Skanska Group today

1
Skanska Group today

• Skanska is one of the worlds leading companies
  in construction services and project development
• Founded in 1887
• Net sales SEK 108 billion year 2000
• 85,000 employees
• Operations in 60 countries
• Primary markets are USA, Sweden, Finland, Norway,
  Denmark, UK, Poland, the Czech Republic,
  Argentina and Hong Kong

2
Skanska Group - Strategy for growth
3
The Skanska Group is number five in the world
4
Our way of working!
5
Skanska Group Organization
Senior Executive Team
Corporate staff
Skanska Teknik
Selmer Skanska
Skanska Denmark
Skanska Telecom Networks
Skanska Sweden
Skanska UK
Skanska International Projects
Sade Skanska
Exbud Skanska
IPS Skanska
Skanska Oy
Skanska Services
Skanska Project Development Europe
Skanska BOT
Skanska Project Development Sweden
Beers Skanska
Skanska USA Civil
Skanska Project Development USA
Skanska USA Building
New Businesses
Construction Services
Project Development
Skanska BOT
6
Skanska BOT AB
President
7
Skanska BOT Business Sectors
Skanska BOT AB, a development and investment
company specializing in private infrastructure
projects in following business sectors.

• Roads, tunnels and bridges
• Hydropower
• Ports
• Airports
• UK PFIs

8
SKANSKA BOT INVESTMENTS
Kings College Hospital, UK
Nelostie Motorway Project, Finland
North-South Highway, Chile
Bridgend Prison, UK
Ponte de Pedra Hydro, Brazil
Cahua Hydropower, Peru
9
SKANSKA BOT IN THE PIPELINE
Maputo Port, Mozambique
Sharm-El-Sheikh Airport, Egypt
10
                                                
                
 
 
Skanska BOT Contacts
11
BOT CONCEPT
12
Mission

• To co-develop, invest in and monitor
• infrastructure projects in selected markets that
• produce suitable returns and employ Skanskas
• core business capabilities

13
Complementary Skills within the Skanska Group

• Skanska BOT
• Project Business Know-how
• Financial Packaging
• Financial Evaluation
• Investor Network
• Operator Network
• Operational Know-how

• Skanska Construction
• Management Expertise
• Production Proficiency
• Technical Know-how
• Geographical Knowledge
• Partner Network

14
Basic project requirements

• Project selection is vital
• Financial Soundness of the Project
• Political Commitment from Government
• Environmentally defendable
• Added Value from Skanska as Contractor
• Right Partners for Construction/Operation
• Satisfactory Legal Environment

15
Financial Project Requirements

• Appropriate Financial Returns
• Genuine Business Approach
• Solid Investment Group
• Fulfillment of Liquidity Requirements
• Acceptable Risk Exposure
• Bankable Project

16
Legal infrastructure

• Open legislative process and publicized laws
• Clear and durable legislation
• Independent judiciary
• Effective and fair enforcement
• Pacta sunt servanda recognized by courts
• Recognition of property rights

17
Typical Contractual Structure
Government Entity
Concession Agreement
Loan Agreement
Special Purpose Company
Shareholders Agreement
Banks
Shareholders
Turnkey Contract
Operations Maintenance Agreement
Design, Construction and Supply
Operation Maintenance
18
BOT - The Market Potential

• USD 50 billion yearly in private energy projects
• USD 10 billion in yearly airport work in the USA
  the next 10 years
• 300 road/bridge/tunnel projects totaling USD 143
  billion offered as BOT in 50 countries
• 10 billion to be spent the next 5 years in the
  UK on schools and colleges
• USD 30 billion in container terminal investments
  world wide the next 5 years
• By 2001 - 11 billion in UK PFI awards

19
Regulatory Framework

• Statutory duties - public services
• Private acting as authority - powers
• Setting of standards
• Interface with other public services
• Monitoring from the public
• Resolving technical disputes

20
Transaction Costs

• Costs for bidding, negotiating and producing
  documentation - sponsor risk until closing
• Causes
• Complex, large and long life projects
• Risk allocation between many parties
• Institutional changes - public staff interests
• Multi-sourced financing
• Limited recourse - entire project collateral
• Documentation enormous

21
Key Reasons for Failure

• Project not commercially viable
• Government abandons the Project
• Failure in the Consortium
• Disagreement between partners
• Changed priorities
• Economy
• Public disapproval

22
Presentation of the Financial Model
23
Project Cash Flow

• Caracteristics
• Large Initial Investement
• Long Repayment Time (25-50 years)

24
Discounted Cash Flow
r discount rate expected return on capital
NPV gt 0 Consider investment
25
Net Present Value IRR
IRR is the expected return of the project.
Equity IRR
Equity
Assets
Project IRR
Debt
Interest Rate
26
Financial Model
PL BS CF
Output
Input
27
Input

• Construction Cost
• Development Cost
• Operating Cost
• Financial Costs
• Revenues
• IRR requirement
• Macroeconomic (institutions, authorities)
• Demographic (institutions, authorities)
• Fiscal (institutions, authorities)

28
Profit and Loss and Cash Flow

• Revenues
• - Operating Expenses
• CF from Operations
• - Investment
• - Tax
• Pre-Finance CF (Project CF)
• - Interests
• - Repayments
• Net Cash Flow

• Revenues
• - Costs
• EBITDA
• - Depreciation
• EBIT
• - Interests
• EBT
• - Tax
• Net Earnings

29
Output

• Unknown variables (Cost, Price IRR)
• Financial Ratios
• Balance Sheet Structure
• Sensitivities
• Graphs

30
Sensitivities

• Construction Cost
• Operating Cost
• Interest Rates
• Production
• Price Sales
• Schedule
• Macroeconomic Assumptions

31
Motorway in Finland
Helsinki -Lahti

• Project description
• Procurement and evaluation
• Financing
• Distribution of risks
• Advantages and disadvantages with BOT

32
Project description
Helsinki -Lahti

• Motorway in Finland
• from Helsinki - Lahti 69 km
• Stage 1 Järvenpää - Mäntsälä 30 km
• Stage 2 Mäntsälä - Lahti 39 km
• Bridges 88 nos

33
Helsinki -Lahti
Project description, cont.
Customer FINNRA
Concession company Nelostie Oy
Concession 15 years Transfer to FINNRA free
of charge in 2012
34
Original Time schedule
Helsinki -Lahti
35
Revised opening dates
Helsinki -Lahti

• Original Real Stage 1 1
  Oct. 1999 12 Nov. 1998 Stage 2 1 Sept. 2000 17
  Sept. 1999

36
Helsinki -Lahti
Procurement

• Clearance to a private financed
  motorway April 94
• Invitation to tender (ICB) May 96
• Tender documents July 96
• Five consortiums submit a tender Nov 96
• Negotiations with two consortiums Dec 96
• Negotiations with one (our) consortium Dec
  96
• Contract signed with Nelostie Oy Mars 97

37
Helsinki -Lahti
Evaluation of tender
Tender Finnish mark / car x kilometer FINNRA
traffic forecast was used Winner lowest net
present value Nelosties tender approx. 1200
Mmk nominal value
38
Revenues - payment structure
Helsinki -Lahti
Band 4
Traffic forecast
Band 3
Band 2
Band 1
39
Helsingfors-Lahti
Organization structure
Concessions agreement
Shareholders
Nelostie Oy
Loans
Leonia Bank NIB
Skanska Hyder PCA
Routine maintenance
Majormaintenance
Constructor
Skanska Oy/Tekra Oy
40
Helsingfors-Lahti
Financing

• Stockholders Equity, Nelostie Oy
  70 Mmk
• Skanska BOT AB, Sverige 28
• Skanska Oy, Finland 14
• Hyder Investments, UK 29
• Industrial Insurance Oy, Finland 14
• Pension-Varma-Sampo, Finland 14
• Espoon Sähkö OY, Finland 1
• Bank loans
• Leonia, Finland
  250 Mmk
• Nordic Investment Bank 250 Mmk

41
Construction contract
Helsinki -Lahti

• Joint venture Skanska Oy / Tekra Oy
• Fixed price
• No adjustment for inflation
• Adjustments only if approved and paid by FINNRA
• Bonuses and penalties for early or late completion

42
Helsingfors-Lahti
Operation maintenance

• Contracts for
• - Routine maintenance
• - Major maintenance
• - Fixed prices
• Certain adjustment for inflation

43
Helsingfors-Lahti
The Concession Company

• Administration
• Interest
• Mortgage
• Tax
• Dividend to Shareholders

44
Helsingfors-Lahti
Risks - sharing
Project sponsor
Contractor
Operator
Nelostie Oy
FINNRA
Project risks
Taking possession Obstacles Force Majeure
(80) Price of asphalt Inflation
maintenance Changes of laws
45
Helsinki -Lahti
Advantages disadvantages of BOT
Advantages
Economical for the Government (ICB, economies
of scale) Ready faster and earlier Optimize
life cycle costs promotes development
Risks transferred to the concession company
Guarantee period is long, fixed max costs Does
not burden the public finances up front
Disadvantages
Long term commitment for government less
flexibility