Skanska unlikely to hit construction margin targets this year or next

Shares in Swedish contractor Skanska fell 3% last week after it said it did not expect its construction business to hit its target operating margin this year or next.

Chief executive Anders Danielsson (Skanska)

The company, the 16th largest in the world, set itself a 3.5% target, a level it last reached in 2014. However the company said: "Based on expected performance in current order backlog, Skanska will unlikely be able to reach the operating margin target in construction for 2019 and 2020."

The company last month revealed a "disappointing" year for its construction business, with a $71m loss for its US construction business, and a $45m loss in Europe. The company blamed this on weak performance on two projects in the US and a restructuring in Poland, which offset a good performance in Sweden and Finland.

Construction margins in 2018 were only 0.8%, however the fourth quarter rose to 2%, which chief executive Anders Danielsson said reflected the impact of restructuring measures to cut risk.

Reuters reports that Richard Kennedy, Skanska’s US manager, told investors he expected revenues from unprofitable projects in the US to drop to $217m in 2021, from $1bn in 2018.

In October last year, the company announced that its US arm would no longer bid for high-value public-private partnership contracts following a $100m write-down on two major schemes, which it did not name.

The company has also set a target margin of 10% for its property development arm, which has grown in recent years to account for more than three quarters of profit. It also set a target for adjusted net debt of less than $1bn.

Top image: Skanska workers raising the deck of the Bayonne Bridge in New York in 2017 (Skanska)

Further reading:

Story for GCR? Get in touch via email: [email protected]

Latest articles in News