For a building contractor, the principal risk-limitation phase is during the contract-tendering process.

NCC's overall strategy is to adopt a selective approach to tendering in order to reduce the proportion of
unprofitable projects. When selecting suitable contracts, NCC assigns priority to projects whose risks are
identified, manageable and calculable.

Most risks, such as contract risks and technological and production-related risks, are best managed and
minimized in cooperation with the customer and other players during early stages of the project.
Accordingly, new cooperation formats, such as NCC Partnering, are key features of efforts to limit risk.

Project control is of decisive importance to minimizing problems and thus costs. In order to control and
follow-up operations within Construction units, NCC uses a processcontrolled operational management
system. Several Group units are quality and environmentally certified.

Development risks
Proprietary project development in both residential and commercial properties includes a development
risk, as well as contracting risks. Every project concept must be adapted to local market preferences and
the planning requirements imposed by public authorities. State-of-the-art skills are required to optimize
projects that have to be processed by, for example, local municipalities and possibly have to pass an
appeals process.
To reduce these risks, NCC has successively limited the markets in which the Group operates.
Proprietary residential and property projects are conducted primarily in large growth communities in the
Nordic countries. NCC has also made a concerted effort to refrain from excessively nicheoriented
projects for narrow target groups, since earnings in this sector have historically not corresponded with
their higher inherent risks. Risk limitation is achieved through high leasing rates when a construction
project is started, and tied-up capital is reduced through early sales.

The key action taken in 2004 was NCC's decision to discontinue all operations in Asia, Africa and Central
America. The background is that international construction operations tie up substantial amounts of
capital and are associated with major risks. As a result of this action, which NCC expects to complete no
later than 2006, the Group reduces its risk exposure in areas where its local market knowledge is
limited.

A fundamental element in NCC's strategy is to work in markets known to the Group, and with products
and services for which the Company has advanced skills.
Seasonal risks
The asphalt operations of NCC Roads are subject to considerable seasonal variations, with most
procurements secured during the spring, and asphalt production and paving activities conducted during
the summer half year. Warm autumn weather could have a favorable effect on production, while long,
cold winters have negative effects on earnings. To offset these risks, NCC Roads offers road-related
products and services that encompass the entire value chain. Repair and maintenance activities, for
example, complement paving operations over the year. Construction units also show some seasonal
variations.


Risk for errors in profit recognition
NCC and other companies in the sector apply the percentage-of-completion method for recognizing
profit from contracting operations, whereby profit is recognized in parallel with completion, which means
before the final result is established. The risk that actual profit will deviate from percentage-of-
completion profit recognition is minimized through NCC's project-management model, which ensures the
necessary follow-up and control of all construction projects on which profit recognition is based.
Accordingly, if the final result of a project is expected to be negative, the entire loss from the project is
immediately charged against earnings, regardless of the project?s degree of completion.

Profit recognition from NCC's proprietary housing projects is based on the lower of the worked-up rate
and sales rate. This eliminates the risk of recognizing profit from proprietary projects before a sale has
been completed.

With the introduction of new IFRS regulations, profit recognition from proprietary housing projects will
be computed in accordance with the model of multiplying the worked-up rate with the completion rate,
which will result in more cautious profit recognition.
Financial risk
The assumption of financial risk should be viewed against the background of the capital requirements of
NCC's various operations. Contract operations generally do not require any tied-up capital and should be
financed by means of a positive cash flow from the projects concerned.

Proprietary housing and property development operations tie up capital throughout the entire duration of
the project, from land investments and subsequent development through the final sale of the project.

NCC Roads has capital employed in fixed assets (quarries, crushing plants, asphalt plants, paving
machinery, etc.).

Based on the present range of operations, the NCC Group's net indebtedness should not exceed
shareholders? equity.

The Group's financial risks, such as interest-rate, currency, credit, liquidity and financing risks, are
managed centrally in order to minimize and control risk exposure.

22222222222222222222222222222222222222222222222222222222222222222222222222222222

Indian infrastructure companies such as NCC Urban Infrastructure, Lanco Infratech, IVRCL
Infrastructure andPunj Lloyd have either sold, or are in the process of exiting their real estate
business to raise cash and re-focus on core business. Barely 3-4 years ago, these companies had
rushed to booming real estate bandwagon to launch their own projects.

"Most infrastructure companies are financially stretched and need liquidity. These companies had
entered real estate business during the boom period to invest their surplus cash and gain from the
high-margin business, but now they want to get rid of those assets," says Kuljit Singh, partner
infrastructure practice, Ernst & Young.
NCC Urban Infrastructure, the real estate arm of NCC, has put a freeze on new investments in real
estate and is looking to divest stake at the special purpose vehicle (SPV)-level to raise capital. NCC
has also slowed down execution in its 1.5 million sq ft mixed development Dubai property, after
completion of the first tower.
"There will not be any fresh investments from the parent company in real estate. The company now
plans to capture and scale up presence in power, metals, mining and oil and gas segment to improve
margins in core construction business," says NCC.
The company refused to comment on the development.

NCC is a Hyderabad-based infrastructure company having presence across varied sector such as
buildings and housing, power, metals and oil and gas. It has acquired over 410 acres for its real
estate venture across Bangalore, Chennai, Goa, Gurgaon, Hyderabad, Kakinada and Raipur. The
company has 10 residential projects at the execution stage.