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Skanska to Reduce Latin America Work Following Writedown

Skanska to Reduce Latin America Work Following Writedown

Posted by Juan Gavasa on July 10, 2014

Skanska AB (SKAB), the Nordic region’s largest construction company, will “significantly” scale back Latin America operations following 500 million kronor ($73.7 million) in project writedowns and restructuring costs.

Skanska fell the most in three months after saying it will stop seeking new building projects in the region and focus on facility management and maintenance there. Johan Henriksson, an executive at Skanska’s U.S. civil-construction unit, will oversee the Latin American division amid the cutbacks, the Stockholm-based company said today in a statement.

Economists surveyed by Brazil’s central bank lowered their 2014 growth forecasts a sixth consecutive week, according to figures released July 7, while Argentina’s economy contracted for the first time in almost two years in the first quarter amid a simmering government-debt dispute. Latin America accounted for about 6 percent of Skanska’s revenue in 2013.

Skanska is working on about 10 engineering and construction contracts in Latin America, and “it will take the entire year of 2015 to finish those projects,” Chief Executive Officer Johan Karlstrom said in a phone interview, adding some building may extend into 2016. “We expect this business to post a zero result until we have finished the engineering and construction projects,” Karlstrom said.

The remaining operations and maintenance business is low-risk and profitable, the CEO said.

Power Plants

About 380 million kronor of the charge relates to two power plants in Brazil and a petrochemical plant project in Argentina, all of which Skanska expects to complete before the end of the year. The remaining 120 million kronor is related to spending on reorganization, the company said.

Skanska fell as much as 4.1 percent, the steepest intraday drop since April 4, and was trading down 2 percent at 147.8 kronor at 10:22 a.m. in Stockholm, valuing the builder at 62 billion kronor.

The company has miscalculated project costs while Latin America is “a market in decline,” Karlstrom said. “The mining and energy market are both tough, and that has weakened clients’ financial positions” and made them introduce changes to contracts.

“To a certain degree, this is the responsibility of the client as well,” Karlstrom said. “We are taking the full cost now and then we will have a discussion with the client to see what we can recover.”

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