ANNUAL REPORT 2004 - Skanska

Credit risk
Credit and counterparty risk is defined as the risk that the Group will suffer a loss
because a counterparty does not fulfill its contractual commitments toward Skanska.
Financial credit and counterparty risk is identified, managed and reported according
to limits defined in the Financial Policy and the risk instruction established for
Skanska Financial Services.
To ensure a systematic and uniform assessment of construction projects, Skanska
uses its Operational Risk Assessment (ORA) model throughout the Group.
C. Reported and fair value of interest-bearing assets and liabilities
− financial instruments
The Group’s interest-bearing net assets amounted to SEK 7,499 M (150). At year-end
2004, the Group’s interest-bearing liabilities totaled SEK 4,922 M (10,091). The
Group’s interest-bearing assets rose to SEK 12,421 M (10,241).
The Group’s net interest items before taking into account capitalized interest
amounted to SEK –87 M (–477). The change was mainly attributable to a major shift
in the relationship between interest-bearing assets and liabilities, as well as lower
interest rates in several of Skanska’s home markets.
The following table shows reported and fair values of interest-bearing financial
instruments.
2004 2003
Reported Fair Reported Fair
Group value value value value
Assets
Financial fixed assets 1,063 1,073 1,956 1,956
Current receivables 2,490 2,490 1,248 1,248
Short-term investments 3,053 3,053 218 218
Cash and bank balances 5,815 5,815 6,819 6,819
Derivatives related to translation exposure 41 –12
Derivatives related to transaction exposure 115 15
Total assets 12,421 12,587 10,241 10,244
Liabilities and provisions
Provisions for pensions 735 1,071 1,926 1,638
Other provisions 135 135 175 175
Bond loans 1,807 1,867 5,774 5,839
Liabilities to credit institutions 1,647 1,646 1,664 1,660
Other liabilities 598 600 552 550
Net derivatives related to borrowing 130 110
Derivatives related to transaction exposure 7 30
Total liabilities and provisions 4,922 5,456 10,091 10,002
Less: Provisions for pensions –735 –1,071 –1,926 –1,638
Total liabilities and provisions
excluding provisions for pensions 4,187 4,385 8,165 8,364
2004 2003
Reported Fair Reported Fair
Parent Company value value value value
Assets
Long-term receivables
from Group companies 4,163 4,169 2,835 2,840
Other long-term receivables 0 10
Total assets 4,163 4,179 2,835 2,840
Liabilities and provisions
Liabilities to credit institutions 222 228 252 257
Liabilities to Group companies 5,705 5,705 3,534 3,534
Total liabilities and provisions 5,927 5,933 3,786 3,791
Fair value of interest-bearing financial instruments has been calculated by discounting
future cash flow at current market interest rates for each maturity.
Fair value of derivatives related to borrowing and derivatives related to transaction
exposure does not include underlying capital amounts and accrued interest.
Skanska AB has entered into swap agreements related to shares in the Company.
These swap agreements hedge part of obligations according to stock option programs.
The equity swaps are reported in the balance sheet only when unrealized
losses arise, calculated as the difference between the market price on the balance
sheet date and the initial prices of the swap agreements. When reporting fair value,
unrealized gains are also included in the same way.
Non-interest-bearing financial instruments such as accounts receivable and
accounts payable are reported at fair value and are not included in the table.
D. Funding
Established relationships with capital markets are a prerequisite for Skanska’s ability
to ensure a supply of capital on good terms. Via several borrowing programs, the
Group is well prepared for temporary fluctuations in its liquidity requirements.
Bank credit facilities
Skanska’s committed credit facilities consist of:
• A syndicated bank loan (Multicurrency Revolving Credit Facility) with a ceiling of
EUR 600 M and a final due date of November 15, 2009. On December 31, 2004,
this syndicated loan facility had a utilization level of 0 percent, since the loan facility
had not yet been utilized.
• Two bilateral loan agreements with the Nordic Investment Bank amounting to
EUR 40 M and EUR 30 M, respectively. These loans fall due in 2012.
The Group’s unutilized credit lines amounted to SEK 5,610 M (5,227).
Market funding programs
Skanska’s confirmed bank credit facilities consist of:
• Commercial paper (CP) program related to short-term borrowing for maturities
of up to one year. The loan ceiling in the CP program amounts to SEK 6,000 M.
On December 31, 2004, the borrowed amount was SEK 0 M.
• Medium Term Note program (MTN) for borrowing with maturities between 1−10
years. The loan ceiling in the MTN program amounts to SEK 8,000 M. On December
31, 2004, the borrowed amount was SEK 1,765 M and the average maturity
was 2.6 years.
These borrowing programs are mainly intended for borrowing in the Swedish credit
market; however, it is possible to borrow in EUR within the framework of these programs.
Liquidity reserve and maturity structure
The target is to have a liquidity reserve of at least SEK 4,000 M available through
cash equivalents or committed credit facilities. At year-end 2004, this amounted to
more than SEK 11 M.
The average maturity of the borrowing portfolio shall be in the 2–4 year range.
At year-end 2004, the average maturity was 3.0 (2.2) years.
The maturity structure of interest-bearing assets, liabilities and provisions on
December 31, 2004 was distributed over coming years according to the table below.
December 31, 2004
Interest-bearing assets, year of maturity Fixed rate Variable rate Total
2005 8,296 3,103 11,399
2006 106 449 555
2007 1 4 5
2008 0 40 40
2009 109 0 109
2010 and later 173 140 313
Total interest-bearing assets 8,685 3,736 12,421
Interest-bearing liabilities and provisions,
including derivatives and provisions
for pensions, year of maturity Fixed rate Variable rate Total
2005 24 1,017 1,041
2006 1,452 –806 646
2007 931 –67 864
2008 369 411 780
2009 428 –382 46
2010 and later 90 720 810
Total interest-bearing liabilities 3,294 893 4,187
Pensions 735 0 735
Net assets 4,656 2,843 7,499
On December 31, 2004, the Group’s interest rate swap portfolio amounted
to a nominal SEK 17,111 M (17,952). A net amount of SEK 1,939 M (1,971)
of the liabilities was swapped from variable to fixed interest rates.
Skanska Annual Report 2004 – Notes, including accounting and valuation principles
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