Skanska 'unlikely' to hit target operating margin in 2019, 2020

Dive Brief:

During its Capital Market Day event last week, Skanska announced that, based on its current order backlog, it will likely not achieve its construction operating target of 3.5% in 2019 and 2020.
In its year-end 2018 report, Skanska reported that its fourth-quarter construction business margin was 2%, compared to 0.7% for the full year, but expected profitability to increase this year. By being more selective about the types of construction projects it bids on, the company said its backlog is “trending downward to a healthier base."
The Swedish multinational, according to Reuters, has not achieved a 3.5% construction operating margin since 2014.

Dive Insight:

In its Annual and Sustainability Report 2018, Skanska said it had made progress toward its goal of restoring profitability and risk reduction in its construction business and would continue those efforts in 2019.

As part of the restructuring of its U.S. construction business late last year, Skanska announced it would no longer pursue EPC contracts for gas-fired power plants and would stop bidding on U.S. "mega design-build" public-private partnership (P3) projects in which it holds an equity stake. The U.S. division also said it would shut down the project development portion of its infrastructure development business because its pipeline did not warrant a permanent unit.

Skanska President and CEO Anders Danielsson said the company would focus on trying to win projects within its strategic "sweet spot,” favoring profitability over volume.

The month before Danielsson's comment, Skanska USA took a $100 million write-down in relation to two major P3s. The company did not divulge the details of the projects, but they are believed to be the $2.3 billion I-4 Ultimate highway project in Orlando, Florida, and the $4 billion Central B Terminal project at LaGuardia Airport in New York City. The I-4 project's P3 group has filed a $100 million claim with the Florida DOT, primarily related to drilled shafts and flooding. That claim and the request for 245 days of extra time have yet to be resolved.

Besides these issues, the project also has seen four fatalities as a result of struck-by safety mishaps. In addition, three workers were injured in February when they fell 15 feet from an elevated platform while pouring concrete. In its annual report, Skanska said there were five fatalities on its projects during 2018 and that it had renewed its commitment to health and safety.

"Working safely,” Danielsson said in the annual report, "requires operational discipline, which is also essential to achieving high performance overall on our projects. Our safest projects are our most profitable projects."