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Skanska UK's operating margin shrinks to 0.8%

11 July 2018 | By Neil Gerrard

Skanska's operating margin shrank to 0.8% in 2017 it has revealed, in its latest annual accounts.

The company saw revenue increase 9% to £1.8bn for the year to 31 December 2017 but pre-tax profit slid by 43% to £13.5m during the same period.

That was due in large part to a £9m impairment charge on goodwill, which saw Skanska's operating margin dip to just 0.8%, down from 1.4% in the previous year. Adjusted for the impairment charge, Skanska UK's operating margin would have been 1.3% in 2017.

The drop in profit came after the company issued a profit warning in the second quarter of 2017, indicating project write-downs of £33m. Skanska blamed this on a range of factors, including lower-than-expected production rates, projects being delayed with estimated penalties, and multiple customer-driven changes, which caused cost overruns.

Meanwhile, Skanska booked nearly £1.9bn of orders during 2017, while its group order backlog stood at £2.4bn.

Major contract wins during the year included a £142m deal to build the St Giles development in London's West End for Consolidated Developments, and a £127m contract for a mixed-use commercial and retail development in London's Fenchurch Street. It also won a seven-year highways maintenance contract for Hampshire County Council worth £280m.

Chief financial officer Kelly Gangotra said the company outlook for 2018 into 2019 remained "cautious, as uncertainty continues to prevail".

She added: "The construction market has faced a turbulent time recently but far less so than was expected after the UK voted to leave the EU.

"Uncertainty has prevailed in the commercial markets with investments stalling for periods of time. However we are beginning to see signs of investors starting construction, encouraged by future demands for commercial office space. Further, the government has continued to invest in infrastructure and that investment is likely to help the market improve in 2019.

"We have a conservative view for 2018 despite maintaining a good order book level, with one year until the UK leaves the EU the industry is still in a state of uncertainty as the future impact remains unclear especially on issues such as access to labour, what non-tariff barriers will apply or the likelihood of tariffs being imposed."

Comments

A margin of less than 1% profit, terrible. no wonder the industry is on its uppers and failing to retain or entice talent, construction has never and will never be respected whilst we accept this. People haven't paid the true value of their buildings for a long time.

Scott, 12 July 2018

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