Financial risks may relate to the company's balance sheet, credit exposure, payment flows, clients, subcontractors and joint venture partners as well as foreign-exchange and interest rate risks.
Typical financial risks within the Group
Skanska's balance sheet is exposed to both external financial risks and to effects from the Group's operations. Every year, Skanska's management, the Senior Executive Team, and Board of Directors determines the framework of the Group's total investments. The investments for each business unit are limited to a maximum amount. Each business unit prioritizes potential project starts that fall within these limits. When ongoing projects are divested or leased out, the risks decrease – creating room for new investments.
Other financial risks include credit exposure, payment flows, foreign-exchange risks, interest-rate risks and liquidity risks. The financial position of clients, subcontractors and joint venture partners may also involve risks.
Project revenue and costs are normally denominated in the same currency, thus limiting the transaction risks in exchanges between different currencies.
Interest rate risk refers to changes in interest rates that affect the Group's future earnings and cash flow.
Foreign-exchange risk is defined as the changes in exchange rates which have a negative impact on earnings.
Credit risks involves two areas: risk from financial assets and the risk associated if a counterparty does not fulfill its contractual payment obligation.
Liquidity risk is defined as the risk that Skanska cannot meet its payment obligations due to lack of liquidity or to difficulties in obtaining or rolling over external loans.
The Skanska Financial Services support unit manages the Group's payment flows and evaluates financial risks such as credit risks, foreign-exchange risks, interest-rate risks, customers, subcontractors and joint venture partners.
Known and budgeted financial flows with currency exposure are hedged. The Group's equity invested in foreign subsidiaries is partly hedged. At year-end 2015, the Group's unutilized credit facilities totaled SEK 5.5 (5.7) billion. The average maturity of the borrowing portfolio, including the maturity of unutilized credits, was 2.6 (3.6) years. Skanska regularly follows up all major projects implemented over an extended period. Skanska's Senior Executive Team performs quarterly reviews of major projects, altogether equivalent to about one-third of the total contract value of ongoing projects.