Annual Report 1999 A new identity for a new age Over the years, Skanska has evolved from a Swedish national builder to an internation- al corporate group that provides construction-related services in a global market. As the Skanska Group has evolved, its trademark and graphic identity have also changed. Skanska began as a construction company that built large portions of Sweden, under the name Skånska Cementgjuteriet (literally Scanian Pre-Cast Concrete). As the years passed, its operations became increasingly international, at first primarily through Swedish project teams that traveled to the Third World to build infrastructure. In order to present the Company in other parts of the world, a more global name was needed. The name chosen was Skanska. The internationalization process accelerated, and soon Skanska’s focus was on creating strong local operations in new “domestic markets.” Companies in the Group devised more and more ways of presenting themselves as part of Skanska. Today there are a number of different Skanska logotypes, adapted to local conditions. Today is a new age. More and more clients are specializing their operations and focusing on their core business. They seek a partner that can offer a comprehensive range of services in the construction process. And a partner that can provide these services any- where, in a single country or globally. Skanska wants to be that partner. For this reason, it is also natural for Skanska to operate under a single brand and a common overall graphic identity. The name is still Skanska, but the brand has assumed a more modern look. Skanska Annual Report 1999 Skanska ● Contents Contents 2 Skanska Project Development Parent Company cash flow statement 59 Comments by the President and CEO 4 and Real Estate 32 Accounting and valuation principles 60 Mission, goals and strategy 6 Strategic service companies 38 Notes to the financial statements 62 Markets, competitors and clients 8 Share data 40 Consolidated quarterly results 73 Financial review 11 Five-year Group financial summary 42 Proposed allocation of earnings 74 Project development 14 Report of the Directors 44 Auditors’ Report 75 Risks and risk management 15 Consolidated income statement 50 Property list 76 The environment 16 Comments on the income statement 51 Board of Directors and Auditors 80 Employees 18 Consolidated balance sheet 52 Group Management 81 Organization 19 Comments on the balance sheet 54 Annual Meeting of Shareholders 82 Skanska USA 20 Consolidated cash flow statement 55 Financial information during 2000 82 Skanska Sweden 24 Parent Company income statement 56 Addresses 83 Skanska Europe 28 Parent Company balance sheet 57 Public Company (publ.) - Registered office of the Board of Directors: Malmö - Swedish corporate identity number 556000-4615 1999 19981 Financial highlights Net sales, SEK M 79,128 62,435 of which, Sweden, % 28 32 Operating income, SEK M 6,901 4,376 Net profit for the year, SEK M 4,281 2,782 Return on capital employed, % 31.5 27.0 Return on equity, % 28.6 22.0 Net profit per share, SEK 37.60 24.40 Regular dividend per share, SEK2 12.00 12.00 Extra dividend per share, SEK 4.00 1 Comparative figures for 1998 refer to the pro forma accounts. 2 Proposed by the Board of Directors. This is Skanska Skanska was founded in 1887. The Group’s operations encompass construction-related services and project development. Sales are about SEK 80 billion per year and the num- ber of employees is 45,000. Skanska operates in some 50 countries worldwide, with Sweden, Denmark, Finland and the United States as its main markets. Skanska’s Series B shares have been traded on the A list of what is now called the OM Stockholm Stock Exchange since 1965. The year in brief • Order bookings rose by 25 percent to SEK 96,894 M • Operating income rose to SEK 6,901 M (4,376) • Income after financial items totaled SEK 6,862 M (4,825) • Net profit per share amounted to SEK 37.60 (24.40) • Skanska divested its shareholding in Scancem • The Board of Directors is requesting authorization to buy back a maximum of 10 percent of the Company’s shares The Öresund Bridge On July 1, 2000, the Öresund Link between Sweden and Denmark will be inaugurated. The Skanska-led consortium Sundlink Contractors built the Öresund Bridge, the longest portion of the Link. Skanska Annual Report 1999 Skanska 3 ● Comments by the Skanska’s rapid evolution from a mainly Swedish construction and real President and CEO estate company with large non-core assets to a focused international provider of package solutions in the fields of construction-related ser- vices and project development continued during 1999. Meanwhile the year was characterized by strong growth and sharp earnings improve- ment in business operations. For Skanska, 1999 was a very good year. I Geographic expansion would like to thank all my fellow employees By establishing Skanska’s operations in new ge- for their fine contributions, and our clients ographic markets, we create the prerequisites and business partners for their smooth col- for growth, while strengthening our position as laboration during 1999. a global partner to large multinational clients. In our industry, acquisitions are often the only Client focus realistic alternative in order to achieve the posi- Our mission is to develop, build and main- tion we seek. tain the physical environment for people to During 1999, for example, we acquired the live, travel and work in. Based on client leading Argentine construction company needs, we combine our resources and our SADE, which operates in a number of Latin collective competence in various fields. We American countries; and the U.S. building con- can offer attractive, cost-effective and thus struction company Alex J. Etkin Inc., based in competitive project packages. Detroit, Michigan and with operations in Col- Client focus lays the groundwork for de- orado as well. veloping long-term and intensified client re- We also remain strongly interested in estab- lationships. lishing ourselves in new markets in Europe Our international network of construc- through acquisitions, with a special focus on the tion-related service businesses also enables rapidly growing Central European markets and us, in a better way than previously, to follow Great Britain. I anticipate progress on this front international clients from one local market as early as the current year, although I am aware to another, with the added value this entails. that many factors must come together in order to achieve a genuinely good transaction. Vision and strategy The point of departure for our overall strat- IT creating a need egy is to generate profitable growth by fo- for new infrastructure cusing on construction-related services and The growth of information technology (IT) is project development, with the vision of be- creating a need for new infrastructure. In this coming a world leader – the client’s first rapidly growing market, with high growth choice – in these fields. potential for some years ahead, I see good op- Our strategy is to increase our geograph- portunities for Skanska to become a leading ic and product-related breadth, strengthen supplier of various services. our roots in the local markets where we are During the autumn of 1999, we formed an already established, increase our client focus alliance with MasTec,the leading U.S. supplier and invest in various forms of human re- of “end-to-end” solutions for data and source development. telecommunications. This alliance has already One consequence of this strategy is that led to several assignments related to expansion businesses and assets that fall outside our of a broadband fiber optic network. Today the core operations should be divested. After U.S. market for investments in Internet-related selling our shareholdings in the building installations is about USD 60 billion per year, materials group Scancem in 1999 and the with an annual growth rate estimated at 15 bearings and steel group SKF early this year, percent. In addition, this is a service and main- most of our non-core assets have now been tenance market of about USD 30 billion per divested. year. In this field, I also expect similar growth Skanska Annual Report 1999 Skanska in other markets around the world. 4 ● The collective competence we can con- now putting further development work into Operating income from property man- tribute to this field today consists primarily of these programs. agement also improved. Property divest- experience from implementing complex in- This type of investments is necessary if we ments accelerated toward the end of 1999 frastructure projects in heavily built-up areas. are to continue our transition from one of and I anticipate a high turnover rate in our Our ambition is to further enhance this the world’s largest and best construction real estate portfolio this year as well. competence and grow with our clients in the companies to the knowledge-based company Overall, I believe that Skanska’s 1999 re- telecom and IT industry. I regard strategic al- that we want to be recognized as in the future. sults, as well as its performance over the liances like the current one with MasTec, past few years, are well within the range of along with investments in the IT sector, as Environmental work the Group’s long-term financial targets. natural elements of this process. By increasing its collective competence and experience in the environmental field, Skan- Buy-backs of Skanska shares Facilities management ska shall be a natural and credible source of Skanska’s divestment of its shareholdings in Facilities management is another field that inspiration for its clients. To achieve this in a Scancem, SKF and the commercial real es- offers us good opportunities, based on our structured way, we must integrate environ- tate company Piren, as well as the positive existing expertise, to broaden our range of mental issues into our operational manage- earnings trend in Group operations, have products and services.