Lemminkäinen’s risks are divided into six categories
Market risks
The most significant of Lemminkäinen’s market risks is the cyclical nature of new domestic construction. This risk is managed structurally and operationally. Unlike most other construction companies, the structure of the Lemminkäinen Group is such that business areas sensitive to the cyclical nature of domestic building construction make up only about a half of its business. Operationally, the Group counters market risks by maintaining the flexibility and responsiveness necessary to adjust quickly to changing market conditions.
Project risks
Building contracting is essentially a risky business. The building contractor is always exposed to the risk of estimated contract costs being exceeded. This risk is managed in three ways. Firstly, business is structured so that the average contract size is quite small. The net sales generated annually from even the biggest of Lemminkäinen’s contracts will generally not exceed 5% of the Group total in any given year. This means that the failure of an individual contract cannot have a major impact on the Group’s result. Secondly, Lemminkäinen is selective when deciding on the projects for which it will submit tenders. The Company does not tender for projects when it does not possess the necessary resources or previous experience. Thirdly, great attention is continuously paid to project management and its development. The sales risk associated with own housing and commercial developments is controlled by not starting such developments without advance marketing and the receipt of sufficient reservations. Unplanned land or building rights are not acquired for future use without clear plans as to when construction could start and who could be the site’s users and owners.
Financing risks
All significant corporate or business acquisitions are evaluated critically from the perspectives of the cash flow that they would generate and their potential impact on the balance sheet. The Group hedges against interest rate and foreign exchange risks in the conventional ways. The maturities of seasonal credit stemming from the nature of Lemminkäinen’s business are short, while those of other borrowings are mostly long. Receivables denominated in foreign currencies and the share capital of foreign subsidiaries are hedged.
Credit losses
Lemminkäinen’s credit losses have always been minimal in relation to the scale of its operations. The main risks in this respect are associated with business in Russia. As a general rule, construction projects in Russia are only undertaken against receipt of advance payments. If a credit risk is accepted exceptionally, the amount permitted is always predetermined in relation to the expected margin on the project in question.
Environmental risks
The environmental risks associated with the Group’s businesses are analysed in advance. Risk assessment and risk management are part of the Group’s normal operations. Environmental risks are minimised by reducing emissions and by improving the safe storage and handling of oils, lubricants and other chemicals. The management of environmental affairs and the effects of the Group’s operations on the environment are continuously monitored by means of internal monitoring and control programmes.
Accidents and damage
The Group’s fixed assets are insured against damage or loss in accordance with the insurance policy approved annually by the parent company’s Board of Directors. Owing to the accidentprone nature of construction work, special attention is continuously paid to the development of industrial health and safety.
Updated 7.3.2008