Skanska in Brazil
In March 2016 Skanska divested the last part of former Skanska Latin America and has since then no active projects in the region. Skanska continues to closely monitor relevant developments in Brazil.
2001 Goldman Sachs launched the BRIC concept – the forecast that Brazil, Russia, India and China would be the four of the world’s dominant economies in 2050. Many companies from all over the world started investing in Brazil as its economic prospect tooled so bright.
In March 1999 Skanska acquired 100% of the shares of the Argentine construction company SADE Ingeniería y Construcciones S.A. for USD 60 million, or about SEK 480 million. An earn-out over the next three years determined the final price for SADE.
SADE was at the time the second-largest construction company in Argentina with revenues of USD 370 million, approximately SEK 3 billion. Earnings after tax in 1998 were USD 10 million, or about SEK 80 million.
"The acquisition of SADE provides us with local resources to further capitalize on the opportunities in South America," notes Claes Björk, former President and CEO of Skanska AB in the press release announcing the deal:
"Skanska has an excellent track record in South America - developed over the past 25 years - in hydropower and irrigation projects. A strong base in South America through the acquisition of SADE will provide additional business opportunities. We will be able to offer construction services not only to satisfy demand by local customers, but also to assist existing international customers who are expanding in South America. SADE is an attractive acquisition that fits well with Skanska's long-term strategy to expand its operations in South America. "
"The due diligence of SADE was very positive, it confirmed our expectations of Sade as a well-managed company with growth potential," says Stuart Graham, former President, Skanska USA where SADE's operations will be included.
Skanska's acquisition of SADE is in line with its established practice of acquiring customer- focused regional companies in an expanding market and with good management. Founded more than 50 years ago, SADE has had local operations with favorable profitability for many years. It currently has about 4,600 employees, with operations throughout South America, including Argentina, Brazil, Chile, Peru and Venezuela."
Skanska entered the Brazilian market in 2002, which became our largest market in Latin America. The operations included operations and maintenance and construction services for the energy industry, with Petrobras as the major client. Projects included construction of plants and refineries as well as offshore operations and maintenance.
The venture in Brazil as well as the other ventures in Latin America did not develop according to the expectations.
In connection to the report for the second quarter in July 2014 Skanska announced in a press release that losses in the Latin American operations would impact the operating income by SEK 500 M in the second quarter 2014.
In the report for the second quarter a new direction for the Latin American operations was hereby announced:
"Going forward, the size of the Latin American operations will be significantly reduced. Focus will be placed on the operations & maintenance (O&M) business."
The Engineering & Construction (E&C) projects had resulted in great losses over the last years and Skanska decided to complete the ongoing projects and not bid for any new, thereby winding down the operations and leave the construction market in Latin America.
The plan was to keep the O&M business which was profitable. The announcement was positively met by the financial market that had become used to losses in the operation.
Just a few months later it became clear that the O&M operation was too small and demanded too much attention to keep. We understood that the profitable O&M business had opportunities to grow and was of interest to many other market players. A decision was therefore made to divest the business. This was announced in the report for the third quarter, in November 2014, where CEO Johan Karlström wrote:
"We have accelerated the process of completing the remaining engineering & construction (E&C) contracts in the Latin American operation. As we are not bidding for new work, this will lead to a winding down of this part of the operation. In the third quarter, we have taken a charge of SEK 200 M related to write downs and increased costs for the acceleration of the winding down process.
The decision has also been made to divest the O&M part of the Latin American operation. This is a stable business with low risk where we have been successful for many years. The reason to divest is to be able to place full attention to markets where we will have a more significant presence going forward."
Skanska decided to exit Latin America following several years of financial losses. Skanska took the last couple of years a total charge of SEK 1.7 bn.
In March 2016 Skanska divested the last part (the Peruvian operations) of former Skanska Latin America and has since then no active projects in the region. Skanska continues to closely monitor relevant developments in Brazil.