ANNUAL REPORT 2004 - Skanska

the Group’s core business will be divested.
During the year, a detailed plan for discontinuing
these operations during 2004 and
2005 was approved by Skanska’s Board of
Directors. The businesses in the process of
being discontinued at year-end 2004 were
mainly specialized companies owned by
Skanska Sweden.
The strategic evaluation carried out by
Skanska’s Senior Executive Team identified
a number of units that are not deemed to
create sufficient positive synergies with contracting
operations or with residential project
development operations. The companies
included are Skanska Modul, Skanska Prefab
Mark and Skanska Glasbyggarna in Skanska
Sweden and Honkavaaran Maastorakennus
in the St. Petersburg region of Russia.
External 2004 net sales of the businesses
included in the planned divestments totaled
about SEK 700 M, and capital employed
totaled about SEK 600 M. The businesses in
question have a total of about 660 employees.
Alleged cartel
As a result of the Swedish Competition
Authority’s investigation of a number of
companies, among them Skanska, concerning
alleged collusive anti-competitive practices
related to contract tenders for asphalt
and paving contracts, in March 2003 the
Competition Authority filed suit against
11 companies with asphalt operations,
among them Skanska. The suit requested
a total amount of SEK 1.6 billion in fines
for alleged infringements of the Swedish
Competition Act, of which Skanska’s share
was SEK 664 M. Skanska denies the Competition
Authority’s allegations.
The case is unusually extensive. In
December 2003, Stockholm City Court
announced an “intermediate judgment”
concerning interpretations of Section 6 of
the Competition Act, in light of statements
to the effect that the National Road Administration
has participated in collusive anticompetitive
practices aimed at the Administration’s
own procurements. After examination
of the intermediate judgment issue by
the Swedish Market Court in September
2004, it was determined that the Swedish
Competition Authority’s suit in Stockholm
City Court demanding fines for alleged collusive
anti-competitive practices will be
heard in its entirety, i.e. also concerning
contracting procurements by the National
Road Administration included in the Competition
Authority’s allegations concerning
cartels. The City Court estimates that the
main hearings on this case can be held no
earlier than January 2006.
In Norway and Finland as well, investigations
by competition authorities are
underway concerning Skanska’s possible
involvement in anti-competitive activities in
the asphalt and civil engineering sector.
The amounts of infringement fines proposed
by the competition authorities, SEK
664 M in Sweden and SEK 99 M in Finland,
are reported in Skanska’s financial statements
as contingent liabilities, among other things
in light of the great uncertainty that characterizes
the outcome of these legal actions.
During the year, companies suspected
of having participated in cartel activities in
Sweden, among them Skanska, were sued by
a number of individual Swedish municipalities
that maintain that they suffered damage
in procurements alleged to have been the
object of collusion by cartels between contracts.
Skanska was sued for a total of SEK
45 M, and this amount was reported as a
contingent liability.
Ruling in tax case
A 2003 ruling of the Administrative Court
of Appeal in Stockholm approved the tax
deductions claimed by the Skanska Group
related to the decline in value of the Polaris
Aircraft Leasing limited partnership, in
which the Group is a limited partner. This
overturned the previous ruling in April 2001
of the County Administrative Court, which
had disallowed the deductions in accordance
with the request of the Tax Authority.
Taking into account the change in the
tax value of Skanska’s holding in the limited
partnership, the ruling of the Administrative
Court of Appeal had a positive impact of
about SEK 400 M on 2003 earnings. The cash
flow effect totaled more than SEK 750 M.
The Tax Authority requested a hearing in
the Supreme Administrative Court, and the
case was thus not finally decided during 2003.
During 2004, the Supreme Administrative
Court decided not to grant a hearing to
the Tax Authority. This confirms the ruling
of the Administrative Court of Appeal from
March 2003.
The decision had no impact on the
Group’s 2004 earnings.
The market
Construction investments in several of
Skanska’s markets showed signs of a slow
recovery. In the Nordic countries, the situation
was cautiously positive. Poland, Estonia
and the Czech Republic − new members of
the European Union − performed favorably.
However, competition in Poland
remained intensive. In the United Kingdom,
the volume of projects in the BOT (or PFI)
sector was still growing, while investment
volume in other segments of importance to
Skanska was low. In the United States,
investment activity in industrial and commercial
construction remained low.
Vacancy rates were still high, resulting in
low demand for new office space.
Civil construction in most Skanska markets
increased slowly. In the U.S., however,
civil construction remained at a low level, as
a consequence of large budget deficits in
individual states. The Norwegian civil construction
market was favorably affected by
BOT investments in highways as well as projects
for the oil and gas industry. In Finland
as well, civil construction grew. In South
America, economic recovery continued, with
power transmission projects and projects in
the oil and gas industries, which are important
sectors for Skanska’s operations in this
region.
Residential construction remained at a
high level in the Czech Republic and Finland.
In Sweden and Norway, the number of
projects started increased. In most markets,
the volume of planned housing starts also
rose. The increase consisted of housing
units in the medium and lower price segments,
for which there is heavy demand.
The vacancy rates in the Scandinavian and
Central European office markets stabilized.
A cautious approach to investments in new
projects remained. In Scandinavia there was
good demand for well-located shopping center
and logistics properties with efficient space.
Transition to International Financial
Reporting Standards (IFRS)
Beginning with 2005, the Group’s accounting
principles will fully comply with International
Financial Reporting Standards
(IFRS), which have been endorsed by the
European Commission (the EU).
Skanska’s Three Month Report for January-March
2005 will comply with IFRS. In
this interim report, the comparative year
2004 will also be reported on a quarterly
basis in accordance with IFRS.
The transition from Swedish accounting
standards to IFRS is expected to result in an
increase of SEK 332 M in the shareholders’
equity of the Skanska Group on January 1,
2004 and an increase of SEK 610 M on
December 31, 2004, respectively.
Net profit is expected to increase by SEK
525 M on December 31, 2004 as an effect of
the transition. The balance sheet total is
expected to increase by about SEK 400 M
on December 31, 2004, and by an additional
SEK 500 M on January 1, 2005 as an effect
of the application of International Accounting
Standard IAS 39. Shareholders’ equity is
expected to decrease by about SEK 10 M.
The IFRS-related change in the 2004
opening balance is mainly affected by IAS
19, “Employee benefits,” and by IAS 23,
“Borrowing costs.”
Skanska Annual Report 2004 – Report of the Directors
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