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Good morning, everyone. I am André Löfgren, and I'm heading up Investor Relations at Skanska. I would like to welcome you to today's phone conference following the announcement about write-downs and impairment charges. I will very soon lead the word to our CEO, Anders Danielsson, who will summarize situation. And after that, our CFO, Magnus Persson, he will explain and shortly comment on the preliminary results. And after that, we will open up for questions. Anders, please?
Good morning. Yesterday, we announced project write-downs of SEK 0.9 billion related to the construction phase of 2 ongoing so-called PPP projects in the United States. The project write-downs are caused by additional cost overruns due to low production rates and delays. The problems are isolated to these 2 design-build PPP projects. These projects are about 50% completed. Even though these are big projects, being halfway through means you have secured the majority of the cost, and we believe that we have a robust forecast for the remaining part of the projects. Worth mentioning is that the project in the U.S., that the bid after 2015 are performing according to the plan. As announced earlier this year, we have performed a review of our operations. Today's announcement and today's press conference is a part of that. We have now completed our review of the U.S. operation. Skanska also think that it takes a goodwill impairment charge of SEK 0.4 billion in the third quarter associated with the process of exiting the U.S. power sector. After the write-downs and the impairment charge, the operating income in the third quarter 2018 will be about SEK 0.5 billion. As a consequence of this situation, we have decided on firm actions to restore profitability in the U.S. We will stop bidding for mega design-build PPP projects. We will stop bidding the -- for engineering, procurement and construction, so-called EPC projects. We will explore the possibility to divest our operation in the U.S. power sector. We have also decided to close down the project development function within our Infrastructure Development units. And we have also decided to appoint a new Business Unit President for Skanska U.S.A. Civil with immediate effect. Despite these write-downs, Skanska Group remains financially strong. We also released some additional preliminary financial statements, and then Magnus will now present them.
Thank you, Anders. So the numbers you have in the press release are preliminary Q3 numbers, and we will present the final actual numbers on the ordinary press conference on November 8. But I will go through these numbers here quickly and comment on them. And as we can see, revenues are up slightly in the quarter. And on the Construction side, you can see it comes up a bit. We have earlier guided that revenue over time will come down given the actions we are undertaking, and that is still true. We are working off our order backlog now, which is what drives up the revenue here. You can also see an uptick in revenue for Commercial Property Development. We have a good market and are making good transactions there. If you look at operating income then. For the construction stream, it's minus SEK 300 million in the third quarter. And of course, this is charged by the SEK 1.3 billion here now in the third quarter, the project write-downs and the goodwill impairment. Year-to-date, we have the result in Construction of SEK 231 million, and the total one-off charges then for Q1, Q2 and Q3 in that number is SEK 1.9 billion. I also want to comment on Residential Development. As we can see, we have a very strong result here in the third quarter of SEK 504 million. This result is significantly affected by land divestments and the release of provisions in the isolated quarter. So if we adjust for that, the underlying margin in this business now is 10%. It was approximately the same in the year-to-date number. For Commercial Development, we have an operating income in the quarter of SEK 456 million, and we are performing according to plan. In Infrastructure Development, we have had some additional payments from earlier executed divestments in the quarter. You can also see that our net debt improved slightly, and also the cash flow from operations comes up slightly to the comparable quarter. That was all the comments I had on these preliminary numbers. André?
Okay. Thank you very much, guys. And then we open up for questions. And we would like to keep to the announced write-downs and impairment charge. All other questions, I would like to direct to the announcement of the full and final report on November 8. So please follow the instructions from the operator.
[Operator Instructions] And we go to the first line, which is Niclas Hoglund of Nordea.
Niclas Hoglund, Nordea. Okay. Let's -- could we hear some more on the timing and -- of these project write-downs in the U.S.? I mean, why does it -- why did it take so long time for you to sort of find -- is it -- how much is more of recurring underlying, you can say, poor productivity related to the quarter? And how much is sort of reversals of profit issue accounted previously? And also on the revenues, does this increase to sort of dead revenues -- or are these projects already before sort of not contributing to the gross margins in the U.S. operations?
I can -- Anders here. I can start to comment on the courses of these write-downs. And as I mentioned, we are about halfway through in these projects, and we have seen low productivity due to delays. And we have also went through -- these are very large and complex projects. And it's also my experience when you're halfway through, you can be -- you can project the productivity level you have to have in the past and for the remaining of the project. And that's what we have done. So we have taken the charges for -- today in the third quarter that we believe will be sufficient for remaining of those projects. About the dead revenue, Magnus, will you comment on that?
Yes, I will do that. Going into 2019 now, we have just above $800 million worth of, so to speak, dead revenue in the U.S. business, which roughly makes up 12%, 13% of the -- of that. And of course, this is -- it will take some time to work off this order backlog. We think that we will be out of this gradually up until 2021.
We're now over to the line of Fredric Cyon at Carnegie.
A few questions from my side as well. First of all, these 2 projects have -- they've been affected by write-downs in the past?
One of them has been problematic for quite some time, and the other one has been on the extensive review as a part of the -- our strategic review, all major project we announced earlier this year. And the review of the U.S. operations is now completed.
And then on the dead volume, Magnus, that you mentioned, USD 800 million, is that on sales? Or are we speaking backlog?
That is the revenue that we expect to create from -- that is, so to speak, dead in 2019.
Okay. Basically, so that's sales for 2019. And how much of that is related to these 2 projects then?
Absolute majority of it.
And then my final question, in the press release, you're stating that you will stop bidding for large PPP projects but also stating that you will close down the Project Development or the ID unit. Does that mean that you won't bid for smaller PPPs as well? Or how should we interpret that?
It means exactly as we stated. It means that we won't go for the mega design-build PPP projects because we think there are 2 -- the risk is not -- the risk reward is not attractive for us. And we closed down the Project Development function or the Infrastructure Development because we don't think we have enough small -- that sort of project for -- to defend having a permanent organization, but we still have the confidence in our -- in the company.
Our next question comes from the line of Tobias Kaj at ABG Sundal Collier.
Actually, I only have one question left. And that is if the projects, which you haven't take write-downs in before, is that LaGuardia project?
We don't comment on individual projects, and that's with respect to clients and partners. That's our position.
Before going to Miguel Borrega at UBS Investment Bank, [Operator Instructions]. Miguel, over to you.
I've got a couple of questions, please. The first one is on Construction. Can you maybe quantify the size of the power business today, maybe break it down by revenues? And maybe what kind of margin would you make on a normal day? And also, with these provisions in the quarter, can you tell us the exact phasing of the cash outflow? Are we looking through separate quarters? Or will it be all booked in a single quarter? The second is on Residential. Can you maybe quantify by how much were these land divestments, maybe break it down by how much were homes sold in the quarter?
In terms of the size of the power business in the U.S., it's not a huge part of that business, but we're still carrying out the measures that we are announcing here with that. In terms of the land divestments and the provisions, what we will communicate now is that the total sum of the -- total impact of the land divestments and the provision release is -- takes us down to a 10% underlying margin in the quarter and year-to-date.
And the cash outflow?
Can you repeat that question, please? I didn't understand what you are after.
Yes. I was just wondering here with the provisions booked in the quarter, the phasing of the cash outflow of these measures, the timing.
Okay. Yes. I mean, these are related to ongoing Construction contracts, so that cash flow comes, so to linearly speaking, to the completion of the projects going forward.
We are now over to the line of Albin Sandberg at Kepler Cheuvreux.
One question. You refer now to that your review of the U.S. operations are kind of complete, as I understand it. Should we also take it that the total review for the group is completed? Or is there something else to review for Q4, so to speak?
Our review and our actions we have taken earlier this year to restore profitability within the construction stream has mainly been addressing the Polish operation and the U.S. operation, and both of them are -- we have -- review is completed. We have action plan in place that we are executing on. The rest of the fees operation are performing as expected.
We have a follow-up question back to the line of Niclas Hoglund at Nordea.
Just as a follow-up. As soon as these 2 projects are ongoing, PPP projects, could you comment anything on the sort of equity -- or impact on the equity stakes you have in these holdings? Have the consortium taking action to -- I mean, will costs also increase on the sort of ownership part and this sort of surplus related to the ID and then be -- have a significant impact of the group -- for the group?
That's a good question. Obviously, I can't comment on the individual projects here, but there is no sort of spillover effect from the courses of the write-downs we are communicating now through the -- Skanska's investment in these projects.
But it's hard to assume that if you would have changed reversals in these projects, you would have the opposite effect on this sort of equity stakes in these ownerships then.
I didn't understand your question on it. Just can you please repeat it?
Yes, yes. Sorry for not being that clear. I mean, if you were able to get compensation from the sort of equity or the ownerships in these PPP projects, is it fair to assume that, of course, that the cost would increase and you would have a more negative effect on your sort of equity stake in these company -- companies?
No. As I said, the investments -- the equity investments we have in these projects is unaffected by the problems we are communicating now.
As there are no further questions currently in the queue, can I please pass it back to you for any final comments?
All right. Thank you very much for your attention. And as we stated, we will release our final and full report on November 8. So we'll be back with more information then. Thank you very much.