Skanska AB (publ)

I'd like to welcome you to this webcast where we will be presenting Scanscale's three-month report for 2020. The presentation will be held by our CEO, Anders Darnason, and also our CFO, Magnus Persson. After the presentation, you will be able to ask questions. With that, Anders, I'll leave it to you.

Thank you, Andrea. On this very first slide, you see the Golden Bridge approaching Sluten in Stockholm, all the way from China. This bridge is a crucial part of the reconstruction of a very important transportation hub at the center of Stockholm, where about 480,000 people pass through every day. So let's go into the figures on page number two. Three months report, the first quarter performance was strong in all three business streams, both on volumes and profitability, and we reported an all-time high operating income in Q1 and also on a rolling 12-month basis. The construction stream improved profitability. Volumes were strong in residential development, and profitability was maintained at a good level in the first quarter. In commercial development, two significant and very profitable divestments were signed during the quarter. We had a return on equity amounted to 27%. However, it is also important to stress that the impact of COVID-19 pandemic is yet to be seen. Currently, it is very difficult to say how severe the impact will be and exactly how long it will last. We are, of course, monitoring this on a daily basis and taking precautionary action in many areas. It is crucial for us to both protect the people and the company, to protect the strong balance sheets and the good liquidity. It's also of great importance. As I communicated earlier, the Board withdrew the dividend proposal to the AGM. with the ambition to convene an extra general meeting in the autumn, if the circumstances permit. Thanks to the strategic initiative that were initiated in 2018, Skanska is standing strong. To make sure that we maintain that position long-term, we are taking actions that will allow us to adjust to future that will look different after the COVID-19 pandemic. In construction, revenue increased 2% to $35.9 billion. Order bookings were strong in all of our markets, and we had a book to build of 100%. Order backlog amounted to $399 billion, which corresponds to 15 months of production. Operating income increased 59% to $589 million. Operating margin increased to 1.6% versus 1.1% the year before. And this quarter proves yet again that we are on the right track as we continue to improve our profitability in the construction stream. The stream was not substantially impacted by COVID-19 outbreak during the first quarter, as many projects had been able to proceed according to plan. But we are, but we currently have about 370 projects impacted, more or less, by either shutdown due to government decision, mainly, that's mainly in the US and UK operation, or inefficiencies due to the COVID-19. This will, of course, impact us negatively for some time ahead. What's knowing, though, is that Skanska, RATLAB, close to 10,000 people are ongoing projects up and running. Our top priority is, of course, to get these projects back to full production as soon as possible and avoid additional shutdowns or reduction in execution. The extensive lockdown measures in countries outside of Sweden are now starting to impact the construction industry, and we expect a weaker market outlook, which I will come back to. However, our long-term strategy remains selected building, improved commercial focus, and increased cost efficiency. Let's move to the next page on residential development. Revenue increased 59%. to 3.4 billion . Both were strong. We sold 911 homes and started 971 homes. Profitability was maintained at a good level with an operating margin of 11.6 percent. Return on capital employed 11.5 percent. However, we can see that home sales since the COVID-19 outbreak become very serious by the end of the first quarter has slowed down. It is encouraging to see that our handovers are going according to plan with the exception of some postponements in handovers due to some practical problems as a result of quarantines, et cetera. So we are collecting the cash. Looking ahead, a reduction in consumer confidence due to weaker economies and increased unemployment is likely to negatively impact the housing market. Primary focus is to adjust to this new market situation, but long-term, our ambition is to be a leading developer in our home markets for May. Commercial property development. Two significant investments contributed to an all-time high in gain-of-sale, 2.2 billion Swedish, and were the main contributor to the strong performance in the first quarter. Operating income increased substantially and amounted to 2.1 billion SEK. Returning on capital employed was 16%. We had 37 ongoing projects, and we started only one new project in the quarter. Investment value from completion is 25.9 billion, and the occupancy rate and the completion rate is on a good level, 57% and 60% respectively. We started just one project in the quarter, but we have a strong pipeline of developments to start, and we will do that when we think it's the right time to do so. Leasing is a bit slower. We foresee a decline in transaction volumes as the uncertainty Leasing activities will most likely also be a bit more challenging for some time to come, but we still try to grow this business stream as we believe in its long term. Next page, order situation for the construction. Looking at the order situation, bookings were strong in the first quarter, and we are building backlog in the quarter. Bookings came in at 41.3 billion SEK, and the backlog closed at 199 billion SEK at the end of the quarter. Rolling 12 months, books have been rated 100%. We are booking in the same pace as we are burning. Next page. Zooming in on the different geographies when it comes to bookings, it's basically an increase in all areas. Sweden almost left, but the book to build is over 100 percent, so we are building backlog. And for the second quarter per now, we have announced orders of close to 16 billion SEK, one large railway project on the west coast of Sweden, and the High Speed Rail project in the UK, our third largest project ever. HS2 is an ECI project, early contractor involvement, with well-known customers and executed by a very experienced team, and the risk-return balance in the contract is in a way we like it. is that due to the current pandemic situation, we see signs of approvals of new projects being postponed by some clients. This is likely temporary, but it will likely impact us to some extent going forward. I will get back to you regarding the market outlook shortly, but now, Magnus, I'll leave it to you to go deeper in the numbers.

Thank you, Anders. I wrote the page eight in the presentation, which is the construction income statement. And here you can see volumes in construction were roughly in line with the comparable quarter. We're down about the percent in local durances. But nominally speaking, as we've just shown, it's a couple of percent up. Gross margins came up 0.7 percent to 6.2, essentially reflecting the success You can see they are nominally speaking in line with the comparable quarter and also in terms of percent of the revenue. Then the first quarter is often or almost always a low volume quarter. So the percent level of S&A is a bit higher than what we see for the remaining part of the operating margin, 1.6%. No major result impacting events in the construction. If I go to page nine of the construction income statement by geography you can see that there's been a very stable development in the Nordics with the margins in line with a comparable quarter both for the Nordics as such and also for the Swedish operation isolated. Both Europe and U.S. is improving. In Europe we have a negative margin and a negative result. which you often see when we report in the first quarter is that we have a fairly large seasonal effect in our central European operations. In the U.S., we have successive improvements have that are causing us to burn that revenue. I move on to residential development on slide number 10. Here you can see a fairly large increase in revenue. We sold very well in the first quarter. The volume improvement is in the Nordics with Sweden going up around half a billion, and the improvement is driven by the sale of housing codes. The gross margin comes down somewhat compared to Q1 2019, 16.3 percent, which is still a good level. basically maintained nominally. We have a slight decrease in S&A here, and as you can see, a very large decrease over revenue, which of course is driven by the rapid volume increase in the first quarter here. Coming down to an operating margin of 11.6% for the quarter. And we have, in terms of the underlying margin, we can say that that has I move on to slide number 11, which is residential development by the different geographies. And here you can see a margin improvement in the Nordics coming up from 8.9 percent to 11.7 percent, and also a good margin improvement in the Swedish RD operations isolated with a 13.8 percent margin. In part, this improvement is due to the volume effect. In Europe, the margins are held steady. I move to slide number 12, which is the home stocked and sold. And we'll move on to the next slide, slide number 13, which is homes in production. We have at the end of the first quarter around 6,900 units in ongoing production, of which we have sold already 68 percent. So we still have a good and high sales rate in the portfolio here. And we have a low number of unsold completed units. With the current market situation, this is of course a reassuring starting point. I move to slide number 14, which is commercial property development. driven by two major divestments, one in Poland and one in Sweden. We also have a slightly lower S&A in the quarter if you compare it to the same quarter last year. I move on to slide number 15 where we can see that we have now in the commercial division It's quite hard today to read the commercial development market. There are no transactions of any significance that go along, so it's difficult to see what the investors are transacting on in terms of yields and so on. And given this and also the expected slowdown on the leasing market, we have gone through our properties that we have in our portfolio, and given the uncertainties, we have made I move on to slide number 16, which is the completion profile. And here you can see that in the first quarter, we have two major projects that stands for $6 billion in total investment that is completed. Both these projects are well leased. Both of them are in the U.S. In the second quarter, The total investment value of those completions are around $2 billion. And here you can see a lower leasing rate, but this is essentially two individual projects where we are lagging a bit in leasing, both of them are in the total. In the third quarter, we expect to complete one project with a total investment of half a billion. It's a low leasing also on this, but it's a very nice project. I move on to the next slide, which is leasing, slide number 17. The leasing in the first quarter was 48,000 square meters. In the rolling 12 months, you can see on the slide that we were close to 400,000 square meters. And currently, the leasing market has slowed down. What we experienced is that the ongoing discussions with potential tenants that we had before the pandemic situation, they continue, but the number new leads coming to the market are quite a lot less as we stand today. And we do experience an increased level of negotiations concerning rents and handover dates with tenants. And this especially goes for those that are to occupy retail spaces. We have a fairly low degree of retail tenants in our properties. It's mainly ground floor or some of the bigger properties. I move to the next slide, which is the income statement for the group. Here you can see the total operating income from our business streams was 3.1 billion. In the first quarter, obviously, a significant step up from the same number last year. Central items was minus 121, and here I think it's fair to point out, because we have both the headquarters organization and some of our legacy businesses here, the underlying Net financial is minus 48 million. This includes the financial component of the lease code. to the cash in various basements who have very good development of our net interest item in the first quarter. Taxes at 16 and a half percent approximately, which is the same as the comparable quarter. I move on to the next slide, number 19 on the PPP portfolio. And here this is a portfolio that we have. to plan. There's been no real event in this portfolio and the changes to the numbers are mainly driven by time changes in time value and also foreign exchange rates. I'll move to the next slide, number 20 on cash flow, whether strong cash flow comparable for our cash flow, and so far we have had no major issues in . I move to the next slide, which is construction reworking capital. As you can see on the right-hand side of the chart, we had a very good net working capital position at the end of the quarter, with 15.5 percent of revenue, or around 27 billion Cash flow effect from working capital in construction was slightly negative, so there is a certain foreign exchange component in the balance sheet type that's underlying the numbers there. I'll move to the next slide, number 22 on investments and divestments. And here you can clearly see that the group is and has been for a while in a net divestment Capital employed is increasing somewhat in both residential and commercial development if you compare it to the end of 2019. I'll move to the next slide on the financial position. As you can see here, we ended the first quarter with a very strong balance sheet. We had close to 35 billion Swedish kronas in equity, and then to go into this with such a strong equity position and low debt. And I'm comfortable that this must be very reassuring also for our clients that puts their trust in us to deliver on their most important TAPEX projects. I move to the next slide, which is an overview of our external funding. Total available funds in the group at the end of the quarter was 19.3 billion. Of that, around 7.1 billion was in terms of ungrown but still committed credit facilities. And if you look at our external funding, which amounted to 3.7 billion, the maturity profile of that are represented by the bars in the graph. And here you can see that we have maturities of approximately 1.1 billion during 2020. until 2023. And after the close of the first quarter, we have secured an additional $1.7 billion in loans and credit commitments. So I'm quite comfortable with our current position. Anders?