Veidekke

Investor Presentation • Oct 30, 2019

Market update Q3 2019

30 October 2019 Kristoffer Eide Hoen and Anders Wettre

Agenda

• Introduction 01
• Market drivers 02
• The contracting markets 03
• Summary 04

Veidekke's market data

• Quarterly update on veidekke.com
  • Can be filtered by geographical region and sector in Scandinavia
  • Forecasts for 2019 and 2020 available; 2021 to be added in Q4
• Preparation of historical market data for the contracting markets
  • Automated data collection and quality assurance by Statistics Norway, Statistics Sweden, Statistics Denmark, Macrobond, Veidekke and others.
• Forecasts for the contracting markets for 2019 and 2020
  • Macroeconomic variables from the IMF, the National Institute of Economic Research, Statistics Norway, the Danish Economic Councils, central banks, Almi, etc.
  • Forecasts for the construction sector are based on machine-learning tools (RNN)
  • Forecasts for the civil engineering sector are based on data from different sources and analyses of investment activity, financial capacity and project databases

The report describes anticipated developments in the Scandinavian contracting markets in the period to 2020, but does not reflect Veidekke's own expectations for the Group's development during the period.

Scandinavian contracting markets Dominated by civil engineering and apartment blocks

Source: Veidekke's market data

Non-residential buildings includes an estimate of the transparent ROT market for project sizes >NOK 20 million. The civil engineering market only encompasses new-builds.

Forecasts for the contracting markets 2019-2020

Market drivers

Investment decisions

Contracting markets

Forecasts for the contracting markets 2019–2020

Indicators:

labour market, etc.

Construction starts, sales, orders Production/revenue GDP, interest rates,

Forecasts for the contracting markets 2019–2020

Indicators:

GDP, interest rates, labour market, etc.

Construction starts, sales, orders

2019 2020

Degree of visibility/predictability as at October 2019

02 Market drivers

Macroeconomic overview

International growth and construction and civil engineering

GDP growth

Percentages	2016	2017	2018	2019	2020
Eurozone	1.9	2.5	1.9	1.2 (1.6)	1.4 (1.7)
Germany	2.2	2.5	1.5	0.5 (1.3)	1.2 (1.6)
UK	1.8	1.8	1.4	1.2 (1.5)	1.4 (1.6)
USA	1.6	2.4	2.9	2.4 (2.5)	2.1 (1.8)
China	6.7	6.8	6.6	6.1 (6.2)	5.8 (6.2)
Global	3.4	3.8	3.6	3.0 (3.5)	3.4 (3.6)

Brackets indicate estimates in March 2019.

Production index, construction and civil engineering Percentages Seasonally adjusted index, 2015=100

Comments

• Lower trade growth and reduced investment are dampening international economic cycles
• Improved growth forecasts for 2020–2021, not least due to aggressive monetary policy
• The northern European contracting markets have tapered off in 2019 – growth over for now?

Macroeconomic overview Scandinavia

Economic activity Interest rates

Purchasing Managers' Index (PMI)* Five-year government bonds, percentages

Comments

• Downturns among international trade partners have a knock-on effect
• Interest rate rises are no longer expected, with long interest rates falling in the past half-year
• The impact of a downturn on the construction and civil engineering market is not obvious. Lower interest rates/rate forecasts have previously had positive effects on e.g. the residential sector

*Measures changes in industry activity levels based on monthly surveys of purchasing managers. Figures above 50 indicate growth, index figures below 50 indicate a slowdown.

Sources: Norwegian Association of Purchasing and Logistics, Swedbank, Danish Purchasing and Logistics Forum, Norges Bank and Macrobond

Demographics Net immigration

Net immigration Norway Net immigration Sweden

Percentage of population Percentage of population

Comments:

• Immigration is generally high in most metropolitan regions
• New development: Improvement in several Norwegian metropolitan regions following a weak period
• Immigration is both an important driver and a consequence of residential construction

Source: Statistics Norway, Statistics Sweden and Veidekke

03 The contracting markets

Scandinavian contracting markets Stable, high activity levels until the end of 2020

Market level Market change

Annual production, NOK billion Contribution to change, NOK billion

Comments

• Activity levels remain high, but the period of strong growth has ended
• Non-residential buildings and civil engineering are positive contributors, at least until the end of 2020
• Marked differences between metropolitan regions in the past year, but more stable going forward?

Forecasts contracting markets

Report	2018	2019	2020
October 2019	6%	0%	2%
March 2019	5%	-3%	0%

Source: Statistics Norway, Statistics Sweden, Statistics Denmark and Veidekke

Scandinavian contracting markets Overview of relevant markets and growth

Source: Veidekke's market data *Excl. Greater Oslo

Building construction

Norwegian residential market Prices and building starts

Residential property prices in the largest markets

Price per m² , NOK '000 m²

Building starts, apartments and small houses

, quarterly

Comments

• Stable, positive trends in the secondhand housing market are expected to continue
• Apartment and small house building starts will remain at a high level in eastern Norway, but will be more moderate in other regions
• The Financial Supervisory Authority's proposed residential mortgage regulations: Elimination of special requirements for Oslo** most efficient measure?

* Excl. Greater Oslo

** 40% equity share requirement applicable to purchases of second homes

Sources: Real Estate Norway, Statistics Norway and Veidekke

Norwegian residential market Number of units

Building starts, apartments and small houses Comments

12-month rolling quarterly total, number of units

• Apartment and small house building starts have remained higher than anticipated, particularly in areas around Oslo
• A moderate correction is expected in 2020, measured as the number of started apartment and small house units
• Historically, 20,000 started apartment and small house units in 2020 is still high

Sources: Statistics Norway and Veidekke

Swedish residential market Prices and building starts

Residential property prices in the largest markets

Price per m² , SEK '000 m²

Building starts, apartments and small houses

, quarterly

Comments

• Large drop in building starts in Stockholm; considered to have bottomed out
• Mixed construction activity in the other two major metropolitan areas
• Stable secondhand housing market, and the supply of new residential units has stabilised

Sources: Mäklarstatistik, Statistics Sweden and Veidekke

Swedish residential market

Supply of unsold new apartment blocks Comments

Number of units. All phases*

• Symptom of «supply shock» in 2016 and 2017
• Stabilisation and some decline in unsold units in 2019

* Not yet started, in production and completed. The latter category only accounts for a modest proportion.

Source: Booli

Swedish residential market Number of units

Building starts, apartments and small houses Comments

12-month rolling quarterly total, number of units

• The number of new apartment and small house building starts has tapered off approximately as expected
• 40,000 started units is still high historically, and better matches available capacity and expertise
• Construction cost growth was very high in the period 2014–2017, but is falling now

Sources: Statistics Sweden and Veidekke

Right-to-rent vs. owner occupancy Form of ownership, started apartment blocks

Greater Stockholm Västra Götaland

Number of units Number of units

Skåne Number of units

Source: Veidekke's market data * 12-month rolling quarterly total, as at Q2 2019

© Veidekke NB: This overview does not include outright ownership, which only accounts for a marginal proportion (approximately 450 units in 2018).

Commercial buildings in Norway and Sweden Production

Building construction sector production, Norway

12-month rolling quarterly total, NOK billion 12-month rolling quarterly total, NOK billion

Building construction sector production, Sweden

Comments

• Stable outlook for commercial building production in Norway, bullish forecasts for 2020 in Sweden*
• Improved competitiveness (foreign exchange) and structural conditions are boosting the industrial and logistics segment
• The growth forecast for Sweden is vulnerable in the event of a strongerthan-anticipated economic downturn

*The production forecast for 2020 is based, among other things, on data showing the estimated number of building starts as at Q2 2019. Experience indicates that this figure may be subject to subsequent adjustment. The current forecast deviates from our view of the prevailing investment climate in Sweden, and we therefore regard this forecast as particularly uncertain. Source: Veidekke's market data

Public buildings in Norway and Sweden Production

Building construction sector production, Norway

12-month rolling quarterly total, NOK billion 12-month rolling quarterly total, NOK billion

Building construction sector production, Sweden

Comments

• Activity in both countries will remain high in 2020, primarily driven by central government health investment

Norway

• Tougher priority-setting by municipalities is set to continue. Income growth is declining and indebtedness is high

Sweden

• Formidable past growth, now tapering off at a high level

Source: Veidekke's market data

Health and care service buildings Scandinavia

Building construction sector production health and care services (including hospitals)

NOK billion

Source: Veidekke's market data

Commercial buildings in Denmark Production

Vacancy rate in Denmark

Building construction sector production, Denmark

Percentage of total number of buildings 12-month rolling quarterly total, NOK billion

Comments

• The decline in the vacancy rate of existing buildings has slowed, except in the industrial and logistics segment
• Preliminary data* on building starts in 2018 and 2019 indicate an overall decline in production which is strongest in southern and northernmost parts of Jutland
• The outlook for the region around Copenhagen and central Denmark (around Århus) is positive and stable for 2020

*Statistics Denmark has revised its reporting system, and the figures for 2018 and 2019 thus remain uncertain.

The stippled line shows the vacancy rate for the region around Copenhagen.

Source: Ejendomstorvet and Veidekke's market data

Civil engineering

The civil engineering market in Norway and Sweden Activity tapering off at a high level

100

Production in different civ. eng. segments Production in different civ. eng. segments Norway, NOK billion Sverige, NOK billion

-3% 10% 0% -3% 4% 13% 3% 4%

• Transport infrastructure Energy
• Other civil engineering Growth

Comments

• The forecasts have been adjusted somewhat since March 2018
• High public demand will continue to be central in future also
• Broad range of project scope and type

Forecasts civil engineering market:

Country	2018	2019	2020
Norway	8% (6%)	2% (4%)	3% (0%)
Sweden	13% (7%)	3% (6%)	4% (7%)

Sources: Statistics Norway, Statistics Sweden and Veidekke

The civil engineering market in Norway Broad range of project scope and type

Civil engineering production 2018 Comments

By segment, NOK billion

Transport infrastructure	Other civil engineering
			Other civil engineering, private sector
		Industry
	Other civil engineering, public sector	Oil sector
Roads	Energy
Railways	Distribution		Production

Transport infrastructure

• Major public clients
• Trend towards larger contracts

Energy

• National and regional stakeholders
• Great variation in contract size

Other civil engineering

• Large but less transparent market
• Market players with regional and local ties

Sources: Statistics Norway and Veidekke

A crowded mid-range Distribution of projects by size

Norway, by contract value (NOK million) Sweden, by contract value (NOK million)

Water, sanitation and waste management High demand and strong growth

Investment in water and sanitation facilities

NOK billion

Water, sanitation and waste management Trend towards more and larger contracts

Reported projects, Norwegian water and sanitation segment

Veidekke will refurbish the Himmerfjärdsverket treatment plan for Syvab

Distribution by size

Sources: Norge Bygges and Veidekke

The energy sector Higher activity for several years

Investment in energy facilities

NOK billion

Sources: Statistics Norway, Statistics Sweden and Veidekke

The railways market in Norway and Sweden Major projects being executed

Swedish Transport Administration, etc. Growth

Comments

Norway

• Higher investment
• Escalation in accordance with the National Transport Plan

Sweden

• Modest central government budget proposal for 2020, but the start of work on the Region Stockholm* underground line has had a positive effect
• Activity will increase after the forecast period

* Formerly Stockholm County Council

Sources: Statistics Norway, Norwegian Government, National Transport Plan, Bane NOR, Statistics Sweden, Swedish Transport Administration and Veidekke

• High ambitions for railway development in the years ahead • Large public-sector clients • Trend towards contracts with early involvement • Facilitation of international competition The Scandinavian railways market Priority area going forward Oslo Göteborg Vossa Line: Arna-Bergen Nykirke-Berkåker Drammen-Kobbervikdalen Follo Line Haug-Seut Fredrikstad-Sarpsborg Sandbukta-Moss-Såstad Sarpsborg-Halden Vestfold Line Østfold Line Dovre Line Västlänken Tunnel Line Akalla-Hjulsta-Ostra Odenplan-Arenstaden Norra Kungstradgärden-Nacka Södra Stockholm C-Stockholm Södra Kvernberget Korsvägen Olskroken Haga Ängelholm-Maria Varberg, double-track Laxå-Arvika Fornebu Line Kleverud-Sørlie Venjar-Langset Bergen Light Rail construction stage 4 Cityringen M4 to Nordhavn M4 toSydhavn Aalborg-Hjørring Hobre-Aalborg Odense Letbane Hovedgård-Hasselager Ringeriks Line Production in the period 2018–2025 Railway projects North Bothnia Line Sources: Bane NOR, Bergen Light Rail, Swedish Transport Administration, Region Stockholm, BaneDanmark and Copenhagen Metro

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© Veidekke

Operation and maintenance in Norway Lower activity than forecast

Road operation and maintenance Railways operation and maintenance NOK billion NOK billion 11% 8% 9% 4% 9% 1% 3% 1% - 5 10 15 20 25 30 2012 2013 2014 2015 2016 2017 2018 2019 2020 Municipalities Counties Main roads/PRA Growth

Comments

• Not keeping pace with the ambitions set out in the National Transport Plan 2018–2029
• The Government's budget proposal for 2020 indicates that the national main roads network is given lower priority
• Increasing activity linked to maintenance of existing railways

Sources: Statistics Norway, Norwegian Government, National Transport Plan, Norwegian Public Roads Administration, Bane NOR and Veidekke

The roads market in Norway and Sweden Growth has peaked

Norway, production Sweden, production

Comments

• Municipal roads investment has increased substantially in recent years
  • Linked to residential construction
• Going forward, central government investment will make the strongest contribution
• Delays to major projects

Sources: Statistics Norway, Norwegian Government, National Transport Plan, Norwegian Public Roads Administration, Statistics Sweden, Swedish Transport Administration and Veidekke

Transport infrastructure in Norway National Transport Plan

Planning periods, National Transport Plan Implementation of National Transport Plan

NOK billion NOK billion

04 Summary

Summary

Veidekke's market overview Highlights

Assessment of current market situation

• Improved interest rate outlook, poorer cyclical outlook
• The contracting and residential markets appear more stable than for a long time; construction activity remains high
• New market forces will feature in the next decade – demographic shifts and increased competitiveness will be central factors

Source: Veidekke's market data

Contracting markets Scandinavia

By sector, NOK billion By sector, NOK billion

Norway Sweden

Denmark

By sector, NOK billion

Soruce: Statistics Norway, Statistics Sweden, Statistics Denmark and Veidekke