Skanska AB (publ)

Good morning and a warm welcome to the presentation of Skanska's first quarter report for 2024. My name is Antonia Junelind, I'm the senior vice president for investor relations here at Skanska and here to present to you the main events operationally and financially from the first quarter is our president and CEO Anders Dahlnesson and our CFO Magnus Persson. They will provide their first presentation. And after that, we will move over to questions. And we will open up for questions for those of you that have gathered here in the room for us, but also those of you that are joining us online. And we will then recommend that you use the HD audio link to call to us and ask the questions. But we will get back to with more information on that. So with no further ado, I then leave it to you Anders to start with the presentation.

Thank you, Antonia. Welcome, everybody. It's good to see you. Before we start, I wanted to look at the picture here of a beautiful building in Seattle. It's called The Eight. And it was also here that we had our record lease earlier this year. First quarter for 2024, it's a mixed performance. We have a construction with a somewhat lower result, but we do have a strong order intake. Residential development, we can see increased sales compared to last year, but it's from low levels still. Commercial property development, no divestment in the quarter recorded. We have improved the leasing and that is helped by this lease we made in Seattle. Operating margin in investment properties, solid performance. So no transaction in the quarter. Operating margin in construction, 1.8% compared to 2.8% in last year. And return on capital employed in project development overall is negative due to the write-down we communicated in the fourth quarter last year. The same for investment properties. We took in permanent charges in the fourth quarter there as well. Return on equity is also impacted by that, of course. The rolling 12 number is 5.9%. We do maintain a robust financial position. That is essential for the company and really important for us going forward as well. Carbon emission, we managed to reduce those with 58% if you compare to our base year 2015. If I go into each and every stream now, we start with construction. So the revenue is slightly below last year, but pretty much in line. Order book is really strong, 47 billion. And we have a book to build of 117%. which is on a very good level. So the order backlog is on record level right now, over 250 billion Swedish, really strong. Operating income 670 million, lower than last year, giving us an operating margin of 1.8%. We have a strong order intake. This is mainly from the strong US operation and also the civil operation in Norway. and the board or the backlog is high as i said and result in the quarter is impacted impacted by costs related to uh uk project that we won 10 years ago and we have a thorough analysis of that project and take the impact of the the consequences and write it down with the 370 million swedish Rolling 12 months operating margin was 3.3%, slightly below our target of 3.5%. If I go to residential development, the revenue has increased. We have 2 billion Swedish in revenue in the quarter. And that's because we have sold more apartments, of course. So we have seen an increase from a low level, though. But it's encouraging to see that it's starting to go in the right direction. and we also managed to start more projects since we have sold more as well so that we try to keep a good balance between those operating income 23 million and the return on capital employed was negative due due to what i just said So increased volumes from slow level, low level, but we can see that the strongest market here continues to be Central Europe. And we also took losses in our low price segment, Boklok, of 146 million in the quarter. So if we exclude the Boklok operation, we had a healthy operating margin of 8.9%. So we can see the underlying performance in our residential development operation is on a healthy level. Going to commercial property development, we have operating income negative 166 million in the quarter. We had impairment charges here of 156 million Swedish related to a US project, and return on capital employed gives us a negative 2.6. 21 ongoing projects corresponds to 27 billion upon completion in total investment and we have 73 percent least We have completed 22 projects, and that is equal to 12 billion in total investment. So we have a lot of good projects to divest in the future. No divestment of property starts in the quarter, and leasing activity was solid, total 70,000 square meters, and again, a record lease here in Seattle earlier. investment properties no investment during the first quarter and the stable performance and the solid operating income of 50 million and we have the occupancy rate at 91 percent so that is on a good level and we again targeting high quality office building in the three largest cities in sweden and the ambition is to build up a portfolio of between 12 to 18 billion uh swedish do for some years i'm moving back to construction now and look at the order bookings You can see here the blue bars, they represent the order backlog quarter by quarter. And you can see the different lines here on the order bookings, rolling 12, the gray line revenue on the green line, rolling 12, and book to build percentage-wise on the yellow line. So you can see the development over time, over some years, and we are on historically very high level here. And if I look into the geographies, it's more of a mixed picture. We have overall a strong book to build over 100%, 113% totally in the Nordic, but that is driven by the strong Norwegian civil market. You can see here, Sweden is slightly below 100%. We have a weak order intake in Europe in total, 76%, but very strong in the US, as you can see, 135% book to build. So overall, 19 months of production in the backlog is on a historically high level as well. With that, I hand over to Magnus.

Thank you. So we start with the P&L for the construction part. Top line, we decreased revenues with 3%, quarter over quarter, and that's in local currencies. We had a gross margin 6.2% compared to 7.2% same quarter last year. And the difference between the quarters in terms of gross margin is basically all explained by the charge we've taken in the UK here. So if we exclude that, we're performing at the same level as last year. And I have to say, overall, the construction portfolio is continuing to perform at a very high level. We have the stability that we have been looking for and that we have developed over some time. So quite pleased with that. S&A, as you can see, 4.3%, well under control. And then the operating margin, 1.8%, is basically a consequence of gross margin and S&A. Looking at different geographies, Nordics came in at 3.2% margin, so up a bit then from same quarter last year, and Sweden is flat at 2.3%, so stable performance there. Then we have... the European part, and this is, of course, where we find the charge from the UK project here. And as Anders has already said, the background to the charge, it's a contract that we bid and won for 2014-ish, it's 10 years back. And the risks in this contract are of a kind that we do not, we have not mandated our organization to bid for jobs like this today, since we enforced a new stricter bidding regime in 2018. So this is very much a legacy from the past that comes up now. And unfortunately, it hits us now in this quarter and that's sort of the background to the charger. And if we look in the US, 3.3%, still performing very well, slightly lower than the same quarter last year, but there's no read through in that normal quarterly variation. So with Oregon, if you look on this, on a rolling 12 months basis, we are now at just above 4% margin in the US. And of course, it's very pleasing to see that we're such a strong financial performance in our strongest markets, where we're also successfully booking a lot of new jobs. If you look at residential development, a fairly big change in revenue here, moving up to 2 billion from around 600 million in the comparable quarter. It's not a super good market today either, but it's quite clear that the market is improving. We are now selling units again to slightly higher pace, so this is very positive, and it's indicative, of course, in the revenue numbers and in the sales figures you will see a little bit further on then. Gross income, 165 million to 8.2% gross margin. And this is weighed down also by the losses that we have in our low price offering to the market. That's called the Boklok product that we have. S&A, 7%, of course, too high to be stable for us. But if you look on the nominal values here, we have around 140 million in S&A. We have quite successfully taken down. the sort of structural costs in the organization to meet an expected lower market there. So I think we've handled this in a good way and we continue to adapt where we feel the need to do that. And then operating margin 1.1% and operating income of 23 billion. Million, that should be. Looking at different geographies, essentially none of the geographies are performing financially, but it is all due to the Boklok losses here of 146 million that impacts all over the place here. They are present in all the different geographies. And the majority of the costs from Bokluk comes in the European part. If we strip out the effects from Bokluk, you can say we are at the stream level performing with a gross margin of around 12 to 13%, with a bit higher in the European part and a bit lower in the Nordic part. And this is, of course, quite important for us and also of course to communicate that when we sell units to the market today we can achieve sort of a decent profitability on that given the the costs that we carry with us when we go into the projects so a lot here in terms of the financial results has to do with our low low price offering Home started and sold, we sold 511 homes, quite a lot more than last year, 130, and we started 459 new homes, which is also not fully double the amount of the comparable quarter, but quite close to. So you can see, as we managed to sell, we also feel confident that we can start a bit more new projects, which of course is good. And you can see in the graphics on the slide also, in the chart, the sales and the start curves are starting to turn and move into a bit more positive direction. So that feels quite good. And of course, we hope that this morning's announcement from the Swedish Riksbank will also be further positive to the housing market in Sweden. Effects, of course, are not to be seen yet, but in the coming weeks, we will hopefully be able to see how that reads through into the market. If we look at homes in production, we had 3,700 homes in production at the end of the quarter, significantly down then since one year back, which is not so strange with the low sales. We have not wanted to start a lot of new projects. Of this, we have sold already 51% and had 772 units that were completed but not yet sold. Of these 770 units, 370 of them belongs or is sort of part of the low price offering in Boklok. So that's a majority of what is lagging in terms of our sales here. And it is still so that that part of the market is and has been hit the worst by the current situation on the housing market. you can also see here in the chart that despite that the sales rate is sort of lowish and the homestead production is coming down we still have a significant amount of units to offer to the market to see that you can simply add up the light blue part and the green part of the bars here so which is comfortable as we see and hopefully the market We'll sort of continue to improve a bit going forward. It's important to have an inventory to offer from. Then you can sort of capitalise a bit quicker on any changes to the market. Commercial property development, a very silent quarter. We made no transactions. We booked a gross income of 31 million and then S&A of 195, take us down to a loss on the operating income level of 160 million. six million and in that you can say that we had a write-down or an impairment of one asset in the US in the isolated quarter driven by an overall sort of increase of expected yields in the market but also as in the specific properties case sort of a change in leasing expectations in that micro market that has led us to make this impairment. but no transactions in the quarter. If we look at unrealized gains, they're roughly in line with last quarter's. We are 300 million Swedish kronors lower, coming down a little bit, and in that we of course have some growth impacts, whereas I just alluded to in the US parts of the portfolio, We have, due to the changes of the interest curve in that market, decided to up the yields a bit, which leads to a change in the surplus values of the US properties to the tune of 600 million. But then we have some positive effects actually in the same respect for some Nordic and European properties, where we increase the surplus values based on the market outlook and also current discussions with potential investors. So that's positive. And then we have the realized gains, which you can see on the orange line here, that are hovering around 1.5 to 2 billion on a rolling 12-month basis. The completion profile, we had at the end of the quarter 12 billion invested in properties that are completed but not yet sold. These were leased to 74%, 73%, which is roughly in line in terms of leasing with what we had in the fourth quarter, so not a lot of change in that. We completed one property during the quarter that moved into this bar here. Then you can see we expect to complete in Q2 properties for close to 2 billion and closer to 3 billion in the third quarter. And then a fairly large bar, large amount of expected completed investments in the fourth quarter. And those of you who follow us and remember the fourth quarter report, you note that this larger bar was actually placed in Q3 when we presented the fourth quarter results. So we've had delays in three US-based projects in terms of when they are expected to be completed. It's a mix of reasons. It's delays in some of the supplies. We have been hit by a strike in one of the cities, and we also have to make further adaptation to accommodate tenants. And when you have this situation that something is expected to be completed close to the end of the quarter, it only requires a few weeks slippage, and then you end up in the next quarter. So that's the reason. There's no sort of structural change to it. Just move between quarters there. And these are now leased to 51%, those that we expect to complete in Q4. In terms of leasing, we leased 70,000 square meters in the quarter. Of that, we had this major lease that took up in the property date. That was to 50,000 square meters early on in Q1. And we are on a rolling 12 months basis, which is sort of the best way, I think, to look at leasing also now leasing around 240,000 square meters. So it is improving. But the status of the leasing market remains the same if we look across our different geographies with the European part still being the strongest. After that, we have the Nordics, and then we have the US market that is still considerably weaker than the others here, with a return to office trend that is going quite slow, to be frank. Investment properties, well performing properties. So there's not a lot of things that are sort of happening every quarter here. We booked an operating income of 50 million in the isolated quarter made no changes to the expected market valuations. And the occupancy ratio on the average for the portfolio remained at 91%. look at the whole group then we had the operating income from our business streams of 576 million and then we have the central stream including the headquarters that comes in at 60 million minus 60 million quite a lot down then from the minus 159 million last year but This is more due to a periodization effect. So those of you who sort of try to forecast where we are with this, I can assure you there's no structural change to the costs in the central stream here. It's just a movement between different quarters, even if the Q1 comes in quite low here now. Net financials goes up to 225 million, and the whole reason for that is essentially that we are able to place our excess liquidity in a more favorable sort of interest rate climate, so we get better paid for the excess liquidity that we have. That explains the uptick here. Taxes, 197 million, and a tax rate of 27%. It's unusually high for Skanska. And the background to this is that we've had over the last few years, sort of in several markets, slightly increasing nominal tax rates. But this has not been seen too much in our numbers because we are normally so heavy profit-wise on selling properties in the Nordic countries, and especially Sweden, that is a very tax-efficient way of sort of earning your profits. In this quarter, we don't have any such divestments. So the whole nominal effect here comes right through into the P&L for us, which is why that explains the sort of majority of the high tax rate here. Cash flow, we had a cash flow in the quarter of minus 4.9 billion and inside that you will see that we have slightly lower net investments. Nothing strange with that because we have started few new projects over the last year or two and at the same time we're working hard on divestments here so that is coming down but then we have working capital that is has a quite substantial negative impact in the isolated quarter here now we'll come back to that so minus 4.9 billion in the quarter And then we come to working capital. We had 2.7 billion negative cash flow from working capital from construction in Q1. It's an unusually large sort of cash flow impact from that, and I think it warrants an explanation. But if you recall the fourth quarter, we had a quite substantial positive impact from working capital then. As many clients sometimes would like to advance certain payments before they close out their financial year, then in the first quarter we have to pay that back by doing work to a lower pace of invoicing from our end. So what comes in in the fourth quarter goes out in the first quarter. So this large part of the flows that you see in Q1 is a consequence of what happened in the fourth quarter. Overall, in terms of working capital, if we stretch out the time perspective a little bit, we still have the same observation as we have communicated over a number of quarters now, that we are slowly moving down in the free working capital level in the company. It is becoming harder to negotiate the front-loaded payment profiles for us. We still do a very good job with it, but this is probably attached also to the fact that money is associated with the cost these days also for the clients. So still a high level here, but as you can see, there's a very slow but still noticeable trend downwards that we are keeping our eyes firmly peeled on to be able to handle that in a good way. Investments and divestments. Here you can see that we are moving from being deep down in net investment territory now into becoming more neutral. The green line here is approaching zero, which essentially means that over the course of the last 12 months, we have invested as much as we have divested them. And in terms of capital employed in our property development and the investment property streams, we closed the quarter at 65.2 billion up from 60.2 billion in the fourth quarter. We had 22 billion or 21.5 billion in available liquidity at the end of the quarter, and of that, 9.4 billion were constituted by credit commitments from banks and third parties. Of that, around 9.8 billion is financial liabilities that we have, external debt. that is sourced 50% approximately from banks and 50% from the credit markets. And you can also see the maturity profile that we think is well assessed against our own capital commitments over the coming years here. Finally, financial position, we closed the quarter with 56.7 billion in equity and 4.6 billion in net cash and an equity-to-asset ratio of 35.3%. So we remain with a very solid financial position, noticeable in terms of capital and liquidity, something that is very important with the line of business that we are in.