1-2 El caso de las Islas Canarias

For the Skanska Group, it is essential that there is an effective and systematic assessment of both financial and business risks. To ensure a systematic and uni- form assessment of projects in its business units, Skanska uses its model for risk assessment, the Skanska Risk Management System (SRMS), on a Groupwide basis. The risk management model does not imply avoidance of risks, but is instead aimed at identifying, managing and pricing these risks.

The Group’s Financial Policy states guidelines, objectives and limits for financial management and administration of financial risks in the Group. This policy docu- ment regulates the allocation of responsibility among Skanska’s Board, the Senior Executive Team, Skanska Financial Services and the business units.

Within the Group, Skanska Financial Services has operational responsibility for ensuring Group financing and efficiently managing liquidity, financial assets and financial liabilities. Skanska Financial Services is also responsible for monitoring compliance with the Financial Policy.

The Senior Executive Team is responsible for reporting risk exposure as well as gains and losses from the Group’s financial activities to Skanska’s Board. B. Financial risks

Financial risks can mainly be divided into the following categories: interest rate, foreign exchange, refinancing and counterparty risk.

Interest rate risk

Interest rate risk is the risk that changes in interest rates will adversely affect the Group’s net interest items and/or cash flows.

Various forms of derivative contracts, mainly interest rate swaps and currency swaps, are used in order to adapt the interest rate refixing period and currency as needed or if deemed suitable.

Interest rate risk is defined as the possible negative impact in case of a sudden one percentage point increase in interest rates across all maturities. The absolute risk may never exceed SEK 100 M.

Refinancing risk

Refinancing risk is defined as the risk caused by lack of liquidity or difficulty in obtaining, or rolling over, external loans.

At all times, the Group shall also have the equivalent of at least SEK 4,000 M in available cash equivalents or committed credit facilities, accessible within the space of one week.

Foreign exchange risk

Foreign exchange risk is defined as the risk of negative impact on the Group’s earnings due to fluctuations in exchange rates. This risk can be divided into trans- action exposure, i.e. net operating and financial (interest/principal payment) flows, and translation exposure related to the equity of foreign subsidiaries denominated in foreign currencies.

Although the Group has a large international presence, its operations are of a

local nature in terms of foreign exchange risks. Project revenues and costs are mainly denominated in the same currency, and transaction risks from exchanges between different currencies are thus very limited.

The objective stated in the Financial Policy is that all transaction exposures for each respective business unit shall be currency hedged via Skanska Financial Servic- es. This foreign exchange risk may amount to a total of SEK 50 M, with risk calcu- lated as the effect on earnings of a five percentage point shift in exchange rates. The foreign exchange risk in transaction exposure is kept as close to zero as possible. The foreign exchange risk that arises because portions of the equity of the Group are invested long-term in foreign subsidiaries, known as translation exposure, is not normally hedged. Exceptions may occur, however. For example, U.S. operations are 50 percent hedged, and Skanska hedges investments in Commercial Development and Infrastructure Development. In the two latter cases, the investment is normally funded through loans in functional or local currencies.

Counterparty risk

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 counterparty risk is identified, managed and reported according to limits defined in the Financial Policy and the risk instruction established for Skanska Financial Services

C. Reported and fair value of interest-bearing assets and liabilities − financial instruments

The Group’s interest-bearing net receivable amounted to SEK 10,377 M (11,111). The Group’s interest-bearing assets decreased to SEK 15,441 M (16,975). The Group’s interest-bearing liabilities amounted to SEK 5,064 M (5,864) at year-end. The Group’s net interest items, excluding capitalized interest, amounted to SEK 299 M (171). The change was mainly attributable to higher market interest rates. Recognized and fair value of financial instruments coincide for all balance sheet items except for non-current financial liabilities, where fair value was SEK 14 M (53) higher.

Fair value has mainly been calculated according to generally accepted methods of discounting future cash flows based on quoted market interest rates for each respective currency and maturity. If an official price quotation exists in an active market, this has been primarily used. An estimate of Skanska’s risk premium is used in calculating fair value in the borrowing portfolio.

Early in 2006, Skanska AB wound down swap agreements related to shares in the Company.

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, 2011. On December 31, 2006, the degree of utilization was 0 percent, since the loan facility had not yet been used.

• 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 at year-end amounted to SEK 6,276 M (6,071).

Market funding programs

Skanska has two market funding programs

• 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, 2006, the borrowed amount was SEK 0 M.

• Medium Term Note (MTN) program for borrowing with maturities between 1–10 years. The loan ceiling in the MTN program amounts to SEK 8,000 M. On Decem- ber 31, 2006, the borrowed amount was SEK 939 M with an average maturity of 1.3 years.

These borrowing programs are mainly intended for borrowing in the Swedish credit market, but it is possible to borrow in EUR within the framework of these pro- grams.

Notes, including accounting and valuation principles

Skanska Annual Report 2006 85

Liquidity reserve and maturity structure

The target is to have a central liquidity reserve of at least SEK 4,000 M available within one week in the form of cash equivalents or committed credit facilities. At year-end 2006, this amounted to about SEK 13 billion. At year-end 2006, the

Note 6 continued

2006 2005

Interest-bearing assets, maturity Fixed rate Variable rate Total Fixed rate Variable rate Total

< 1 year 6,067 7,555 13,622 8,254 7,651 15,905 1–2 years 931 698 1,629 587 226 813 2–3 years 2 0 2 1 19 20 3–4 years 9 133 142 0 0 0 4–5 years 0 1 1 48 0 48 > 5 years 26 18 44 3 187 190

Total interest-bearing assets 7,036 8,405 15,441 8,892 8,082 16,975

Interest-bearing liabilities including derivatives, maturity Fixed rate Variable rate Total Fixed rate Variable rate Total

< 1 year 771 73 844 –270 1,182 912 1–2 years 1,267 340 1,607 417 468 884 2–3 years 1 153 154 749 113 862 3–4 years 0 14 14 1 41 42 4–5 years 156 12 168 0 3 3 > 5 years 39 681 721 0 753 753

Total interest-bearing liabilities 2,234 1,273 3,508 898 2,559 3,457

Net interest-bearing financial instruments 4,802 7,131 11,933 7,995 5,523 13,518

Pensions 1,556 2,407

Net interest-bearing receivables 10,377 11,111

On December 31, 2006, the nominal amount of the Group’s interest rate swap portfolio was SEK 1,948 M (1,718). A net amount of SEK 348 M (–58) of the lia- bilities was swapped from variable to fixed interest rates.

E. Risk management

The Group uses various derivative instruments (mainly interest rate swaps and currency futures) to control and adapt its risk exposure to fluctuations in interest rates and foreign exchange rates.

Derivative contracts, including derivatives that are embedded in other instru- ments or commercial contracts, are continuously recognized at fair value in the balance sheet. Their change in fair value is recognized in the income statement, except for hedges of net investments abroad and part of the cash flow hedges of transaction exposure for which hedge accounting is applied.

Currency risk

Transaction exposure

Expected contracted net flows in currencies that are foreign to the respective subsidiary are distributed among currencies and maturities as follows. December 31, 2006

2009

The Group’s expected foreign currency flow 2007 2008 and later

USD 204 EUR 2,917 716 17 CAD –27 MTL –90 JPY 79 17 PLN –28 SKK –42 Other currencies 35

Total equivalent value 3,048 733 17

The following table shows recognized gains and losses related to hedging of transaction exposure for which hedge accounting is applied. Foreign exchange futures are used as instruments to hedge future income in local currency by min- imizing the effects of changes in the forward price of contracted inflows, primarily in EUR.

December 31, 2006

The Group’s recognized gains and

losses for hedge accounted derivatives 2009

related to transaction exposure 2007 2008 and later Total

EUR 109 31 1 141

Recognized gains 109 31 1 141

EUR –2 –2

Recognized losses –2 0 0 –2

The following table shows recognized gains and losses related to the Group’s other hedges of transaction exposure, for which hedge accounting is not applied as well as recognized gains and losses on embedded derivates.

December 31, 2006

The Group’s recognized gains and losses for derivatives

related to transaction exposure 2007 2008 Total

EUR 62 12 74 USD 5 5 JPY1 _{19 10 29} Recognized gains 86 22 108 EUR –50 –10 –60 JPY1 _{–22 –6 –28} Recognized losses –72 –16 –88

1 Flows in JPY are attributable to a road project in Slovakia. average maturity of the borrowing portfolio was 2.4 (2.7) years.

The maturity structure of interest-bearing assets and liabilities, including deriva- tives, was distributed over coming years according to the following table.

Notes, including accounting and valuation principles

86 Skanska Annual Report 2006

Translation exposure

Equity in foreign subsidiaries is normally not hedged, since it is regarded as an investment of a long-term nature. There may be exceptions, however. For exam- ple, 50 percent of the equity of Skanska’s U.S. operations is hedged due to its siz- able impact on the equity of the Group in case of foreign exchange fluctuations. Investments in project development and public-private partnerships, which are intended to be divested, are normally hedged by means of financing in function- al or local currencies, or alternatively by entering into a currency future contract. The amounts that are hedged consist of equity including any tax effect. Hedge accounting is applied for those hedges that meet the criteria for hedge accounting. The translation difference in the equity of the Group may be significant during certain periods of major exchange rate fluctuations. On December 31, 2006, the largest exposures were in USD, NOK, CZK and EUR.

See also Note 34, ”Effect of changes in foreign exchange rates.” Interest rate risk (excluding pension liability))

The average interest rate refixing period for all interest-bearing liabilities was 0.9 (1.0) years.

The average interest rate for these amounted to 4.00 (4.38) percent at year-end.

The share of borrowings in foreign currencies, after taking into account derivatives, was 21 (31) percent.

The average interest rate refixing period for all interest-bearing assets was 0.2 (0.1) years, and the average interest rate was 3.26 (2.42) percent at year-end. Of these, receivables in foreign currencies accounted for 61 (61) percent. The Skanska Group’s portfolio of derivatives related to borrowing was distribut- ed as follows on December 31, 2006.

The values stated do not include accrued interest.

December 31, 2006

The Group’s recognized gains and losses for derivatives related to borrowing

2007 2008 Later Total

Receiving fixed rate –1 –1 0 –2

Paying fixed rate –2 6 0 4

Net amount –3 5 0 2

December 31, 2005

The Group’s recognized gains and losses for derivatives related to borrowing

2006 2007 2008 Later Total

Receiving fixed rate 1 0 6 0 7

Paying fixed rate –1 –8 2 0 –7

Net amount 0 –8 8 0 0

The fair value of the borrowing portfolio, including derivatives related to borrow- ings, would change by about SEK 50 M in case of a change of market interest rates of one percentage point over the entire yield curve, given the same volume and interest rate refixing period as on December 31, 2006.

Counterparty risk

The Group’s counterparty risk can be divided into two main categories: financial counterparty risk and counterparty risk attributable to commercial contracts. Financial counterparty risk

This is a risk that the Group runs in its relations with financial counterparties in the case of deposits of surplus funds, bank account balances and investments in financial assets. Financial credit and counterparty risk is identified, managed and reported according to limits defined in the Financial Policy and the risk instruc- tion for Skanska Financial Services.

Skanska has netting (ISDA) agreements with all the financial counterparties with which it enters into derivative contracts. These agreements reduce counter- party risk to some extent.

Skanska endeavors to limit the number of financial counterparties, which must possess a rating at least equivalent to a BBB+ at Standard & Poor’s or the equiva- lent rating at Moody’s. The permitted exposure volume per counterparty is dependent on the counterparty’s credit rating and the maturity of the exposure.

Counterparty risk attributable to commercial contracts

The Group’s financial counterparty risk attributable to commercial contracts can be divided into three main categories: customer credit risk, counterparty risk related to partners in construction consortia and counterparty risk related to partners in investment projects.

Financial counterparty risks that arise in projects are identified, managed and reported in accordance with limits defined in the Financial Policy and the respec- tive decision making systems of the Parent Company and business units.

Customer credit risk

Skanska’s customer credit risk with regard to trade receivables from customers has a high degree of risk diversification, due to the large number of projects of varying sizes and types with numerous different customer categories in a large number of geographic markets.

The portion of Skanska’s operations related to construction projects extends only very limited credit, since projects are invoiced in advance as far as possible. In other operations, the extension of credit is limited to customary invoicing peri- ods.

A business unit is not permitted to extend credit to a customer beyond estab- lished threshold limits without first receiving approval from Skanska Financial Ser- vices.

Counterparty risk related to partners in construction consortia

In major construction projects (mainly infrastructure projects), Skanska may work together with other construction companies in the form of consortia.

These construction consortia assume various types of guarantees toward the customer and the institutions that provide financing during the construction peri- od, and as a rule guarantees are also issued by third parties such as banks or insurance companies. In these projects, the Group is exposed to the risk that other parties cannot fulfill their contractual obligations. The process that pre- cedes project tenders together with other companies in construction consortia includes a due diligence assessment of the financial stability of the other parties. To limit this exposure, as a rule the parties in each consortium issue reciprocal Parent Company guarantees.

For further information, see Note 33 on contingent liabilities.

Counterparty risks related to partners in investment projects

Skanska’s investments in privately financed infrastructure projects, so-called pub- lic-private partnership (PPP) projects, consist of shares and, as a rule, subordinat- ed debenture loans in a project company created for this purpose. In conjunction with the financing of PPP projects, in some cases Skanska may assume responsi- bility in the form of Parent Company guarantees and bank guarantees, for the purpose of ensuring financing on behalf of a third party during a limited period. The total obligation is equivalent to the Group’s ownership stake in the project company in the form of equity and subordinated debenture loans (risk capital in the project) when fully invested. Skanska’s ownership in PPP project companies amounts to a maximum of 50 percent (lower voting power). The Group is thus exposed to the risk that other co-owners cannot fulfill their contractual financial obligations to project companies. The process that precedes an investment includes a due diligence assessment of the financial stability of the other co-own- ers. To limit this exposure, as a rule the co-owners of PPP project companies issue reciprocal Parent Company guarantees. The external institutions that pro- vide financing for PPP projects, as a rule capital market investors or banks, also require that project companies and their owners meet high standards of financial strength.

Insurable risks

At Skanska, there are guidelines for how insurance matters are to be dealt with. The insurance unit at Skanska Financial Services assists the business units in their procurement of arranged insurance solutions. Skanska’s captive insurance compa- nies Skanska Försäkrings AB and Scem Re S A provide back-up to business units in arranging insurance solutions. The overall insurance risk is normally reinsured in the international reinsurance market.

Notes, including accounting and valuation principles

Skanska Annual Report 2006 87