Skanska AB (publ)

Good morning and welcome to the presentation of Skanska's fourth quarter and year end report for 2022. I'm Antonija Jimnelind, Senior Vice President, Investor Relations. And here in our studio, I have our CEO Anders Danielsson and our CFO Magnus Persson, who will take you through some business, financial and market updates. After their initial presentation, we will open up for questions. And you can ask questions in one of three ways. You can use the conference phone number or the text field on the webcast page. Or if you are here in the room with us, you can of course ask your question in person. So with that short introduction, let's start with the presentation. I hand over to you, Anders.

Thank you, Antonia. And before I jump into the report, I want you to look at this picture to the right. It's one of the landmark office building in Stockholm developed by Skanska and also transferred to our new business stream investment properties in Stockholm 01. If I look into the fourth quarter overall, I can say we have a really strong performance. The construction stream, very good performance across the borders. The residential development had a good start of the year, but a weak Q3 and Q4. So we'll come back to that. Commercial property development, successful divestment during the year, and we also started two new projects during the quarter. Investment properties, good start, completely according to plan. So we have transferred three office buildings in Stockholm and Malmö during the year, two of them in the last quarter. Operating margin in construction, 5.4% in Q4. Very strong, of course. If you look at the full year, we had 3.7%, well above our target. So that is really strong performance. And return on capital employed in the project development, 8.1, below our target. But overall, considering the market situation on a good level. Return on equity, 15.8%. And we have maintained a really strong financial position for the company. Proposed dividend from the board is 7.5 crowns per share. to be decided by the AGM later on. And we managed to reduce the carbon emission with 55% compared to our baseline year 2015. So if I go into each stream, starting with construction, the revenue increased in the quarter. If I look at the local currencies, it's increased with 3%. Order booking was really strong, 51.6 billion. And we have a book to build of 104% for the full year of 2022. So we are in a really good position here. We have historically high order backlog as well, close to 230 billion. And the operating income, 2.3 billion in the quarter, which corresponds to an operating margin of 5.4%. So overall, strong performance and really good profitability. And our strategy that we have had the last few years really pays off now. We have been selective. We have been keeping our discipline. We're going for projects that we see that we have a competitive advantage and also that we have a history of profitable projects. So I'm really proud of the organization and the achievement here. So really good. The order backlog again, historically high, and also which is really encouraging that we do see solid performance across our geographies. And that's also the underlying explanation that we perform on such a good level. Moving on to residential development. Revenue is really low in the quarter, 155 homes sold in Q4 and we started 671 homes during the quarter. So really slow quarter and operating margin of 0.6% is of course on a very low side. If you look at the full year, as I said, we had a fairly good start of the year in 2022, so the return on the capital is 7%. But we do see a weak housing market, especially here in Sweden. I think a lot of hesitation amongst the buyers of homes due to high interest rates, high inflation, which leads to high energy costs and so on. And also that the secondary market is a lot of uncertainties. Buyers and sellers, they haven't met each other yet. So I think it needs to stabilize before we can see improvement here. But the good thing is that we do see an underlying need and underlying demand from homes in all our markets. which is good for the longer term, so it's a good place to be. We have low volumes, and we also saw during the quarter underperformance in one of the segments, in the more affordable segments, which is Boklok in our operations. Minor part of the total, of course, but we have launched a turnaround program that we launched here in the end of Q4. We also changed the management for that unit. Commercial property development, operating income, 1.3 billion, which our gain on sale is close to 1.5 billion, which gives us a return on capital employed of 8.6% for the full year. I think that's on a good level. We've been successful when divesting projects, so we can see that the investors, they are definitely interested and attracted by our offering, and we have high quality, very high environmental standard in our portfolio, in the right place, of course. And we do have 34 billion in total investment when we have completed these 36 ongoing projects. And the occupancy rate is today 31% compared to the 50% completion rate. This is something we follow very carefully because we don't want the gap to be too big. And we started two projects in Q4, that was two multifamily rental projects, started one in Copenhagen and one in the US. And we had two large internal transactions in the quarter transferring to our new business stream investment properties. And the leasing remains a priority for us, quite slow, has been slow during the pandemic and also during 2022. So we leased 42,000 square meters in Q4. We can see that the tenants are coming back. They are more interested right now. There are hesitation, of course, because the back to office has been quite slow after the pandemic, but we can see it's going in the right direction. We can see it's leading actually in Europe, Central Europe, the Nordics. More people are coming back to the office. Companies want to get their employees back to the office. And we can see a slower pace in the US. But it's also in US, it's going in the right direction. But they are lagging a bit compared to Europe. But there's also a big priority or polarization in the office market. So both potential tenants and investors, they are seeking for high quality, high environmental standard building, in a very good location with the public transportation and all of that. So that's exactly what we can offer because we are in the right places. So I'm confident for the future. And investment properties. New stream, as you know, from 2022. And we are targeting here high quality, sustainable office. And our ambition is to build up a portfolio of between 12 to 18 billion over a few years. It will give us a strong, stable cash flow. We can also see a big potential to take part of the value increase as we develop an area, for example, and also value increase over time in the office market. So I'm very Confident that this is the right thing to do and also satisfied with the delivery so far. We are running this according to plan. And I said two exercises during the fourth quarter, Aqua building in Malmö, Stockholm 01 here in Stockholm. So strong start in the first year. Going back to construction and looking more in detail on the order booking. Here you can see over the years the development of the order bookings. It's a blue bar here where you can see the order backlog. The order bookings is the gray line and you can see order bookings per quarter, orange line, and also the revenue, the green line here. So as I said earlier, record high order backlog. We can see that the revenue have trended upwards for the last two years. You can see the green line bottom up in early 2021. Quarter by quarter, we have seen increased revenue. and if you look into the different geographies here we have a good order intake overall especially strong in the us as you can see we have 113 percent book to build and slightly below 100 in the nordics but as you can see we have 14 per 14 months of production in the nordics 12 in in sweden 17 overall so that that's on a very good level so we are in a very good position we can be continue to be selective we can continue to keep our discipline and going for a project that we know we have been successful in the future and with the fantastic team we have i'm confident in that with that i hand over to magnus to continue

Thank you. And we move to construction and income statement. You can see that on the slide here. As Anders already said, we grew revenues around 14% in the quarter, 3% in local currencies. So the scope growth of the actual organisation is considerably lower than what the values in Swedish kronos imply. sort of quite an important signal to understand how we move the company and how we expand the resources that are available for us for the full year the corresponding numbers then is 18 in the swedish corners and eight percent in in local currencies so you can see also that our growth rate is tapering off a bit towards the end of the year which in a sense is sort of nothing strange with that. You just looked at a slide and heard explanations about the strong bookings that we have here. So we go into this year with a very comfortable sort of booking position here and also quite high burn rate in terms of revenue in the construction business. If you look at gross income, we took in around 4.2 billion in gross profits in the quarter, up from 3.1 last year. Corresponding margins to this, 9.8%, compared then to 8.5%, is quite a big step up. And we have a very well-performing portfolio of construction projects in the group at the moment. So very sort of strong underlying performance. Now, in the isolated quarter, we have also had a couple of effects that sort of positively influenced the quarter. I will come back to them in a bit more detail in the next slide here. But in Sweden, we have essentially landed an agreement with the client that allows us to, in this quarter, recognize revenue that we have been earning for for more than one quarter, so to speak, a number of quarters prior to this. But since we had not agreed with the client on the compensation, we defer until this quarter to recognize it in the books, which is all in line, of course, with the strategy we have to work with recognition in a very cautious way. And this also points out importance here to not look specifically at individual quarters when you sort of assess the real performance of the construction business. You need to look at it as sort of a rolling 12 months or something like that. We also have a couple of very large construction projects in the US that are approaching completion. As we do so, and as we successfully manage the risk, we can of course increase the profit take-out from these projects as we can release reserves that we have held in them. Normally this doesn't show up very much, but it's a very standard part of how we do. Now we have this effect on a couple of projects in the same quarter, so the effects are sort of put on each other, and therefore it has somewhat of a big effect in the quarter. But the important here, this is not our view to be seen as something sort of extraordinary. It really comes out of our standard operation, even if there's a bit of a lumpiness. So I would only urge you to look at performance over a slightly longer time stretch here. S&A is well under control, takes us down to a very strong operating margin then of 5.4% in the quarter, significantly up from 4.2% last year, and as Anders already pointed out, 3.7% margin for the full year. Last year we were at 3.8%, but if you recall, This includes divestment gains from selling a business in the UK. This year, it's all about underlying strong performance in the real operations. So essentially marking the end of a very successful year in construction. look at the different geographies then nordics came in with a margin of 5.9 percent uh sweden isolated 6.7 percent and here you have some of the effects that we that i just discussed in the last uh in the last slide europe somewhat down from last year but 3.8 percent here is still a very strong number and as we have mentioned on i think a couple of earnings calls prior to this we are exchanging ERP systems in the European operation and this actually has an effect on the margin here so strong performance in this operation too and then in the US five and a half percent up from three and a half you heard explanations to this during on the last slide also so overall all geographies are performing really really well here We move to residential development. Slightly different story in the quarter. The quarter has been, if you look at the revenue, we essentially decreased them by 80%. And the market has been really weak in the quarter. Probably the weakest market is the Swedish one. And maybe the strongest we have, relatively speaking, is the European residential market then. When you read these numbers, I think you need to understand also a little bit about how we recognize profits in Skanska in our segment reporting, which is what you look at in our quarterly report. We recognize revenue at point of contract, and that means when we sign a sales agreement with the customer, we recognize the revenue from that sales, essentially. This means that when you look at our P&L, you have a very sort of here and now reading of how the market has been performing in the isolated quarter. There are no real lagging effects between how the market behaves and when this shows up in our P&L. So it's a very sort of accurate reading of where we've had the market during the fourth quarter. Selling and admin, obviously, 234 million to 30%. This seems a bit odd, but this is all due to the very low volume. So essentially, the profits here gets a bit eaten by the S&A charge, so very low volumes then. Operating margin, 0.6%. If we look at the different geographies, both the Nordics and Sweden isolated have done negative profits here. And if you read the quarterly report way back in it, you will see that we have had negative revenues, not a lot, but still negative in the Swedish part of the already operation. And the reason to this is, one, that the market has been weak, leading to very few new sales in the quarter. And in addition to this, we have had cancellations from customers in a few select projects in Sweden, in the affordable segment where we operate with the Boklok brand. It's a select few projects that this has happened in, and when it happens, due to the profit recognition we have, we have to reverse the revenue out of our books, and this, of course, contributes then to the weak result in the quarter. If we move to the European part, you can see 18.6% operating margin, which is sort of a very good margin, but the volume is low, as you can see, at 52 million compared to 120 approximately last year. Homes started and sold. We started almost 700 units, 671 in the quarter, which is then quite a lot lower than the same period last year. And obviously, and we have said this in a couple of quarters, when the market becomes weak, it is more difficult to find the business cases. It's also more difficult to assess the relevant sort of price on the right in the projects out in the future, which slows down the starts, essentially. On the sales side, we sold 155 units, which comes as no surprise given what I just told you about the weak market there. So quite a lot down then from last year. We remain at a high production pace in this business. 7,900 units are under production, of which we had sold 65%. Due to the slower sales, this comes down somewhat from the 73% that we had at the year end last year, but still within a very comfortable range here, 65% sold of the total amount that we have under production. under production and we have 130 units that are completed but not sold a fairly large part of these are so to speak show homes that we use in order to have customers come and look at the products that we that we market before we sell them then so and this is also a low number historically speaking and we still have a good churn of these apartments We moved to commercial development. You can see for the full year, we had revenue of 13.5 billion, approximately. Actually quite an active year. We made 19 outgoing transactions, divestments, essentially during the year. So quite a high amount of activity. booked then gains of approximately 3.6 billion, bit down since last year when we had 3.9, but still a very respectable number here for the business. In queue for isolators, Anders has already pointed out, we made three transactions, two internal to our own investment property stream, I'll come back to that, and one transaction where we disposed of the remaining 5% ownership stake in a project that we have developed in Seattle some time back then. Unrealized and realized gains. We had unrealized gains in the portfolio of about 8.5 billion come end of the quarter, down from 9.8 the quarter before that. And the difference then is 1.3. Should come as no surprise then that in Q4 we booked gains of 1.5 essentially made a profit take out from this surplus values that we have in the portfolio then. And the absolute majority of this is of course expected surplus values in the ongoing projects and you can also note that we're successively sort of reducing the amount of properties that are completed but yet unsold. Which then brings me to this slide, where you can see the completion profile of the portfolio. You can notice that approximately 5.4 billion in invested properties are completed, but not yet sold. This is the investment value, not an assessment of the market value. These were on the average leased to 66%. And then after that, we expect to complete properties for an investment value around 4.5 billion in Q1 this year, and these properties are currently leased at 44%. So the leasing profile here looks quite good, even if, of course, given the slowness of the leasing over the last year and a half or two, we would like to see it being a bit higher than. And in the isolated quarter, the fourth quarter here now, we've also completed one property, sort of ends up in the completed unsold one. Leasing, we leased 140,000 square meters approximately for the full year. And in the isolated quarter, then 42,000 square meters. So as already been said here today, we normally would like these lines, which represent the completion rate and the economic occupancy rate to go you know quite much hand in hand here we are comfortable with letting them spread aside but of course we have to watch the risk tolerances here which we do obviously so now as we sell properties we sell properties that are higher with a higher amount of leasing obviously and we start new properties with a lower amount of leasing and that is why we get this effect Investment properties. We made two acquisitions then in investment properties in the quarter, both of them from commercial development, obviously. We booked the revenue of 20 million Swedish kronor, which is very small, and an operating income of 100 million. And then when you look at this, I think it warrants an explanation, not at least because we only had this business stream for very few quarters there. So it says that we have changed the property value here and by that created gains. In reality, there's been no change in property value at all from our side. What happens is a technicality. Because when we make these transactions, we make customary adjustments to the purchase price based on the deferred tax that it carries along with it. And when this property ends up In the receiver's portfolio, you have to revalue to the right market value, so to speak, and then you get this effect through the way we report here. So properties on an assist basis has no change of value in the quarter. Now, in total, end of year, we had 3.9 billion in the... Sorry, 3.8 billion in the portfolio. Very good start to the build-up of this. and build up of the portfolio then. And all of the properties there are, of course, environmentally certified to a very high degree and total leasable space, 52,000 square meters. if we add everything together in the group income statement we can look at the central line here you can see the cost central cost comes down somewhat i would urge you not to read too much into that because the underlying cost structure is essentially the same but you always have these different effects quarter to another a bit with the legacy business sort of so it's very much the same takes us down to an operating income then of 3.5 Then we have very positive net financials of 200 million. Reason for this, I think, should be no surprise. We have a very strong balance sheet, a lot of cash that we deposit in the most favourable way we can, given the restrictions that we have put in place on ourselves. With rising interest rates, then we get a much better net financial outcome. for the different periods here. So both for the isolated quarter and for the full year, this is a very good outcome then. Taxes, we taxed 730 million in the isolated quarter, which is a tax rate of approximately 9.5%. to be compared then to a tax rate of around 15.5%, which we had last year. Now, the difference here is twofold. First, last year, we were very successful in utilizing sort of past losses in the group in Europe for tax deductibility reasons, which reduced the tax charge that we had to recognize last year. That's, of course, very positive. This year, given the transactions that were made between commercial development and investment properties, due to the accounting regulations, when we make these transactions, we have to account for a tax of 20% of the gain. And this tax is then in the accounting. We don't have to pay it. And it resides on our balance sheet as a deferred tax liability up until the future. And normally, when commercial development sells externally, we can package the properties and thereby make very tax efficient, almost tax exempt transactions. So we will have this effect when we sell the properties between commercial development into investment properties. look at the cash flow we had a negative cash flow around 2 billion in the quarter main effect here is that we have a very high investment pace at the moment which comes as no surprise last year we started a tremendous amount of commercial development properties we also started a lot of residentials that are now up and producing. So we have a big net investment in the cash flow here. And the other part is also working capital, where we have some effects, and I'll come back to that. Look at the working capital here. We're still at a very good level, around 90% of revenue. We have what we call free working capital, which is essentially the sort of advanced payments, if you will, from the clients that we can utilize. But still, it comes down a little bit in the quarter. You can see this represented by the bars on the chart here. And this is the effect we have then on the cash flow from networking capital in the isolated quarter. Investments and divestments. If you look at the green line on this slide, you can see the net investments of the group. And you notice immediately that for quite a long period of time, this has been well above the zero line, basically placing the group in a net divestment territory. We have been able to sort of harvest the proceeds from the buildup of the property development portfolio for quite a long period of time here. Since we have ramped up investments again, you can see this green line comes down, creeps down below the zero, and we are now in a net investment territory, essentially building up the size of this portfolio again. And we, on a rolling 12-month basis, we had net investments here of around 5 billion, which is one of the sort of fastest investment spaces we've had over the last 10 years. So we are really stepping on the gas here. which you can also see on the bottom part of this chart, where we show you the capital employed numbers, where we now are up to close to 59 billion, comparable to 47 billion than if you back up a full year. But we have a very stable financial position to deal with this. We had 3.7 billion in external financial loans and bonds at the end of the year here. We have available to us at any given point in time 16 billion of cash here, of which then we have unutilised credit facilities six billion. We will have two majorities during the year, that totals around one billion. I would also like to point out that during the fall here, we secured a new revolving credit facility as a backup for any needs we have in the group. The intent of this is not to draw on it, but we should always have it to further secure our financial position. It's a five-year structure involving seven banks and it is sustainability linked. So this is very good to have this as the existing revolving facility will run out in 2024. Which takes us to the group's financial position. We had an equity position end of the year of 55 billion, tremendously strong, obviously. with an equity to asset ratio of 36% and a very solid net cash position of 12 billion at our disposal to handle and make use of opportunities that come our way.