |
123 |
99 |
160 |
136 |
| Income after financial items |
132 |
106 |
172 |
146 |
| Operating margin (%) |
1.1 |
1.4 |
1.2 |
1.4 |
| Margin after financial items (%) |
1.2 |
1.4 |
1.3 |
1.5 |
The Skanska USA business area encompasses the Group’s construction operations in the United States, which take place through subsidiaries specializing in building construction and road and civil works, respectively. Their main geographic focus is the eastern United States.
The order bookings of the business area for the January-September period totaled SEK 17,673 M (9,228). The increase included about SEK 2.1 billion attributable to shifts in currency exchange rates. During the third quarter, order bookings were at about the same level as during the corresponding period of 1996. Major orders received included Amtrak high-speed train maintenance facilities in Washington, D.C., Boston and New York; the Morris Corporate Center in New Jersey; a convention center in Charleston and Byerly Hospital in Hartsville, both in South Carolina. Order backlog was SEK 27,490 M (13,453) at the close of the period.
Net sales rose by 49 percent to SEK 10,880 M (7,311). The operating margin was somewhat narrower than last year, among other things because a larger share of contracts were for construction management assignments. Calculated on a 12-month rolling basis, the operating margin of the business area was 1.2 percent, compared to 1.4 percent for the full year 1996.
BOT Projects business area
The BOT (Build-Own-Transfer) Projects business area is responsible for the Group’s financial involvement in the growing market for various forms of privately financed infrastructure projects. The business area was established during the first half of 1997. Its project portfolio currently includes a prison project in Wales, where construction will be completed during the autumn of 1997; and a highway between Helsinki and Lahti, Finland, on which work began during 1997. A number of projects are under evaluation.
Industry business area
| Industry business areaSEK M |
1997Jan-Sep |
1996Jan-Sep |
Oct 1996-Sep 1997 |
1996Jan-Dec |
| Net sales |
6 054 |
6 034 |
7 978 |
7 958 |
| Income from own operations |
196 |
227 |
285 |
316 |
| Share of income in associated companies |
270 |
302 |
439 |
471 |
| Operating income |
466 |
529 |
724 |
787 |
| Income after financial items |
277 |
319 |
474 |
516 |
| Operating margin of own operations (%) |
3.2 |
3.8 |
3.6 |
4.0 |
| Margin after financial items (%) |
4.6 |
5.3 |
5.9 |
6.5 |
The Industry business area encompasses three product areas – Building Products, Building Systems and Installation Products – with sales mainly related to the construction and renovation of homes, offices and other commercial space. The business area’s main geographic markets are Sweden and Germany.
The volume of capital spending in the Swedish building construction market, especially for new apartment buildings, was again extremely low during the third quarter of 1997. The German construction market was also weak. However, demand in the Swedish single-family home market continued to strengthen, and order bookings during the January-September period at Myresjöhus –
which makes ready-to-assemble wooden homes – were 45 percent higher than a year earlier. The business area’s order bookings for the January-September period totaled SEK 6,244 M (5,427). For comparable units, order bookings rose by 4 percent. The order backlog of the business area was SEK 1,555 M (1,157) at the close of the report period.
Net sales for the January-September period amounted to SEK 6,054 M (6,034). The trend of earnings was positive during the third quarter, despite continued low capacity utilization in certain units and keen price competition in several product areas. The business area’s share of income in associated companies is mainly related to Scancem, the building materials group. For comments on the earnings of Scancem, which are included here with a delay of one quarter, the reader is referred to Scancem’s financial reports.
Real Estate business area
| Real Estate business areaSEK M |
1997Jan-Sep |
1996Jan-Sep |
Oct 1996-Sep 1997 |
1996Jan-Dec |
| Income from own operations |
857 |
770 |
1 152 |
1 065 |
| Share of income in associated companies |
214 |
174 |
281 |
241 |
| Gain on sale of businesses etc. |
56 |
56 |
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| Gain on sale of properties (incl. new appraisals) |
160 |
578 |
276 |
694 |
| Operating income |
1 287 |
1 522 |
1 765 |
2 000 |
| Income after financial items |
804 |
974 |
1 119 |
1 289 |
| Skanska’s investment properties | ||||
| Operating net |
1 079 |
988 |
1 414 |
1 323 |
| Book value |
10 488 |
9 619 |
10 488 |
10 055 |
There was a continued improvement in demand for commercial space in several of Sweden’s regional markets. In the Real Estate business area – with its pronounced focus on major metropolitan areas – the upturn earlier in 1997 was especially apparent in the Stockholm and Öresund metropolitan areas (the latter including portions of southwestern Sweden and eastern Denmark). During the third quarter, the market also strengthened in Gothenburg. The growth in demand is improving the market conditions for Skanska’s real estate project operations. At the close of the report period, the volume of ongoing projects was about SEK 1.8 billion, with an expected yield exceeding 10 percent.
The improved rental market, as well as continued low interest rates, have contributed to a high level of activity in the Swedish real estate market. Skanska’s acquisition of the housing company Danderydsbostäder, on which agreement in principle was reached late in June, was completed during the third quarter.
The earnings of the business area from day-to-day property management was better than last year. Skanska’s share in the earnings of Piren has been estimated taking into account the company’s acquisition of the suburban shopping centers Täby Centrum and Hallunda Centrum from JM, and the simultaneous sale to JM of a number of properties. For comments on the earnings of associated companies listed on the Stockholm Stock Exchange, the reader is referred to the reports of the respective companies.
During the report period, Skanska sold an office and residential property in Hamburg, Germany, and reached agreement on the divestment of a hotel property in Koblenz, Germany, to take effect on January 1, 1998.
The business area’s net financial items were favorably affected both by loan principal repayments as well as lower interest rates, which have a gradual impact on earnings. The operating net of the business area’s investment properties as a ratio of their book value remained at about the same level as last year.
The subsidiary JM
| The subsidiary JMSEK M |
1997Jan-Sep |
1996Jan-Sep |
Oct 1996-Sep 1997 |
1996Jan-Dec |
| Net sales, construction |
2 151 |
2 561 |
3 238 |
3 648 |
| Net sales, real estate |
682 |
679 |
911 |
908 |
| Operating income |
771 |
430 |
959 |
618 |
| Income after financial items |
452 |
79 |
517 |
144 |
| JM’s construction operations were adversely affected by the downturn in Swedish residential construction. Both order bookings and net sales fell compared to 1996. Operating income for the report period included capital gains on the divestment of two Stockholm suburban shopping centers, Täby Centrum and Hallunda Centrum. Property management earnings are stable. Net financial items were favorably affected by lower interest rates. For further comments on JM’s earnings, the reader is referred to that company’s Swedish-language interim report.
Capital spending The Group’s overall net divestments during January-September totaled SEK 13,121 M. Its investments in properties totaled SEK 2,241 M, while divestments totaled SEK 3,175 M. Net investments in other fixed assets (excluding shares) amounted to SEK 618 M. Net divestments of shares, mainly in Sandvik, totaled SEK 10,079 M and sale of businesses SEK 670 M. Liquidity and financing The total redemption amount in connection with the decision to redeem a portion of Skanska shares was SEK 4,972 M. This sum was disbursed on August 27, 1997. The Group’s bank balances and short-term investments, as well as other interest-bearing receivables, at the end of the report period amounted to SEK 7,033 M (year-end 1996: 5,234), while interest-bearing indebtedness and allocations during the same period were reduced to SEK 10,560 M (16,740). Net interest-bearing indebtedness was SEK 3,558 M (11,537). Stock portfolio The market value of the Group’s listed shareholdings amounted to SEK 10,517 M as of September 30, 1997. Excluding holdings in companies which are reported in Skanska’s accounts as associated companies according to the equity method (Scancem, Rörvik Timber, Norrporten, Pandox, Piren) or are consolidated as subsidiaries (JM), the market value of the portfolio amounted to SEK 2,982 M and its book value was SEK 317 M. During the report period, Skanska’s remaining holding in the automotive retailing company Catena was divested, yielding a small capital gain. The market value of the stock portfolio was SEK 2,347 M on November 19, 1997. Personnel The number of employees in the Skanska Group on September 30, 1997 was 36,953 (37,056). Important events after the close of the report period Halland Ridge At the Halland Ridge (Hallandsås) rail tunnel construction project in southern Sweden, leaks of toxic substances were discovered. Project operations have been interrupted until further notice. The extent of the damage, as well as related compensation and liability issues, are currently under investigation. Medical examinations completed to date do not indicate any serious toxic injuries, and the symptoms experienced by some of the project personnel are expected to clear up relatively quickly. A claims compensation team, with representatives from the National Rail Administration and Skanska, has been appointed. Payment of compensation to nearby residents and others who have suffered financial losses has started. Environmental clean-up work has begun, and further clean-up measures are being prepared. Scancem In October, Skanska acquired additional Series A shares in Scancem both through purchases and in exchange for holdings of Series B shares in the company. Its net investment for this purpose totaled about SEK 1.5 billion. After this, Skanska owns 39 percent of the shares and 48 percent of the voting power in Scancem. Costain In conjunction with a new share issue in the British construction company Costain, early in November Skanska purchased shares equivalent to 7.6 percent of the capital stock and voting power in the company. This investment totaled GBP 10.2 M. Also, Skanska has an opportunity to increase its stake to a maximum of 40 percent within a three-year period in one or more steps, and the right to participate on a 50/50 basis in all of Costain’s construction projects exceeding SEK 250 M over a six-year period. Danderyd, Sweden, November 21, 1997 SKANSKA AB Claes Björk |
- This nine month report has not been subjected to separate examination by the Company’s auditors.
- The year-end report on 1997 results will be published on February 27, 1998.
Copyright © - SKANSKA 1997.