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Skanska steers clear of 'big shocks' to hold 3% margin

Supporting the supply chain and a rigorous risk management approach is helping Skanska steer clear of any “big shocks” while returning a 3 per cent margin, its chief executive has said.

Mike Putnam told Construction News the UK business had been working to strike a combination of the right client, project and supply chain.

He added that the firm had seen a “big shift” in the past five years in moving to a more transparent structure, which has been heavily influenced by its Swedish parent group.

Skanska UK reported revenue of just under £260m and operating income of £7.5m for the first three months of the year.

Margin is down from 3.6 per cent in 2012 to 3.1 per cent in Q1 2013, according to the parent group.

The order book was almost £170m below expectations, with Mr Putnam saying it “tends to be a bit lumpy” due to the major project flow, which make up 60 per cent of work, as well as a conservative approach to booking work won.

Revenue was around 23 per cent below the peak of 2009, though Mr Putnam said he was not expecting a further fall.

Skanska won its seventh contract for Crossrail in Q1, working with Costain to deliver the £110m station at Bond Street.

The firm also secured 100 Cheapside, an 18-month contract to demolish and construct a 10-storey commercial building in the City of London.

The Atkins highways business, acquired in February, is to be integrated by the end of the second quarter and will boost Skanska’s workforce by 1,250 people.

Mr Putnam said the 3 per cent margin was partly about working with suppliers the firm had known for a long time and “can carry with us, along with rigorous risk testing across the board and transparency across the group.

“We don’t always get that 100 per cent right by the way because it’s not always that easy,” he said.

“For some time now we’ve been working on risk management at group level and UK level, from the tender stage right the way through and with a separate risk team that helps make sure we are applying our processes.

“One of the things we have been working on is transparency through the organisation. 

“It’s interesting. Many companies talk about openness and honesty as a core value. My experience, coming from Swedish parentage, is that it’s on a completely different level.”

Mr Putnam said it means a “bad project” can be identified earlier so “you won’t get a big shock”.

“If you have the transparency, everybody understands the real picture – and it’s about understanding the real picture quickly, because then you can respond to it,” he said.

“That’s actually been quite a big shift in the business over the past five years.”

The chief executive spoke to Construction News after McArdle, which Skanska and Balfour Beatty have used on the M25, went into administration. Skanska started work on the £321m upgrade to sections of the M25 during Q1.

Mr Putnam said financial checks on companies tend to be historic, so having an ongoing dialogue with the supply chain was essential.

He added that Skanska, like other contractors and clients, was doing “a bit” of rationalising within its supply chain.

The company remained “more of a national player”, he added, with no desire to have separate profit and loss centres on a regional basis or allow a team to “run off and play by itself in its local market”.

He said the firm was also continuing with relatively modest growth plans for its commercial and residential developments businesses.

Mr Putnam said the company had injected some funding into commercial schemes it had been bidding on in “one or two cases”.

Construction News has also revealed this month that Skanska UK has won a six-storey, 100,000 sq ft commercial refurbishment contract deal at 1 Aldermanbury Square for Epic in London.

On the contracting side, he added: “We continue to have a very strong commercial building business and we aim to keep it that way.”

He said the company “would like to think there will be a thriving private finance market”.

“There are still one or two things out there, but the portfolio has shrunk right down and we are focusing much more from developments or investment side in other markets, such as the US or Scandinavia.”

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