AF Gruppen

Quarterly Report • Aug 30, 2024

AF Gruppen ASA Q2 2024

30 August 2024

Overview

Weak result driven by a downward adjustment of a project estimate in Offshore

• Revenue of NOK 7,651 (7,853) million in Q2 and NOK 14,838 (15,246) million year-to-date
• Earnings before tax of NOK 21 (292) million in Q2 and NOK 207 (305) million year-to-date
• Profit margin of 0.3% (3.7%) in Q2 and 1.4% (2.0%) year-to-date
• Cash flow from operations of NOK 661 (227) million in Q2 and NOK 789 (203) million year-to-date
• Order intake of NOK 5,629 (10,877) million in Q2 and NOK 11,100 (20,173) million year-to-date
• Order backlog of NOK 38,253 (44,693) million as of 30 June 2024
• Net interest-bearing debt of NOK 979 (1 582) million as of 30 June 2024

Health and safety

Number of lost-time injuries and severe personnel injuries not resulting in lost-time, including subcontractor employees, per million hours worked

Number of lost-time injuries, injuries involving substitute work and medical treatment injuries, including subcontractor employees, per million hours worked

Revenues and earnings

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 NOK million Q2 23 Q3 23 Q4 23 Q1 24 Q2 24 7,853 7,651

Return on capital employed

Earnings before tax and interest expense * 0 500 1,000 1,500 2,000 NOK million 2020 2021 2022 2023 YTD 24* ^{799 704}

* Last four quarters

Interest expences added

* Rolling average last four quarters

The Group's target return on capital employed is 20%

Cash flow statement

NOK million	Q2 2024	Q2 2023	YTD 2024	YTD 2023	Cash flow from operations
EBIT Depreciation, amortisation and impairment Change in net working capital Taxes paid Other Cash flow from operations	37 173 544 -60 -33 661	303 135 -114 -71 -25 227	238 329 386 -118 -46 789	318 266 -178 -152 -52 203	NOK million 1,552 1,600 1,400 1,200 1,000
Net investments Dividend to shareholders in ASA Other capital transactions Interest paid and change in interest bearing debt	-112 -380 -99 1	-323 -700 -81 688	-222 -380 -304 191	-400 -700 -164 738	800 600 400 203 200
Net change in cash and cash equivalents Net cash and cash equivalents at beginning of period Change in cash and cash equivalents without cash effect Net cash and cash equivalents end of period	72 348 -10 411	-189 677 7 494	74 347 -10 411	-323 765 52 494	0 2021 2022 2023

Components net interest-bearing receivables (debt)

Balance sheet

NOK million	30.06.24	30.06.23	31.12.23
Non-current assets	8,629	8,119	8,407
Current assets, ex. cash	5,807	6,260	5,894
Cash and cash equivalents	411	494	347
Total assets	14,846	14,872	14,647
Equity	2,844	2,897	3,203
Long term debt	1,358	1,314	1,338
Short term debt			10,106
Total equity and debt	14,846	14,872	14,647

All the company's covenants exclude the effect of IFRS 16

Environment

¹ Regulatory requirement of 70 %

8,060 tonnes = 8,060 (25,003) tonnes CO2-equivalents saved

Recycling environmental parks Recycling rate 78% (78%) YTD in 2024

YTD 2024

9

Business Areas

2nd quarter 2024

10

Record high revenue and a good result

NOK million	Q2 24	Q2 23	1H 24	1H 23
Revenues	2,400	1,505	4,444	2 956
EBIT	140	104	256	181
EBT	154	107	285	185
EBIT %	5.8%	6.9%	5.8%	6.1%
EBT %	6.4%	7.1%	6.4%	6.3%

• Civil Engineering had a 59% revenue growth compared to Q2 of last year and delivers a good result in the quarter
• AF Anlegg has another quarter with record high revenue with good profitability. AF Anlegg has a solid portfolio of projects with several big projects in production. There is high activity and good progress across projects
• Målselv Maskin & Transport, Stenseth & RS and VSP deliver very good results in the second quarter. Eiqon had low activity and a weak result in the quarter
• Order intake: NOK 848 (4,018) million. Order backlog: NOK 15,053 (20,030) million

Construction

Stable profitability

NOK million	Q2 24	Q2 23	1H 24	1H 23
Revenues	2,279	2,674	4,482	5 264
EBIT	95	112	159	162
EBT	97	105	163	151
EBIT %	4.2%	4.2%	3,5%	3,1%
EBT %	4.2%	3.9%	3,6%	2,9%

• Construction maintained profitability despite revenue decline of 15 % relative to Q2 of last year
• AF Bygg Østfold, Haga & Berg, Strøm Gundersen and Strøm Gundersen Vestfold deliver very good results in Q2. AF Byggfornyelse and ÅBF deliver good results
• AF Bygg Oslo, LAB Entreprenør and HTB deliver results somewhat below expectations. AF Håndverk and FAS have weak results in Q2
• Four new contracts were announced in the quarter for a combined value of NOK 776 million excl. VAT
• Order intake: NOK 1,775 (3,801) million. Order backlog: NOK 10,144 (10,469) million

Betonmast

Weak result

NOK million	Q2 24	Q2 23	1H 24	1H 23
Revenues	979	1,117	1,984	2,323
EBIT	9	33	-10	67
EBT	19	37	9	77
EBIT %	1.0%	3.0%	-0,5%	2.9%
EBT %	2.0%	3.4%	0,4%	3.3%

• Betonmast experienced a 12 % revenue decline compared to the same quarter of last year
• Betonmast Røsand, Østfold and Innlandet deliver good results in the quarter. Buskerud-Vestfold and Romerike deliver results somewhat below expectations and Betonmast Asker og Bærum delivered results below expectations
• Betonmast Boligbygg, Oslo and Trøndelag had weak results in the quarter
• Two contracts have been announced in the quarter for a combined value of NOK 637 million excl. VAT
• Order intake: NOK 752 (900) million. Order backlog: NOK 5,312 (4,898) million

Property

Low residential sales

NOK million	Q2 24	Q2 23	1H 24	1H 23
Revenues	5	6	11	16
EBIT	-8	-3	-15	-5
EBT	-4	-1	-7	0
Capital employed	897	756	897	756

• A challenging real estate market with high interest rates and uncertainty still contributing to low sales figures. Sales contracts for 21 (16) units were signed in the quarter, of which 10 (7) represent AF's share. In total, 132 residential units were delivered in Q2
• Three projects with a total of 589 residential units are in production (AF's share is 246). The sales ratio in commenced projects is 68 %
• Residential portfolio under development: 1,707 (1,651) units. AF's share: 852 (824)
• Commercial portfolio under development: 73,407 (73,107) GFA sqm. AF's share: 36,524 (36,374)

Sweden

Varying performance and break-even result

NOK million	Q2 24	Q2 23	1H 24	1H 23
Revenues	1,401	2,150	2,763	4 077
EBIT	1	27	3	-135
EBT	-2	26	-3	-138
EBIT %	0.1%	1.3%	0,1%	-3,3%
EBT %	-0.2%	1.2%	-0,1%	-3,4%

• Sweden has a revenue decline of 35 % compared to Q2 of last year
• AF Prefab i Mälardalen delivers very good results in Q2. Kanonaden and AF Härnösand Byggreturer deliver good results. HMB has a result somwhat below expectations and AF Bygg Syd has a weak result this quarter
• The entities originating from former Betonmast Sverige continues to deliver negative results this quarter. AF Anläggning Väst is now discontinued
• Two new contracts were announced by HMB with a combined value of NOK 475 million excl. VAT
• Order intake: NOK 1,167 (718) million. Order backlog: NOK 4,437 (6,212) million

High activity and good results

NOK million	Q2 24	Q2 23	1H 24	1H 23
Revenues	388	326	726	613
EBIT	22	19	40	30
EBT	21	21	38	33
EBIT %	5.7%	5.9%	5,4%	4,9%
EBT %	5.4%	6.3%	5,3%	5,4%

• Energy and Environment has increased activity levels by 19 % compared to the same quarter last year and delivers a good result for Q2
• AF Energi delivers a good result for the quarter. The entity has completed the acquisition of 70 % of ETA Norge's shares, a bioenergy contractor
• AF Decom has a good result in Q2. AF Decom has sorted metal for recycling and recycled materials at the environmental centers corresponding to 14,589 (16,399) CO2-equivalents so far this year.
• Order intake: NOK 338 (1,116) million. Order backlog: NOK 1,208 (1 484) million

Demanding quarter marked by adjustment

NOK million	Q2 24	Q2 23	1H 24	1H 23
Revenues	285	342	580	586
EBIT	-234	17	-220	35
EBT	-241	12	-234	28
EBIT %	-82.1%	5.0%	-38,0%	5,9%
EBT %	-84.5%	3.6%	-40,3%	4,8%

• AF Offshore Decom has performed yet another downward adjustment of the estimated results on a single project which impacts the result for Offshore in Q2
• Aeron has significantly increased activity from Q2 of last year with good profitability. One contract has been announced by Aeron in the quarter with a value exceeding NOK 500 million excl. VAT. The contract involves delivery of ventilation and cooling systems for an offshore wind project.
• So far this year, metal sorted for recycling corresponds to savings of 11,273 (18,107) CO2-equivalents at AF Miljøbase Vats
• Order intake: NOK 859 (164) million. Order backlog: NOK 1,871 (1,446) million

Solid order backlog

Order backlog business areas

Cost development in Construction Norway

Q2 2024 | Theme presentation

Development in construction costs

Cost development for Norwegian residential buildings

• Construction costs are frequently cited as a primary reason for the limited number of new homes being built in Norway
• Some groups anticipate a decrease in cost levels, and we have examined the cost trends of the key input factors and drivers in the construction industry.

Most residential buildings have a relatively equal distribution of costs

21

The price of labour is the biggest driver of construction costs

Annual growth in per cent

• Labour accounts for 55% in a reference project from Statistics Norway.
• Expectations and signals of real wage growth in the coming years.
• Expected labour emigration – layoffs and a weak krone.
• Hiring restrictions.
• Limited access to labour and an aging population.

Higher labour costs will sustain the index despite expected stabilisation in material prices

• Construction costs 12 months growth in construction costs has never been negative since Statistics Norway started in 1979.
• Continued increase in most cost indices.
• The cost increase for labour and materials in residential buildings has been 5.2% and 4.3% respectively in the last 12 months.

Continued significant price increases for key materials in 2024

The two largest input factors of materials:

Price index for concrete

• Main material groups have risen: We observe that even though several material prices have fallen (from abnormally high levels), the total index is pulled up by price increases for important materials such as concrete and timber.
• Stricter climate regulations and additional project requirements are contributing to higher project costs.
• Expensive input factors: High electricity prices, increased CO2 taxes and generally expensive input factors for production mean that material production is still expensive. When economic activity picks up, these factors may lead to further price increases.

Development in construction costs

Expected cost increase on several key input factors

• Increased electricity prices: The price of electricity has been 20-40 øre/kWh in the period 2000-2022, but is expected to stabilise at 80 øre/kWh in the period 2025-2030.

• The expected increase in Norwegian CO2 taxes may be a cost driver for the industry. The Norwegian C02 tax will increase by 19% in 2024 and further linearly to the government's target of NOK 2,000 in 2030.

Increased climate and environmental requirements

Tougher climate and environmental requirements:

• Requirements for the reduction of greenhouse gas emissions, the transition to a circular economy, land use, the utilisation of natural resources and standards for the indoor environment. Increased documentation demands (BREEAM and EU taxonomy).
• Requirements for upgrading of machinery, emission-free construction sites.

Stricter national and local requirements:

• Stricter national climate ambitions can contribute to limiting the supply side of various materials as a result of measures to limit total emissions (e.g. curbing forest clearing).
• Proposal sent for consultation from the Norwegian Environment Agency to give municipalities the authority to set climate requirements for building and construction sites.

Illustration case: The development of cost for comparable housing projects in 2003 and 2024

Case:

A medium-sized housing project in 2024 has a cost 2.5 times higher than a comparable project from 2003 (index-adjusted).

Medium sized residential builing 2003		Medium sized residential builing 2024
	Share
Setup, operations and admin	15,8 %	Setup, operations and admin
Groundwork	7,0 %	Groundwork
Outdoor/gardener	1,1 %	Outdoor/gardener
Concrete work	16,8 %	Concrete work
Masonry	3,8 %	Masonry
Carpenter	19,6 %	Carpenter
Completion	13,6 %	Completion
Technical	15,0 %	Technical
Engineering	2,8 %	Engineering
Sum total SUM /apartment	MNOK 139 MNOK 1.7	Sum total SUM /apartment

Share	Share

Significant increase in housing standard and quality, in combination with increased demands.

The main cost drivers for construction costs in the period:

• Increased qualities of the home (choice of materials, architecture, façade, outdoor, electrical, pipes, appliances, etc.).
• Increased environmental and energy requirements (heating, ventilation, insulation).
• Other technical and regulatory requirements that have been introduced during the period.

While some groups expect material prices and construction costs to decrease, several key factors indicate the opposite trend

Lower costs will largely depend on succeeding with productivity growth and good choice of solutions

Expected cost development ahead

• There are limited indications that construction costs will decrease significantly in the near future.
• We construct higher quality and more energy-efficient buildings, meeting increased technical and regulatory requirements.
• To sustain high activity levels and control costs, the industry must foster better collaboration, embrace new technologies, and enhance cooperation throughout the value chain.

2nd quarter 2024

Summary

NOK million	Q2 24	Q2 23	1H 24	1H 23
Revenues	7,651	7,853	14,838	15 246
EBIT	37	303	238	318
EBT	21	292	207	305
EBIT %	0.5%	3.9%	1,6%	2,1%
EBT %	0.3%	3.7%	1,4%	2,0%

• Varying performance and collectively a weak result
• Strong financial position
• Order intake: NOK 5,629 (10,877) million
• Order backlog: NOK 38,253 (44,693) million

Thank you for your attention

Presentation Q3 15 November 2024