Skanska AB (publ)

Good morning and welcome to the presentation of Skanska's second quarter report for 2024. I'm Antonija Ljundelind, I'm the Senior Vice President for Investor Relations here at Skanska and joining me here today is our President and CEO Anders Danielsson and our CFO Magnus Persson. Shortly they will take you through an update on our performance over the past quarter and provide you with an updated market outlook. After that initial presentation we will as usual invite you to ask questions during the Q&A session and I will then ask you to join us by using the HD audio link or the telephone conference number that we provided in the invite or on skanska.com on the investor relations pages and you can just follow the detailed instructions provided by the operator. So with that short introduction I hand over to you Anders to start the presentation.

Thank you Antonija and before I jump into the figures I want you to look at the picture here on the right hand side and that's Studio B, a project development, commercial project development in Warsaw, developed by Skanska, constructed by Skanska and we also leased it out, it's a 98% lease and we also divested it to repeat investors during the second quarter and we also started the next phase in that area. If I look at overall the second quarter during this year we have a solid performance, construction, the operating margin is in line with our targets, we also have a strong order intake, residential development, increasing sales volume but it is from low levels but encouraging to see that also continuing in the second quarter. Commercial property development, we have made five divestments in the quarter which is on a high level, on good levels as well. Investment properties, the first acquisition was made in Gothenburg, one of the three cities in Sweden that we're focusing on. Operating margin in construction, .5% compared to .4% last year and the return on capital employed in product development and investment properties is impacted on a rolling 12-month basis of a weak property market and it is also impacting the return on equity which ends up on .3% on a rolling 12. We continue to have a robust financial position and we also have a reduction of carbon emission in our own operation of 58% compared to the base year 2015. If I go into each stream, start with construction, the revenue has increased in the quarter with 6% adjusted for currency effect and we also see order bookings landing slightly above 60 billion for the quarter. So we have a book to build of 114% on a rolling 12-month basis and the order backlog is on a record high level of close to 268 billion. Operating income 1.5 billion and again .5% margin. The strongest order there in tech is in the US and that goes both for our building operation and our civil operation. The order backer is on a high level, record high and on a rolling 12-month basis the operating margin was 3.3%. Going into residential development, the revenue has increased 2.2 billion in the quarter. We have increased the number of homes sold to over 500. We haven't started so much this quarter but it's more of a quarter effect I would say. If you look at the more on a rolling 12 you can see but we have started the projects to start and we also announced another start in central Europe recently. Operating income negative 11 million and return on capital employed also negative. So we can see increased sales volume in the Nordics and we have continued to have a good level of the activity in central Europe and the hit we took in the quarter from Booklook was 167 million. The underlying, if you take away Booklook, the underlying operating margin is 8% which is slightly below our target of 10% margin. Operating commercial property development, the operating income is 1 billion. So we have again on sale of the divestment we made of 1.2 billion. We have 19 ongoing projects which corresponds to 26 billion upon completion in total investment and we have completed 23 projects which is around 11 billion in total investment and those completed project has a rate of 77%. Five divestment, four external on good levels and one internal and leasing activity is on a reasonably good level of 61 000 square meters in the quarter. Investment properties, the first acquisition recorded in Gothenburg that is Citygate. We have operating income of 108 million in the quarter and the economic occupancy rate is at 87% so on a high level and the total portfolio property value is 7.7 billion and again here we have an ambition and target to build up a portfolio between 12 to 18 billion so we are well on our way. If we go back to construction stream and look at the order bookings over time so here you can see the development of the order backlog, the blue bars so it's continued to increase as you can see. You can also see the order bookings on a rolling 12 month basis, the gray line here and also the order bookings per quarter, the orange and the revenue that has been increased, the trend has been increases for quite a lot of quarters and you can see compared to last year how much order backlog you can also see the rolling 12. If I go into each and every geography you can see that the strongest order intake has been in the US. We see that the book to build is below 100% in the Nordics and also in Europe. We continue to be selective but we have a healthy backlog if you look at the months of production in Nordics, 15 months of production, 15 months in Europe as well so that is on a healthy level so we can continue to be selective and go with a project where we see that we have a competitive advantage and also the right resources but 151% in US is extraordinary 24 months of production and that order backlog is the duration is longer now than before so it's a large project that we have won so that I'm very confident with that. So with that I hand over to Magnus.

Thank you Anders. So we'll start with construction. As has been said revenues climbed 7% in Swedish Kronas quarter by quarter and 6% in local currencies and this is on the back of course of us being able to book a lot of good work over quite some time now so it's starting to translate a bit into revenues here. Notable drivers of this is of course the US where we have had the market is really strong we've been very successful with identifying and bidding and winning the right type of jobs over there in that geography. Gross margin .5% in the isolated quarter, a remarkable performance stability if you look on the table here you can see the four different columns assess essentially 7.5, 7.5, 7.5 and 7.7. I think it says something on performance ability in such a sort of broad geographical construction operation that we have that moves also with the market here. Same thing on the S&A we have good cost control came in .0% in the isolated quarter obviously revenues are a bit up but if you backtrack through the columns here you can see that we are able to sort of maintain this in a good way. Operating margin then in the quarter .5% so very stable performance in construction and if we look on the different geographies then you can see on the right hand side you have the operating margin for a different geographies. The Nordics comes down slightly to .3% but Sweden improves their full percentage unit up to .0% up. The Finnish market is a bit tougher in Norway we have, as Sanders also alluded to before, we have big long jobs according to our way of recognizing profits we are always cautious in the beginning of large complex jobs that stretch over a long time period here. Europe is performing really well .8% margin in the isolated quarter, good in both of those geographies UK and in the Europe and the US .6% continues to perform at this high level which is extremely positive of course because this is where we have the currently the strongest market and are booking a lot of new jobs. For going to residential development we recognized 2 billion and 150 million in terms of growth here of 30% quarter over quarter. Clearly better sales in the Nordics it's picking up we can see that we look at the number of sold units relatively speaking in the quarter a bit slower sales in in the central european residential development operations but still at a good level. Operating income minus 11 in this is as we have also explained more in detail in the quarterly report a cost charge of book look of minus or loss for book look of minus 169 million. If we take that out the remaining part of the operations have an operating margin of 8% which sort of given where we are with the residential market is a quite decent performance today. Going to the geographies again you can see here we have either zero or negative on all the different reported geographies but the book look effect impacts all these different areas and in the Nordics the impact of book look here is minus 68 million Swedish kronor and in Europe it's minus 99 million Swedish kronor. Underlying reasons to sort of the book look losses here the biggest to the two biggest impacts is us having provided for potential supplier problems that we have identified in the UK and we also have a cost overhang from the factory that is currently underutilized given the market appetite for this type of assets at the moment. There are large differences across the geographies with the European market being clearly stronger and then Nordics is catching up it is starting to improve as I said we are selling better but we have a somewhat lower profitability there relatively speaking to the to the European operations so the sales mix how much we sell in different geographies is clearly impacting the sort of stream results here and we'll probably do that for some quarters going forward as well. Home started and sold we sold 515 units in Q2 which is up then from 343 in the same quarter last year so we actually grew the number of sold units by 50 percent here very solid. We started 37 units quite a lot lower than the same quarter last year and first there's a quite large variation in this quarter to quarter we in reality would have to look at it more over some time to make sense of the numbers but there are a couple of things that I think is important to sort of be aware of we have a lot of units already to sell from I will come back to that on the next slide and show you and given the volume the sort of capacity of the market we shouldn't be sort of have too much units to sell from either the other thing is that it is harder today to find the right business cases costs have been going up prices have been challenged so we are very selective when we decide to start a project there is sort of a smaller part of the land bank we have available than usual that this where we can identify the right business cases and then start projects so that's another reason to this. We can look at the homes in production and completed unsold units it looks like this over time we had around 4 000 at the end of the second quarter and if you take the light gray part of this bar and you add the purple one you end up with roughly 2000 units which is the number of units that we have now unsold that we are able to sell from which is not a particularly low figure you backtrack a year or two you can find higher figures but if you go further back this is about the size we've had up for sale so we have a pretty balanced portfolio in that sense sales rate is improving we came in at 51 percent in the first quarter now we're at 57 percent which is very positive and also the unsold completed is reduced in the first quarter we reported 770 unsold completed and now we are down then to 671 so it's pretty clear that the activities we are doing on the market is gaining some traction and we are selling better here especially in the nordic part of the ardy operations we move to commercial development as has been said we made five divestments in the quarter which is maybe the most divestment active quarter we had for quite some time very solid three of these divestments were made in the nordics and two of them were made in europe one of the transactions was an internal transaction where we sold a property in guttenberg called city gate to investment properties we amassed gains of 1.2 billion in the second quarter and the divestment margin of this was around 20 percent that's quite solid the divestment market it remains difficult and the appetite varies i would say significantly across assets and across geographies so it's not unlikely that on a project by project basis the sort of profitability performance will be a bit more varied over the coming quarters as we continue to sell off the currently completed yet unsold properties unrealized gains at the end of the second quarter 2.7 billion we had 4.2 billion at the end of the first quarter difference there is obviously than one and a half the main change here is the properties that we have now sold and hence realized that gains 1.2 billion and the remaining is a part it's some smaller value adjustments and some smaller changes to effects that sort of makes up the balance of the changes there completion profile we had at the end of the first quarter 12 billion in invested money in completed unsold properties now we are down to 10.5 billion in money invested in completed unsold properties they are leased to 75 percent so it's a that's a good level and we have also during the quarter added two more properties that have been completed and moved into the purple bar here from previously being previously being blue and if you recall we reported in q1 that we had some completion slippage in a few properties towards the end of 2024 unfortunately one of these properties have continued to slip a bit in time and are now expected to be completed in the first quarter in 2025 instead if we look at leasing leased as has been said 61 000 square meters in the isolated quarter of which 33 000 was in multifamily residential and 28 000 was in commercial spaces if you track the green and orange or if you will yellow line here on the graph you can also see that the leasing and completion rates in our commercial portfolio are now meeting each other again which there has been a gap between these two for a while indicating that we have complete sort of reached further in terms of completing the properties that we have done in leasing but we are catching up in terms of leasing area which obviously is positive the leasing market remains relatively soft with continued betterments in europe and the nordics whilst the u.s is quite slow still investment properties as i have already said we took on board one new property that we acquired from the commercial development stream during the quarter city gate in guttenberg and report now a very solid ebit of 108 million of which 58 million are directly related to ifrs accounting effects following this internal transaction so on the like for like basis you should look at operating net and add the sna expenses to get the feel for the traction in the portfolio on a group level the central item here minus 159 we essentially follow our sort of cost costing level at the headquarter organization with 170 180 million in costs per quarter in addition to that we have the legacy business that has been no particular effects from that in the isolated quarter here net financials continues to be positive 146 million through a well-managed central liquidity portfolio and we taxed out very close to our nominal tax rate at 24 percent in the quarter we were balanced in terms of cash flow in the quarter excuse me with 300 million positive and then we handed out the or distributed the dividend that was previously decided by the annual general meeting during the second quarter leading to minus 2.3 billion then in cash flow taking us down to minus 2 billion in in total for the isolated quarter here quite an improvement then from the minus 5 billion in the comparable quarter if we look at free working capital in construction we had a positive impact here on cash flow in the isolated quarter of 600 million the actual portfolio position remains at around 17 percent of revenue and the trend that we have been alluding to over quite a few quarters now is still with us it is slightly more difficult in the negotiations with clients to achieve the sort of front-loaded payment plans that we like to have which is something that we carry with us in all our internal and strategic planning obviously so that is the development that you can also see if you look on this slide that i'm showing you on the slightly downward slope of the green curve so net investments were in balance in the second quarter as already been said and also for the rolling 12 months and at the end of q2 we had around 67 billion in capital that was employed in our different property related operations very strong liquid at access 21 billion should we need we have been working a bit during the quarter to to reshape the maturity profile of our stock of loans and credit commitments and matching this in a good way to our the profile of our ongoing investment commitments we are very satisfied and very comfortable with the liquidity position of the group as we stand today looking at the balance sheet then remains very strong 58 billion approximately in in equity 1.8 billion in net cash and that is then after having distributed this year's dividend to the shareholders with that on the side hand back to you