Financial synergies and new financial targets

December 9, 2010 Capital Market Day1

Financial synergies and new financial targets

Hans Biörck,CFO and Executive

Vice President


-4

-2

0

2

4

6

8

GDP Growth, Skanska footprint

7 years CAGR 2.2%

7 years CAGR 4.8%

2004

2005

2006

2007

2008

2009

2010

constant pricescurrent prices

5 years CAGR 2.6%

5 years CAGR 4.9%20

11

2012

2013

2014

2015


Sources: Bloomberg, Citi

Handlowy, EIU, HSBC, Norges

Bank, Santander, SFS Research & Analysis & national statistical

agencies

%


Construction investment growth, by home market* –

current prices

-20

-15

-10

-5

0

5

10

15

20

25

30 SwedenNorwayFinlandPolandCzech RepublicUKUS

2011

2012

2013

2014

2015

* excluding Latin AmericaSources: Euroconstruct, FMI, Prognoscentret, SFS Research & Analysis & national statistical agencies

2004

2005

2006

2007

2008

2009

2010

SwedenNorwayFinlandPolandCzech RepublicUKUS

%


-10

-5

0

5

10

15

20

Construction investment growth* Skanska footprint

7 years CAGR 1.2%

7 years CAGR 5.0%


5 years CAGR 2.4%

5 years CAGR 5.0%

2011

2012

2013

2014

2015

* excluding Latin AmericaSources: Bloomberg, Citi

Handlowy, EIU, Euroconstruct, FMI, HSBC, Norges

Bank, Santander, Prognoscentret, SFS Research & Analysis & national statistical agencies

2004

2005

2006

2007

2008

2009

2010


%


Construction investment* and GDP growth, Skanska footprint

-10

-5

0

5

10

15

20

7 years CAGR 4.8%

7 years CAGR 5.0%

* excluding Latin AmericaSources: Bloomberg, Citi

Handlowy, EIU, Euroconstruct, FMI, HSBC, Norges

Bank, Santander, Prognoscentret, SFS Research & Analysis & national statistical agencies

2004

2005

2006

2007

2008

2009

2010

construction investments

GDP

5 years CAGR 4.9%

5 years CAGR 5.0%20

11

2012

2013

2014

2015

Construction investments, current pricesGDP, current prices

%


-15

-10

-5

0

5

10

15

20

Skanska Construction revenue growth vs. market growth*, Skanska footprint

7 years CAGR 1.5%**

7 years CAGR 5.0%

* excluding Latin America** adjusted for currency effects,

disposals & acquisitionsSources: Euroconstruct, FMI, Prognoscentret, SFS Research & Analysis & national statistical agencies

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

construction investments

Skanska construction revenues

Construction investmentsSkanska construction revenue

%


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Residential market Number of starts

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Sources: Prognoscentret, REAS, National Statistical Agencies, SFS Research & Analysis

Units, countries

SwedenNorwayFinlandCzech RepublicTotal market size

(RH-axis)

Units, total market


0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

All marketsCzech RepublicFinlandNorwaySwedenMarket share

(RH-axis)

Skanska RD, number of starts by country and total market share*

* excluding Poland & UKSources: CZSO, Euroconstruct, Prognoscentret, REAS, SFS Research

& Analysis

2004

2005

2006

2007

2008

2009

2010

Units

2011

2012

2013

2014

2015


Construction

Business plan:

−

Construction revenue growth by growing faster than the market within selected areas of operational strength


Construction

Average 2004–2010 R-12 Q3 2010% SEK bn % SEK bn

External revenue 91.4 111.5 86.6 100.4

Revenue generated by the development streamsResidential development 2.3 2.9 3.3 3.5Commercial development 1.3 1.6 1.8 1.9Infrastructure development 5.0 6.1 8.3 8.1

8.6 10.5 13.4 13.5Total 100.0 122.0 100.0 113.9

Operating income from development streams SEK 350 M Approx. SEK 500 M

Business plan:Market growth +Acquisitions +Market share growth in selected areas

Revenue growth from increased development investments

Increase


Construction Operating margin

1.4

2.52.8

3.4

2.7

3.7 3.8

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2004 2005 2006 2007 2008 2009 R12 Q32010

%


Assumption:−

Bid gross margin 9%, S&A 5%, expected operating margin 4%

−

4 year project

Margin phasing in a large construction project (example)

4.0%

9.0%

5.5%

2.5%

10.5%

7.5%

0%

2%

4%

6%

8%

10%

12%

1 2 3 4Year

Margin, %


Construction Operating margin

1.4

2.52.8

3.4

2.7

3.7 3.8

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2004 2005 2006 2007 2008 2009 R12 Q32010

%

2011 2015

The operating margin target is 3.5–

4.0 percent, based on being in line with best-

in-class among Skanska's competitors in relevant market sectors and geographic areas over a business cycle

Business plan:


Business plan

Construction –

Working capital

Working capital Closing Q1-3

Working capital Closing Q4

Ratio on R5Q average Working capital

Ratio on closing Working capital

-25

-20

-15

-10

-5

0

Q105

Q205

Q305

Q405

Q106

Q206

Q306

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

SEK bn

-18

-16

-14

-12

-10

-8

-6

-4

-2

0%

2011 2015


Investments in development streams

Investments p.a. Average 2004–2010

Q3 YTD 2010

grossed up

Residential development -5.5 -7.3

Commercial development -2.6 -3.5

Infrastructure development -0.4 -0.7

Total development -8.5 -11.5

Net investments p.a.

Residential development -0.7 -2.0

Commercial development 0.1 0.4

Infrastructure development 0.2 -0.5

Total development -0.4 -2.1

Business plan:Significant increase in investment in the development stream, while maintaining a high rate of turnover in the portfolio


ROCE in development streams

2004–2010Average

Capital employed

Annual ROCE, %

Add ROCE from Construction

revenue, %Group

ROCE, %

Residential development 6.5 6% 1.5% 7.5%

Commercial development 8.8 13% 0.5% 13.5%

Infrastructure development 2.0 40% 10% 50%

Total development 17.3 13% 2% 15%

Business plan:

−

Target ROCE 10–15% per annum for the three development streams

2011–2015

Higher

Same

Lower


Summary Financial synergies (I/II)

Annual average return 2004–2010

Return on Commercial paper 1.4%

Return on Swedish OMX 30 12.4%

Return on CE in development streams (SEK 17.3 bn) 13.0%

Excess return vs. Commercial paper SEK 2,000 M p.a.

Excess return vs. Swedish OMX 30 SEK 100 M p.a.


Summary Financial synergies (II/II)

SEK M

Excess return on CE in development streams

100–2,000

Additional operating income in Construction

350

Grand total p.a. 450–2,350

of which unrealized development gain

700


Investment capacityConstruction streamWorking capital–

Revenue growth–

WC ratio

Unutilized gearing capacity

Dividend

Investment capacity–

Development streams

–

Acquisitions

Profit for the period


Unutilized gearing capacity

Business plan

−

Target to have a net cash position that shall never be below zero1)

excluding net pension liabilities and construction credits in residential development co-ops

1) Rolling 12 months

Q3 2010:

SEK bn

Net cash

4.4

Net pension liabilities

2.6

Construction credits

1.7

8.7


Return on equity

Average ROE 2004–2010 approx. 20% p.a.

Business plan target ROE 18–20% p.a.


Dividend pay-out rate

Average pay-out ratio 2004–2009:

−

Regular dividend

57%

−

Extra dividend

17%

74%

Business plan dividend pay-out target 40–70%

Financial synergies and new financial targets

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