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Skanska sees rise in orders but fall in margins

20 Jul 12 Order bookings at Skanska increased by 27% in the first six months of the year compared with the first six months of the preceding year.

Johan Karlström
Johan Karlström

But the operating margin in construction amounted to 2.4%, down from 2.8%.

Orders were 8% higher than revenue to date this year and 13% higher than revenue during the 12 months ended June 30. The order backlog increased by 16% compared with the preceding year and amounted to SEK161.1bn (£14.8bn) at the end of the second quarter. Adjusted for currency rate effects, order backlog rose 11% and corresponded to about 16 months of construction.

Ongoing operating income increased to SEK1.8bn from SEK1.6bn, excluding restructuring costs of SEK380m in the residential development and last year’s capital gain of SEK4.5bn from the sale of the Autopista Central in Chile last year.

Major recent orders include Skanska's first US PPP scheme, the SEK4.4bn Midtown tunnel in Virginia. Other big wins include a SEK1.25 bus depot in Sweden.

The order situation continues to develop favourably, said Skanska president and CEO Johan Karlström. ”Order bookings in Construction were 36% higher in the second quarter compared with the year-earlier period. Order bookings were 13% higher than revenue in construction in the past 12 months.”

Revenue is increasing in Skanska’s Nordic and American construction businesses, while it is declining in Central Europe and the UK. For construction overall, revenue rose in the first six months by 11% in SEK and 8% in local currencies.

The company is restructuring the residential development business in the Nordic region and focusing residential development in the Czech Republic and Slovakia to the Prague area.

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The overall market for both building construction and civil construction is resported as stable, but with large local differences. The commercial building construction market in the Nordic countries is good, especially in major urban regions. The market for residential construction is good in Norway, but significantly weaker in Finland. The market for large civil construction projects is expected to slow temporarily in Sweden.

European markets are expected to remain weak, particularly for large new civil construction projects, and competition for these projects is intense, Skansaa said. However, the outlook for Poland is brighter than for, in particular, the Czech Republic.

The market for large and complex civil construction projects is developing favourably in the USA, though the building construction segment is more cautious. Healthcare and facilities for the information technology industry are developing relatively favourably.

The residential market is still characterised by strict lending practices and uncertainty among potential home buyers. In Sweden, Finland and in the section of the UK market in which Skanska is active, the market is expected to be relatively stable. In Norway, demand remains good, with rising prices, while the Czech market remains weak.

Tenants of commercial property development are continuing to demand modern, efficient and green commercial space, according to Skanska, although the tenants’ decision process is now somewhat longer.

In terms of infrastructure development, the potential for new public-private partnerships continues to improve in the USA, with more projects in the market. In Latin America, there is good potential for new projects, while the European market is somewhat more limited.

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