CEO letter: Momentum is building

In his quarterly letter to employees, Skanska group CEO Johan Karlstrom reviews our strong third-quarter performance, including 27 percent growth in global operating income. He also emphasizes what is necessary for our company to continue succeeding: this includes closely monitoring risk, ensuring that our projects provide opportunities to the surrounding communities, and never relenting on our safety focus.

Dear colleagues,

Skanska is gaining momentum. In the third quarter, we continued to deliver strong order bookings and increased revenues, and our operating income grew by 27 percent. All of this contributes to a solid cash flow and an improving financial position that will provide strength for further investments in project development.

Order bookings were particularly strong in the Swedish, U.S. Civil, UK and Polish construction operations. We also reported improved margins in Sweden, Finland and Poland.

Going forward we see strong growth in the markets in the U.S., the UK and Sweden. The Czech market is starting to improve while Finland remains weak. Some of our residential development businesses are suffering from decreasing volumes, while activities within for the commercial development operations are intense. Eleven new projects were started and five were sold for a total of SEK 2.8 billion.

The P3 markets are generally weak, except for in the U.S., which continues to improve. The I-4 Ultimate project in Florida is our second win in the emerging U.S. P3 market and a fantastic showcase of our capabilities. Following financial close, we signed the construction contract that is valued at $900 million for Skanska USA Civil.

Our Operations and Maintenance business in Latin America will be divested. However stable the O&M business is, it only has a weak link to our core business and we must focus our attention on markets where we have a more significant presence. I am certain that the O&M business will benefit from an owner that can provide the management attention this business deserves.

Our report was well received by the market, which was reflected in a rising share price.

Going forward, we must put enhanced focus on controlling our business. That is the lesson from recent years’ unsatisfactory results in construction in Latin America, Norway, Finland, the Czech Republic and within parts of the residential development operations.

One bad project can ruin a business unit’s result. To avoid this, continued and enhanced focus on risk assessment and control is a must.

Meeting and listening to customers this year has convinced me of two strong trends – community involvement and early construction process services will be increasingly in demand.

Over the years, we have won contracts based on our strong commitment to ethics, green and safety. Now we also see an increasing desire for com¬munity involvement. This will be an important factor when clients choose their partners in the future. They want us to contribute more to the com¬munity. Can we offer training and employment for unemployed people, can we engage small local businesses in our projects? We can definitely use the famous presidential words: “Yes we can”.

Our values transform to business – sustainable solutions and community involvement will be a differentiator that can help us win new business going forward. Also, more and more customers want our expertise earlier in their process. Naturally, they must focus on their own core business and we can help them to be successful. We can develop the right solutions for their needs regarding premises or infrastructure. The earlier we are involved, the more value we can bring. This kind of customized construction can already be seen in Sweden, in the UK and in the U.S. market – and other markets will follow.

Of course, we welcome this trend, it will grow stronger and offer us great opportunities. Early involvement is a true win-win-situation for all parties.

And I am convinced that we are ahead in these fields, we have a competi¬tive advantage and pole position to win the race. But it will take a lot of footwork, we have to go out and see our customers and tell our story. Don’t let them forget us. And don’t be second to our competitors.

In recent years, we have started to improve our knowledge sharing to en¬hance our success rate with regard to winning new contracts. But we must now ask ourselves: are we really using our global expertise to also improve workplace safety?

So far this year, three colleagues have lost their lives and four have been severely injured in three accidents at our project worksites in Poland, Norway and the U.S. This is deeply saddening for us and our heartfelt sym¬pathies go to their families, friends and colleagues.

In the U.S. a collapsed pedestrian bridge caused the tragedy. In Norway, the accident involved work being carried out in the basket of a boom lift and there have been similar accidents in recent years.

Our Safety team has acted firmly and initiated a webinar on how to make working with Mobile Elevated Working Platforms safer. You can find the webinar at OneSkanska, in which Skanska UK and Skanska USA share their experience of installing anti-crush devices.

Remember, we all have a responsibility for the safety of colleagues and ourselves. It is important that everyone returns home safely every day. When you see, or find yourself in, an unsafe activity, give yourself time to reassess the situation and then decide on how to carry on the work safely.

Because safety, as well as other sustainability aspects, are such integral parts of our DNA, they will continue to be cornerstones of our further development.

Our next Business Plan is currently being developed. A number of task forces are examining the future possibilities for our business with the focus on how to increase shareholder value. The new Business Plan will be decided next autumn.

In order to develop the company, we must also develop ourselves. The Performance Review process is currently ongoing. Leadership is vital to our success – now and in the future. We are all leaders and therefore, we must also lead ourselves. In dialog with your manager, be clear about your aspirations and ambitions, strengths and weaknesses. Remember, a great way to grow is to broaden our horizons – test new things in new environments.

You all represent a key asset of our company and, for us in SET, meeting and listening to your views in connection with our visits to the business unit management meetings this year has been highly rewarding. Among both experienced and young talents, I can sense a strong desire to learn more, share knowledge and collaborate to become more successful.

There is also a strong desire to be part of an organization that makes a difference – that contributes to making our societies a little bit better. As I mentioned earlier this is exactly what our customers are looking for. So let’s make it happen!

Finally, we in SET would like to thank you for your committed efforts this year and wish you Happy Holidays and a Happy New Year!

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