Welcome to the Skanska telephone conference. For the first part of this call, all participants will be in a listen-only mode, and afterwards, there will be a question and answer session. Today, I'm pleased to present André Löfgren. Please begin.
Thank you. Once again, welcome, everyone. This press conference is held in relation to the announcement this morning concerning Skanska's restructuring and the consequences of that. Our CEO, Anders Danielsson, and also our CFO, Peter Wallin, will explain the situation, and then we will open up for questions. I want to remind you that we are answering questions related to this announcement. All other questions will be directed to the year-end report presentations, which will be held on February 1st. With that, I leave it to you, Anders.
Okay, thank you. Hello, everybody. I will give some of the background of today's announcement. Since the fall of last year, there have been a strategic review of the business in Skanska. Following that, we have decided to take a number of actions. The profitability in several of the construction units has been weak and has to improve. After doing the strategic review, we have decided to restructure and increase focus on cost control and risk management in the different units. We will also make a number of organizational and leadership changes as announced earlier today. And the organizational changes aiming to come closer to the businesses and increase control of the business unit's performance, and by reducing the levels of management between the units and the group leadership team, and myself as the CEO.
To restore the profitability in construction, we will restructure the construction operation in Poland. We will leave the power sector in the United States and continue to be selective in the bids, in the future bids, as we have been during last year. Focusing on the core business in the U.K., and we will continue to adapt to tougher market conditions in Czech Republic. The Nordic construction units continue to deliver the strong results. We are also very satisfied with the performance of the residential and commercial development. The market is good, and our growth ambitions remain. When it comes to infrastructure development, we will reduce the organization and mainly focus on the opportunities in the USA.
This is due to thin project pipeline in Europe here in the Nordics and also in U.K. In order to further reduce costs and increase organizational efficiency, we will also initiate a review of the group governance. Following the review and all the actions, we will take a charge of SEK 1.1 billion in the Q4 2017. Peter will go into more details there. Also the restructuring program will go into 2018, and we estimate the charge to be about SEK 600 million next year in 2018. The strategic review is comprehensive, and the cost is substantial. Still, the company is financially strong, and the board proposes a maintained dividend level of SEK 8.25.
Peter will now present the impact of the results. Please.
Thank you, Anders. Hello, everyone. Talking about results then, I will focus first on the results, excluding the one-offs that we take in the fourth quarter of 2017. The operating income of the group amounted to SEK 6.4 billion. Construction was SEK 2.1 billion. In the construction results, we have impacted project write-downs by SEK 400 million relating to the Polish operations. This is purely relating to closing projects during the fourth quarter. Residential development came in quite strong on SEK 1.7 billion, as did commercial property development of SEK 2.7 billion, where we exceeded the sales, the sales, as we have indicated in previous quarters.
Infrastructure development came in at SEK 0.9 billion, and then central costs and elimination at SEK 1 billion, which is somewhat lower. In total, SEK 6.4 billion. The one-offs then, of SEK 1.1 billion, as Anders has alluded to, SEK 1 billion of these are completely relating to write-down of assets, goodwill, other intangibles, and fixed assets. There will be no cash implication of that SEK 1 billion. So it's only SEK 100 million, roughly, that is relating to a restructuring charge in 2017. This puts the operating income after and including one-offs at around SEK 5.3 billion for the full year 2017, equaling an earnings per share of around SEK 12 . We end the year, as usual, very strongly from a financial point of view, and despite continued the planned increase in our product development operation.
The board has decided to announce an unchanged dividend compared to last year at SEK 8.5. That puts us within the range that we give in the dividend policy. All the details in the results and all the nitty-gritty details, Anders and I will come back to on February 1st. With that, André, I hand over to you.
Right. Thank you very much, and I will hand it over to the audience. We are ready to answer questions. Please.
Thank you. Ladies and gentlemen, if you do have a question for the speakers, please press zero one on your telephone keypad, and you will enter the queue. After you are announced, please ask your question.... And our first question comes from the line of Simen Mortensen from DNB Markets. Please go ahead, your line is open.
Yes. Hello, gentlemen. My question would go on in how the implication of these write-downs will be. Will we see a lot of projects with dead revenues or 0% margins going forward into 2018?
Thank you, Simen. Yeah, okay, go on, you had more questions. Yep.
No, you can answer that one first, please.
Okay, one at a time. The project write-downs that we alluded to, SEK 400 million, is predominantly projects being closed during the fourth quarter. And the size and the magnitude of these write-downs is relating to cost escalations in a very hot Polish market, and warranty that we take hide for. So in all material, it should be completely covered.
In terms of the layoffs, which you say are around 3,000 people, how will that impact production levels? Is it just cost savings or admin, or is it actually workers and which is generating revenues in projects, et cetera? Is this because you are seeing that you don't fulfill their positions and because of lower order intake?
I would say it's a combination of the restructuring and the cost savings that we have announced. It's a combination. We will not go into details where those 3,000 are today, but it's a combination.
Could you give us any indication on which segments or region which is the most impacted of these savings?
Yeah, we have in the press release announced that we will go into restructuring of different part of our operations. But I will not go into more details than that. We will come back with that the February 1st.
Thank you all. My final question for now.
Thank you. Our next question comes from the line of Albin Sandberg from Handelsbanken. Please go ahead, your line is open.
Yes, hi. I have two questions. The first one is, the cost savings that you are alluding to of around SEK 1 billion, when do you think those will be visible, on a kind of a full year annualized basis? And also, given your comment that a lot of these charges are not, cash, impacted, wouldn't you could afford, DPS, growth in, in that sense? Isn't it a bit defensive to just hold it, flat? Those were my two questions. Thanks.
Yeah, I can start. The cost savings, they are going to be, you know, over the years there. The predominant part of the action will take place during 2018, but some of it will continue into 2019 as well. Yeah, well, that's a really good question to the board, Albin. I think that first and foremost, it's also important to continue to see that we are, even though it's not cash impacted, we don't. We do want to maintain the growth in product development. And when we can invest money with the kind of superior returns we get, that's a good deal for the shareholders as well.
Okay, thank you.
Thank you. Ladies and gentlemen, as a reminder, if you do wish to ask a question, please press zero one on your telephone keypad now. And our next question comes from the line of Niclas Höglund from Nordea. Please go ahead, your line is open.
Yes, good morning, Niclas here. Just a couple of questions, if I may. Firstly, could you give, shed some light on some of these sort of problem areas that you are mentioning? For example, you're talking about leaving power sector in the U.S., and well, the last time we sort of, or at least I remember it, to get an update, were in connection with your capital markets day in 2014. And at that point, power sector only represented 10% of sales in the U.S. civil operations. Could you maybe give us a little bit better feeling on the magnitude today? Maybe if it's loss making, etc . Thank you.
I mean, we announced that we will leave the power sector, and that has not been the major part of the operation, as we have now talked about earlier years. So it's not the predominant part of the operation, but we will not continue the strategy to bid on so-called EPC projects in the power sector, because we don't see that the market, that segment has developed as expected, as we don't see our performance as satisfactory enough.
If I can chime in there, Anders, it's also the fact that the power, even though it wasn't constituting much of the business in 2014, as you allude to, Niclas, the forecast at the time overall and what we saw in the pipeline was that it was a very quickly growing sector. So I think it's important that Anders states that we avoid getting trapped into a sector which is not backed up by robust financials.
But can you give a good, better feeling on where you, what's your exposure if you related to sales for 2017? And maybe give us a hint on the recurring earnings or losses?
... Could you repeat that, Niclas?
Yeah, for the line, it's, no, could you give us an update on the magnitude, an exit, would it—what kind of implications would it have on your sales for the US civil or for US operations? Also, how bad is it? How weak have the performance been in that segment?
I mean, we have a few projects there in that sector that's ongoing, and we're going to complete them. And we have taken the charges, as we have seen last year. So, we're just gonna finish those projects off, and then we're not bidding for new ones. We're focusing on other parts of the sales in the markets of other segments.
Thank you.
Thank you.
Our next question comes from the line of Olle Lindström from TT. Please go ahead. Your line is open.
Yes, hello. I wonder, will there be any layoffs in Sweden?
That remains to be seen. We can't rule that out, but on the other hand, the Swedish operation are performing very well, and we have a good market, so it's not gonna be a large part of that redundancy, for sure.
Okay. Can you explain what kind of problems do you have in the European market? I thought the European economy was going strong.
Of course, it's a different part of Europe here. But if it's talking about the Polish market, that is strong, of course. It's not due to the market; we have seen write-down there. It's more connected to performance. So it's a mixed picture. The market in the Nordics, it's continued to be strong. And we can see the market in the U.K. is somewhat uncertain due to Brexit, but we don't see any big drop in the market right now.
Okay, thank you.
Thank you. Our next question comes from the line of Erik Granström from Carnegie. Please go ahead, your line is open. Erik Granström from Carnegie, please go ahead, your line is open.
Thank you very much. I just needed to unmute as well. It makes it much easier. I had two questions, one regarding the restructuring of SEK 1 billion. Could you tell us a little bit of where the bulk of that will come from? Obviously, you're not talking about the exact breakdown, but is the majority of those restructuring taking place in Europe or in the U.S.? That's my first question. The second one is, does the fact that you're leaving the energy sector basically then also means that ICS will then not be a part of, of Skanska going forward? Is that the way that we should interpret it?
I can start with the question. It's ICS; they have an operation in quite a broad operation. So, it's not only the power sector, EPC project, sorry, it's a lot of abbreviation. EPC project that they be a part of. So they will continue with their operation as planned, but they will not bid for the EPC contract moving forward. And, regarding the restructuring-
Yeah, the 1 billion question, Erik, that's actually the bulk of it, the major part of it is in the European part of the business.
Okay, thank you.
Thank you. We have a follow-up question from the line of Simen Mortensen from DNB Markets. Please go ahead, your line is open.
Yeah, hello. I was just also recalling, you did a sort of a cost cutting a few years back, I think it was 2012. I was just wondering, that didn't... We haven't really seen the margins improve since then in the Swedish market, when you separated the resi development from the construction segment. How will it be different this time? And the second one is, how much is this restructuring also adapting to new market sentiments, et cetera, and led on by this, for instance, the slowdown in the Norwegian and Swedish housing markets?
So, Simen, 2012, you refer to the merger, when we restructured the Nordics residential development operations, and I think you're missing a few points. For sure, that the cost cutting has come to impact. We have actually done increased performance in the Nordic part from negative to today, around 13% in operating margin with a growing revenue line. So, we have been able to protect and conserve costs, by working very strongly with very focused resources from an overhead perspective, but also working with design to cost, which means that we have much more certainty and profitability in our Nordic operation. So I think the first, your statement there is a little bit skewed.
The second one, in terms of the market, you have just had a major bankruptcy in the U.K. You have the slowdown in the region and Swedish housing markets. How much of that is actually part of what is now being restructured for?
Okay, so let's take the Carillion question, which is your first part there, which registered for bankruptcy the day after yesterday. We have literally no direct impact from this bankruptcy to the Skanska U.K. operations. We have no joint venture with Carillion, so the major implications will be for the suppliers and subcontractors in the U.K. universe. We have a very robust analysis when we do the procurement of the packages for construction projects. And I would say that we have a robust process in place, but this will play, create the biggest stir into the U.K. market short term. The endpoint is, of course, with the second biggest builder falls, that also creates opportunity.
Then, the Swedish housing market, let's come back to that in conjunction with the Q4. We can say that the mix we have of the portfolio, both in terms of geographies, but also terms of segment, has been quite rewarding in an insecure market situation. The affordable housing segment has been very strong, even in the fourth quarter. Then let me also answer a question that hasn't been asked yet, but I'll do that just to make it clear that the U.S. corporate federal tax change has no implications for us as a one-off, since we are balanced in tax assets and tax liabilities in the U.S. Going forward, it's of course a benefit to us.
Thank you for taking my questions.
Thank you. Ladies and gentlemen, as a final reminder, if you do have any questions, please press zero one on your telephone keypad now. Please hold for the next question. And our next question comes from the line of Marcin Wojtal from Bank of America Merrill Lynch. Please go ahead. Your line is open.
Yes, good, good morning. I just wanted to come back on the U.K. You mentioned that you are going to focus on the core business, but in that case, are there some areas in the U.K. that are not that have been designated as non-core and you're planning to leave, and what are those? And question number two, just regarding the U.S., I mean, the press release today, the write-downs, do they include any project write-downs in the U.S. or not? Thank you.
Yeah, I can start with the core business in U.K. I mean, we have said that we're going to focus on the core business, and we're going to review this and come back. So we have not taken any decision on that today, so we will come back when we can do that. The second one was the project write-downs in the SEK 1 billion, and that is which we have now tried to make clear, there are no project write-downs in the SEK 1 billion. It's only relating to assets, goodwill, other intangibles and fixed assets. The project write-downs, we do announce it connected to Poland.
Okay, great.
All, all the Project write-downs that we have done in the ordinary course of the construction businesses is recorded in the SEK 2.1 billion that you can find in the Operating Income construction, excluding one-off. So that is a normal, unfortunately, a normal part of this business.
Okay, very clear. Thank you so much.
Thank you. As there are no further questions at this time, I'll return the conference to our speakers for any closing comments.
All right, thank you, and thanks for the attention, everyone. You will hear more from us on February first, when we are releasing our year-end results fully. Okay? Thank you very much.