Skanska AB (publ)

Good morning everyone this is Andrea Lövgren Senior Vice President Investor Relations of Skanska speaking and welcome to the presentation of Skanska's three-month report for 2021. The presentation will be held by CEO Anders Danielsson and also our CFO Magnus Persson. After the presentation you will be able to ask questions and with that over to you Anders.

Thank you Andrea And before we jump into the figures, I want you to look at the picture here on the screen. It's our project Epic in Malmö, Sweden. It's our own development, project development, completed, fully left and very green and healthy building. So success. Let's go into the figures and the highlights here. We have a three months report. We have had a very strong start of the year. All our operations deliver. We can see that construction is steadily improving. We have a very strong performance on residential developments. Both volumes and profitability are strong. And a good quarter in commercial property development. Very attractive levels of the divestment we have made in the quarter. Operating margin in construction improves to 2.5% in the single quarter compared to last 1.6. And capital employee development are above our target of 10% on a rolling 12-month basis. Return on equity rolling 12, 24%. And we continue to have a very strong financial position. We're coming back to that, of course. But let's go into each stream, starting with construction. The revenue decreased with 12% in local currencies. What we can see here is mainly driven by the COVID-19 impact for the last year here. And the decision, we also see decision by clients to postpone the ramp up of new projects. And also we see some remaining impact of the strategic action we have had for a couple of years now to focus operations and be more selective in order to improve profitability. Order bookings, 35 billion Swedish. We have a book to build on a rolling 12-month basis of 107. So the order backlog is on a healthy level, 193 billion Swedish. Operating income, 722 million, corresponding to 2.5% margin, which is strong, very good performance there all over. So all business units improve the profitability if you look at the margin. And the strategic focus remains here in the construction. We're going for a project where we can see that we have a competitive advantage, we have the right team in place, And we have a good history and track record of similar projects in order to reduce the risk in the portfolio and improve the profitability going forward. And residential development. We have a very strong quarter. We improved or increased the number of sold homes. We also increased the number of started homes. We have an operating income of 669 million, corresponding to operating margin of 14.8%, well above our target of 10%. And we also have a very strong return on the capital employed of 14.3% on a rolling 12-month basis. Very high activity and profitability improving from already strong levels. We have a solid land bank in our market to meet the demand. We can see that the demand for larger apartments or larger homes has been a very strong trend during the pandemic since people are working from home and need more spaces. On the longer term, we believe on a stable market, more normalized market. The concern is, of course, what will happen with economy what will happen with the unemployment rates but the structural short dates of homes in our markets is still there and we also have low interest rates so and we believe in a stable market going forward commercial property development a good quarter gain of sale of 1.2 billion Swedish and quite tough comparison though if you recall we divested Solna united Very, very strong profit last year in Q1. But we have made some very good divestments during the quarter. So very high profitability percentage-wise in those projects. The investor market is still very strong. And return on capital employed 9%, rolling 12, slightly below our target of 10%. We have 33 ongoing projects corresponding to close to 18 billion upon completion. The occupancy rate and completion rate are well in line. I would say 44 versus 48%. And we started seven new projects during the first quarter. The challenge here is still the leasing activities, which has been slow during the pandemic. So was the first quarter as well. I expect that to continue during the pandemic. On the other hand, we can see strong, good dialogue with potential tenants. So I strongly believe in this market. We can also see, especially in the US, also in the UK, where the vaccination has come much further than in the rest of Europe. And that we can see that more and more companies prepare to get people back to work and get people back to the office. And the employees also want to get back. Divestment at very attractive levels during the first quarter. Uncertainty, as I say, in the leasing market. But the solid property investor appetite. They really want to go for quality building, environmental friendly, healthy building. in a good location. If I go back to construction stream and look at the order situation, as I said, we have a book to build of 107%. You can see how that has developed over the years. You can also see the revenue, the light blue line here on a rolling 12-month basis. Going down, as I said, mainly driven by COVID, but also some strategic action. And if I look at the order backlog, 193, I think that's a comfortable level. So we're in a good position. And we can go into each market and look at the order bookings. The order bookings on a rolling 12-month basis book to build are quite strong in the Nordics, a bit lower than 100% in Sweden and U.S., But the book to build in the first quarter was really strong. So I think I'm confident with the level we have. We have 17 months of production, and that's historically on a healthy level. And the overall 107% good book to build is also on a good level. So with that, I leave it to Magnus to go through the figures more in detail.

Thank you, Anders. So we go to the next page with the construction income statement. What you can see is that revenue wise, we declined revenue with 18%, but volumes as Anders pointed out is down 12%. So fairly significant effects effect there in the numbers. And we've had, of course, especially January and February were slower months. We can see at the end of the quarter that the activity is is picking up a bit here so that that's positive the biggest decline in revenue in the quarter to the comparison quarter we could see in the us and as we have said before it's mainly projects that have been slipping in time so it's the game here so to speak is to get the ramp up of the projects that we have in our backlog to get them into production we have a very good backlog as already said there the backlog have in fact been growing in all our markets if we compare it to year end so we think we have a good and sort of solid base to work from but it's about getting the work into the ground if we look at gross margin you can see it comes up to 7.2 percent that's a very good number for us comparison quarter it's a full percent higher than the comparison quarter and also better than the full year of 2020. S&A we continue to improve S&A 1.4 billion in the quarter down from 1.6 on a percentage basis S&A is a bit up down to minus 4.8 percent Q1 is a low volume quarter and of course we have seen this revenue decline so that drives up the S&A percentage Coming down then to a very good operating margin for construction in the Q1 of 2.5%. It's actually the strongest Q1 margin we've had for 10 years in the group. It's a very solid result. It's a result of a few years of hard work with the portfolio. We've also reduced our exposure to Central European markets where we historically have had a more higher base of fixed costs that have been hurting the profitability in the first quarter. If we move to the different geographies on the next slide, we can see that the margins are improving to the comparison quarters in all different geographies. Sweden had a good quarter, 2.3%. up from 2.0 and we do notice here and can clearly see that the profitability in Sweden the couple of issues that we've had there they are stabilized and we see that the performance is gradually improving there. Also note Europe not negative in the first quarter and the US margin is also improving We're still, of course, working to complete the couple of difficult projects we've had there and that we have been talking about for quite a few times, the old legacy jobs. But the portfolio that is newer and that we have been taking in over the last, say, three years is really, really performing at a very good level. If we move on to residential development, we can see that revenues, they are up 30%. driven mainly by the Swedish residential business and not at least the sale of one rental property that we did in the Swedish business for 700 million at the end of February. That was a very good addition here. Very strong margins in the first quarter. If you look at the gross margin of 18.6%, that is a very solid level up a full 2% from the comparison quarter. And of course, it is a good market. throughout the first full quarter and we've also been very successful in our project level risk management activities been able to deal with the production and market risks in a very good way that contributes to the profitability. S&A over revenue is down as you can see 3.7% very low number of course driven down by the high revenue here if you look at the nominal levels we have roughly the same cost base you can say on the overhead in the organization as we did in the comparison quarter if we look at the different geographies also here all different geographies show strong margins Nordics with 14.2 percent Sweden 15.3 and then our European residential business close to 21% margin. This is what I alluded to before. We have been very successful in dealing with both market and operational risks in a number of projects. During the quarter, we have closed out a few of those projects in our Central European residential development business. When you do that in a portfolio that is not so big, this has a very positive impact on on the margin but it is not a one-off nor is it a non-operational item this is true profitability of the project but it is sometimes a bit lumpy when it comes out in the P&L if we move to the next slide you can see homes that are or have been started and have been sold during the quarter where we increase both number of homes started and the number of homes sold very strong sales as you can see with the 1362 units sold of which 220 then pertains to the rental project in the Swedish business area so even if we were to exclude from that and only look at co-ops we are still increasing the sales at a very good pace here we're also happy to be able to deliver higher number of homes started with the high sales pace that we have it is important that we can start and ramp up new project to backfill the portfolio here and we do have a good investment pace in residential development at the moment it is roughly at the same pace as in the comparable quarter if you go to the next slide you can see the number of homes we have in production at the end of Q1 we had 7100 units that we had in production we had Sales rate of 77%, which is at a very high level. You can say from a commercial perspective, it's almost too high. 60 to 70% is sort of a better level. You don't want to run out of units to sell to the consumers, of course, to our customers here. So it is important that we can start and we are starting more projects to backfill portfolio unsold completed homes 186 still at a very low and comfortable level we have a good churn in the unsold completed there are no concentrations to any specific sub markets or projects and this so it's not of any concern to us if we go to commercial property development then we sold during the quarter four projects and The biggest one was an office building in Copenhagen, which we sold for 1.3 billion with a very, very healthy profit. Total gain on sale, 1.2 billion Swedish kronor in the quarter, representing a development margin of 50%, which is the same level as we had in Q1 last year. And as Anders already pointed out, it's a very, very tough comparison quarter here, of course, where we divested the Sona United property last year in the first quarter but as you know every quarter starts from zero so this is a very good commercial development quarter. If you go to the next slide then we show you here the unrealized gains that we have in our portfolio and how that tracks with our realization of gains over the P&L and end of quarter we had 6.3 billion in estimated unrealized gains that we have in the portfolio 3.7 of those were related to the ongoing projects and two to the completed projects we have essentially no change here since the fourth quarter despite the fact that we realized 1.2 billion in value in Q1 so that gives you a fairly solid indication of the current pace we have in value creation in commercial development. If you go to the next slide you can see our total portfolio of the ongoing and unsold projects in commercial development and the bars here they represent the total investment at completion for the projects. and the date represent the date when we estimate that the projects will be completed from a production perspective and the greenish line represents the current leasing rate of those projects so if we look at the overview here we can say we have a solid leasing rate in the projects that completed in Q1 and Q2 this year and then in Q3 we don't expect to complete anything very little in Q4 and then we have a little bit more than in the first part and also the third quarter of 2022 with the two projects that are to be completed Q1-22 a very good leasing rate and then Q2 next year it comes down a bit and so on but it's very far out in time So overall, let's say we have a good profile here of the ongoing unsold projects right now. We've also started seven projects during the quarter with a total investment value of 3.1 billion. If you look at the far left of the chart, you can see the orange bar. That represents the projects that are completed and unsold with then a leasing rate, an average leasing rate of 63%. And of course, many of these projects have a very good leasing rate. Then we have a couple of them that we are sort of struggling a little bit more with, which we have reported also before. Essentially a couple of projects that are underperforming from a leasing perspective. But generally speaking, the leasing has been very challenging, as you are very well aware of over the last year or so. We also have here of course as we have pointed out the very strong ambition to continue to start new projects and backfill this portfolio with new starts. If we go to the next slide you can see leasing obviously a weak leasing year and the Q1 was not a strong quarter in terms of leasing either. We've been very successful I'd say in controlling our exposure to the situation though. We always aim to have a completion rate in the portfolio roughly in line with the leasing rate of the portfolio represented by the two lines in the chart. And as you can see, they do track each other very, very well. And despite the fact that Q1 was a slow leasing quarter, we increased activity. There are more discussions and overall, say we feel that the market is moving in the right direction at least. So that's quite positive. I also want to comment on that it's still Too early for us to send you a firm indication on how we see the future office market, how that will look. There's really no strong consensus among tenants or prospective tenants on changes in demand here. And of course we have a lot of these discussions ongoing. So we pick up signals very early, but we do not get the uniform picture on that. what we do expect this fly to call it in terms of property properties that are well located have low costs for sort of maintaining and operating them have a high sustainability stand and generally good installation and a good indoors environment that is what we think is what will be in demand going into the future if we go to next slide we have the group income state Obviously the operating income from all the different business, the central costs down somewhat from the comparable quarter. Yes, down to an operating income then of 2.3 billion. Net financials, no change since the comparable quarter. We have a tax rate of 17% in the quarter and a profit for the period of 1.9 billion. If you go to the next slide, we see cash flow. The cash flow in the quote, normal for Q1, I'll say, and the numbers are to look sort of a bit high. It looks very positive, but that is the booking the dividend in the first quarter after the decision from the young, but booking it before the payout, because the payout happened in the second quarter, which creates then a positive impact in net working capital in the central stream. so the cash flow needs to be read from that point of view and of course last year we did not have this effect so that's why the comparison to last quarter to the comparable quarter might be a bit yeah you need to take that into account if we go to next slide you can see the free working capital in the construction business then and the remains of the very very high level in terms of revenue we had 19% free working capital over revenue which is a very high level from a volume perspective of course as the volume has declined a bit in construction we do have a negative cash flow contribution from a working capital in the quarter of a little bit more than But that's entirely volume driven and we still have a strong focus on capital management and the sort of payment terms in our construction operations and we continue to deliver on this in a very successful way from our projects. If we move to the next slide you can see our investments, divestments and the capital employed over time. quite clear here that we're still in this net divestment territory if you look at the green line on the chart on top but we do now start to see an increase in our invested capital again if you look in the table at the bottom you can see here that both for residential development and for commercial development while we have seen capital employed go down a little bit it's now starting to increase very much in line with our intentions and as previously also announced there. If you move to the next slide you can get an overview of the available funds in our central funding that we have in the group. Total in the quarter we had 23 billion Swedish kronas available of which six and a half billion were constituted by credit facilities that were not drawn upon. We had two credit commitments that matured during the first quarter. And as you can see in the bar chart here, we have one loan that matures this year. That is in the second quarter. And then we have nothing that matures up until 2023, giving a very solid funding position for the group. If you go to the next slide, which is an overview of our total financial position, we had total assets 129 billion, an equity position of 38 and a half. And of course, the equity is shown here with the dividend that has already been separated from the equity. But the dividend had not been separated from the cash position at the end of the quarter. equity to assets ratio of 30% so very very solid balance sheet overall and this is an important enabler for many good and opportunistic deals for Skanska. It's very important to keep this strong financial position going forward. With that Anders I hand over to you.