Skanska AB (publ)

Good morning and a warm welcome to the press conference for Skanska's third quarter report 2024. My name is Antonia Ljunelind. I'm the senior vice president for investor relations here at Skanska. And here in the studio on stage today, I have our president and CEO Anders Danielsson and our acting group CFO Pontus Winkvist. Shortly, they will take you through an update based on our third quarter report. And after their initial presentation that will cover a business, financial and market update, we will move over to questions. And you as the audience, you can ask questions by either calling us here in the studio using the HD audio link or the telephone conference number provided in the invite, Or if you are joining us here in the studio, you can just please raise your hand and we will bring a microphone. But I will take us through that once again when we get to the question session. So with that short introduction, I will hand over to you Anders to start the presentation looking at one of our data center projects.

Yes. Thank you, Antonia. And as you can see on the picture here, it's a data center and that is booming market now around our geographies, especially in the US. And we are well positioned. We have been well positioned for many years. So we have a lot of skilled people in the organization that can take on these opportunities. And as a fact, in Q3 isolated, we have won projects, data center projects for nearly 10 million Swedish crowns. So it's a great opportunity. Going into the third quarter report, starting overall, some highlights here. I think it's a good performance overall, stable quarter, especially in construction, very good performance. We're hitting our targets of 3.5% in isolated quarter, 3.6%. So strong order intake and solid margin delivery. So that is good. Residential development sales are improving from low level though, but it's definitely see some improvement signs, but I expect it to take some time. And we also in the quarter taking restructuring cost for Boklok or a low cost segment, restructuring due to very tough market in that segment. And we're also taking some impairment charges for predominantly land in that operation. Commercial property development, leasing, we can see improved leasing in our different geographies. And we can also see improved leasing in the U.S., which is a good sign for us going forward. So we'll come back to that. Investment properties, solid operational and financial performance. We are very high on the leasing ratio. We are very well received by our tenants, so we're in a good place there. Operating margin in construction, as I said, 3.6% compared to 3.3% last year. Return on capital employed in product development. This is on a rolling 12 months basis. So there is on the negative side due to the fact we had the impairment, large impairment charges in the fourth quarter last year. And that is also somewhat impacting the investment properties as well. Here we have a return on capital employed 1.8%. And the same with the return on equity on a rolling 12 months basis, of course, 7.9%. We have managed to maintain a very robust financial position, which is extremely important. So that is something we highly prioritize. And we have reduced the carbon emission in our own operation with 57% compared to the base year in 2015. I'll now go into each and every stream, starting with construction. Here we can see increasing revenue, which is perfectly in line with my expectations since we have had a good order intake for many quarters now. This quarter is not an exception. Very strong order intake, over 50 billion. And the good thing here, we'll see the details later on, but we increased the order intake in all geographies. And very high compared to last year, over 60% increase here. Booked a bill of 124% on a rolling 12-month basis, and we maintain a record high order backlog, healthy backlog of 267 billion Swedish. Operating income, 1.5 billion increase from last year, which gives us the margin again on 3.6%. So solid margin delivery and if you look at a rolling 12 months basis, the margin is slightly shy of our target, 3.4%. Strong order intake in the US, both on building and civil operations. Moving to the residential development, revenue up due to the increase of home sold, 1.7 billion. We started the projects 186 in the quarter, and we are in the position, I would say, that we can start more projects, and we will do so when I think it's right. Operating income again on negative territory due to the write-downs we had, impairment charges. save or return on capital employed so we can see increased volumes in the nordics good level continuing good level of activity sales activity in central europe and that has been the trend for for some some time now and we can see it continues the total book look losses is minus 241 million And the underlying margin, operating margin, exclude the book loop operation and the property asset impairment charges is 7.9%. Not bad in the tough market, I would say. Commercial property development. quarter that we have sold one asset we sold one office building in norway during the quarter but here you should look at the more over time we can see that if you add the three first quarter in in this year we have divested six assets So we can definitely see signs of improvement, both on the investor side, but also on the leasing, as I said earlier. We had a gain on sale of 185 million in the quarter, return on capital employed 0.5%. So today we have 17 ongoing projects with corresponds to almost 23 billion in total investment upon completion. And we have 23 completed projects, 12 billion in put and investment. Healthy leasing rates in those, 75%. So quality asset and we're well positioned when the investors comes back. And we can see signs of that. Property asset impairment charges in the property, commercial property development is 121 million. predominantly land and majority in U.S. Good leasing in the U.S. portfolio. The total leasing is 34,000 square meters, which is also an increase compared to previous quarters. Investment properties operate stable, operating income of 79 million. We have a high occupancy rate of 89%, so very stable there. And we are today just shy of the 8 billion in asset values. So we are on a good way to reach our ambition here to be between 12 to 18 billion to generate a stable cash flow going forward. We already see that today. If I move back to construction and look at the order bookings, here you can see the last five years, the development of the blue bars is the order backlog. You can see the book-to-build ratio, the yellow line, revenue, the green, rolling 12 as well. So you can see that it's gradually building up a healthy backlog. And the backlog today is... high quality so i i'm very confident in that that we have i'm proud of the organization they've kept the discipline they'll go go for project where we have a competitive advantage where we have the team in place where we have a profit profitable history so that is good so as you can see the blue bars is on record record high levels if i go into geographies when it comes to order bookings. Good, as you can see, we increase the order intake in all geographies, but the majority of the increase is in US, of course. You can see that we have increased this from 20 billion to 32 billion. adding up to almost 51. So 124% book to build, which is on a very high level. And the US is the strongest, of course. And we can also see that the duration in the order backlog has increased, which is also good that we are in a position where we can continue to be selective and go for a project where we have a competitive advantage, where the market is good. So I will come back to the market. But first, I will hand over to Pontus to go through the details.

Thank you, Anders. So then, going in a little bit more in detail to the numbers and starting with construction. And as Anders said, I mean, I also want to point out, I mean, it's a strong performance within construction. You see that the revenue inclines by 2%. If we adjust that for currency effects, it actually increases by 5%. We also see that we continue to deliver a healthy gross margin of 7.3%. Operating income actually increased by 11%. And if you add just that for currency effect, it increased by 15%. So we are ending up there of a little bit more than 1.5 billion in operating income and a strong I would say operating margin of 3.6 percent and also if we look into the ruling 12 months operating margin we are as Anders said I mean very close to our target of three and a half percent. Going then into the different geographical areas, you can see that it is overall quite a good performance. The Nordics are delivering 3.2%, where Sweden is delivering 3.5%. In Europe, you can see that we are increasing with one percentage units from 2.9 to 3.9%. And in the US, we are on a continued good level of 3.8%, and also with an increasing operating income in absolute terms. So 3.6 in total for the quarter compared with 3.3% for the same quarter last year. Then, going into the residential development, and here, I mean, you can see that the revenue is increasing quite a lot, I mean, if we compare to how it looked one year ago. So we are now at 1.7 billion in revenue. This is, of course, I mean, from a normalized point of view, quite low, but anyway, it's a good increase. So it's a better market, even though it's not good yet, but I think here that the change is really good. You can also look into the S&A here, and we have S&A of 166 million compared to 352 the same period last year. And also on a rolling 12, we see that there's a real decline in the S&A cost. So, I mean, this really shows that we have worked with adapting the organization to the current market conditions. I think that this SNA level is probably the right level, but it also gives us room to increase the volumes with the current SNA base, and then we can see that the actual relative SNA, the SNA percentage, will come down somewhat. Then there is of course here a negative operating income, 154 million negative. And the major thing here that is happening, Anders mentioned it in the beginning, is the boklok, where we have a loss within boklok of 241 million in the isolated quarter. Then there are some minor, I would say, write-downs also within residential development. But if we take out both the write-downs and the book cloak performance here, we are actually on the underlying margin of 7.9%. So it's not where we want to be, but it's on the way to where we want to be. Looking then into the different geographies in residential development. Here you can see that Boklok again is impacting both the Nordics and the European business. So the major impact here is again Boklok, since we have that business both in Sweden and in the UK. And again, the underlying margin, if you exclude boklok and write-downs, is 7.9%. Going then into start and sold units, and here you can see that first we have started two projects within the quarter. The majority started within Central Europe, and this small Norwegian project started as well, so we started 186 units. The sales rate is coming up quite a lot and we are selling 458 units here during the quarter. And I would say that the sales pace is generally improving in all our markets. As you also can see, I mean, looking into the ruling 12 number, I mean, we are increasing here. Going then into the homes in production, obviously, since we haven't started very much projects during the last years, I mean, the number of total homes in production is coming down. We are for the first time below 3,000 homes in production. We are increasing our sales rate, and I mean, which also means that the unsold completed is coming down. So we are now at 454 homes and that's compared to 671 that we watched by the end of Q2. So an improved situation on the stock. The important thing here is of course now that we get the opportunity to start projects and I think you will see more starts coming on going forward. Then going into commercial development. Here we have a revenue of around 1 billion, and also here we unfortunately see a negative operating income of 113 million. We have also here had a couple of write-downs. It's small write-downs, and it's coming because we have done a very thorough valuation process during this quarter. So I mean, we have gone through everything and there have been in a couple of projects small write-downs that we have seen. So we have here a negative income of 113 million. If you look into the gains coming from the divestments, we have sold one property during the quarter, but the majority of these gains are not coming from that divestment. It's actually coming from previous divestment where we have released some provision because of reduced remaining risks in those. Unrealized gain within the commercial property development is on stable levels. You can see that there is no major change here coming from Q2. But also here, this is also a result of the real thorough process that we have had when we have looked into the value within our property portfolio. If we look into the completion profile, you can see here that in Q3, we have completed projects for around 12 billion. It is two projects that came into this during the quarter, and it's two projects that has went out that we actually have been sold and delivered to the purchaser of this project. so it's a small increase but we are keeping if we compare to q2 the occupancy rate on 75 percent then looking into the rest of the completion profile here you can say that we are continuously leasing in all the projects not all but in many of the projects i would say Talking about leasing, if we look into the leasing here, we have been leasing 34,000 square meters during the quarter. What you also can see is that the completion rate and occupancy rate now are on the same level, actually on 64%. And this is, of course, a good sign to see that we are able to lease out in the same proportion as we are completing our properties. I would also say that the majority of the leases is coming from our U.S. business here. Investment properties, I would say here, I mean, we have a stable portfolio that you can see has reached almost 90% in occupancy rate. It's also starting to deliver reasonable profit to the group. And in the quarter here, we see it's delivering 79 million. Yes, so then going into the total group number here where we have an operating income of 1.3 billion. compared to 625 million last year. Then we shall remember that in this income we have write downs of around 300 million. We had also write downs in the same quarter last year of around 900 million. And then we also have this negative impact of Boklok in the quarter. one thing to mention here i would say is if you look into the taxes that we have quite a high proportion of tax in this quarter coming in at 430 million and gives us a tax rate in the quarter of 30 percent And this depends on, first, I mean, there are some periodization impacts in the tax calculation, but there is also a mixed effect where we are seeing that a bigger proportion of the income is generated from our US business, while smaller than income is generated from property divestments, which normally is tax-free, especially here in the Nordics. But I mean, if you should look into your expected future tax rate, 30% is not relevant to look at. It's more relevant to look into the rolling 12-month tax rate, I would say. As you heard in the beginning, this quarter is very strong from a cash perspective. The operating cash flow is 6.2 billion in the isolated quarter. And I mean, this is of course a combination of strong working capital development within construction, but also that we are doing more divestments than investments in the business. You will see that soon on the coming slides. So free working capital within construction is by the end of Q3 reaching 31 billion in absolute terms. It gives a relative number compared to the revenue on a rolling 12-month basis of 17.4%. So, I mean, it is at least, I would say, if you look into the absolute number, I mean, the best absolute level that we have had during this period. But it's also that I think that we cannot really rely on that this number will stay on for the coming quarter because there have been a number of mobilization payments coming in and some of that cash will most likely be used even though the Q4 quarter normally is quite strong from a cash perspective. Then going into the investments and divestments, you can see here on the green line that we are continuing to deliver net divestments. It was 2.7 on a rolling 12-month basis, which also means that we are taking down the capital employed within the business. We are closing this quarter on 64.3 billion, a little bit more than 2 billion less than we closed the second quarter on. But of course, I mean, as we said, especially when it comes to residential development, we have an ambition to start more projects. So we should not expect that. I mean, we continue to have huge net divestments. The good cash flow also of course is being seen when we look to our liquidity situation where we have now available funds of almost 25 billion. I also think that we have quite a good maturity profile on our loans and outstanding bonds. The balance sheet is stable, but it's also a stable liquidity situation that we have. Then looking into the financial position, you can see here that our adjusted net interest bearing receivable has went up to 6.5 billion in the second quarter or in the sorry in the third quarter and it gives us a stable equity to asset ratio of 35.9 percent so by that i leave it over to you anders sure