Skanska AB (publ)

Good morning, everyone. This is Andrea Lövgren, heading up Investor Relations at Skanska. And I would like to welcome you to the presentation of our year-end report for 2021. The presentation will be held by our CEO, Anders Danielsson, and our CFO, Magnus Persson. And as always, you will be able to ask questions after the presentation. And with that, I hand it over to you, Anders.

Thank you, Andrea. And before we start, I want you to look at the picture. It's in Boston, US. It's our project two dry dock, high quality, sustainable building office, which has been developed, constructed and divested by Skanska in Q4. So let's go into the overall year end report. We have a strong performance during the year. In all streams, construction, solid performance across our geographies. Residential development continue to be strong profitability. And commercial property development, strong gains in the divestment that we have made, especially in the fourth quarter here, and also sizable starts during the year. Operating margin in construction, 3.8 percent. Return on capital employed in product development. 11.8% above our target of 10%. And return on equity also above our target, 20% compared to the target 18%. We have a very strong financial position. We'll go into that later on. The board has proposed the dividend of 10 crowns per share, which of ordinary dividend of 7 crowns and the extra dividend of 3 crowns. And we also managed to reduce carbon emission by 47% compared to our baseline year 2015 in our own operations. Going into the different streams, in construction the revenue decreased to 132.6 billion and there is about 3% reduction in local currencies. We also managed to increase the revenue in Q4 in the construction stream with about 10%. Order bookings 153.6 billion and we have a book to build of 116%. The order backlog is on a historically high level of 207 billion Swedish dollars. Operating income, 5 billion, and the operating margin of 3.8% for the full year. Here we have two positive one-offs that we have been communicating. So if you exclude those one-offs, we have an underlying operating margin of 3.4%. And the profitability is strong and improving in our business unit, and we have all geographies increase the profitability. Going into residential development, revenue is 14 billion. We increased the number of sold homes for the full year, and we also managed to start significantly increased the start of homes, which was very important for us because we have had a very high sales rate in our portfolio. The operating income, close to $2 billion, and we have an operating margin of 13.8%, well above our target of 10%, and also the return on capital employed, 14%. It's high activity and strong profitability in our different markets, And its focus is, of course, to work with the zoning to bring new projects to the market. And we managed to increase the number of starts in Q4. And we have been working for many years with the strategic land banking, and we have the financial strength and capacity to do that. And that's important to be able to increase the number of start that we have seen now during 2021. Going into commercial property development, Here we have a gain on sale of close to 4 billion. And we can see that the divestment we have made during the year has been on a very attractive level, high level. And especially during the fourth quarter, and we have today a return on capital employed of close to 11%. We have 36 ongoing projects, which corresponds to 26 billion in total investment upon completion. And we have a younger portfolio, if you will, this quarter compared to the last few years. So we have an occupancy rate of 27% and a completion rate of 37%. So reasonably well together, they follow each other, and that's important to follow for us. 21 projects started in 2021, a total investment of close to $16 billion. The highest ever. The leasing market has been hesitant. We saw the activity picking up, especially during the last quarter. And unfortunately, the new restriction that was introduced here earlier this year has slowed that down somewhat. But I expect it to come back. So it's encouraging to see the high activity during the end of last year. And the investor market is very solid, very attractive. A lot of capital out in the market that wants to invest in our properties. We go into construction again and look at the order bookings. Here you can see order bookings over time, also the development over the order backlog. Rolling 12 order bookings compared to revenue and also the book to build. And the order backlog, as I said earlier, 207 billion, historically high level. And if we go into the different markets, geographies, we can see that we have had strong order intake in all markets. We are above 100% if you look at the book to build, except Sweden slightly below, but I'm not concerned over that. We have a Strong backlog, we have a healthy pipeline and we are confident in that. If I just comment on the Europe, if we compare in absolute numbers, 40 billion in 2020 compared to 27 in 2021. I will remind you that we had in Q2 2020 the order intake of high speed two in the UK. very large high-speed rail projects, which was booked at 14 billion Swedish. Encouraging to see the U.S. development here, that we have been successful winning new profitable projects. The U.S. operations is back on track. So it's encouraging to see that we are successful in the market. With that, I leave it to Magnus.

Thank you, Anders. So if we look then at the construction income statement, start with the top line here. As already said, we have revenues for the full year that are down approximately 6%. But in the fourth quarter, they came back up. We grew around 10%, quarter over quarter. I think that's a good sort of, indication that the work that we have been winning we start to put that into the ground and then we see a bit of a turn here now in sort of the development of the revenue and of course a certain amount of that growth should be attributed to the base effect because the Q4 last year was sort of more heavily impacted by the effects of the pandemic on the market. S&A we have stable A good cost control, stable S&A, 5.7 billion. Managed this very well despite the sort of effects that we've seen on the volume the last couple of years here. Coming down to an EBIT margin then at 3.8% compared to 2.5%. It's a very good step up compared to last year. And as Anders has already pointed out, if we take away certain one-off effects, we have an underlying... margin if you will of 3.4 percent for the full year so very solid performance across the line from the construction business if we look at the different geographies then in construction nordics delivered a four percent margin up around 0.4 percent from last year sweden 4.1 percent now That includes the repayment from the sickness policy that Anders alluded to in Sweden of 160 million in the fourth quarter where this was booked. So the fourth quarter margin of the Swedish business of 5.6%. If you exclude this 160 million, it was 3.9% in the quarter for the full year, 3.6%. Europe had a good fourth quarter at 4.3% and a good full year, which was obviously then impacted by the divestment of the infrastructure services in the UK. 370 million gain from that divestment. US operations, very good performance, delivered a strong 3.5% in the fourth quarter and for the full year then 3%. think we can say now that the US operations is from a performance sort of margin perspective back on track again, which feels very good. If we go to residential development, we had a good volume development here. Volumes were up 10% year over year. And of course, this is partly due to that the markets have been very favorable, both with the with demand, but also with the price development. Gross margin at 18.8%, close to 19 then for the full year, and the fourth quarter margin of 17.4%. Good cost control also here. S&A is well under control. EBIT margin close to 14% for the for the full year and a little bit lower than that in the fourth quarter. There are no particular one-offs or items that are disturbing comparability between the periods here, even if we sold slightly lower amount of rental units during 2021 than what we did in 2020. If we look at the different geographies, we had a good development in all reported geographies, Sweden, had a margin of 9.2% in the fourth quarter, not shown on this slide, but displayed in our quarterly report, mainly due to the fact that the higher number of the sold units that we have accounted for in the quarter came from newly started projects with the conservative valuation. Apart from that, I say in geographies, if you look at the year here, 13% in the Nordics, 13.3% in Sweden, and Europe very strong at 19%. The market has been exceptionally strong in Central Europe and that the supply has been short and our offerings are very well positioned in that market. They're very attractive. So we are selling very well and are able to sort of follow up with the price increases to make full use of the market opportunities in the European segment. If we look at homes that are started and homes that are sold, we were up with our starts to 4,400. And if you look at the fourth quarter isolated, close to 1,900 started units, which is a big step up here compared to last year. And it's very positive that we now manage to start more than we sell. And we have been working hard. say very hard with the land bank situation including the permitting in the land bank here because that is the potential bottleneck in housing development these days and we have clearly developed in this respect so this is i think is a good sign that these efforts are actually yielding a positive impact on our operations Homes in production, we have now close to 8,700 units under production. It's a fairly big step up if you compare it to the last year with 6,900. And that's positive, of course, and as you can see in the visualization or in the graph here, that what is growing is mainly the parts that is unsold on the construction. And that's where we would like to have it these days because If you back up to the last quarter, we had a sales rate that was around 80%, which is a bit too high from a commercial perspective. And now we are down to more manageable 73%. So that feels good. It's still a bit high, the sales rate, but definitely much better. It gives us the opportunity to actually have unsold units out for offering in many different markets to sort of make use of the demand that we see in our markets. If we then go to commercial property development, this was a very good year from a divestment point of view. We had 3.9 billion in gains from sold properties and an operating income of 3.3 billion. Q4 isolated, very strong, made five divestments and around half of the gains of the entire year came in the fourth quarter. Biggest divestments here that we made during the quarter was Generation Park and two dry dock That also is what is displayed on the cover of the report and on the first page of the presentation today that Anders showed you. If we look at the realized and unrealized gains, we have now 10.4 billion in the portfolio of unrealized gains, which is basically the same that we had in the third quarter. But you have to add to that the fact that during the quarter we realized 2.1 billion in gains. So the underlying creation of value in this portfolio is very strong at the moment here. And you can also see that the unrealized gains in completed projects is decreasing compared to the third quarter for the very reason that we are selling these properties, which is a good sign of the attractivity of what has been completed and still have not been sold. If we go to the next slide, this shows you the completion profile of the property portfolio that we have. We now have 7.9 billion in total investments in the projects that are completed and unsold, which is then down from around 10 billion in the third quarter. There is a good leasing profile of the rest of the portfolio, as you can see. We don't expect to complete much during the first quarter of this year. But we have in that 9% to 1% leasing rate. And then the leasing rate comes down 36%, 36% and so on. And normally we would start sort of working with leasing maybe 9 to 6 months ahead. So I think this leasing profile matches our portfolio very well right now. And we've also during this year already up until today divested one more of the properties that are in the unsold completed bar, which is the West Memorial that is located in Houston in the energy corridor. If we go on, we look at the leasing. We had the end of the quarter leasing ratio of 27%, which is the orange line. And this is then for the ongoing projects. If you look at the leasing rate for the completed projects, that's 70% that you can take into account. So average of that is 41%. So clearly an increased interest from tenants in leasing. And we have signed several leases here during the quarter, Sweden, Denmark and Poland and Czech Republic. And actually, when the restrictions were lifted, we noticed a good step up in this interest and also the sort of signing of leases. 70% of the leases that we took in during the year came in the fourth quarter of that. So it's a clear sign that the market came back when the restrictions were lifted, a bit as we had expected also. Rents are actually strong, but tenants do have high requirements on healthy and green workplaces, which fits our offering very well. If we then go into the group income statement, we had EBIT from the business streams of 10.3 billion, which is a solid increase from last year. If we look at the central line, which also includes our legacy operations, of course, the comparison period here of 2020 includes the divestment gains from the Elizabeth river crossings project in the US. Apart from that, this year central costs were 415 million and approximately that includes approximately 200 million in profit from discontinued operations or from operations under that are being run off. If we look at net financials, quite uneventful actually during the year here, very much similar to last year. Low tax rate of 15% and we deliver an EPS of 19 Swedish kronor and 80 öre for the full year. If we go to cash flow, the cash flow is lower, it's trending downwards much as expected because We are now entering more and more into a net investment territory, as we have said for a few quarters here now. Both RD and CD have during the year been able to reinvest all gains that they've made from their divestments into new development projects, which is, of course, a very good sign, building up the potential for profits here for the coming years here. So cash flow, because of that, is tapering off a bit, much according to our expectations in our earlier communications. Free working capital, very strong position here, 20% of revenue. We ended with a working capital position in construction then of 29 billion, which is historically very high. And can't see any indications here that this is about to change and the strong backlog we have with a good payment profile in the jobs would rather be supportive of this position than anything else. But it is a very high or very strong working capital position we have. Investments and divestments. This I've already been alluding to. We can see on the green line, which shows the net investments that we are coming down and moving from net divestments into net investment territory here. And following this, we are also increasing the capital that is employed both in residential development and in commercial property development from 2020 up until end of 2021. Funding of the group, we have a very low level of external funding that is needed. We have a total 3.3 billion, no maturities up until 2023 and around 18 billion in funds that are available to us. We sum it up and look at the financial position. Very solid equity base in the company, 46 billion approximately. Adjusted net cash position of close to 18 billion to be compared to the limit that we have, which is negative 10 billion. So plenty of firepower available for us to continue to expand the property development operations and to build up the investment property portfolio here. Equity to asset ratio 33%, really indicating that we are in a very stable financial position in this company at the moment.