Skanska year-end report, 2000

SKANSKA YEAR-END REPORT, 2000 * Skanska Group is reporting strong earnings - Order bookings rose by 31 percent - Order backlog rose by 72 percent to SEK 160,675 M - Net sales rose by 37 percent to SEK 108,022 M - Operating income in the Group's core business rose by 65 percent to SEK 4,416 M - Income after financial items rose by 24 percent to SEK 8,531 M - Net profit per share rose by 43 percent to SEK 53.60 * Strong value growth in investment properties - Value growth amounted to 10 percent for comparable units - Estimated surplus value totaled SEK 6.1 (6.3) billion - Surplus value was largely unchanged even though the Group realized SEK 1.9 billion in project development gains during 2000 * Proposal for a dividend of SEK 13.50 (12.00 + 4.00) * Proposal to authorize a new buy-back program up to 10 percent of outstanding shares * Proposal for cancellation of repurchased shares * Proposal of a split of shares 4:1 Stockholm, February 21, 2001 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 [REMOVED GRAPHICS] SKANSKA'S YEAR-END REPORT, 2000 During the fourth quarter, Skanska continued to grow and to strengthen its position in its selected main markets. The integration of acquired businesses is proceeding as planned, and 2001 began strongly with the Group receiving a number of major orders in the United States and Europe. There is good potential for a continuation of the profitable growth that has characterized Skanska. ORDER BOOKINGS AND BACKLOG The Group's order bookings for 2000 were SEK 127,031 M (97,322), representing a 31 percent increase on 1999. Order bookings in its core business - construction-related services and project development - increased by 37 percent. Year-end order backlog was SEK 160,675 M (93,686), representing a 72 percent increase. Operations outside Sweden accounted for 89 (87) percent of order backlog. Adjusted for acquired and divested businesses as well as currency rate effects, the increase in order bookings amounted to 5 percent and order backlog rose by 9 percent. Growth factors have been adjusted in comparison to the Preliminary Year-End Report published on January 25, 2001. Growth factors - changes from full-year 1999 to full-year 2000 Order Order Net bookings backlog sales Organic 5% 9% 14% growth Acquisitions 20% 52% 18% Currency 6% 11% 5% rate effects Total 31% 72% 37% NET SALES AND EARNINGS Net sales rose by 37 percent to SEK 108,022 M (79,128). For comparable units and adjusted for currency rate effects, the increase was 14 percent. [REMOVED GRAPHICS] Operating income in Skanska's core business rose by 65 percent to SEK 4,416 M (2,677). For comparable units, the increase was 42 percent. Operating income, including items affecting comparability, totaled SEK 7,190 M (6,901). Items affecting comparability totaled SEK 2,413 M (3,287). The increase of SEK 1,373 M during the fourth quarter consisted of SEK 1,001 M in capital gains on the sale of shares in the construction and real-estate company JM and the commercial real estate company Norrporten, SEK 349 M for Skanska's remaining portion of the refunded surplus pension-related payments from the retirement insurance company SPP, as well as an increase of SEK 23 M in capital gain on the sale of component companies. Income after financial items totaled SEK 8,531 M (6,862). Net financial items, which amounted to SEK 1,341 M (-39), included capital gains of SEK 1,682 M (27) from the sale of shares, mainly in the Swedish-based bearing and steel group SKF and the British construction company Costain. Net interest items totaled SEK -397 M (-338). Net profit amounted to SEK 5,953 (4,281). Net profit per share rose by 43 percent to SEK 53.60. Return on capital employed totaled 32.3 (31.5) percent. Adjusted for items affecting comparability and gains on the sale of shares, return on capital employed amounted to 18.2 (17.3) percent. Return on shareholders' equity was 34.3 (28.6) percent. INVESTMENTS AND DIVESTMENTS The Group's net divestments totaled SEK 572 M (3,873). Acquisitions of companies and investments in project development increased total investment volume to SEK 16,551 M (8,866) during the year. Meanwhile the sale of projects as well as shares and businesses resulted in a higher level of divestments, which totaled SEK 17,123 M (12,739). [REMOVED GRAPHICS] The Group's investments in projects developed for its own account are continuing to increase. During the year, gross investments in project development totaled SEK 7,665 M (5,872). The turnover rate in project development operations remains at a high level. During the year, projects worth SEK 8,167 M (3,708) were sold at a capital gain totaling SEK 2,457 M (1,142). Acquisitions of companies The acquisitions of companies that Skanska carried out during the year represented an investment of SEK 6,010 M. This amount was calculated as acquisition price minus net interest-bearing liquid assets in the acquired companies. During the fourth quarter, Skanska completed its acquisition of Kvaerner Construction (which was renamed Skanska Construction UK Ltd) in Great Britain and Baugh Enterprises Inc. in the United States. CASH FLOW AND FINANCIAL POSITION The Group's cash flow for the year was SEK 874 M (2,088). Liquid assets and interest-bearing receivables increased by SEK 2,344 M to SEK 10,119 M (7,775). Interest-bearing liabilities and provisions rose by SEK 5,407 M to SEK 13,797 M (8,390). This represents an overall increase in net interest-bearing liabilities by SEK 3,063 M to SEK 3,678 M (615). The visible equity/assets ratio of the Group was 24.5 (32.5) percent. The debt/equity ratio was 0.2 (0.0). [REMOVED GRAPHICS] Buy-backs of Skanska's own shares On December 31, Skanska had repurchased 7.3 million of its own shares (6.4 percent of shares outstanding) at a total price of SEK 2,608 M. The average price of the repurchased shares was SEK 356 or 13 percent lower than the February 20 closing price of SEK 411. The weighted number of shares outstanding was 111.2 (113.9) million for the year 2000 as a whole. On December 31, the number of shares outstanding was 106.5 million. SKANSKA SHARE DATA The market price of a Skanska share was SEK 390 on December 31, 2000. This represented an increase of 23 percent since year-end 1999. During 2000, the general index of the Stockholm Stock Exchange declined by 11 percent. The Dow Jones Heavy Construction Industry Group index, which includes Europe's largest listed construction and building material companies, declined by 6 percent during 2000. During 2000 the highest quotation for a Skanska share was SEK 425 and the lowest was SEK 274. On February 20, the price of a Skanska share had risen by 5 percent to date during 2001, compared to a 4 percent decline for the Stockholm Stock Exchange general index. PERSONNEL The number of employees in the Group was 63,368 (45,063), measured as the average number of employees during 2000. The increase was primarily due to the acquisitions of companies that the Group had completed. After the completion of these acquisitions, the number of employees on a full-year basis will total about 85,000. COMMENTS BY BUSINESS AREA Skanska USA Order bookings at Skanska USA totaled SEK 60,210 M (50,716). This represented an increase of 19 percent. The most significant increase occurred in civil construction, in which the business area landed a large number of major projects during 2000. Order backlog jumped 39 percent to SEK 93,597 M (67,124). Net sales continued to climb, amounting to SEK 49,356 M (35,437), an increase of 39 percent. Adjusted for currency rate effects, the increase was 25 percent. Operating income advanced by 18 percent to SEK 1,004 M (851). Operating margin amounted to 2.0 (2.4) percent. Operating income included realized gains of SEK 54 M (50) on project development. Building construction accounted for a larger share of net sales than in 1999. Building construction operations consist mainly of so-called directly negotiated contracts. This leads to a lower visible operating margin but is offset by lower risk than with a fixed-price contract, for example. Return on capital employed is higher in this segment and amounted to 44.4 (34.6) percent. After the end of 2000, the business area landed a number of major contracts. They include the construction of a headquarters and research center for the biomedical company Immunex, worth about SEK 4.7 billion (USD 500 M), and the construction of seven electricity generating plants in New York City with a contract value of SEK 960 M (USD 100 M). Skanska Sweden Skanska Sweden performed very well overall, especially in building construction - that is, residential and commercial space. Civil construction, too, posted good earnings in 2000 even though activity in this segment, as expected, showed a downturn compared to 1999. Order bookings rose by 28 percent to SEK 30,054 M (23,430). Order backlog amounted to SEK 19,581 M (13,553), an upturn of 44 percent. Net sales rose by 5 percent to SEK 24,630 M (23,561). Operating income climbed 36 percent to SEK 1,002 M (737). Operating margin was 4.1 (3.1) percent. Realized project development gains amounted to SEK 240 M (196). Behind this good performance was an active effort to strengthen Skanska's market position in the three largest metropolitan regions and other university areas. A growing proportion of Sweden's construction investment is concentrated in these regions. Greater Stockholm alone accounts for some 30 percent of total Swedish construction volume. After the end of 2000, the Skanska Sweden business area began demolition of the Elefanten multistory parking structure for the construction of 150 apartments and an office building in downtown Stockholm. Skanska is undertaking this assignment, worth about SEK 450 M, as part of project development for its own account. Skanska Europe Core business Skanska Europe's core business - construction-related services and project development - was dominated by the consolidation of acquired businesses. Exbud, based in Poland, was included from May 1. The Czech company IPS and the Norwegian company Selmer were included in the accounts from July 1. The British-based Kvaerner Construction (renamed Skanska Construction UK Ltd) was included from November 1. Order bookings climbed 91 percent to SEK 31,648 M (16,544). The increase was 14 percent for comparable units. Order backlog amounted to SEK 47,291 M (12,412), an increase of 281 percent. Net sales jumped 112 percent to SEK 30,184 M (14,241). Adjusted for currency exchange effects, the increase was 118 percent. Operating income totaled SEK 400 M (355), of which SEK 256 M (187) consisted of realized project development gains. As reported earlier, Danish construction operations showed negative earnings for the year. Meanwhile Finnish operations were characterized by continued strong performance, with both good growth in net sales and an improved operating margin. Among other contracts received after the end of 2000, Skanska Construction UK Ltd will construct new office space in London for the Zurich-based reinsurance company Swiss Re. The contract value is about SEK 1.8 billion (GBP 130 M). Non-core business The divestment of the business area's component companies was mainly completed. In Skanska's 2000 financial statements, the operating income of these units amounted to SEK 422 M (319), of which capital gains on the sale of shares in component companies accounted for SEK 337 M. Skanska Project Development and Real Estate Skanska Project Development and Real Estate has 25 ongoing projects, 18 of them in Sweden. Their book value is expected to total SEK 5.9 billion upon completion. At year-end, the book value of these projects was about SEK 2.9 billion. Projects in Stockholm comprised 62 percent of the expected investment volume. Ongoing projects encompass leasable space of 365,000 sq. m (3.93 million sq. ft.). At year-end, 59 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 11.5 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 ongoing projects. During the year, SEK 4.0 billion worth of properties was sold, with capital gains of SEK 1.9 billion. In other words, the gains total about 100 percent of book value. For recently developed projects divested during the year, the capital gains were equivalent to about 40 percent of the investment. The goal of the business area is that recently developed projects should generate a development gain of at least 25 percent. At year-end, investment properties were appraised both internally and externally. The estimated market value of investment properties totaled SEK 12.4 billion (13.2) on December 31, equivalent to a surplus value of SEK 6.1 billion (6.3). For comparable units, this implied an increase in market value, including partly owned properties, of about 10 percent. The business area's development properties, which had a book value of SEK 1.4 billion, consisted of commercial building rights totaling 645,000 sq. m (6.94 million sq. ft.). During 2000, the Project Development and Real Estate business area showed an operating income of SEK 2,386 M (1,390), including SEK 1,876 M (803) 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 Swedish-based 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 1,867 M and an operating income of SEK 82 M, for an operating margin of 4.4 percent. The business area's goal is for the operating margin to exceed 5 percent over time. Return on capital employed during 2000 amounted to 33.9 percent. During the fourth quarter, the business area received additional assignments from Ericsson in Great Britain and enlarged its shareholding in REM Serco, which is responsible for managing Ericsson's facilities in Gothenburg, to 100 percent. After the close of 2000, Skanska Services wrote a letter of intent to take over the management of another nine Ericsson facilities in Sweden. EVENTS AFTER THE END OF THE YEAR New management structure for the Group In order to create better potential for continued profitability-focused growth and to strengthen and clarify its client focus, the Skanska Group is launching a new management structure. The main features of this change will be to create a flatter, more decentralized structure based on the various business units, which can then react more quickly to market trends and client needs. The Group Management will consist of a small team that can support existing growth in current units, as well as develop and strengthen the Group's position in new segments and markets. The new organizational structure will go into effect on March 1, 2001. Reporting will follow the earlier business area structure during the first quarter. PROPOSED DIVIDEND The Board of Directors proposes a dividend of SEK 13.50 (12.00 + 4.00) per share for the 2000 financial year. The proposed dividend should be viewed in light of Skanska's dividend policy, in which the regular annual dividend shall be equivalent to 35-45 percent of the Group's sustained profit after taxes as estimated by the Board of Directors. Altogether, this means a dividend amount of SEK 1,438 M , based on the current number of shares outstanding (106.5 M). The Board proposes Wednesday, May 2, 2001 as the date of record to qualify for the dividend. PROPOSAL CONCERNING SHARE BUY-BACKS The Board of Directors will propose that the Annual Meeting approve the cancellation of repurchased shares, in order to reduce the Company's capital stock. To date, 6.4 percent of shares outstanding have been repurchased. The current buy-back program will continue after the publication of this report. The proposal will therefore be based on the number of shares that have been repurchased by the date of the official invitation to the Annual Meeting. The invitation is expected to be published around March 26, 2001. PROPOSAL FOR SHARE BUY-BACKS The Board of Directors will propose that the Annual Meeting authorize the Board to approve a new buy-back program. It proposes that this buy-back program encompass up to 10 percent of the number of shares outstanding after the cancellation of shares repurchased in the previously approved and implemented program, currently totaling 7.3 million shares. The purpose of the buy-back is to enable the Company to further adjust its capital structure. PROPOSAL OF A SPLIT OF SHARES The Board of Directors proposes a split of shares where 4 new shares equal one old share (4:1). ANNUAL REPORT FOR 2000 The official Swedish version of the Annual Report for the financial year 2000 will be distributed in late March and will be available from that date at the Skanska Group office in Stockholm and on Skanska's web site (www.skanska.se). The English translation will be available shortly thereafter. ANNUAL MEETING The Annual Shareholders' Meeting of Skanska AB will be held at Eriksbergshallen in Gothenburg (Göteborg), Sweden at 3 p.m. on April 26, 2001. A nomination committee has been appointed. The committee consists of Bo Rydin, Chairman of Skanska AB and AB Industrivärden; Anders Ek, President of the asset management company Robur Kapitalförvaltning; Per Ludvigsson, President of Inter IKEA Investment AB; Thomas Halvorsen, President of the Swedish National Pension Insurance Fund, Fourth Fund Board; and Bo Damberg, bank executive and Chairman of the bank employees' investment fund Svenska Handelsbankens Personalstiftelse. OUTLOOK FOR 2001 Order bookings have been very good in most of Skanska's main markets early in 2001, thereby further strengthening the order situation. In light of this, and given the potential found in the businesses acquired during 2000, the outlook for Group operations is considered positive during 2001 as well. Stockholm, February 21, 2001 BOARD OF DIRECTORS This report has not been subjected to separate examination by the Company's auditors. The Skanska Group's next financial report, covering the first quarter of 2001, will be published on April 26. [REMOVED GRAPHICS] [REMOVED GRAPHICS] [REMOVED GRAPHICS] [REMOVED GRAPHICS] [REMOVED GRAPHICS] [REMOVED GRAPHICS] ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2001/02/21/20010221BIT00890/bit0002.doc http://www.bit.se/bitonline/2001/02/21/20010221BIT00890/bit0002.pdf