Skanska confirms exit from some US segments to focus on 'sweet spot'

Dive Brief:

Skanska President and CEO Anders Danielsson confirmed Thursday during the Swedish company's third-quarter earnings conference call with analysts that it will exit its U.S. energy business (EPC contracts for gas-fired power plants only) and stop bidding on U.S. "mega design-build" public-private partnership projects in which it holds an equity stake. In addition, Skanska will close down the project development portion of its infrastructure development business, determining its pipeline does not justify a permanent organization.
Danielsson said Skanska completed a strategic review of its operations and determined that the U.S. energy sector had not developed as anticipated and that certain P3 projects were not attractive from a profit standpoint. As a result, he said, the company's construction bookings during the first nine months of 2018 decreased 13% from the previous year to 102.6 billion Swedish krona (U.S. $11.43 billion), but remain "perfectly in line" with its decision to be more selective about which projects to pursue as it chooses to only bid on projects that are within its "sweet spot" in its strategy to pursue profitability over volume. During the next 12 months, Danielsson said that he expects construction demand to remain strong in the U.S. amid "fierce competition."
During the call, the company said it recorded SEK 2.2 billion in total profit January through September. It reported that total revenue for the first nine months of 2018 was SEK 120.8 billion with SEK 115.3 billion coming from its construction business, followed by commercial property development (SEK 9 billion), residential development (SEK 6.6 billion) and infrastructure development (SEK 86 million).

Dive Insight:

As part of an interim report last month, Skanska announced it would stop bidding on P3s in the U.S. in which it had an equity position, but company officials have refused to discuss the specific details that led to the move. Skanska USA did take a $100 million write-down in relation to two major P3s, widely believed to be the $2.3 billion I-4 Ultimate project in Orlando, Florida, and the $4 billion Central B Terminal project at New York City's LaGuardia Airport. The P3 group for the I-4 project has filed a $100 million claim with the Florida Department of Transportation, primarily related to drilled shafts and flooding.

On a positive note for the company, New York City's Metropolitan Transportation Authority announced last week that it awarded Skanska a $60 million contract to complete the last major piece of the $11 billion East Side Access project. Skanska's work, through its USA Civil Northeast division, will include the relocation of tracks, rail signals and other associated rail infrastructure as well as the excavation and construction of an 800-foot tunnel approach structure.