Slide 1: 2nd Quarter 2018 Investor presentation
2ND QUARTER 2018 Investor presentation 16 August 2018
Slide 2: Contents
CONTENTS Highlights Results – segments and Group Civil Engineering Norway Concluding remarks Veidekke is building the residential project Nyegaardskvartalet in Oslo. 250 apartments will be BREEAM certified and built as a fossil-free site 2
Slide 3: Highlights 2nd Quarter
HIGHLIGHTS 2ND QUARTER Write-down of civil engineering project portfolio in Norway NOK 550 million Revenue growth and improved results in the other parts of Construction Large order backlog Slow sales and declining results in Property Development Veidekke is building the new Vestli school and activi
Slide 4: Write-down of Norwegian civil engineering project portfolio by NOK 550 million
WRITE-DOWN OF NORWEGIAN CIVIL ENGINEERING PROJECT PORTFOLIO BY NOK 550 MILLION COMPRISES KEY CHALLENGES Primarily relates to three infrastructure Construction contracts for infrastructure projects where there is great uncertainty projects with major change requirements, pertaining to the revenue bas
Slide 5: Revenue and earnings for the 2nd quarter
REVENUE AND EARNINGS FOR THE 2ND QUARTER REVENUE PROFIT BEFORE TAX* 10 500 400 8 300 450 385 NOK million 200 NOK billion 6 318 351 100 225 9.1 4 8.1 8.3 - 6.0 6.2 -100 -199 2 -200 - -300 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 2018 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 2018 * Q2 2018 includes a NOK 550 mill
Slide 6: Profit before tax for the 2nd quarter
PROFIT BEFORE TAX FOR THE 2ND QUARTER 2ND QUARTER: CONSTRUCTION* 2ND QUARTER: PROPERTY DEVELOPMENT 2ND QUARTER: INDUSTRIAL NOK million NOK million NOK million 250 250 250 12 20 200 27 200 200 150 150 150 -11 100 216 100 100 157 159 9 -60 50 50 88 50 -25 -3 85 66 - - - Q2 2017 Norway Sweden Denmark Q
Slide 7: Solid order intake in Construction
SOLID ORDER INTAKE IN CONSTRUCTION REVENUE AND ORDER INTAKE, CONSTRUCTION QUARTERLY ORDER INTAKE, CONSTRUCTION (“BOOK-TO-BILL RATIO” 1.19) 12 40 10 35 1.9* 30 8 NOK billion NOK billion 8.3 25 6 20 4 15 10 2 5 12m revenue 12m order intake - - Q4 2014 Q2 2015 Q4 2015 Q2 2016 Q4 2016 Q2 2017 Q4 2017 Q2
Slide 8: Increased order backlog – shift towards commercial buildings
INCREASED ORDER BACKLOG – SHIFT TOWARDS COMMERCIAL BUILDINGS ORDER BACKLOG, CONSTRUCTION (NOK BILLION) ORDER BACKLOG BY SEGMENTS 35 Q3 2017 Q2 2018 30 2,0* 25 Denmark Civil Civil 8,2 engineering Commercial engineering Commercial 20 buildings buildings Sweden 37% 26% NOK NOK 15 31 bn 36% 50% 33 bn 10
Slide 9: Significant building construction activity in the four largest regions
SIGNIFICANT BUILDING CONSTRUCTION ACTIVITY IN THE FOUR LARGEST REGIONS Concentration of activity in these areas Combined annual turnover of about NOK 13 billion Combined margin is >5% Solid profitability in Oslo and Copenhagen areas Improved profitability within commercial buildings in Sweden 9
Slide 10: Selected public and commercial building projects
SELECTED PUBLIC AND COMMERCIAL BUILDING PROJECTS VIA in Vika, Oslo School buildings in Norway and Sweden Sergelshuset in Stockholm Mid Avenue, Gothenburg Patienten in Stockholm The Amager Centre in Copenhagen Harbitz Torg in Oslo Office building in Ørestaden, Copenhagen 10
Slide 11: Revenue and margin Construction
REVENUE AND MARGIN CONSTRUCTION NORWAY (EXCLUDING WRITE-DOWN)* SWEDEN* DENMARK (HOFFMANN)* 16 7% 16 7% 16 7% 14 6% 14 6% 14 6% 12 12 12 5% 5% 5% NOK billion NOK billion NOK billion 10 10 10 4% 4% 4% 8 8 8 3% 3% 3% 6 6 6 2% 2% 2% 4 4 4 2 1% 2 1% 2 1% - 0% - 0% - 0% Omsetning Margin (%) *12-month roll
Slide 12: Property Development Sweden
PROPERTY DEVELOPMENT SWEDEN Still challenging market, but positive trends emerging Reduced activity for Veidekke • Restrictive to starting project sales • Over 50% sales ratio prior to start-up • Reduced production expected Good project portfolio Barkarby Metropol, Stockholm 12
Slide 13: Sweden: few project starts affect production
SWEDEN: FEW PROJECT STARTS AFFECT PRODUCTION NO. OF UNITS SOLD* NEW PROJECTS STARTED** UNITS UNDER CONSTRUCTION* 400 1 400 2 500 350 1 200 2 000 300 1 000 250 1 500 800 200 600 1 000 150 400 100 500 50 200 - - - * Veidekke’s share ** 12-month rolling 13
Slide 14: Property Development Norway
PROPERTY DEVELOPMENT NORWAY Recovering market Veidekke’s residential sales are good, particularly in Eastern Norway Restrictive regulation processes are slowing down development Good project portfolio Nærbyen, Trondheim 14
Slide 15: Norway: increase in project starts over the last year
NORWAY: INCREASE IN PROJECT STARTS OVER THE LAST YEAR NO. OF UNITS SOLD* NEW PROJECTS STARTED** UNITS UNDER CONSTRUCTION* 200 600 800 500 150 600 400 100 300 400 200 50 200 100 - 0 - * Veidekke’s share ** 12-month rolling 15
Slide 16: Occupational health and safety
OCCUPATIONAL HEALTH AND SAFETY SERIOUS INJURIES* # LTI RATE* SICKNESS ABSENCE 40 6 6% 5 5% 30 4 4% 20 3 3% 2 2% 10 1 1% - - 0% # Veidekke employees, hired staff and sub-contractors * 12-month rolling (LTI = Number of lost-time injuries per million hours worked, Veidekke employees) 16
Slide 17: Results segments and Group
Veidekke is building Mesnakvartalet in Lillehammer, with 107 apartments and rehabilitation of existing commercial buildings RESULTS SEGMENTS AND GROUP
Slide 18: Business areas 2nd quarter
BUSINESS AREAS 2ND QUARTER 2nd quarter 2018 2nd quarter 2017 Amounts in NOK million Revenue Profit Margin Revenue Profit Margin Construction Norway 4 377 -439 -10.0% 3 747 84 2.2% Construction Sweden 2 511 64 2.5% 2 217 44 2.0% Construction Denmark 581 41 7.0% 487 29 6.0% Total Construction 7 469 -3
Slide 19: Construction Norway
CONSTRUCTION NORWAY 2nd QUARTER 2018 REVENUE AND MARGIN* NOK billion Write-down of civil engineering project portfolio in Norway 5 7% of NOK 550 million in the quarter 6% 4 4.4 • The write-down primarily relates to infrastructure projects where 3.7 4.1 4.0 5% 3 3.5 4% uncertainty pertaining to the r
Slide 20: Construction Sweden
CONSTRUCTION SWEDEN 2nd QUARTER 2018 REVENUE AND MARGIN NOK billion Revenue increase 3 7% • Acquisition of BRA* in Gothenburg drives increase in Building 2.7 6% 2.5 Construction 2 2.2 5% 2.0 4% • Increased activity in Civil Engineering 2.0 3% 1 Results increase 2.3% 2.5% 2% 2.3% • Improved profitabi
Slide 21: Construction Denmark
CONSTRUCTION DENMARK 2nd QUARTER 2018 REVENUE AND MARGIN NOK billion Revenue increase 0,7 10% • Growth in the Copenhagen area 0,6 8% 0.6 0.6 0,5 0.6 8.3% Solid results and high profit margin 0,4 0.5 0.5 6% 7.0% • High profitability in Building Construction on Zealand 0,3 6.1% 5.7% 5.2% 4% • Solid co
Slide 22: Property Development Norway
PROPERTY DEVELOPMENT NORWAY 2nd QUARTER 2018 PROFIT BEFORE TAX* NOK million Increase in residential sales and production 50 • 217 units started in two projects, of which 46 40 Nyegaardskvartalet in Oslo comprises 188 units 30 36 35 Results increase compared with last quarter 26 27 20 Three projects
Slide 23: Property Development Sweden
PROPERTY DEVELOPMENT SWEDEN 2nd QUARTER 2018 PROFIT BEFORE TAX NOK million Residential sales still low 120 Fewer projects started and lower production yield reduced result 112 105 year over year, a slight increase compared with preceding quarter 80 88 Gain of NOK 12 million from sale of rental apart
Slide 24: Industrial
INDUSTRIAL 2nd QUARTER 2018 REVENUE AND MARGIN NOK million Asphalt: Lower capacity utilisation due to a later than normal start 2 000 6% of the season leads to results decrease 4.4% 5% 1 500 1 694 Road maintenance: Results still marked by low profitability in 3.2% 4% 1 247 several projects and highe
Slide 25: Financial statements IFRS
Veidekke’s subsidiary Arcona is building a 4 000 sqm double sports hall and an artificial grass pitch in Älvsjö, Stockholm FINANCIAL STATEMENTS IFRS
Slide 26: Income statement (IFRS)
INCOME STATEMENT (IFRS) 2nd quarter YTD Figures in NOK million 2018 2017 2018 2017 Revenue 9 465 8 205 16 488 14 642 Operating expenses -9 531 -7 765 -16 496 -14 148 Share of net income from associates and JVs 55 65 75 129 Depreciation/impairment -143 -125 -281 -249 Operating profit -154 379 -215 37
Slide 27: Balance sheet – assets
BALANCE SHEET – ASSETS Figures in NOK million 30.06.2018 30.06.2017 31.12.2017 Goodwill and other intangible assets 1 834 1 419 1 530 Deferred tax assets 19 65 55 Land and buildings 703 563 615 Plant and machinery 2 480 2 042 2 286 Investments in associates and joint ventures 1 452 1 309 1 489 Finan
Slide 28: Balance sheet – equity and liabilities
BALANCE SHEET – EQUITY AND LIABILITIES Figures in NOK million 30.06.2018 30.06.2017 31.12.2017 Equity 3 133 3 514 4 220 Pensions and deferred tax liabilities 920 795 900 Bonds 1 600 - - Amounts due to credit institutions 1 643 570 613 Other non-current liabilities 365 139 173 Total non-current liabi
Slide 29: Cash flow statement
CASH FLOW STATEMENT YTD 2018 YTD 2017 Property Figures in NOK million Construction Development Industrial Other1) Group Group Profit before tax -176 160 -151 -46 -213 380 Depreciation/impairment 172 1 102 6 281 249 Other working capital 419 -180 -285 -96 -142 -742 Cash flow from operating activities
Slide 30: Civil Engineering Norway
CIVIL ENGINEERING NORWAY
Slide 31: Veidekke's civil engineering operations in Norway
VEIDEKKE’S CIVIL ENGINEERING OPERATIONS IN NORWAY Annual revenue of NOK 4 billion Order backlog of NOK 5 billion 50 projects within transport infrastructure, industrial, energy and other. Emphasis on execution contracts About 80% of revenue from public spending, of which Statens vegvesen* represents
Slide 32: Low profitability in civil engineering
LOW PROFITABILITY IN CIVIL ENGINEERING MARGIN DEVELOPMENT CONSTRUCTION NORWAY 6% Building Construction Civil Engineering 5% 4% 3% Anleggsvirksomhet 2% 1% 0% Byggvirksomhet -1% -2% -3% 2010 2011 2012 2013 2014 2015 2016 2017 12m* * Margin last 12 months excludes write-down in Q2 2018 32
Slide 33: A changing civil engineering market
A CHANGING CIVIL ENGINEERING MARKET INCREASED INVESTMENTS IN A GROWING MARKET TOWARDS LARGER CONTRACTS TRANSPORT INFRASTRUCTURE NOK billion NOK billion NOK billion 100 Transport infrastructure 50 Road 50 NOK 1 000 million 90 Industry and energy Railway NOK 300–999 million Other civil engineering NOK
Slide 34: Few customers – many suppliers
FEW CUSTOMERS – MANY SUPPLIERS Large Norwegian contractors Large foreign contractors Smaller regional contractors Machine contractors 34
Slide 35: Customers and contract formats
CUSTOMERS AND CONTRACT FORMATS INVESTMENTS PER CLIENT INVESTMENTS PER CONTRACT FORMAT INCREASE IN DESIGN AND BUILD CONTRACTS NOK billion NOK billion Statens Vegvesen* 80% 50 50 Share Design and Build of contracts >1 NOK bn Design and Build contracts Tusener Tusener Nye Veier 70% Share Design and Bui
Slide 36: Influencing risk
INFLUENCING RISK Winning Executing 1 Selection 2 Calculation 3 Structural design 4 Production 5 Maintenance Degree of impact Opportunities to influence the end result 36
Slide 37: Contractual models
CONTRACTUAL MODELS Winning Executing 1 Financing 2 Planning 3 Structural design 4 Production 5 Maintenance Execution contract Design and build contract Partnering contract Public-Private partnership (PPP) 37
Slide 38: Major changes can lead to major disputes
MAJOR CHANGES CAN LEAD TO MAJOR DISPUTES Major changes in road construction projects 2012–2017 In road construction, changes are the norm 100% 90% 45% 38% 35% 33% 26% 21% 18% 17% 16% 8% Changes have contributed to many 94% 80% 92% disputes and great uncertainty about what 82% 83% 84% 79% the contrac
Slide 39: Profitability in civil engineering to be improved
PROFITABILITY IN CIVIL ENGINEERING TO BE IMPROVED 1 Existing project portfolio 2 Securing new projects 3 Review strategy for the civil engineering segment • Secure value in written-down • Ensure that tendering complies • Thoroughly test the robustness of projects and unresolved final with Veidekke’s
Slide 40: Civil Engineering Norway
CIVIL ENGINEERING Øivind Larsen EVP NORWAY Special units Project manager Project manager Project manager Project manager Resource manager Tender team Rail Resource pool Projects Projects Projects Projects • Machinery • 1 • 1 • 1 • 1 Foundation work • Project support • 2 • 2 • 2 • 2 • Geodesy • 3 • 3
Slide 41: Existing portfolio: ensuring profitability
EXISTING PORTFOLIO: ENSURING PROFITABILITY Increase management capacity Project manager Overall commercial and and competence operational responsibility • Strengthen project management from tender to hand-over through systematic approaches to roles, Site manager responsibilities and competence Respo
Slide 42: Profitability in civil engineering to be improved
PROFITABILITY IN CIVIL ENGINEERING TO BE IMPROVED 1 Existing project portfolio 2 Securing new projects 3 Review strategy for the civil engineering segment • Secure value in written-down • Ensure that tendering complies • Thoroughly test the robustness of projects and unresolved final with Veidekke’s
Slide 43: Selectivity in the market strategy and tendering
SELECTIVITY IN THE MARKET STRATEGY AND TENDERING Strategy Market strategy Portfolio strategy Risk profile Customer segment ● Prioritise segments and ● Project size, character ● Contract form and ● Prioritise recurring customers products and complexity degree of impact ● Prioritise early-involvement
Slide 44: Firmer risk handling in Veidekke
FIRMER RISK HANDLING IN VEIDEKKE The group controls and monitors total risk GENERAL exposure. Limits for total risk exposure are RISK MANAGEMENT 3 determined by the company’s board, in consultation with the group management Each project is evaluated based on the RISK MANAGEMENT OF PROJECT PORTFOLIO
Slide 45: Profitability in civil engineering to be improved
PROFITABILITY IN CIVIL ENGINEERING TO BE IMPROVED 1 Existing project portfolio 2 Securing new projects 3 Review strategy for the civil engineering segment • Secure value in written-down • Ensure that tendering complies • Thoroughly test the robustness of projects and unresolved final with Veidekke’s
Slide 46: Concluding remarks
Svea Serenad in Östermalm, Stockholm CONCLUDING REMARKS
Slide 47: The road ahead
THE ROAD AHEAD Improve profitability in Civil Engineering A well-composed and growing order backlog provides solid foundation in Building Construction Leverage an improved housing market in Norway and handle a challenging market in Sweden Improve risk management and cost- effectiveness across the or
Slide 48: Appendix
APPENDIX
Slide 49: Business areas, first six months
BUSINESS AREAS, FIRST SIX MONTHS First six months 2018 First six months 2017 Amounts in NOK million Revenue Profit Margin Revenue Profit Margin Construction Norway 8 404 -335 -4.0% 7 203 151 2.1% Construction Sweden 4 479 92 2.1% 4 094 63 1.5% Construction Denmark 1 086 67 6.2% 987 56 5.6% Total Con
Slide 50: Housing portfolio
HOUSING PORTFOLIO Under Under Under Property Development construction Completed Start-up construction Completed Start-up construction Housing portfolio - Veidekke's share 31.12.2016 2017 2017 31.12.2017 2018 2018 30.06.2018 Construction - number of units Norway 600 -363 320 557 -185 226 598 Sweden 1