Skanska AB (publ)

Welcome, everyone. This is Andrea Löfgren, Senior Vice President of Western Relations, speaking. And the welcome is to our nine-month report presentation, which will be held by our CEO, Anders Danielsson, and also our CFO, Magnus Persson. And after this presentation, you will be able to ask questions.

And with that, I hand it over to you, Anders. Thank you, Andrea. And welcome everybody. I want you to look at the first picture here. It's our powerhouse Brattorkaja in Trondheim in Norway. Powerhouse, the name is because the building produces more than double the amount of electricity it consumes daily. Then we go into the nine months report and the overview here. Overall, solid performance. So this is a strong report. The construction stream steadily improving quarter by quarter. The same with this quarter. And the residential development, strong profitability. And we also increased our sold and started units on the first nine months. Commercial property development, we have started a lot of projects during the first nine months, and also sizable starts. And the gain on the divestment, they are on attractive levels. Operative margin in construction, 3.6% in the first nine months, so same in the third quarter. And return on capital employed in product development, well above our target of 10%. So 12% rose. Return on equity, 26% on a rolling 12-month basis. And we continue to have a very strong financial position. And it's also very encouraging to see our carbon reduction that has reduced with 47% since the baseline in 2015. And you also saw that we... increased our targets for carbon emission to 70% reduction in our own operation until 2030. With that, we can go into these different streams, starting with construction. Revenue decreased to $2.95 billion. That's about 6% reduction in local currency for the comparable periods. The water bookings, 111 billion for the quarter compared to last year 110 and should also remember that last year we had the high speed rail of close to 14 billion in the second quarter so this is an increase by 6% in local currency so we have a book to build of 117% on a rolling 12 months basis and the order backlog just shy of 200 billion Swedish Operating income increased with 48% in local currencies to close to 3.5 billion for the period and operating margin again 3.6% compared to 2.3% last year. The Q2 divestment of infrastructure services operation in the UK impacted positively in the second quarter with 370 million SECs. And encouraging here as well to see that the profitability improves in all business units for the first nine months. Going into residential development, the revenue increased to 10.7 billion. We also sold more homes and we started more homes compared to the last year. Operating income, 1.5, close to 1.6 billion. And the operating margin, well above our target here as well, 14.5%. And the return on capital employed, our ruling 12-month basis, close to 15%. High activity and strong profitability all over. The focus for us when it comes to residential development is to focus on zoning and bring new projects to the market. We have today a very high sales rate in our ongoing project. So the biggest priority is to start new projects here. Longer term, if you look at the RD business, Some uncertainties, of course, about where the economy is going, the unemployment levels and so on, but in the foundation for this business is strong. Structural shortage of home is definitely mitigated for that one. Going to commercial property development, the operating income, 1.5 billion. We have a gain on sale in the first nine months of 1.8 billion. Even though it's lower than last year, the divestment has been on a very attractive level. And the return on capital employed above our target, 10.8% on a rolling 12-month basis. We have today 32 ongoing projects, which corresponds to almost 24 billion in total investment upon completion. We have also historically a lower occupancy rate and completion rate, and that's because we have started new projects. We have an all-time high when it comes to start of new projects. We have started 16 projects the first nine months, which corresponds to a total investment of $14 billion, highest ever. We can continue to see a slow leasing market, but clearly the activity is picking up in the third quarter. We have leased 125,000 square meters during the period. That's slightly lower than last year. And we continue to see a solid property investor appetite. And they are definitely going for flight to quality here. And again, divestments, they are at very attractive levels. So we go back to the construction stream here and look at the order bookings. And here you can follow it over time, year by year. And you can see the order backlog, the development of the order bookings are rolling 12. and the revenue compared to the revenue and also order bookings per quarter. So what you can see here is that we have had higher order bookings on rolling 12 compared to the revenue. So I expect this to, you can see it, the flattening out, I expect it to increase going forward. But again, healthy backlog of, shy of 200 billion and if i look into the different geographies when it comes to order bookings overall strong backlog strong book to build over well above 100 in all markets except for sweden but i'm not concerned over that figure we are in uh in a very, very strong pipeline. And we have a lot of projects that they are in the first stage that sort of push the client, push them over the new year or into the fourth quarter. So I think we're overall very strong, 117% book to build, which equals to 18 months of production. So that is a good position. With that, I leave it to Magnus.

Thank you Anders. So if we then look at the income statement for the construction stream, revenues down 11%, 6% in local currencies, which is sort of the volume indicator here. So currencies does make the numbers look a bit more sort of that the revenue decline is bigger than what the volume is. Still, what Anders just went through with 117% booked to build in a rolling 12-month basis and 18 months of production in the backlog, we're not too concerned about this, expected to sort of come back here. S&A, always very important for us, and as you can see, it's falling nominally. We are coming in at 4.1 billion in S&A costs. If you look on the S&A margin at minus 4.4, it's a bit higher then, but that's driven by volume, obviously. And given the backlog that we have, And the book to build, we think this is a good level to be at for the moment. Gross margin 7.9% year to date. You need to adjust this for the UK divestment to see the trend here, if you will. And if you take that out, you end up with 7.5%. Q3 isolated at 7.6%. As Anders said, we continue to piece by piece improve the underlying performance of the construction portfolio, which is exactly what we have been working with. Takes us down then to the EBIT margin of 3.6% or 3.2% year-to-date if you take out the UK divestment. And I think the development here is really sort of a testament to this stabilization of the construction portfolio that continues and successively improving the performance. If we look at the different geographies, then the margin, as said, improves in all geographies year to date. In the third quarter, it was stronger in Europe and in the U.S. slightly lower in the Nordics. But I'd say overall, all geographies continue to to improve their performance, but the margin in individual quarters can, of course, go a bit up and down. But overall, a very solid performance, and in the third quarter, no one-off effects that sort of disturbs the comparability. If we go to residential development, then, we have had a very strong performance, revenues of 10.7 billion. Of course, that's a lot. You compare it to 9.6. last year. If you look at the third quarter isolated, sales fell, it looks like, quite a bit. But there's a couple of explanations to this that are important to be aware of. First, I think the third quarter last year, it's a very, very tough comparison for two reasons. One is that there was a significant amount of pent-up demand in the housing market after Q1 and Q2 had been to a large part at the standstill due to the pandemic. The other one is that we divested a package of rental properties in the third quarter 2020 for one and a half billion. And then, of course, right now, due to or thanks to the strong sales we've had, we have fewer units to sell. Our inventory is a bit low. I'll come back to that. Performance-wise, with an EBIT year-to-date of 14.5% and a whopping 15.5% in the isolated quarter, the performance in residential development is, of course, on a very very high level now and there are no significant one-off effects in the quarter here that you need to be aware of when you compare it if we look at the different geographies we improved margins both year-to-date and in the isolated quarter in all different geographies I'd say the market is perhaps strongest in in the european geography currently with a very very strong demand and a very positive price development but it's a positive market in all our geographies and i should also add of course that the strong price development here has really sort of made it possible for us to to increase prices when we sell these units and also that we have been So they're not needed to use sales reserves that we sort of always have with you when you start a project. And all of this in the market contributes to very strong results. If we look at homes started and sold, you can see that the lines in the chart here dips a bit in the third quarter of solds and started. Year to date, we have sold more. We have sold 3,000 homes. 54 units and last year the same period 2,879 units, so sales a bit up. And we have started the same amount as last year, which is roughly 2,500. So we have a bit of a start deficit, if you will, in this. And in Q3, then the sales has already commented. We sold actually considerably lower amount of apartments than last year, but the big part of that is explained by the divestment of the rental portfolio in the third quarter in 2020. So with the sales pace as strong as it is, it has been challenging to backfill with new projects. And the chief reason here is that it is sort of slow and the resource demanding with the permitting process to drive this process through the administrative authorities. That takes time and that is the limiting factor for starting more projects, which we are working hard on, of course. If we look at homes in production, we have roughly 7,400 units in production at the moment, which is a good step up from the 6,600 that we had a year back. Over this, we have sold now roughly 80%, which is a number that, from a commercial perspective, you can say is too high. We would be more comfortable with 60% to 70%. So we're working to start more No issue with unsold completed homes as you can see 94 units that is very small amount in comparison to the total amount of units in production here. Then we go to commercial property development. We had a very low volume quarter you can say in the third quarter. The result that you see the revenue over 4.4 billion and the gross income is basically generated The largest part of that in the first quarter where we sold a fairly large office building in Copenhagen. In Q3, isolated some smaller transaction and we also divested the remaining ownership we have had in one of the U.S. projects that we previously sold to 90%. The activity in the quarter has mainly been in creating new opportunities for commercial development that we will capitalize on in the future. So five new projects were started in the isolated quarter. If we then look at the realized and unrealized gains, you can see these bars in the chart on the slide is increasing. In totality, we now have unrealized gains in the portfolio, 10.5 billion up from 8.5 in the second quarter. And in total year to date, we have started 60 new projects with 14 billion in total investment at completion, which is then actually the highest investment value of new starts in a single year in Skanska's history, already now in the third quarter. So we're really doing now what we have said we would do for quite some time and putting this good pipeline we have into play. And of course, it's happy to see them as it should be that unrealized gains are increasing. If we look in the completion profile, of the portfolio. This profile is now a bit bifurcated, if you will. We have increased the amount of properties that are completed and unsold. The investment value of those goes up from 8.1 billion in the second quarter to 10.7. That's the orange bar in the chart there. At the same time, the occupancy rate of these properties goes up to 67% from 59. So that's a good development. And then as you can see, we do not expect to complete anything in the fourth quarter and just very little in the first quarter next year. So the new starts that we are now doing, they will of course complete in quite some time ahead. So it's a young portfolio that we have here. And the leasing exposure, if you will, is quite sort of further out in time ahead of us. If we look at leasing, the two lines that track occupancy rate and completion rate, they go down. But that's, of course, partly a consequence of the challenges with leasing that have been characterizing the market for some time, but also the fact that we are now starting a lot of new projects. And when you start a project, you obviously have no leasing and you have no percent of completion in it so that sort of forces both of these lines down these two indicators that we have year to date we have leased 125 000 square meters there are a lot of leasing negotiations ongoing We started to comment on this in the first quarter that the market was waking up a little bit, which was reinforced. And in the second quarter, we still see this good activity in the negotiations. And I think it's important to be aware here that it takes sort of say six to nine months between contact to contract in the commercial development business so what we saw the discussions we saw starting perhaps in the beginning of the second quarter now they are maturing now in a good way if we look at the group operating income from different business streams amounted to 6.5 billion central costs Down to minus 226 billion, so more than 100 million lower than last year. And that is related to improvements in the legacy portfolio that we have, the old businesses in Skanska. Central costs or headquarter costs are basically stable. Takes us down to the total operating income of 6.2 billion, and the net financial items that are slightly lower than last year here. And, of course, rates are lower. They have been low for a long time, and it is challenging to find yield on financial assets as we stand now. But as we grow the development portfolio and start new projects, we are also increasing the capitalization of financial costs in Europe. in the group here. Taxes at 16% year to date. If we look at cash flow, we've had a tremendously strong cash flow development in the group. And if you look at operating cash flow here and you compare it to the same period last year, the main difference is the investment divestment. This year we had net investments of 300 million, but last year we had net divestments here of So that's a significant difference. And also the fact that we have mainly in the second quarter this year paid a large amount of taxes, which is in a way positive because those taxes relate to the significant profits that were booked on the sale of 2NU and ERC among other projects in 2020. So this explains the main differences in cash flow here. Free working capital, it essentially continues to be very strong. We are at a level of 20% of revenue, which is a very strong level, and we do not see any firm indications that this is about to change. If we look at capital employed, you can say that we started the year with 44.5 billion. We are now at 46.1 billion. And with the amount of new starts we have in commercial development and the ambitions we have in residential development, that is very likely to increase here, which would also lead us to enter into more of a net investment cycle. We have been in a net divestment cycle for quite some time here. So we'd expect... green line in the chart, if you will, to sort of continue down a bit here going forward. If we look at the financial assets we have access to, we have 17 and a half billion in the cash and equivalents and the committed under on the credit facilities to our disposal. And 13 billion of that is available within a very short notice. So we are well stacked with the sort of funds to realize our investment ambitions. Financial position for the group, we remain with a very, very stable financial position. The adjusted net cash in the company is 15 billion flat at the end of the third quarter with an equity to asset ratio of around 32%. So again, remaining a very, very solid financial base, so to speak, to work from commercially speaking. With that, Anders, I hand over to you.