Veidekke Asa · OSL:VEI
Veidekke Asa — Investor Day (May 2019)
120 slides from Veidekke Asa's investor day presentation, May 9, 2019
Slide 1: Veidekke towards 2022 Capital Markets Update
Veidekke towards 2022 Capital Markets Update 9 May 2019
Slide 2: Agenda
Increased profitability and strengthened position Agenda 09:00 Veidekke towards 2022: Increased profitability and strengthened position Arne Giske 09:30 Property development: Market driven development from a strong position Jørgen W. Porsmyr Break 10:10 Construction: Increased profitabilty with lowe
Slide 3: This is Veidekke
This is Veidekke Norway’s largest and Scandinavia’s fourth largest construction and property Norway % of turnover development company 63% Competent employees Turnover 2018 Sweden % of turnover 31% 8 500 35.6 Denmark % of turnover in three countries NOK billion 6% 3 © Veidekke
Slide 4: A growth story yielding good returns
A growth story yielding good returns 36 Prioritising annual dividends Annual revenue growth + 10% Annual shareholder returns* + 16% 3 1993 1998 2003 2008 2013 2018 4 Source: Bloomberg (Total shareholder return) © Veidekke
Slide 5: Trends affecting our industries
Trends affecting our industries Global megatrends Industry development trends Globalisation Digitalisation Contracting Complexity and size Climate and Urbanisation Credibility Safety environmental requirements 5 © Veidekke
Slide 6: Sustainability and social responsibility
Sustainability and social responsibility The core of both strategy and performance Veidekke’s materiality analysis Veidekke’s environmental policy Six prioritised topics • Veidekke’s ambition is to be a leading industry player with regards to reductions of climate gas emissions and practical safegua
Slide 7: Our most important resource
Our most important resource Veidekke employs 8 500 people in three countries. More than half of our employees are skilled workers and certified craftsmen in their respective trades Attractive employer Veidekke is the most attractive employer among contractors for young engineers with 7-8 years’ expe
Slide 8: Continuous safety work
Continuous safety work Involvement is key We shall create a safe workplace Number of serious injuries, 12 months rolling 40 35 30 25 20 15 10 5 - 2015 2016 2017 2018 2019 8 © Veidekke
Slide 9: Kay Fiskers Plads
Kay Fiskers Plads One of the largest building construction projects in Danmark. On behalf of the Norwegian company KLP, Hoffmann has been working one full year without injuries © Veidekke
Slide 10: Commercial, Residential, Civil Engineering, Industrial
Commercial Residential 42% 23% Civil Engineering Industrial 20% 15% 10 © Veidekke
Slide 11: Value added interaction in Veidekke
Value added interaction in Veidekke An integrated value chain creates value for customers Veidekke utilises the Veidekke offers an Group’s collective The project integrated delivery model competencies to ensure that secures better high operational our deliivery model quality and higher efficiency cu
Slide 12: A common delivery model
A common delivery model Utilises Veidekke’s competencies and strong positions Development Production Operations Position / Project Project design Procurement Production Maintenance Operations concept development Residential project own account Residential project on behalf of others Commercial proje
Slide 13: Veidekke Group dual business model
Veidekke Group Dual business model – creating value through interaction % % Assignments Long High Low Short business margins margins The project business cycles cycles Project Construction development our delivery model and Industrial Large Limited Few capital Many employees capital require- Liquidi
Slide 14: Value creating interaction – developer and contractor
Value creating interaction – developer and contractor An important part of Veidekke’s success Projects • Integrated delivery secures better quality and higher customer value • Strategic development of competencies and project portfolio Property Building • Manages liquidity from Building Construction
Slide 15: High growth and good margin development
High growth and good margin development …took an abrupt turn in the past year Revenue Profitability NOK billion. Annual growth of ~10% since 2012 NOK million Profit before tax Margin % 4,8 % 1 800 5% 35,6 4,3 % 1 600 4,1 % 4,2 % 31,4 3,7 % 4% 30,1 1 400 3,3 % 1 460 1 200 1 311 23,9 24,5 3% 21,2 1 00
Slide 16: Main reasons behind the weaker results
Main reasons behind the weaker results Project Development Building Construction Civil Engineering Industrial • Market driven decline in • Residential construction • Losses in major civil • Increased input costs and results Stockholm generates engineering projects, lower capacity utilisation in • Lo
Slide 17: Measures to improve profitability already implemented
Measures to improve profitability already implemented 17 Facsimile from Veidekke’s presentation for Q3 2018 © Veidekke
Slide 18: Safeguarding results to increase margins in 2020
Safeguarding results to increase margins in 2020 Necessary and vigorous adaptation to a changing market Group margin before tax Percentage A Civil Engineering Norway: Write-downs 2018 5% Civil Engineering Norway: Portfolio changes and 4% B cost adjustments E D >3.5% C 3% B Building Construction Norw
Slide 19: The project portfolio has grown substantially
The project portfolio has grown substantially Strong growth over past four years Order book, Construction NOK billion 35 Norway Sweden 30 Denmark 25 20 15 10 5 - Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019 19 © Veidekke
Slide 20: Portfolio risk profile affected by large projects
Portfolio risk profile affected by large projects 10% of the projects account for 50% of revenue 25% 26–50 % 51–75% 76–100% Average project: NOK 105 million 1 - 12 13 - 48 49 - 120 121 - 450 Number of new construction projects above NOK 10 million, past 24 months 20 © Veidekke
Slide 21: Improve risk management: Reducing risk of big losses
Improve risk management: Reducing risk of big losses Satisfactory results in large parts of the portfolio Loss projects considerably weaken portfolio margin • Veidekke completes many successful and profitable Project revenue in ongoing projects ranked by profitability, quintiles projects every year
Slide 22: Improve risk management: exclusion of four projects
Improve risk management: Reducing risk of big losses Exclusion of four projects increase margins by <2%-p Loss projects considerably weaken portfolio margin • Veidekke completes many successful and profitable Project revenue in ongoing projects ranked by profitability, quintiles projects every year
Slide 23: Firmer risk handling
Firmer risk handling Improved risk management at all levels in Veidekke GENERAL RISK MANAGEMENT 3 The Group’s total risk exposure within a defined framework RISK MANAGEMENT OF All projects to be assessed with regards to available capacity and PROJECT PORTFOLIO 2 competence, previous performance and
Slide 24: Veidekke's ambitions towards 2022
Veidekke’s ambitions towards 2022 Profitability before growth – maintain attractive dividend Revenue growth Margin 2022 Dividends Serious injuries 3-5% >4.5% >50% 0 p.a. before tax of net results 24 © Veidekke
Slide 25: Construction: Increased profitability with lower risk
Construction: Increased profitability with lower risk Prioritising projects and management capacity Construction segment towards 4.5% in 2022 Margin before tax 5% 4.0-4.5% 4% 3.0-3.5% 1 Safeguarding results until 2020 3% 2% 2 Adjust strategy to achieve lasting increase in profitability 1% 0% 2013 20
Slide 26: Industrial: Regenerate good profitability
Industrial: Regenerate good profitability Focus on Asphalt and Road Maintenance Profitability to return to historical level Margin before tax 6% >5% 5% 4% 1 Safeguarding results until 2020 3.0-3.5% 3% 2 Position and capacity towards 2022 2% 1% 0% 2013 2014 2015 2016 2017 2018 Target Target 2020 2022
Slide 27: Property Dev.: Market driven growth from solid portfolio
Property Dev.: Market driven growth from solid portfolio Develop attractive projects from the land bank Property Development in Sweden and Norway Profit before tax, NOK million 600 500 400 1 Norway: Take advantage of a good market 300 2 Sweden: Manage a challenging market 200 100 3 Capital: Increase
Slide 28: Property Development
Middelthunet Nordea’s old headquarters in Oslo are transformed into an attractive residential area located in close proximity to Frognerparken. The apartments are optimised for smart house technology Property Development Market driven development from a strong position Jørgen Wiese Porsmyr, EVP Capi
Slide 29: The core of our model
The core of our model Interaction creates profitability and customer value Land acquisitions Sales start Construction start Moving in Development Production Marketing and Strategy Selection Concept, development and regulation Production/Construction Delivery pre-sales Project development residential
Slide 30: The core of our model: interaction strengthens our position
The core of our model Interaction strengthens our position Land acquisitions Sales start Construction start Moving in Development Production Marketing and Strategy Selection Consept, development and regulation Production/ Construction Delivery pre-sales Effects of the interaction between Opportuniti
Slide 31: Good land positions in the metropolitan areas
Good land positions in the metropolitan areas • Solid foundation for activity over the coming years • Limited need for immediate increase • Sized and positioned for a better market in several regions • Flexible execution model; we will make good choices with regards to form and timing of project rea
Slide 32: Norway – business model and financials
Norway – business model and financials Capital intensive development phase Capital invested Capital, liquidity and financing Land values, development costs, investments in JVs and construction costs NOK million • Capital intensive development phase 4 500 • Land payments normally due upon signing of
Slide 33: Sweden – business model and financials
Sweden – business model and financials Options and limited working capital Capital invested Capital, liquidity and financing Paid land and land with delayed payment agreements, plus development costs NOK million • Land payments often due at zoning (long after initial 4 500 option/purchase agreement)
Slide 34: Development of commercial property projects
Development of commercial property projects Sharp and capital-efficient initiatives Offices Commercial as part of residential Logistics properties ● Main product ● Competence development ● Develop existing land bank ● Office properties – often for own use ● Enhances value of residential projects ● C
Slide 35: Results and activity
Results and activity Good value creation over time Profits and return on capital Units sold Units under construction NOK million Veidekke’s share Veidekke’s share 600 25% 1 600 3 000 1 400 500 2 500 20% 1 200 400 2 000 1 000 15% 300 800 1 500 10% 600 200 1 000 400 5% 100 500 200 - 0% - - 2014 2015 2
Slide 36: Residential and commercial project sales
Residential and commercial project sales Realised gains of more than NOK 500 mill. since 2014 Effect on Profit before tax • Project transactions to realise value created in the NOK million development phase is an important part of our strategy 150 • Conscious choices on a project basis 125 • Criteri
Slide 37: Property development Sweden
Property development Sweden Flatås Park, Gothenburg Central Park, Malmö Veidekke Flex: Ängslyckan, Ale Hagaterrassen, Hagastaden Stockholm
Slide 38: The housing market in Sweden
The housing market in Sweden Sales decline reflected in building starts Building starts, apartments and small houses • Building starts stabilising at a lower level 12 month rolling per quarter, number of units • Sales of new units still far below peak levels 60 000 50 000 • Short term: buyers market
Slide 39: Activity in Sweden
Activity in Sweden Strong decline in unit sales, high sales ratio Units sold Units in production and building starts Veidekke’s share Veidekke’s share 1 200 100% 2 000 84% 1 750 1 000 80% 1 500 800 60% 1 250 600 1 000 40% 750 400 500 20% 200 250 - 0% - 2014 2015 2016 2017 2018 12m 2014 2015 2016 201
Slide 40: Market driven activity for sales starts
Market driven activity for sales starts Probably few starts in 2019, increase expected in 2020/21 Sales starts residential units, Sweden • Sales starts highly dependent on developments Number of residential units, Veidekke’s share in the Stockholm area housing market 1 200 • Two or three new project
Slide 41: Action plan Sweden
Action plan Sweden Prioritising sales and the current situation Now 2019 2020 2021 2022 à Sales and start-ups ● Sales of units in production ● Intensify sales starts Adaptation and dimensioning ● Develop residential and commercial projects in existing portfolio ● Dimension activity and costs ● Trans
Slide 42: Property development Norway
Property development Norway Sølyst ,Stavanger NærByen, Trondheim Middelthunet, Oslo Nyegaardskvartalet, Oslo
Slide 43: Housing market in Norway
Housing market in Norway «Back to normal» Start-ups apartments and small houses • «Back to normal» 12 months rolling per quarter, number of units • Extraordinary sales levels in 2016/2017 30 000 • Short term: Healthy market, increased competition 25 000 • Demand for housing is solid, but properties
Slide 44: Activity in Norway
Activity in Norway Increasing sales and high production Units sold Units in production and building starts Veidekke’s share Veidekke’s share 500 100% 700 600 400 80% 500 300 70% 60% 400 300 200 40% 200 100 20% 100 - 0% - 2014 2015 2016 2017 2018 12m 2014 2015 2016 2017 2018 12m Units sold Sales rati
Slide 45: Increased sales starts in a healthy market
Increased sales starts in a healthy market Middelthunet and Nye Lilleby important in 2019 Sales starts residential units, Norway • Large number of sales starts expected in 2019 Number of residential units, Veidekke’s share • Middelthunet, Oslo, with 165 units 800 • Nye Lilleby (B4/B5), Trondheim, wi
Slide 46: Action plan Norway
Action plan Norway Projects ready for market Now 2019 2020 2021 2022 à Take advantage of the market ● Utilise the healthy market through start-ups and transactions Business development and commercial properties ● Develop organisation and projects to become Norway’s leading builder of neighbourhoods
Slide 47: Property Development Outlook
Property Development Outlook Market driven development from strong position 1 We have strong, long-term positions Property development, Sweden and Norway Profit before tax, NOK million 600 2 We will develop profitable projects 500 with high returns on capital 400 300 200 3 Profits will vary with mar
Slide 48: Construction: Profitability and risk
Nyegaards- kvartalet Veidekke’s largest wholly-owned residential project will be BREEAM- certified and built on a fossile-free construction site. Construction Profitability and risk Arne Giske. CEO Capital Markets Update 2019
Slide 49: An attractive construction market in Scandinavia
An attractive construction market in Scandinavia Large addressable market Construction market 2018 Construction market Building construction and infrastructure Production per year, NOK billion CAGR 300 Apartments and small houses Civil Engineering Apartments and Commercial Private commercial buildin
Slide 50: Construction in Veidekke
Construction in Veidekke Solid position in a large market Geografical distribution Diversified product portfolio Revenue per segment and geography Revenue per product ● Veidekke is Norway’s largest Building, Other Civil construction company Denmark Engineering 11% Commercial 8% Anlegg buildings30% ●
Slide 51: Increased order book
Increased order book Shift towards commercial buildings Growing order book BRA acquisition in 2018 strengthened Commercial Order book by business units, NOK billion Order book by segment, NOK billion 35 35 30 30 24% 25 25 37% 19% 20 Civil Engineering 20 15 15 27% 10 10 57% Building Construction 5 5
Slide 52: Increased revenue but lagging profitability
Increased revenue but lagging profitability Decline in Civil Engineering profitability Growth in both Building Constr. and Civil Engineering Development: Building Constr. flat, Civil Engineering weak Revenue, NOK billion Profit margin before tax* 35 6% 30 4% 29% 25 2% 20 0% 25% 15 37% -2% 23% 10 -4%
Slide 53: Major new building construction projects
Major new building construction projects Shift towards more commercial buildings VIA in Vika, Oslo Kay Fisker Plads, Copenhagen Geely Innovation Centre, Gothenburg Haugesund Sykehus, Haugesund Office building, Brønnøysund Amager Center, Copenhagen Nyegaardskvartalet, Oslo Oksenøya senter, Oslo 53 ©
Slide 54: Major new Civil Engineering projects
Major new Civil Engineering projects Towards a more balanced portfolio Highway E6 Arnkvern-Moelv Foundation and infrastructure Oslo Airport Foundation wind power station Lundbyleden, Gothenburg Underground construction in Sickla, Stockholm Crossroads Hjulsta Södra, Stockholm 54 © Veidekke
Slide 55: Increase profitability and avoid losses
Increase profitability and avoid losses Satisfactory in large parts of building construction Loss projects weaken portfolio margins • Accumulated revenue for the 90% best Project revenue in ongoing projects ranked by profitability, deciles building construction projects has Best 10 % Worst 10 % a pr
Slide 56: Strengthened risk management in early phases
Strengthened risk management in early phases Key areas: Project selection, calculations and project design Development (selection) Production Operations Degree of influence Opportunity to influence final results 56 © Veidekke
Slide 57: Hoffmann: Early involvement
Hotel Ottilia Hoffmann has been given the task of transforming Carlsberg’s historic warehouse buildings into a modern and well functioning hotel. Hoffmann Early involvment Jørgen Wiese Porsmyr, EVP Capital Markets Update 2019
Slide 58: Strong profitability
Strong profitability Clear strategy and solid project execution Stable, strong results Selective customer strategy Revenue and margin development, NOK billion and % • Prioritising customers where we can get involved early; 3 7% phase 1 of project development 6% • Cooperation model which includes bot
Slide 59: Major new projects in Denmark
Major new projects in Denmark Large projects in early phase Mineralvandsfabrikken, Copenhagen New HQ for DTU Scion, Hørsholm Dagmarhus, Copenhagen Center for Industriel Elektronik, Sønderborg UCV – New Police Academy, Vejle in Jutland IBA Erhvervsakademi, Kolding 59 © Veidekke
Slide 60: Still high ambitions for Denmark
Still high ambitions for Denmark Staying true to our business model • Hoffmann will be a selective construction 2014-2018 2018 2019-2020 2021-2022 company, which mainly develops and builds private commercial buildings • Long-term customer relationships with Revenue growth p.a. Revenue growth Revenue
Slide 61: Building Construction Norway
Lysgården Lysgården is an environmentally certified and groundbreaking office building. The building Building Construction will be certified in accordance Xx mai 2019 with the BREEAM Excellent environmental standard. Norway Product specialisation Hans Olav Sørlie, EVP Capital Markets Update 2019 © V
Slide 62: Norway's largest building constructor in a market with great potential
Norway’s largest building constructor NOK 11 in a market with great potential billion • Veidekke has a market share of around 10% of the total building construction market in Norway • Presence in all market regions, with a particularly NOK strong position in the Oslo area 15 billion • Local presence
Slide 63: High growth for several years, profitability under pressure
High growth for several years Profitability put under pressure Building Construction Norway, revenue and margins Challenges NOK million, % • Wide spreads in performance and profitability between 15 000 6% the different entities 12 000 5% • Complex projects have been handled by small and local entiti
Slide 64: Declining profitability
Declining profitability Delivery model to be adapted to market developments Market development Delivery model Sliding margins ● Strong growth in ● Decentralised the building delivery model Positive sliding construction ● Local knowledge markets and resources ● Projects increase in size + = Negative
Slide 65: Strategic turnaround – from generalist to specialist
Strategic turnaround – from generalist to specialist We aim for increased profitability with lower risk Complete and uniform delivery model 1 Enhanced focus on three product areas project development – projecting – purchasing – construction ● Apartment buildings ● Office buildings ● Schools Product
Slide 66: We will do more of what we do best
We will do more of what we do best Apartment buildings Office buildings Schools ● A few nationwide and many mid-sized ● Professional and long-term repeat ● Professional public purchasers local customers customers ● High design and environmental ● Homogeneous product ● High architectural requirements
Slide 67: Specialisation around three product categories
Specialisation around three product categories Apartment buildings, office buildings and schools Specialising in desired product categories Product mix, share of revenue 2017-2018 • Apartment building, office buildings and schools Apartment buildings, office account for ~60% of the total market or a
Slide 68: Strategy will lead to concentration in and around the big cities
Strategy will lead to concentration District North in and around the big cities • Specialisation requires markets with sufficient depth and width • From local competitive power to nationwide product specialisation - product organisation across business Metropolitan region Trondheim areas • Big citie
Slide 69: Ambitious goals
Ambitious goals Be the most profitable building constructor in Norway • Increased degree of product specialisation 2014-2018 2018 2019-2020 2021-2022 • 80% of revenue in 2022 to be generated from three product categories: apartment buildings, office buildings and schools • Profitability before growt
Slide 70: Construction Sweden: Clear priorities
‘Sund branch’ Veidekke has taken a leading role in the work to establish a healthy building and construction industry I Sweden, and was the first contractor to sign agreement on Xx mai 2019 ID06. Construction Sweden Clear priorities Jimmy Bengtsson, EVP Capital Markets Update 2019 © Veidekke
Slide 71: Veidekke established as a major player in Sweden
Veidekke established as a major player in Sweden ⅔ in Building Construction, the rest in Civil Engineering Strong revenue growth the past few years Veidekke is the 5th largest contractor in Sweden NOK billion Annual revenue, SEK billion 10 Peab Skanska NCC 8 JM Veidekke SVEVIA 6 Erlandsson Bygg Sern
Slide 72: Growth in Sweden mainly in Building Construction
Growth in Sweden mainly in Building Construction Increasing profitability but some units are laggards Construction Sweden Building Construction Civil Engineering Revenue (NOK billion) and margin (%) Revenue (NOK billion) and margin (%) Revenue (NOK billion) and margin (%) 10 5% 10 5% 10 5% 8 4% 8 4%
Slide 73: Building Construction Sweden
Swan mark As part of the overreaching environmental focus in Veidekke, we have decided Buiding Construction that all apartment buildings Xx mai 2019 built on own account shall be certified with the Swan mark eco label Sweden Safeguarding results and strenghtening the position Jimmy Bengtsson, EVP Ca
Slide 74: Building Construction in Sweden: a challenger in a large market
Building Construction in Sweden A challenger in a large market • Veidekke is a challenger in the Swedish Building Construction market • Veidekke has a market share of around 4% of the total Swedish building construction market • Focus on the growth regions around Stockholm, Gothenburg and Malmö SEK
Slide 75: Building Construction order book x7 in 6 years
Building Construction ordrer book x7 in 6 years Change towards commercial buildings Ordre book Building Construction Sweden Ordrer book by segment NOK billion NOK billion Commercial Residential 9 9 8 8 7 7 6 6 51% 5 5 75% 4 4 3 3 2 2 49% 1 1 25% - - 2012 2013 2014 2015 2016 2017 2018 Q1 2019 Q4 2017
Slide 76: Strong growth – margin increase from low level
Strong growth– margin increase from low level Weak profitability in residential in the Stockholm area Building Construction Sweden, revenue and margins Building Construction, Commercial NOK billion, % • Strong development and position 8 4% Revenue Margin before tax, % • Solid order book • Profitabil
Slide 77: Increase profitability in Residential
Increase profitability in Residential Prioritising sharp improvement in the Stockholm area Improved profitability towards 2020 • Safeguarding results – risk management • Competencies and management capacity • Intensifying customer work and marketing • Organisational adaptations to a lower activity l
Slide 78: Competitive positions in important growth regions
Competitive positions in important growth regions Focus on population centers and large cities • Acquired 90.1 % of BRA in 2018 • Long experience and competency within • Long experience in joint contracts and • Main focus on commercial buildings in a hotels, public service buildings, schools, early
Slide 79: Strengthening the positions in Commercial
Strengthening the positions in Commercial Complex projects in cooperation with the client Safeguarding resultst towards 2020 • Develop and strengthen the position of Bygg Kommersielt in Stockholm and Uppsala, and further strengthen the development of BRA in Gothenburg • Get in position to take a lar
Slide 80: Improvement goals in Building Construction in Sweden
Improvement goals in Building Construction in Sweden • Focus on safeguarding results in 2019 and 2014-2018 2018 2019-2020 2021-2022 2020 • Phasing-out loss projects in Stockholm • Increasing competencies, risk management and Revenue growth p.a. Revenue growth Revenue growth p.a. Revenue growth p.a.
Slide 81: Civil Engineering Sweden: Profitability before growth
Wind farm Veidekke built roads, crane sites, internal power grids, fiber networks and 23 concrete foundations in connection with the Civil Engineering Xx mai 2019 establishment of the Jenåsen Wind Farm in Sundsvall for Eolus Vind. Sweden Profitability before growth Jimmy Bengtsson, EVP Capital Marke
Slide 82: Civil Engineering Sweden: A selective civil engineering contractor
Civil Engineering Sweden A selective civil engineering contractor • Solid position in selective market segments • Prioritising projects within infrastructure, extraction, heavy industry, the energy sector, and recycling facilities / landfills • Focus on the major regions around Stockholm, Gothenburg
Slide 83: Positive development
Positive development Solid portfolio, increased activity level and margins Margin and order book Civil Engineering Sweden A balanced project portfolio NOK billion and % The 50 largest project wins last 4 years for Civil Engineering Sweden, NOK mill. 4 5% 1 4% 10 3 3% 20 2 2% 30 1 1% 40 - 0% 50 Q1 13
Slide 84: Civil Engineering Sweden: Continued good prospects
Civil Engineering Sweden Continued good prospects Production in various construction segments SEK billion, nominal 120 • Increased production in 2018 -3% -10% 0% -1% 5% 7% 6% 7% 100 • Increasing activity in the transportation 80 infrastructure segment 60 • Energy sector turning clearly positive 40 •
Slide 85: Strategy and goals for Civil Engineering Sweden
Strategy and goals for Civil Engineering Sweden • Profitability before growth 2014-2018 2018 2019-2020 2021-2022 • Selectivity in the bidding and selection process • Prioritise projects where we have particular strengths and expertise Revenue growth p.a. Revenue growth Revenue growth p.a. Revenue gr
Slide 86: Great potential in the Swedish civil engineering market
Great potential in the Swedish civil engineering market Attractive position for improved profitability 1 Profitability before growth • Eliminate loss projects through project- and risk management • Selectivity based on risk and expected profitability 2 Build expertise and leadership capacity • Stren
Slide 87: Civil Engineering Norway: Turnaround - new strategy
Civil Engineering Norway Turnaround - new strategy Øivind Larsen, EVP Sogn-Smestad Capital Markets Update 2019 Statnett and Veidekke are now executing the first fossile-free tunnel/ civil engineering project in Norway. All machinery, trucks and vehicles are running on electricity or renewable diesel
Slide 88: Civil Engineering in a transition phase
Civil Engineering in a transition phase Reducing risk – increasing profitability • More selective choice of projects • Strengthening management capacity and competencies • Reducing costs and increasing capital efficiency • Aiming for significantly increased profitability with lower risk 88 © Veidekk
Slide 89: Civil Engineering Norway
Civil Engineering Norway A leading Norwegian constructor Groundwork – Foundations - Fixation KEY INFORMATION Underground parking facilities Turnover past 12m NOK 4.6 bn. Road construction Order book per Q1 NOK 4.7 bn. Tunnels About 30 major ongoing projects 80% public, half of which for the Power- a
Slide 90: High activity level and a changing market
Civil Engineering Norway High activity level and a changing market Production in different construction segments NOK billion, nominal 120 • High level of activity in all the main segments 4% 17% 14% 2% 9% 6% 4% 0% 100 • High growth and increasingly large transport infrastructure projects – especiall
Slide 91: Large share of large road projects in the portfolio
Large share of large road projects in the portfolio Seeking better balance in terms of project type and size Civil Engineering Norway: Project mix • Some road projects have been too large and risky both for our company and other contractors • Too dominant part of activity and revenues Other projects
Slide 92: Strategic change
Strategic change Project selection, bids and execution 1 Selection • Seek project types we have succeeded with before • Choose by competence – not capacity or employment Selection 2 Tenders • Increase management ownership to the bids • Common tender unit – high quality tender processes • Correct cal
Slide 93: Project selection criteria
Project selection criteria Management and Management capacity to execute and to safeguard 1 competency continuity and management team development Provide a balanced portfolio with regard to type of 2 Portfolio project, size and customer Contract size <50% of annual revenue, and annual 3 Size contrac
Slide 94: Selection strategy for project choices
Selection strategy for project choices Reduce risk - increase profitability Consider and take current portfolio into account BP0 BP1 BP2 Relevant project? Prepare tender? Deliver tender? Projects awarded The portfolio in 1-2 years Current portfolio Market NOK ~ 80 billion NOK ~ 30 billion NOK ~ 15 b
Slide 95: Aiming for improved portfolio composition
Aiming for improved portfolio composition Increased profitability with lower risk Improved selection strategy to yield better composition and profitability 50 largest project wins past four years in Civil Engineering Norway, NOK million 1 10 20 30 40 50 - 500 1 000 1 500 2 000 2 500 95 © Veidekke
Slide 96: Order book of uneven quality
Order book of uneven quality Significant effect of projects that do not generate results* Ordrebok Civil Engineering Norway Order book by delivery date NOK million NOK million 7 000 7 000 6 000 6 000 5 000 5 000 4 000 4 000 3 000 3 000 2 000 2 000 ~50% 1 000 1 000 ~50% 0 - - 2015 2016 2017 2018 Per
Slide 97: Adjusting the cost level and improving capital efficiency
Adjusting the cost level - and improving capital efficiency Reducing costs Reducing machinery fleet Reducing receivables – and reducing risk Reduction Reduction Reduction NOK 100 mill. ~50% >50% • Mainly overhead and administration costs • Book value of machinery fleet in Civil • Veidekke has overdu
Slide 98: We will restore profitability in Civil Engineering Norway
We will restore profitability in Civil Engineering Norway • Profitability before growth 2014-2018 2018 2019-2020 2021-2022 • Changes the portfolio mix • Cost reductions • Reducing risk Revenue growth Revenue growth Revenue growth Revenue growth • Risk management p.a. p.a. p.a. • Selectivity -1% +0%
Slide 99: Industrial: Recreating profitability
Low temperature Asphalt Producing asphalt is a heat- and energyintensive process. By transitioning to low-temperature asphalt, Veidekke target a reduction in energy usage and thereby the CO2-emissions from the production process by 30 to 40 %. Industrial Recreating profitability Catharina Bjerke, EV
Slide 100: Veidekke Industrial
Veidekke Industrial A strong position in the Norwegian market Aggregates Asphalt Road Maintenance Market share >10 % Market share >35 % Market share >15 % Revenue 2018: Revenue 2018: Revenue 2018: © Veidekke NOK 0.6 billion NOK 3.3 billion NOK 1.0 billion
Slide 101: Operational synergies throughout the value chain
Operational synergies throughout the value chain Aggregates Asphalt Road Maintenance External sales External delivery On-plant Sales of Sales to asphalt Client of aggregates to preposition sales cold activities customers SVV Internal purchase asphalt Landfill Operations summer Masseuttak Knuseverk S
Slide 102: Solid geographical footprint
Solid geographical footprint 30 90 asphalt plants asphalt crews 29 20 aggregate plants operating contracts Aggregates plants 3 Asphalt plants Operating contracts with The Norwegian Public Roads Administration Planned projects NPRA and “Nye Veier” towards 2025 6 Planned project NPRA/NV and operating
Slide 103: Profits and margins
Profits and margins Disappointing profitability in Asphalt in 2018 Profit before tax Profit margin NOK million % 300 15% 200 10% 100 5% 0 0% -100 -5% -200 -10% 2013 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Road Maintenance Asphalt Aggregates Development gains Road Maintenance Asphalt Aggreg
Slide 104: Profitability in a safe and sustainable manner
Profitability in a safe and sustainable manner Further profitable Optimal process and right Right entry to priority growth in Aggregates capacity in Asphalt maintenance contracts CREATE FLOW THROUGH CONTINUOS IMPROVEMENTS CONTRACT UNDERSTANDING AS A CORE COMPETENCE Contract Results Capacity 104 © Ve
Slide 105: Aggregates
Aggregates Good profitability - landfills as a new focus area • Solid business model with high profitability • Efficient operations - high operational uptime • A strategic and long-term resource • Landfills as a new area - see great opportunities in having both outbound and inbound flows of masses •
Slide 106: Asphalt - measures implemented to safeguard results
Asphalt - measures implemented to safeguard results Stabilising measures 2019-2020 • Sales, calculation and pricing • Planning • Improved flow in the value chain • Higher capacity utilisation of factories and machinery • Safeguarding revenue • Focus on contract management • Forecasts and purchases •
Slide 107: Asphalt - developing position for sustained profitability
Asphalt - developing position for sustained profitability Optimisation towards 2022 • Further industrialisation • Use of new technology • Ensure correct geographical position and factory structure • Focus on customers, environmental issues and quality to protect our market position 107 © Veidekke
Slide 108: Road Maintenance - the turnaround works out
Road Maintenance - the turnaround works out The new contracts have good profitability 2014 2015 2016 2017 2018 2019 2020 2021 2022 • Selective new contracts - profitability over PPP-contract growth • Positive development on contracts started in 2016-2017 PPP-contract • Three profitable contracts sta
Slide 109: Industrial will recreate good profitability
Industrial will recreate good profitability Securing results in Asphalt and Road Maintenance, growth in Aggregates • Asphalt: Increase profitability through higher 2014-2018 2018 2019-2020 2021-2022 capacity utilisation, contract management, and better calculation and pricing • Road maintenance: The
Slide 110: Financial targets and priorities
Maskinparken TRE Maskinparken TRE at Lilleby in Trondheim is the first apartment building in massive wood in Norway built on commercial terms. The building reduced the carbon footprint Xx mai 2019 from materials by 39 % and by 17% from use of energy Financial targets and priorities Terje Larsen, CFO
Slide 111: High growth and good margin development
High growth and good margin development … but abruptly changing trend the last year Revenue Profitability NOK billion. Annual growth of ~10% since 2012 NOK million Profit before tax Margin % 4,8 % 1 800 5% 35,6 4,3 % 1 600 4,1 % 4,2 % 31,4 3,7 % 4% 30,1 1 400 3,3 % 1 460 1 200 1 311 23,9 24,5 3% 21,
Slide 112: Order book affects short-term earnings
Order book affects short-term earnings ~NOK 5bn remaining revenue that will not generate profits Order book, Construction NOK billion 35 • ~NOK 5 billion of the order book is remaining Building C Civ. Eng revenue in projects that are not expected to 30 generate profits 25 • 50/50-split Building Cons
Slide 113: We aim for significantly improved results
We aim for significantly improved results Safeguard results to 2020 – higher ambitions for 2022 Property development Construction Industrial Profit before tax, NOK million Profit before tax, % Profit before tax, % 600 6% 6% 500 5% 5% 400 4% 4% 300 3% 3% 200 2% 2% 100 1% 1% - 0% 0% 2013 2014 2015 201
Slide 114: Financial capacity and flexibility
Financial capacity and flexibility Reaching targets with healthy balance sheet and attractive dividends Dividend policy stands firm ‘Veidekke shall distribute a high Net results dividend. The dividend policy states > 50% that dividends shall be a minimum of 50% of the company’s anmnual result (IFRS)
Slide 115: The financing model
The financing model Challenged by capital requirements and low profits • The cash flows from building construction projects create a significant liquidity position we can manage through good project development • This financing model has been challenged by increased capital in Civil Engineering and
Slide 116: Increased capital efficiency
Increased capital efficiency Reduced capital requirements unties liquidity • Room for significant reduction of both fixed and Target: Slimmer balance sheet – higher capital efficiency current assets NOK billion • Reducing receivables in Civil Engineering Norway 20 • Reducing machinery fleet in Civil
Slide 117: Aims to retain Investment grade
Aims to retain “Investment grade” Veidekke shall be a solid company Net interest bearing debt / EBITDA (12 m) Expects to satisfy requirements with solid margin • Net interest bearing debt to EBITDA should be 4,0 below 2.5x over time Covenant 3,5 • Expecting significant improvement from high level 3,
Slide 118: Veidekke aims to offer attractive dividends over time
Veidekke aims to offer attractive dividends over time 70% pay-out ratio past five years Our dividend policy stands firm Dividend and pay-out ratio • Veidekke will provide shareholders competitive 6 140% returns as a combination of dividends and return of 120% 5 shares 100% • Dividends shall represen
Slide 119: Concluding remarks
Carbon Dislosure Project The international non-profit organisation CDP has given Veidekke «A»-rating for the company’s work on climate reporting. Veidekke is the only Norwegian construction company on the organisation’s A-list Concluding remarks Arne Giske, CEO Capital Markets Update 2019 Photo: Mdh
Slide 120: Veidekke's ambitions towards 2022
Veidekke’s ambitions towards 2022 Profitability before growth - maintain attractive dividend Revenue growth Margin 2022 Dividends Serious injuries 3-5% >4.5% >50% 0 p.a. before tax of net results 120 © Veidekke