Skanska AB (publ)

Good morning and a warm welcome to the presentation of Skanska's fourth quarter and year-end report. I'm Antoni Lundlind. I'm the Senior Vice President for Skanska's Investor Relations. And joining me on stage here in our studio today is our President and CEO, Anders Danielsson, and EVP and CFO, Pontus Winqvist. Shortly, they will take you through an update as of the last quarter, provide you with some further insights on the business operations, financial performance, and our market outlook. And after their initial presentation, we will open up for questions. And there is an opportunity for you to ask questions, either if you're joining us here in the room, or you can use the telephone conference number provided. And then the operator will put you through to us here in the studio. But more information on that will follow later. So with that brief introduction, let's take a look at the fourth quarter performance. Anders, please take it away.

Thank you, Antonia. And good to see everyone here in the room and welcome to you on the web as well. Before we start the presentation, I wanted to look at the picture here on the slide to the right. We had a very successful divestment quarter when it comes to commercial property development. One of the deals was in Port 7, as you can see here on the slide, or in Prague, Czechia. That was three office buildings that were divested in one deal. If you look at the fourth quarter report, we had a very good construction margin in the quarter and also the full year. It is on all-time high levels, so very good performance by the whole organization. And I will come back to that. But all geographies, all units are performing on a very high level, so that's encouraging and good. Mixed performance in residential development. We continue to have a strong market in Central Europe, weaker in the Nordic. So we have divested some unsold completed in the quarter with lower that was started before the market went down. And by that, we also have a lower profitability on those. But it's good that we are able to divest completed homes. Good divestment activity in commercial property development. We managed to divest eight real estate in the quarter. And also solid performance in investment properties. Operating margin in construction, 5.6% in the quarter. Very high, strong. And for the full year, we managed to beat our new targets in construction of 4%. So we managed to deliver 4.1% for the full year. Return on capital employed in project development lower 1.8% due to the weaker market, rolling 12. And return on capital employed in investment properties is stable. Stable result, 4.7% on the rolling 12 and slightly up from last year here. Return on equity 10.2%, rolling 12, and we continue to have a robust financial position. So we are able to maintain that. The board has proposed a dividend of in total 14 crowns per share, which is 8.5 in ordinary dividend and 5.5 in extra dividend. And we also managed to reduce the carbon emission in our own operations, scope 1 and 2, with 65 percent since the baseline year 2015. Here we have a target of 70 percent reduction in 2030. I will go into each and every stream now. Start with the construction. Revenue in close to 44 billion and we have some slightly up from last year if you look at local currencies. Order bookings 45.5 billion and we have a good order intake and you can see that we have a book to build of 105% for the rolling 12 months. Which means we are able to fill up the order backlog compared to how much we produce there. And the order backlog continues to be on a high level, historically high level, close to $258 billion. Operating income, 2.5 billion, and we have an operating margin, as I said earlier, 5.6% in the quarter. So strong quarter result, and all markets, all geographies are delivering very good results. So great work by the whole organization on being consistent with the strategy and also able to execute the projects in a very good way. We, as you know, we have raised our target. We did that, communicated that in the capital market day in Q4. The target is at or above 4% operating margin. And we have beaten that for the full year. Ordering was good and remains on a high level. Going to the residential development. The homes, the sold homes has been lower than last year. We have a revenue of 1.7 billion, and you can also see that we started fewer homes compared to the same period last year. And you can see that we started – the project we have started is in the Nordic countries. We haven't – in the quarter, we haven't started a project in Central Europe. But that's a single quarter. You should look at the full year or rolling 12. And it's still a good market in Central Europe. And also, it's very encouraging to see that they are managing to sell the unsold completed and reducing that inventory to 358 homes. Commercial property development. Operating income of 670 million. Gain on sale, 758 million. And that includes the divestment, of course, of the eight properties. But it's also some release of provisions of already completed projects. Return is on a low level, far below our targets on a rolling 12-month basis. So we are working hard with that, both to increase the capital turnover and also to divest the completed assets we have. We have 16 ongoing projects, which correspond to $14.4 billion in total investment upon completion. And we have 21 completed projects, which correspond to 19 billion in total investment. Of those, we have a reasonably high leasing ratio of 72%, which means we can see that we have a positive cash flow from those assets. It's a good asset, high quality in a good location. So I'm confident that when the investor market comes back in the U.S., we can see we have a good product offer for the investors. Again, eight projects invested in Q4, 12 during the year. Two projects handed over and two projects started in the quarter. We started the projects in Central Europe and the Nordics. And we can see a good leasing activity and a strong average leasing ratio in the portfolio of both ongoing projects and the completed projects. Moving on to investment properties. Stable result, 83 million operating income. We have increased the occupancy rate to 85% compared to 83% in the Q3. Portfolio consists of seven high-quality office buildings properties with a total property value of $8.3 billion. Very solid performance in Q4 and for the full year. We'll go back to the construction and show you some order bookings here and the order backlog. Here you can see the blue bars are the order backlog development five years back. And you can see the lines, rolling 12 on the book to build, the yellow revenue development on the green, and the order bookings on rolling 12, the gray one here. So you can see that we have a historically high level of the order backlog, and it's also some currency effect there. So if you compare Q4 to 2025 to the same quarter the year before, it's actually increasing somewhat in local currencies, around 3% increase. So we have a good position here, 90 months of production. So you can see that if you look at the different geographies as well. All geographies has over 100% book to build. And that's also encouraging for the future. We have 19 months of production. So a solid position here when it comes to order backlog. We can continue to follow our strategy to be selective in the market and go for projects where we can see competitive advantage and a good track record as well. With that, I hand over to Pontus.

Thank you, Anders. So let's dig in a little bit deeper into the numbers. And you can see that we had a revenue of 43.9 billion here in the fourth quarter. That's actually an increase with 1% if you take local currencies. If you then at the same time look to the revenue for the full year of 171.1%, that's an increase of 7% year on year. The operating income in the quarter increased from 2.1 to 2.5 billion. That's an increase of 25% in local currencies. So quite a good increase here in construction. As you heard earlier, we had an operating margin of 5.6 in the quarter, which is good. But even better, I would say, is the margin for the full year of 4.1%, in line with our just raised targets. And if you look into the different geographies here, you can see that we are actually delivering a higher profit in all of the geographies and also a higher margin if we compare to the fourth quarter last year. Worth to mention is that there is a release of claim provision in the US impacting with around 400 million. But you should also remember that this is how we are recognizing our claims. We are very conservative and we are releasing them when we are sure that there are no outstanding risks. So in total, I think what you see here is a very strong delivery from our construction business in the fourth quarter and for the full year. Going then into residential development is maybe not as good as construction. Impacted by the market, you can see also that the revenue in the fourth quarter is quite much lower than it was the fourth quarter last year. That's because we are selling less than we have done the fourth quarter last year. And that is, of course, some reflection of the market and also it comes a little bit different when we are starting projects. What you can see is, though, that the S&A costs has went down in the quarter from 138 to 122, but even more for the full year from 605 to 460 million. So I think that is a sign that we gradually has – what do you say – adjusted the organization according to the current market standards. We have also sold quite many of the previously unsold completed properties and that has an impact of the gross margin. because it's good to be out of that stock of unsold residentials, but of course impacting the gross margin and then the operating profits. So you see in the quarter 1.8 in operating margin, that's of course not where we want to be. For the full year, 6.5%, that's better, but as you know, we have a target for this business to reach 10% or better. Then if you look into different geographies within residential development, you can see that the Nordic operations is where we have a weak quarter. And the European operation is delivering a solid quarter, but we have a lower sales rate than we have been used to during the previous quarter. And that's not dependent on the market. That's dependent because we haven't had any projects actually to launch during this quarter, which means that we cannot have any new sales start, which then takes down the number of sold units and impacting the profit somewhat also in the European part of the residential business. And here you can see how that started and is 376 compared to 620 last year. And that's a result then also of – sorry, now I mixed, but it's around the same. You see that we sold 379 and we started 376 units here in the quarter. And – If you look then into the homes in production, you can see that the top of the bar here in the fourth quarter, the unsold completed, as I explained, has reduced. So we reduced from the end of last year from 477 to 358, and we have also decreased that during the fourth quarter as such. And as I said, when we are selling those residential units, that is impacting the gross margin for the quarter for the residential business. Going then into the commercial development business, as you heard earlier here, we divested eight different projects representing revenue or divestment of $4.6 billion. And here it's also worth to mention that these divestments is positively impacted from release of provision from previous projects. So if you are looking into the commercial development portfolio, I would say a more representative profit content is looking into our unrealized values that we have than to take what we actually delivered this quarter. So it's good, but it's also very good to see, I would say, that we were able to divest in such a good manner in the fourth quarter. So it's the highest number of divestments in a single quarter for quite a long time. If you're then looking into the unrealized gains, you can see here that what I just explained regarding how you should forecast the coming gains from this business, that the top of the bar here has decreased, which means that the unrealized gain within the completed properties is quite low right now. Then if you look into the completion profile of when our properties in commercial development will be completed, and you see that in the different bars here, and at the same time you see the leasing ratio on the green dots, You can see that then we have 17, around a billion of completed properties with a 72% occupancy rate. It's one quite big property that has been ready in the fourth quarter, so it's taking down the total leasing ratio in the completed properties somewhat. But if you're looking into the total profile here, and if you are interested and compare it with earlier queues, you can see that it's actually quite a positive development in many of these different assets. So do that. That's quite fun. And then here you can see that we had a leasing in the quarter of 46,000 square meters. And you can also see that we have a higher leasing ratio in the ongoing projects. than the completion ratio, which is always a good sign that we are leasing in the same tempo as we are continuing our projects. So that is good, I would say. IP, investment properties, I would say quite a calm quarter. We have a representative operating net here. We haven't added any properties. We haven't done anything with the values. So 83 million is very representative for, I would say, that portfolio that we currently hold here. What is good, though, is that we increased the occupancy rate from 83% by the end of quarter three to now when we have 85% least. So a good development there. And then if we are going into the total group and the income statement here, you can see that we had an operating income of 3.3 billion. Then we have central costs of $281 million. Those are impacted that we have a little bit less of income from our combined portfolio of assets. Asset Management and Book Look UK. And we also have a negative impact of a periodization effect from insurances. That actually was positive in the same quarter last year. I would say, though, that the full number of central costs of 712 million is quite representative for what you could expect going forward if there is no special things that is happening. Going a little bit further down, you see a financial net of 141 for the quarter and a tax of 653 million. That's a tax rate of 21%, same tax rate as we are showing for the full year. And I would also say that this is significant. reasonable representative with the current business mix that we see right now. Of course, if we have one quarter where we have more divestments of properties, that could impact. And if we have another geographical composition of the profit, that could impact somewhat. But I would say that this is representative. Going then into the cash flow. Here you can see that we had a strong cash flow here in the fourth quarter, $2.5 billion, actually the same as we delivered in net profit. So I would say a continued good and stable cash flow generation from the business. And an important part of that cash flow is, of course, coming from our working capital development within construction. And here you can see that the working capital came up from 30.1 billion in September to 31.7 here for the full year. And even though it looks like it's a decrease compared to the fourth quarter last year, if you were looking into real cash flow, it was actually an increase with 1.4 billion. But then we have a currency effect, a negative currency effect. of 4 billion for the working capital. So you can also see if you're looking to the average free working capital compared to the revenue, that that is stable with a slight increase. So solid cash flow generation from our construction operations. Looking into investments and divestments, you can see that we are actually now in some net investments territory. We have for a couple of quarters been in net divestments. but it's also so that we divested a couple of those commercial development properties here in the fourth quarter, but they will be transferred to the buyer and paid of the buyer during the first half of this year. So that will improve then the cash flow from divestments during Q1 or Q2. If you look into the capital employed, you can see that that has decreased somewhat from 66 to 63.8 billion. Also here you have, of course, a currency effect. So I would say without currency, it's relatively stable. And this cash flow then takes us into, I would say, a very stable situation when it comes to our ability to use funds. We have available funds of 28.6 billion. And here you can also see that we have a quite balanced maturity profile of our outstanding debt. And this takes us then to the financial position, where you can see that we have our adjusted net cash position of 11.5 billion. And you also remember that here we have a target to be above a net debt position of minus 10. So the delta there is 21.5 billion. And you can also see that we have had quite a stable development of the financial position here during more than a year. We ended last year with $12 billion. We have now $11.5 billion. And it's also then actually taking up our equity to asset ratio from 36.6 to 39.9 by the end of the fourth quarter. So by that, Anders, some comments regarding the markets?