Skanska to take £81m writedown hit

Skanska has announced writedowns on UK and US activities totalling SEK780m (£81.5m), with the Swedish contractor pointing the finger at delayed projects and resulting cost overruns.

The firm said its half-year operating income would subsequently be 8% lower, with around £33m of the provision relating to work in the UK, although it did not specify which contracts would be affected.

Last year Skanska said it was having to carry out remedial work to a hospital it built more than a decade ago because of fears it may have been constructed without adequate fire protection. University Hospital Coventry at Walsgrave was completed back in 2006 under a PFI contract costing £334m but a hospital safety review has revealed that its fire protection measures were inadequate.

Skanska said that when it announces its half year results next Thursday (20 July) it expected to post operating income, adjusted for the writedowns, of around SEK3.3bn (£304.8m), down 8.3% on the same period last year.

In a statement Skanska said: “The main reasons for the writedowns are lower than anticipated production rates, projects being delayed with estimated penalties and multiple customer-driven changes, which have caused cost overruns. In these areas, we continue to have constructive dialogue with our customers to reach commercial agreement.

“The project writedowns are a reflection of Skanska’s prudent and transparent approach to accounting. Our policy is to account for the total estimated cost to complete our projects; we do not account for any revenue from change orders until a commercial agreement has been reached with the customer.” 

Skanska said the UK operation’s new chief executive, Gregor Craig, who replaced long-serving Skanska UK boss Mike Putnam in May, was “actively addressing the issues around these writedowns”.

In February the firm’s UK operation announced operating profits for 2016 of £35.1m on revenue of £1.7bn, down from £36.3m profit on revenue of £1.5bn the previous year.