SKANSKA'S NINE MONTH REPORT January - September 2000

SKANSKA'S NINE MONTH REPORT January - September 2000 Sharp growth in sales and earnings Order bookings rose by 33 percent Order backlog totaled SEK 133,770 M (82,421) Net sales rose by 24 percent Operating income of the Group's core business totaled SEK 3,492 M (1,605), an increase of 118 percent Strong earnings in the Skanska USA, Skanska Sweden and Project Development and Real Estate business areas explain the increases. Operating income totaled SEK 4,907 M (5,611) In the income statement, the item called "Items affecting comparability," which is part of operating income, was lower than last year, amounting to SEK 1,040 M (3,280) Income after financial items totaled SEK 6,449 M (5,622) Net profit per share rose by 28 percent to SEK 48.00 on a twelve month rolling basis Claes Björk, President and CEO of Skanska, commented on the Nine Month Report: "We are pursuing our strategy: We have strengthened our market position in new and existing geographic markets and have thereby also been able to grow in new market segments with higher growth and profitability. This report shows strong growth, even disregarding the effect that acquired businesses contribute. This is a result of the Group's collective competence. "This year's income, both in Skanska's core business and after financial items, will be significantly better than in 1999." Stockholm, November 2, 2000 Skanska AB For further information, please contact: Anders Nyrén, Executive Vice President and CFO, +46 (0)8 753 88 00 Peter Wallin, Head of Investor Relations, +46 (0)8 753 88 86 SKANSKA NINE MONTH REPORT, JANUARY - SEPTEMBER 2000 Skanska is continuing to consolidate its strategy: To grow organically and via acquisitions in selected markets and use the Group's expertise to grow in market segments with major development potential. Skanska showed continued strong organic growth in its main markets. The rate of organic growth in order bookings was 20 percent, which represents rapid growth in an international comparison with other companies in the construction sector. In addition, the acquisitions that Skanska has made in Eastern and Central Europe, Norway and the United States further increased its total growth rate. Continued successful integration of acquisitions is a top priority. Late in the report period, Skanska signed an agreement with Ericsson making it possible to expand third generation mobile telephone networks (UMTS) globally. Through the acquisition of companies as well as the Group's expertise, Skanska can offer global expansion of mobile networks on a turnkey basis, from planning and design to implementation. Despite its rapid growth rate, Skanska maintained or strengthened its overall profitability. The Danish-based Bygg Sjaelland division, part of the Skanska Europe business area, showed a loss, however, which adversely impacted Skanska Europe's earnings for the period. The reason for the loss was additional loss provisions related to two projects. A restructuring program was initiated in this division. ORDER BOOKINGS AND BACKLOG The Group's order bookings for January-September 2000 totaled SEK 86,420 M (65,062). This represented a 33 percent increase. Order bookings on a rolling twelve month basis totaled SEK 118,252 M, equivalent to an increase of 22 percent compared to the full year 1999. On September 30, 2000, Skanska's order backlog stood at SEK 133,770 M (82,421), representing a 62 percent increase. Operations outside Sweden accounted for 87 (84) percent of order backlog. Compared to year-end 1999, order backlog rose by 43 percent. Order backlog was equivalent to 1.3 years of construction work. Adjusted for acquired and divested businesses as well as currency rate effects, the increase in order bookings amounted to 20 percent and order backlog rose by 25 percent. Growth factors - Change, Jan-Sep 2000 compared to Jan-Sep 1999 Order Order Net sales bookings backlog Organic growth 20% 25% 15% Acquisitions 10% 22% 6% Currency rate 3% 15% 3% effects Total 33% 62% 24% NET SALES AND EARNINGS Net sales rose by 24 percent to SEK 70,459 M (56,839). For comparable units in Skanska's core business - construction- related services and project development - the increase was 25 percent. As the above table shows, operating income in Skanska's core business rose by 118 percent to SEK 3,492 M (1,605). For comparable units, the increase was 109 percent. The rapid pace of project development and a positive earnings trend in Sweden and the United States were among the reasons. Operating income, including items affecting comparability, totaled SEK 4,907 M (5,611). The decrease was due to a lower level of items affecting comparability, which totaled SEK 1,040 M (3,280). During January-September 1999, the divestment of Skanska's shares in the building material group Scancem affected this earnings item. The SEK 80 M change in "items affecting profitability" during the third quarter refers only to the amount disbursed by September 30 of Skanska's share of refunded surplus pension-related payments from the retirement insurance company SPP. Skanska's share of the SPP surplus totals about SEK 420 M. This represents an increase of SEK 100 M compared to the previously stated amount. Income after financial items totaled SEK 6,449 M (5,622). Tax expenses are based on a full-year forecast and result in a tax burden on 29 (38) percent. Net profit amounted to SEK 4,542 M (3,418). TWELVE MONTH ROLLING EARNINGS Net profit per share rose by 28 percent and totaled SEK 48.00 (37.60). Return on capital employed amounted to 30.1 (31.5) percent. Adjusted for items affecting comparability and gains on the sale of shares, return on capital employed totaled 20.1 (17.3) percent. Return on shareholders' equity amounted to 32.4 (28.6) percent. INVESTMENTS AND DIVESTMENTS The Group's net divestments totaled SEK 1,422 M (3,950). Acquisitions of companies explain most of the increase in investments. An accelerated pace of property and project sell- offs meanwhile led to a higher level of divestments. For a more detailed description of investments and divestments, see the table below. The Group's investments in projects developed for its own account are continuing to increase. During the report period, gross investments in project development totaled SEK 4,535 M (4,278). Divestments of projects and fully developed properties are also increasing. During the report period, projects worth SEK 6,359 M (2,212) were sold at a capital gain totaling SEK 2,166 M (468). Acquisitions of companies During the third quarter, Skanska acquired a privately owned company in the United States, Barclay White, at a purchase price of SEK 121 M. Subtracting acquired net liquid assets, the total investment amounted to SEK 75 M. The company is active in project management and is based in Philadelphia, Pennsylvania on the Eastern Seaboard of the U.S. In 1999, the company reported sales of SEK 2,637 M and an operating income of SEK 46 M. Skanska's total investment related to the acquisitions of companies it carried out during the first nine months amounted to SEK 4,644 M. This amounted was calculated as sales price minus net interest-bearing liquid assets in the acquired companies. Major acquisitions included the construction companies Exbud in Poland, Selmer in Norway and IPS in the Czech Republic. Skanska has increased its shareholding in the Czech company IPS to 85 percent. The public tender was completed on October 27. This brought Skanska's total investment in IPS to SEK 593 M. CASH FLOW AND FINANCIAL POSITION The Group's cash flow for the period was SEK -1,797 (3,092). The acquisitions of companies carried out during the first nine months of this year and the proceeds of the sale of Scancem shares last year explain the decrease. Liquid assets and interest-bearing receivables decreased by SEK 907 M to SEK 6,868 M (7,775), compared to year-end 1999. Interest-bearing liabilities rose by SEK 3,654 M to SEK 12,044 M (8,390). This represented an overall increase in net interest- bearing liabilities of SEK 4,561 M to SEK 5,176 M (615). During the report period, the divestment agreement for the component company Nybron was settled. Title to the properties sold to the AMF insurance company will be transferred during the fourth quarter and will decrease Skanska's net interest-bearing liabilities. The settlement of this transaction plus the divestment proceeds of the shares in JM and Norrporten will reduce net interest-bearing liabilities by SEK 3.5 billion, all else being equal. The visible equity/assets ratio amounted to 28.4 percent, compared to 32.5 percent at year-end 1999. The debt/equity ratio amounted to 0.3, compared to 0.0 at year-end 1999. Buy-backs of Skanska's own shares On September 30, Skanska had repurchased 4.8 million of its own shares at a total price of SEK 1,600 M. The average price of the repurchased shares was SEK 333 or 16 percent lower than the October 31 closing price of SEK 396 per share. The weighted number of shares outstanding amounted to 112,602,322 for the report period. At the close of this period, there were 109,054,968 shares outstanding. SKANSKA SHARE DATA The market price of a Skanska share was SEK 331 at the end of the report period. This represented an increase of 4 percent since year-end 1999. The Stockholm Stock Exchange index was unchanged (0 percent) during the same period. During the period, the highest quotation for a Skanska share was SEK 351 and the lowest was SEK 279. On October 31, the final price paid for a share was SEK 396, which represented an increase of 25 percent since year- end 1999, compared with a decrease of 3 percent in the Stockholm Stock Exchange index. During the same period, the Dow Jones Heavy Construction Industry Group Index fell by 7 percent. PERSONNEL The number of employees in the Group was 53,941 (45,215), measured as the average number of employees during the report period. The increase was primarily due to the acquisitions of companies that the Group had completed. After the completion of acquisitions, the number of employees on a full-year basis will total about 80,000, including the acquisition of Kvaerner Construction (this acquisition is described in greater detail under "Events after the close of the report period"). COMMENTS BY BUSINESS AREA Skanska USA Order bookings at Skanska USA totaled SEK 39,061 M (32,622), which represented an increase of 20 percent. Both building construction and civil construction increased. Order backlog on September 30, 2000 totaled SEK 86,476 M (56,186), an increase of 54 percent compared to the same date in 1999. Net sales continued to rise rapidly, amounting to SEK 32,799 M (26,014), an increase of 26 percent. The acquisition of Barclay White affected the accounts from July 1. During the report period, contracts received by the business area included construction of new headquarters for the American company RCN, worth about SEK 920 M, and the construction portion, worth about SEK 1,700 M, of the BOT (privately financed) project for a toll highway through Santiago, Chile. Operating income rose to SEK 715 M (593). Operating margin amounted to 2.2 (2.3) percent. On a rolling twelve month basis, operating margin was 2.3 (2.4) percent. Operating income included realized project development gains of SEK 43 M (33). The situation at the Argentine-based subsidiary SADE stabilized during the report period. After the close of the report period, the business area received additional contracts, for example renovation of the Manhattan Bridge in New York City, worth about SEK 1.7 billion. Baugh Enterprises, which was acquired during the fourth quarter, is being consolidated in the Group's accounts from November 1 (further information is provided under "Events after the close of the report period"). Order bookings are expected to remain satisfactory during the fourth quarter. Skanska Sweden Order bookings rose by 28 percent to SEK 22,236 M (17,328). Building construction operations - that is, residential and commercial space - continued to show the most robust growth. Among the major contracts received during the report period was one for Ericsson's development center in Lund, worth SEK 240 M. Order backlog amounted to SEK 19,280 M (15,264), an increase of 26 percent. Net sales rose by 6 percent to SEK 17,113 M (16,146). Sweden's three largest metropolitan regions show a substantially higher growth rate in construction investments than the national average. This is reflected in the strong figures of the Skanska Sweden business area, since its operations have focused on these regions for the past three years. Operating income showed a major improvement. Operating income rose to SEK 679 M (502), and operating margin increased to 4.0 (3.1) percent. On a rolling twelve month basis, the corresponding figure was 3.7 (3.1) percent. Building construction operations were the reason for most of the improvement in profitability. Realized project development gains amounted to SEK 163 M (127). Skanska Europe Core business The core business of the Skanska Europe business area, construction-related services and project development, was dominated by the consolidation of acquired businesses. The Czech company IPS and the Norwegian company Selmer were included in the accounts from July 1. Exbud, based in Poland, was included from May 1. Order bookings rose by 110 percent to SEK 20,924 M (9,940). Underlying volume growth was good. Adjusted for acquired businesses, the increase was 39 percent. Order backlog amounted to SEK 27,857 M (9,996), an increase of 179 percent, of which acquisitions accounted for 136 percentage points. Net sales amounted to SEK 17,070 M (9,988), an increase of 71 percent, of which acquisitions accounted for 54 percentage points. Operating income decreased by 34 percent and amounted to SEK 125 M (188), of which SEK 115 M (55) consisted of realized project development gains. The decrease in operating income was explained by the fact that Bygg Sjaelland in eastern Denmark - a division of Skanska Danmark A/S - showed additional losses in two projects. The total loss provisions also include the costs of settling the accounts of these projects in advance. A restructuring program was initiated in Denmark. The overall impact on earnings of these projects and the restructuring program amounted to SEK 152 M in the nine month income statement. Finnish operations continued to develop favorably. Non-core business The divestment of the business area's component companies was announced in the Six Month Report. All approvals have been received for the divestment of Nybron (wooden flooring), and the transaction was completed. A number of approvals from regulatory authorities in Poland still remain in connection with the divestment of Poggenpohl (kitchens and bathrooms) and are expected to be issued shortly. Operating income amounted to SEK 411 M (201), of which capital gains on the divestment of shares in component companies accounted for SEK 314 M. Skanska Project Development and Real Estate The continued good market situation in Skanska's main project development and real estate markets enabled the business area to increase its project development volume. During the third quarter, 6 additional projects were started up. There are consequently 24 projects currently underway, 17 of them in Sweden. Their book value is expected to total SEK 5.4 billion upon completion. At the close of the report period, the book value of these projects was about SEK 2.5 billion. The expansion in the number of project start-ups is occurring primarily in Stockholm, where 5 out of 6 new start-ups are located. These projects are the result of a deliberate focus on the Stockholm region. Today Stockholm is showing one of the strongest rental markets in Europe, with a very low average vacancy rate. Current projects encompass leasable space of 353,000 sq. m (3.8 million sq. ft). At the end of the report period, about 51 percent of the space in these projects had been pre-leased. Lease negotiations are currently underway for a large proportion of the remaining space. The expected yield on the book value of current projects is nearly 12 percent fully leased. Taking into account the existing return requirements in each respective real estate market, this indicates substantial surplus value in the business area's current projects. So far during this year, recently developed projects have been sold at capital gains equivalent to about 40 percent of the investment. During the report period, the Project Development and Real Estate business area showed an operating income of SEK 2,243 M (782), including SEK 1,822 M (366) in capital gains on the sale of properties. The business area's goal is a continued high turnover rate in its property portfolio. Skanska Services Skanska Services was established during March 2000 after the acquisition of the Real Estate and Services (REM) unit of Ericsson, the telecommunications group. The business area is responsible for the Skanska Group's Facilities Management unit as well as the service companies Skanska Teknik and Skanska IT Solutions. Skanska Services reported net sales of SEK 1,215 M and an operating income of SEK 44 M, resulting in an operating margin of 3.6 percent. Ericsson's Swedish operations are the dominant client, but Skanska Services is actively seeking new assignments. For example, the business area has written a letter of intent with Ericsson conerning a number of new assignments in Great Britain. After the close of the report period, the remaining shares in REM Serco were acquired, increasing Skanska's stake in these operations from 50 percent to 100 percent. The profitability and business volume of Skanska Services is expected to continue increasing on a full-year basis. EVENTS AFTER THE CLOSE OF THE REPORT PERIOD Acquisition of Kvaerner Construction and 50 percent of Gammon completed The acquisition of British-based Kvaerner Construction and 50 percent of Hong Kong-based Gammon Construction (China) Limited - which are both part of the Norwegian-based Kvaerner Group - was completed after confirmatory due diligence. In 1999, Kvaerner Construction had net sales of SEK 13,187 M and operating income of SEK 249 M. This operating income included SEK 101 M representing Kvaerner's share of Gammon's earnings before tax and depreciation of goodwill. The forecast for the combined operations (Kvaerner Construction and its share of Gammon's earnings) during 2000 is an operating income exceeding SEK 350 M before depreciation of goodwill. The net purchase price was about SEK 2.4 billion, excluding liquid assets. On the acquisition date, Kvaerner Construction had net liquid assets of about SEK 1,000 M. Guarantees for previously completed projects will remain with the seller. Kvaerner Construction will be consolidated in Skanska's accounts from November 1. Skanska to acquire Baugh Enterprises Skanska is acquiring the project management company Baugh Enterprises, based in Seattle, Washington, at a purchase price of SEK 580 M, thereby strengthening its presence in the northwestern U.S. After subtracting net liquid assets acquired, the investment totaled SEK 186 M. In 1999, Baugh reported sales of SEK 4,947 M and operating income of SEK 133 M. The company has clients in the medical and educational sectors as well as in the electronics and aerospace industries. Skanska shareholding in JM sold Skanska divested its holding in the Stockholm-based construction and real estate company JM as part of its strategy of becoming a leading global company with operations in construction-related services and project development. The sale price was SEK 210 per JM share, or a total of SEK 1,850 M, representing a capital gain of SEK 890 M. Skanska's earnings for the first nine months included SEK 174 M for its share of JM's after-tax income. The capital gain of SEK 890 M will be reported among "items affecting comparability" in the fourth quarter. The total impact of JM on Skanska's full-year 2000 earnings will thus amount to SEK 1,064 M. Skanska accepts public tender for shares in Norrporten Skanska is accepting the public tender for shares in the Swedish commercial real estate company Norrporten. Settlement will occur in November and is equivalent to a sale amount of SEK 296 M and a capital gain of SEK 112 M. OUTLOOK FOR 2000 This year's income, both in Skanska's core business and after financial items, will be significantly better than in 1999. Stockholm, November 2, 2000 Claes Björk President and CEO This report has not been subjected to separate examination by the Company's auditors. The Skanska Group's next financial report will preliminary be published on January 25, 2001 and will be a report covering the full year 2000. ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2000/11/02/20001102BIT00440/bit0001.doc The full report http://www.bit.se/bitonline/2000/11/02/20001102BIT00440/bit0002.pdf The full report