February 7, 2020 / 7:50 AM / 11 days ago

Profit growth at Sweden's Skanska hit by fourth-quarter goodwill charges

STOCKHOLM (Reuters) - Sweden’s Skanska (SKAb.ST) delivered a lower-than-expected fourth-quarter operating profit rise on Friday, as one-off charges overshadowed profitability gains at its construction division.

FILE PHOTO: Swedish builder Skanska sign is seen at the building site on Brompton Road in London, Britain November 7, 2018. Picture taken November 7, 2018. REUTERS/Anna Ringstrom/File Photo

Goodwill impairment charges totaling 467 million crowns related to Skanska’s British construction business and Norwegian residential development operation weighed on its profit.

“We see that the volume assumptions we’ve made earlier to defend the goodwill aren’t viable,” Chief Executive Daniel Andersson told Reuters.

Operating profit at the Nordic region’s largest builder, which is also one of the biggest in the United States, was 2.45 billion crowns ($254 million) against a year-earlier 2.38 billion and a 2.74 billion mean forecast in a Refinitiv survey.

Skanska’s shares fell 2% in early trade, having gained 42% over the past year to Thursday’s close.

In Britain, the writedown comes on the back of being more selective on contracts while in Norway it follows a decision to focus on fewer cities, Andersson said, adding that long lead times in Norway also contributed to lower-than-expected volumes.

The operating margin at the construction division, which books the bulk of group revenues and which saw costs spiral unexpectedly in some large U.S. contracts in recent years, rose to 2.6% from 2.0%.

Order intake at the division, which has adopted a strategy to bid only for higher-margin contracts, edged down to 49.0 billion crowns from 49.1 billion.

“As we complete and replace the challenging projects, the profitability has the potential to further improve. More selective bidding has impacted our order bookings in some business units but our major operations in Sweden and USA are showing strong bookings,” Andersson said in the report.

“As the overall construction market activity is high, being selective in our markets makes it possible to refill the backlog with projects having the right balance between risk and return.”

The group has grown its property development operations over the past decade to more than half of group profit. “Divestments at Commercial Property Development reached all-time high, and Residential Development also deliver well,” Andersson said.

Skanska raised its 12-month outlook for the Swedish residential development market, which has been sluggish in recent years, to stable.

It also proposed a dividend of 6.25 crowns per share for 2018, up from 6.00 crowns the year before.

Reporting by Anna Ringstrom; editing by Johannes Hellstrom and Alexander Smith

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