Veidekke

Earnings Release • Mar 25, 2021

Veidekke Market update

March 2021 Kristoffer Eide Hoen and Anders Wettre

A market of opportunities

Veidekke market update March 2021

Focus topics:

• Residential market
• Care facilities
• Rehabilitation
• Transport infrastructure & internationalisation

Veidekke market report March 2021

08:30 – 09:00

Submit your questions until 10:00 to epost@veidekke.no

2 © Veidekke

Presentation by: Kristoffer Eide Hoen, Chief Analyst Anders Wettre, Analyst

Brief introduction to key terms/contexts

• Building starts: the order intake of the companies
• Production: the revenues of the companies
• The distinction is made because production can go on for several years after a project has been started.
• Production is a direct algorithm/consequence of building starts which varies from building type to building type.
• Projects to be produced in 2021 have largely been registered or booked as started by year-end 2020.

Market forecasts and Covid-19

• At the time of publication, parts of Scandinavia are more exposed to new infections and lockdowns than previously during the course of the pandemic. The scale of the next wave and its consequences underline the unpredictability of the situation and the uncertainty of future developments.
• In our forecasts, we have assumed that vaccination programmes will reduce the scale of infection and need for infection control measures significantly as of the autumn of 2021, and that society and economic activity will start returning to normal thereafter.
• Our forecasts reflect that the markets have handled the uncertainty well thus far and that constructionsector demand has been high and stable throughout a challenging 2020. We therefore expect the market to remain reasonably robust even if infection-related challenges continue for longer than envisaged in our primary scenario.
• Strong contracting markets are largely attributable to implementation of comprehensive financial stimulus programmes both internationally and in the Scandinavian countries. We expect these programmes to continue if necessary.

01 Market overview

The contracting markets Market developments

• Market growth:
• Growth prospects for 2021 have been increased since the previous report
• In Norway, we expect 1% growth in 2021 (-4%)
• In Sweden, we expect 0% in 2021 (-10%)
• In Denmark, we expect -5% i 2021 (-3%)
• In 2022, we expect moderate but positive growth in all three countries

Highlights Construction-sector production by country

NOK billion

September 2020 forecast in brackets

Sources: Veidekke's market data, Statistics Norway, Statistics Sweden and Statistics Denmark

How certain can we be of continued high activity? A large proportion of production in 2021 is known

*5 largest construction companies (in random order): NCC, Skanska, Veidekke, AF-Gruppen 2016 2017 2018 2019 2020 and Peab – selected construction segments in the Nordic region/Scandinavia

Sources: Veidekke, NCC, Skanska, AF Gruppen, PEAB, Veidekke's market data, Statistics Norway, Statistics Sweden and Statistics Denmark

Several trends are creating opportunities:

The interest-rate effect:

New housing boom?

Customers are cutting:

Growth in the refurb market?

Increasing life expectancy:

More care homes

Strong central government finances:

Transport infrastructure is booming

Where is the commercial market headed?

Uncertainty among municipalities?

02 Low interest rates are boosting the residential sector

Strongest sales of new residential units since 2016-17

Figures for Norway from Economics Norway's "Econ Nye boliger" report

Off-plan apartment sales Comments

Last four months (Nov.-Feb.), compared to corresponding period in earlier years

Nov.-Dec. Jan.-Feb.

• Drivers: low interest rates and high household saving
• Record sales of new apartments in the past four months
• Means strong residential construction growth going forward

Source: Economics Norway

Production of apartments and small houses

• In Norway, production will shrink 3% in 2021, but grow 5% in 2022
• In Sweden, 2% growth is expected in 2021, and 8% growth in 2022
• Moderate forecasts given the current status of residential property prices and sales of new residential units

Sources: Veidekke's market data, Statistics Norway and Statistics Sweden

Capital cities have bottomed out

Projects starts for apartments and small houses are on the up

Value of building starts by quarter Comments

• Steep fall in Stockholm and Oslo following a peak in 2017
• Residential construction has remained stronger in other Swedish and Norwegian regions (e.g. Gothenburg and eastern Norway around Oslo)
• Better prospects going forward?

03 Increasing life expectancy

Twice as many 80 year-olds Sweden and Norway

Sweden

Number of 80–85 year-olds

Norway

Number of 80–85 year-olds

Sources: Statistics Sweden and Statistics Norway

Twice as many care facilities Sweden and Norway

Sweden, construction-sector production care facilities NOK billion

Norway, construction-sector production care facilities NOK billion

Sources: Veidekke's market data, Statistics Sweden and Statistics Norway

04 Climate – the challenge of our time, but also an opportunity?

"Of course price is important, but not as important as it used to be. The lowest price no longer necessarily wins."

"More has happened in society in the past 12 months than in the previous 12 years."

"Accept your role! Tools and methods that help us make good decisions."

"Those who can solve the problem win the assignment, not those who price it."

Quotes:

"We have all the square footage we need in our part of the world."

Veidekke's client survey What climate requirements can we expect?

Client climate requirements in three dimensions Comments

Indexing of replies: max. score 33 per area, total max. 100

• Veidekke interviewed 18 major clients in the autumn of 2020 regarding their expectations and requirements related to climate.
• The survey revealed that:
• All clients are adopting ambitious climate targets.
• All clients have implemented or are implementing strategies specifying concrete emissions requirements, most often for the entire chain of production.
• The most mature clients are demanding greenhouse gas accounts for projects. Others are opting for individual measures.
• The leading, and strongest, demands for climate solutions are likely to come from major commercial clients and public-sector construction clients.

Regarding the classification of clients' climate requirements vis-à-vis construction companies:

Strategic aims – max. score 33: The client has a strategy that includes clear requirements for emissions cuts in its operations over the next 5-10 years and experiences emphatic emphasis on this point among both end clients and investors/owners. Concrete emissions measures and metrics – max. score 33: The client has defined concrete plans for cutting emissions in new projects and has adopted SBT targets in Scope 1–3. Requirements for climate accounts at project level will be introduced shortly. New contract forms and expertise requirements – max. score 33: The client is currently adopting or has adopted new contract models as standard that specify coordination during the design phase where the contractor is expected to advise on solutions. The client sees cost increases as a necessary consequence.

Reuse: the refurbishment market Estimated market development and forecast

Refurbishment of non-residential buildings in Scandinavia Comments NOK billion

• The refurb market in the commercial buildings segment will total NOK 45 billion in 2020*
• Reduced growth in the commercial buildings segment in the short term
• Analysis of 14,500 announced projects > 25 million in Norway and Sweden in the period 2015–2020
• Segments, project types and stakeholders
• An attractive and substantial market with considerable expertise requirements – many contracts totalling NOK 100 million+

Sources: Veidekke's market data, Statistics Norway, Statistics Sweden and Statistics Denmark * In the present context, defined as contracts > NOK 25 million

© Veidekke

Refurbishment – share of the total market Distribution by segment

Sweden, seven largest segments Norway, seven largest segments

Refurbishment share of total project volume 2015–2020 Refurbishment share of total project volume 2015–2020

Sources: Sverige Bygger, Norge Bygges and Veidekke

05 Strong central government finances – investment in transport infrastructure

The civil engineering market in Norway and Sweden Continued growth in the transport infrastructure segment

0 20 40 60 80 100 120 140 160 180 200 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Transport infrastructure Energy Other civil engineering +5% Forecast +3%

Investment by civil engineering segment Comments

NOK billion, Norway and Sweden

• Estimated growth of 5% in the civil engineering market in 2021 and 3% in 2022
• Transport infrastructure investments have been increasing for several years
• Ongoing strong outlook for the transport infrastructure market, with growth of 11% forecast for 2021 and 5% for 2022

Sources: Statistics Norway, Statistics Sweden, Veidekke

Our forecasting Transport infrastructure

Long term	Medium term	Short term	Specific projects
National Transport Plan Transport agencies' infrastructure plans	Action plan Detailing the next planning period	National budget Final framework and specific measures	Veidekke's project database Contracts > 500 million roads and railways

Sources: Norwegian Government, Norwegian Public Roads Administration, Swedish Transport Administration and Veidekke

Transport infrastructure in Sweden Many roads and even more railways

Road and railway investment Comments SEK billion 0 5 10 15 20 25 30 35 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Roads Railways Civil engineering start, main contracts, E4 Förbifart "Unprecedented" residential construction activity is generating several years of high-paced municipal roads development E4 Förbifart is in an intensive civil engineering phase Growth driven e.g. by intensive civil engineering works on Västlänken in Gothenburg Civil engineering start, main contracts, Västlänken New NTP adopted, high ambitions for the railway sector

Sources: Statistics Sweden, Swedish Transport Administration, Swedish Government, Veidekke Total 15% 13% -1%

• Clear signs of growth follow the start of large transport infrastructure projects in major metropolitan areas, which are now in an intensive production phase
• 9% growth in the roads market and 26% growth in the railways market in 2020
• The railways market is likely to account for the strongest growth throughout the forecast period
• A draft new national transport plan will be presented in the first half of 2021

	2020 Growth	2021 Growth	2022 Growth
Roads	9%	11%	-4%
Railways	26%	15%	3%

The transport infrastructure market in Norway Many roads and even more railways

Road and railway investment Comments NOK billion 0 5 10 15 20 25 30 35 40 45 50 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Roads Railways Nye Veier AS's production value exceeding NOK 10 Civil engineering start on billion first PPP project since the early 2000s Civil engineering start on first Nye Veier project High production in ongoing projects, including Vestfoldbanen New NTP adopted, high ambitions for Civil engineering start, the railway sector Follobanen

• Further growth expected in roads investment in the period to 2022, primarily linked to increasing production value in Nye Veier AS
• Positive development of the railways market, and start of work on several InterCity lines
• Based on high production in ongoing projects and the start of civil engineering works on Fornebubanen, we estimate growth of 25% in 2021 and 5% in 2022

	2020 Growth	2021 Growth	2022 Growth
Roads	-6%	4%	13%
Railways	4%	25%	5%

Sources: Statistics Norway, Statistics Sweden, Bane NOR, Norwegian Government, Veidekke Total -3% 10% 11%

06 Focus topic: internationalisation

The transport infrastructure market in Sweden Reorientation towards larger contracts

Development in contract sizes, Swedish Transport Administration Comments

Contract value in SEK million, percentage

• Reorientation towards ever-larger contracts with facilitation of international competition
• In 2020, contracts > SEK 1.5 billion accounted for 56%
• Larger contracts are attracting international interest
• Data have been compiled for all contracts awarded by the Swedish Transport Administration in the period 2012–2020

Source: Swedish Transport Administration

The transport infrastructure market in Norway and Sweden The largest contracts are becoming larger

Development of contract sizes Comments

Norway and Sweden, contracts > 500 million

• Reorientation towards ever-larger contracts with facilitation of international competition
• In 2020, contracts > NOK 3 billion accounted for 55%
• Larger contracts are attracting international interest

Sources: Veidekke's project database, Norwegian Public Roads Administration, Nye Veier, Bane NOR, City of Oslo, Swedish Transport Administration, Region Stockholm

International players, 2017–2020 Scandinavian players did well

Proportion by contract size, contracts > 500 million Proportion by client, contracts > 500 million

Percentages, Norway and Sweden Percentages, Norway and Sweden

International players Scandinavian players

Sources: Veidekke's project database, Norwegian Public Roads Administration, Nye Veier, Bane NOR, City of Oslo, Swedish Transport Administration, Region Stockholm

The Norwegian asphalt market Better prospects than in 2020

0 1 000 2 000 3 000 4 000 5 000 6 000 7 000 8 000 9 000 2015 2016 2017 2018 2019 2020 2021 2022 Central gov./national, roads County, roads Municipalities, roads Public-building related Residential Industrial Forecast -9% +9% 0%

Tonnes of asphalt by client segment Comments

1,000 tonnes

• 2020 marked a trough in the Norwegian asphalt market
• Unusually weak year for maintenance assignments for central government and counties
• Low demand for asphalting in large new projects
• The outlook for 2021 is better, and we anticipate 9% growth
• Budget agreements are not expected to provide the same impetus in 2022, but volume will be compensated for by an increase in new-build projects

Source: Veidekke's market data

The Norwegian asphalt market

Increased allocations by central government and county authorities

^{766 985 964} 665 660 552 916 772 1 534 1 759 2 241 1 859 1 764 1 411 1 835 1 651 0 500 1 000 1 500 2 000 2 500 3 000 3 500 2015 2016 2017 2018 2019 2020 2021 2022 Central gov./national County Forecast -20% +40% -12%

Maintenance for central government and municipalities Comments 1,000 tonnes

• 2020 marked a trough in the Norwegian asphalt market
• Unusually weak year for maintenance assignments for central government and counties
• Low demand for asphalting in large new projects
• The outlook for 2021 is better, and we anticipate 9% growth
• Budget agreements are not expected to provide the same impetus in 2022, but volume will be compensated for by an increase in new-build projects

Source: Veidekke's market data

07 Trouble ahead?

Commercial buildings Hardest hit by Covid-19

Construction-sector production, commercial buildings Comments NOK billion

• Investor uncertainty due to Covid-19
• Offices and hotels are particularly vulnerable in the short term
• A 6% year-on-year drop is expected in the Scandinavian commercial buildings segment in 2021 and 2022
• Norway: -5%
• Sweden: -9%
• Denmark: -6%

Sources: Veidekke's market data, Statistics Norway, Statistics Sweden and Statistics Denmark

What is happening in Norwegian municipalities? Very low number of building starts in autumn 2020

Municipal building starts in second half of 2020 Comments

NOK billion, daycare centres, primary and lower secondary schools and care facilities

• Very low number of building starts in the second half of 2020
• Potential reasons:
• 119 Norwegian municipalities were merged with neighbouring municipalities
• Very high number of municipal building starts before the mergers
• Tighter finances reinforced by Covid-19?

Sources: Veidekke's market data, Statistics Norway

Summary

Scandinavian construction market Comments

Construction-sector production, NOK billion

Sources: Veidekke's market data, Statistics Norway, Statistics Sweden and Statistics Denmark

• High activity levels but weak growth in 2021 and 2022
• Considerable uptick since last report
• Good opportunities in several segments

Keen on numbers and the construction industry? Veidekke.com/no/Markedsanalyse

• 1. Interactive database (PBI) for the Scandinavian construction market
• 1. Key figures in MS Excel
• 1. Market presentation as .pdf

08
Annexes

The contracting markets Scandinavia

Norway Sweden

By sector, NOK billion By sector, NOK billion

Denmark

By sector, NOK billion

Sources: Veidekke's market data, Statistics Norway, Statistics Sweden and Statistics Denmark

Thank you