Skanska Expects Brexit to Hurt Non-Housing U.K. Construction

  • Swedish company in dialogue with U.K. clients, subcontractors
  • Shares fall as profitability hurt by projects in Poland, U.S.

Skanska AB, the Swedish construction company that built the City of London’s landmark Gherkin building, lowered its outlook for U.K. non-residential construction after the country voted to leave the European Union.

“Ahead of the Brexit vote, private developers were in a wait-and-see mode and refrained from starting projects -- that cautiousness has continued after the referendum,” Chief Executive Officer Johan Karlstroem said in a phone interview on Friday. “The worst case scenario is a continued prolonged uncertainty.”

Skanska, which derives about 13 percent of its construction revenue from the U.K., said second-quarter operating profit was 1.66 billion kronor ($193 million), in line with a year earlier. Revenue fell 7.6 percent to 37.3 billion kronor. Profitability was hit by the weak performance of certain projects in Poland and costly design changes to U.S. sites, Karlstroem said in an earnings statement.

The shares traded 5.4 percent lower at 176.10 kronor as of 10:55 a.m. in Stockholm, on track for the biggest decline in a month. That pared gains for the year to 6.9 percent, valuing the company at 74 billion kronor.

The comments from the Swedish builder echo those of other European companies, including Swiss engineering giant ABB Ltd. and British retailer AO World Plc, who have cited uncertainty as the biggest concern following the U.K. vote to leave the EU. Skanska has reached out to U.K. subcontractors to gauge the consequences of a labor shortage in case it becomes more difficult for foreign workers to enter the country, Karlstroem said.

“No one can quantify that risk, but we need to keep our eyes on it,” Karlstroem said. “In a few years it could potentially be a problem to get foreign labor.”

The Swedish company doesn’t yet plan to reduce staff in the U.K. as none of its projects have been halted. Skanska could even benefit from any exodus of businesses from the country, the CEO said.

“If companies move operations from London to other parts of Europe, cities like Warsaw and Prague could be well placed,” Karlstroem said. “An increased demand for property there would be good for us.”

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