Veidekke towards 2022 Capital Markets Update
9 May 2019
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 lower risk |
Arne Giske |
|
●
Building Construction Denmark |
Jørgen W. Porsmyr |
|
●
Building Construction Norway |
Hans Olav Sørlie |
|
●
Building Construction Sweden |
Jimmy Bengtsson |
|
●
Civil Engineering Sweden |
Jimmy Bengtsson |
|
●
Civil Engineering Norway |
Øivind Larsen |
|
Industrial: Recreate strong profitability |
Catharina Bjerke |
|
Financial targets and priorities |
Terje Larsen |
| 11:15 |
Concluding remarks and Q&A |
Arne Giske |
| 11:45 |
End |
|
This is Veidekke
Norway's largest and Scandinavia's fourth largest construction and property development company
Competent employees
8 500 in three countries
Turnover 2018
35.6 NOK billion
Denmark % of turnover 6% Sweden % of turnover 31% Norway % of turnover 63%
© Veidekke
Trends affecting our industries
Global megatrends Industry development trends
Sustainability and social responsibility The core of both strategy and performance
Veidekke's materiality analysis
Six prioritised topics
Veidekke's environmental policy
• Veidekke's ambition is to be a leading industry player with regards to reductions of climate gas emissions and practical safeguarding of the environment
Implementation of the environmental policy means that Veidekke:
- shall run its operation in alignment with the UN's two degree target
- has integrated environmental aspects in all its activities
- offers its customers added value through its environmental competencies
- keeps records of the organisation's environmental impact, in order to reduce it
- Sets environmental and climate requirements for partners
- contributes beyond the company itself; in industry organisations, educational institutions, R&D, and in interaction with authorities and politicians
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
Value based management
Veidekkeemployees are expected to be professional, honest and enthusiastic, and to have ground-breaking curiosity
Competence and experience
Veidekkeemployees have on average 4 years of higher education and have worked at Veidekke or in the industry for more than 9 years
7
Co-ownership
Some 50% of Veidekke's employees own shares in the company. Veidekke's employees own 15 % of Veidekke
respective trades Attractive employer
Veidekke is the most attractive employer among contractors for young engineers with 7-8 years' experience, according to UniversumNorway 2018
Continuous safety work Involvement is key
We shall create a safe workplace
Number of serious injuries, 12 months rolling
Value added interaction in Veidekke An integrated value chain creates value for customers
Veidekke utilises the Group's collective competencies to ensure high operational efficiency
Veidekke offers an integrated delivery model that secures better quality and higher customer value
A common delivery model
Utilises Veidekke's competencies and strong positions
| Development |
|
Production |
|
|
Operations |
|
Position /
concept |
Project
development |
Project design |
Procurement |
Production |
Maintenance |
Operations |
| Residential project own account |
|
|
|
|
|
|
| Residential projecton behalf of others |
|
|
|
|
|
|
| Commercial projectown-account |
|
|
|
|
|
|
| Commercial projecton behalf others |
|
|
|
|
|
|
| Public commercial (schools) |
|
|
|
|
|
|
| SchoolsPPP |
|
|
|
|
|
|
| Road/infrastructurePPP |
|
|
|
|
|
|
| Various civil engineering projects |
|
|
|
|
|
|
| Road/infrastructure |
|
|
|
|
|
|
| Road/infrastructure (maintenance) |
|
|
|
|
|
|
| Road/infrastructure (maintenance) |
|
|
|
|
|
|
| 12 |
Project development |
Building construction |
Civil engineering |
|
Industrial |
© Veidekke |
Veidekke Group Dual business model – creating value through interaction
Value creating interaction – developer and contractor An important part of Veidekke's success
- Integrated delivery secures better quality and higher customer value
- Strategic development of competencies and project portfolio
- Manages liquidity from Building Construction in the form of negative working capital
- Creates value added and reduces risk both as a developer and constructor
- In 2016–18, our residential projects had a total revenue of NOK 18 billion, with a total profit of more than NOK 1.7 billion
High growth and good margin development …took an abrupt turn in the past year
NOK billion. Annual growth of ~10% since 2012
Revenue Profitability
NOK million
Main reasons behind the weaker results
- Market driven decline in results
-
Low activity in Sweden, particularly in the Stockholm area
-
Residential construction Stockholm generates negative results due to losses in certain projects
- Profitability challenges in South and West Norway, and weak earnings in certain large projects
• Losses in major civil engineering projects, mainly due to uncertainty related to compensation for scope changes and additional work
• Increased input costs and lower capacity utilisation in asphalt
Measures to improve profitability already implemented
Safeguarding results to increase margins in 2020 Necessary and vigorous adaptation to a changing market
Group margin before tax
Civil Engineering Norway: Write-downs 2018
Civil Engineering Norway: Portfolio changes and cost adjustments
B
Building Construction Norway: From generalist to product specialist
Building Construction Stockholm: Improved residential construction and portfolio adjustments
Industrial: Asphalt tender calculations, improved
The project portfolio has grown substantially Strong growth over past four years
Order book, Construction
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 |
|
|
|
|
Improve risk management: Reducing risk of big losses Satisfactory results in large parts of the portfolio
Loss projects considerably weaken portfolio margin
Project revenue in ongoing projects ranked by profitability, quintiles
- Veidekke completes many successful and profitable projects every year
- We perform better in certain segments and geographies and will prioritise these to safeguard results
- Our focus:
- Strengthened risk management
- Improved calculation
- The right project management for the right projects
Improve risk management: Reducing risk of big losses Exclusion of four projects increase margins by <2%-p
Loss projects considerably weaken portfolio margin
Project revenue in ongoing projects ranked by profitability, quintiles
- Veidekke completes many successful and profitable projects every year
- We perform better in certain segments and geographies and will prioritise these to safeguard results
- Our focus:
- Strengthened risk management
- Improved calculation
- The right project management for the right projects
Firmer risk handling Improved risk management at all levels in Veidekke
Veidekke's ambitions towards 2022
Profitability before growth – maintain attractive dividend
Construction: Increased profitability with lower risk Prioritising projects and management capacity
Construction segment towards 4.5% in 2022
Margin before tax
Safeguarding results until 2020
Adjust strategy to achieve lasting increase in profitability
Industrial: Regenerate good profitability Focus on Asphalt and Road Maintenance
Profitability to return to historical level
Margin before tax
2022
Safeguarding results until 2020
Position and capacity towards 2022
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
Sweden: Manage a challenging market
Capital: Increased capital efficiency
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 Capital Markets Update 2019
The core of our model Interaction creates profitability and customer value
The core of our model Interaction strengthens our position
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 realisation
Norway – business model and financials Capital intensive development phase
Capital invested
- 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 Q1 2016 Q1 2017 Q1 2018 Q1 2019
Land values, development costs, investments in JVs and construction costs NOK million
Capital, liquidity and financing
- Capital intensive development phase
- Land payments normally due upon signing of agreement before start of project development
- Payment from customer due upon delivery of completed apartment/house
- Large share of portfolio in partnerships (55%) to reduce capital requirements
- Financial approach increasingly important to ensure land bank efficiency
- Estimated surplus values of NOK 1 billion in the land portfolio
Sweden – business model and financials Options and limited working capital
Capital invested
Paid land and land with delayed payment agreements, plus development costs
Capital, liquidity and financing
- Land payments often due at zoning (long after initial option/purchase agreement)
- Housing cooperative model in Sweden: Payment for sold apartments at start of construction. Construction financed by the cooperative
- Veidekke guarantees completion and repurchase of any unsold apartments/houses
- Partnering only to a limited degree
Development of commercial property projects Sharp and capital-efficient initiatives
- Main product
- Office properties often for own use
- Continuity secure projects, always in cooperation with others
Offices Commercial as part of residential Logistics properties
Results and activity Good value creation over time
Units under construction
Veidekke's share
3 000
Residential and commercial project sales Realised gains of more than NOK 500 mill. since 2014
Effect on Profit before tax
NOK million
- Project transactions to realise value created in the development phase is an important part of our strategy
- Conscious choices on a project basis
- Criteria; opportunities in the market and operational and financial optimisation of own portfolio
- High transaction activity in 2019
- Developed plot in Bærum sold with NOK 40 mill. gain
- Several ongoing projects for possible conclusion from Q2 2019 onwards
Property development Sweden
Central Park, Malmö
Hagaterrassen, Hagastaden Stockholm
Flatås Park, Gothenburg
The housing market in Sweden Sales decline reflected in building starts
Building starts, apartments and small houses
12 month rolling per quarter, number of units
- Building starts stabilising at a lower level
- Sales of new units still far below peak levels
- Short term: buyers market in 2019
- Relatively large supply of newly developed homes
- Limited financing options for buyers
- Long term: Supportive fundamental conditions
- Positive macro prospects
- Increased demand expected
- Good prospects for developers with long-term industrial positions and solid financial position
Activity in Sweden Strong decline in unit sales, high sales ratio
Units sold Units in production and building starts
Market driven activity for sales starts Probably few starts in 2019, increase expected in 2020/21
Number of residential units, Veidekke's share
- Sales starts residential units, Sweden Sales starts highly dependent on developments in the Stockholm area housing market
- Two or three new projects under consideration for sales start in the Stockholm area in 2019
- Veidekke has many projects available for sales start in all regions at the end of 2019
- Which projects, and scope and time will depend on market
Action plan Sweden Prioritising sales and the current situation
Property development Norway
Sølyst ,Stavanger
Middelthunet, Oslo
NærByen, Trondheim
Nyegaardskvartalet, Oslo
Housing market in Norway «Back to normal»
Start-ups apartments and small houses
12 months rolling per quarter, number of units
- «Back to normal»
- Extraordinary sales levels in 2016/2017
- Short term: Healthy market, increased competition
- Demand for housing is solid, but properties have become less attractive as investment objects
- Long term: Relatively stable development expected
- Solid fundamental market conditions
Activity in Norway Increasing sales and high production
44
© Veidekke
Increased sales starts in a healthy market Middelthunet and Nye Lilleby important in 2019
- Large number of sales starts expected in 2019
- Middelthunet, Oslo, with 165 units
- Nye Lilleby (B4/B5), Trondheim, with 370 units in total
- Other potential projects
- Launch of several projects expected in and around Oslo in 2020, although fewer than in 2019
Action plan Norway Projects ready for market
Property Development Outlook Market driven development from strong position
We have strong, long-term positions
We will develop profitable projects with high returns on capital
Profits will vary with market activity, units in production, and transactions
Property development, Sweden and Norway
Profit before tax, NOK million
An attractive construction market in Scandinavia Large addressable market
Construction market 2018 Construction market
Building construction and infrastructure Production per year, NOK billion
Construction in Veidekke Solid position in a large market
- Veidekke is Norway's largest construction company
- Solid Scandinavian footprint
- Differentiated by product, sector and geography
- Strong growth over the past five years
- Improving profitability from today's position is top priority
Geografical distribution
Diversified product portfolio
Revenue per product
Increased order book Shift towards commercial buildings
Order book by business units, NOK billion Order book by segment, NOK billion
Growing order book BRA acquisition in 2018 strengthened Commercial
Increased revenue but lagging profitability Decline in Civil Engineering profitability
Revenue, NOK billion Profit margin before tax*
Growth in both Building Constr. and Civil Engineering Development: Building Constr. flat, Civil Engineering weak
6%
© Veidekke *Including write-downs of the Civil Engineering portfolio in Norway of NOK 550 million in 2018
Major new building construction projects Shift towards more commercial buildings
Major new Civil Engineering projects Towards a more balanced portfolio
Underground construction in Sickla, Stockholm Crossroads Hjulsta Södra, Stockholm
Increase profitability and avoid losses Satisfactory in large parts of building construction
Loss projects weaken portfolio margins
Project revenue in ongoing projects ranked by profitability, deciles
- Accumulated revenue for the 90% best building construction projects has a profit margin of ~4%
- Loss projects have a major effect on overall profitability
- Risk management, project selection and proper project management are key
Strengthened risk management in early phases Key areas: Project selection, calculations and project design
Hoffmann Early involvment
Jørgen Wiese Porsmyr, EVP Capital Markets Update 2019
Hotel Ottilia
Hoffmann has been given the task of transforming Carlsberg's historic warehouse buildings into a modern and well functioning hotel.
Strong profitability Clear strategy and solid project execution
Stable, strong results
Selective customer strategy
- Prioritising customers where we can get involved early; phase 1 of project development
- Cooperation model which includes both client and advisers, and secures project improvements and optimisation of the customer's business case
- This accounts for almost 80% of revenue
Emphasis on technology and services closely related to the large commercial projects
- Hoffmann's service unit increases gradually
- These services accounted for almost 15% of revenue in 2018
Major new projects in Denmark Large projects in early phase
UCV –New Police Academy, Vejle in Jutland IBA Erhvervsakademi, Kolding
Still high ambitions for Denmark Staying true to our business model
- Hoffmann will be a selective construction company, which mainly develops and builds private commercial buildings
- Long-term customer relationships with key commercial property developers in the Copenhagen area
- True to strategy focus on risk management
| 2014-2018 |
2018 |
2019-2020 |
2021-2022 |
|
|
|
|
|
|
|
|
| Revenue growth p.a. |
Revenue growth |
Revenue growth p.a. |
Rrevenue
growth p.a. |
| +11% |
+3% |
+0-5% |
+0-5% |
|
|
|
|
|
|
|
|
| Average margin |
Margin 2018 |
Margin target 2020 |
Margin target 2022 |
| 6.2% |
6.6% |
>5% |
>5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Norway Product specialisation
Hans Olav Sørlie, EVP Capital Markets Update 2019
Xx mai 2019Building Construction
Lysgården Lysgården is an environmentally certified and groundbreaking office building. The building will be certified in accordance with the BREEAM Excellent environmental standard.
© Veidekke
Norway's largest building constructor in a market with great potential
19 NOK
billion
22 NOK
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 strong position in the Oslo area
- Local presence along the entire coast from south to north
- Broad project portfolio in residential buildings and in private and public commercial buildings
High growth for several years Profitability put under pressure
Building Construction Norway, revenue and margins NOK million, %
Challenges
- Wide spreads in performance and profitability between the different entities
- Complex projects have been handled by small and local entities with limited resources
- Inadequate risk management and increasingly sliding margins
Possibilities
- Market with large potential
- Stable organisation with solid competencies and vast experience
Declining profitability Delivery model to be adapted to market developments
Strategic turnaround – from generalist to specialist We aim for increased profitability with lower risk
2
3
Enhanced focus on three product areas
- Apartment buildings
- Office buildings
- Schools
Prioritising customers who…
- …specialise in their type of buildings
- …are professional and repeat customers
- …encourage early involvement
Going for project types where we have…
- …competent and experienced project management
- …risk understanding and experienced-based calculation
- …standardised processes
We will do more of what we do best
- A few nationwide and many mid-sized local customers
- Homogeneous product
- Industrialised product and process
-
High degree of repetition
-
Professional and long-term repeat customers
- High architectural requirements
-
Commercial, dynamic and user-driven processes
-
Professional public purchasers
- High design and environmental requirements
- Industrialised process
- Significant share of «price & design»
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 account for ~60% of the total market or about NOK 80 billion per year
- Veidekke aims for a portfolio with >80% of revenue in these categories, across regions
- We deploy competencies and management capacity to a narrower product range
Strategy will lead to concentration 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 areas
- Big cities to support districts and departments with business critical competencies
- Big city focus in alignment with the priorities of the Property Development division
- New organisation to give lower structural costs
- Strengthening our positions in Bergen and Stavanger
Metropolitan region
Stavanger
Ambitious goals Be the most profitable building constructor in Norway
- Increased degree of product specialisation
- 80% of revenue in 2022 to be generated from three product categories: apartment buildings, office buildings and schools
- Profitability before growth
- Selection, correct calculation, and risk management
- Effective and operational organisations concentrated in the big cities
| 2014-2018 |
2018 |
2019-2020 |
2021-2022 |
|
|
|
|
Revenue growth, p.a.
+12% |
Revenue growth
+27% |
Revenue growth p.a.
+0-5% |
Revenue growth p.a.
+0-5% |
Average margin
4.1% |
Margin 2018
3.4% |
Margin target 2020
4% |
Margin target 2022
>5% |
|
|
|
|
'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 ID06.
© Veidekke
Construction Sweden Clear priorities
Jimmy Bengtsson, EVP Capital Markets Update 2019
Veidekke established as a major player in Sweden ⅔ in Building Construction, the rest in Civil Engineering
Source: The Swedish Construction Federation, numbers for 2017
Growth in Sweden mainly in Building Construction Increasing profitability but some units are laggards
Xx mai 2019Buiding Construction Sweden Safeguarding results and strenghtening the position
Jimmy Bengtsson, EVP Capital Markets Update 2019 Swan mark
As part of the overreaching environmental focus in Veidekke, we have decided that all apartment buildings built on own account shall be certified with the Swan mark eco label
© Veidekke
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
- Specialised in two business areas: Residential and Commercial
- Broad project portfolio within homes and offices, hotels, public services buildings and schools
Building Construction ordrer book x7 in 6 years Change towards commercial buildings
© Veidekke *BRA acquisition in 2018 strengthened the emphasis on commercial buidings
Strong growth– margin increase from low level Weak profitability in residential in the Stockholm area
Building Construction Sweden, revenue and margins NOK billion, %
Building Construction, Commercial
- Strong development and position
- Solid order book
- Profitability on par with Building Construction Norway
Building Construction, Residential
- Very weak results on projects in the Stockholm area
- Challenges in ongoing projects due to a too high level of start-ups in a booming market without sufficient organisational capacity
- Measures implemented in Q3 2017 still ongoing
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 level
Strengthened positions towards 2022
- Strengthening the relation to prioritised customers seeking early involvement and positive interaction
- Further developing technical platform and products for increased competitiveness
- Increase efficiency and standardise processes and production
Competitive positions in important growth regions Focus on population centers and large cities
- Acquired 90.1 % of BRA in 2018
- Main focus on commercial buildings in a fast-growing region
-
NOK 1.3 billion in revenue last 12 months
-
Long experience and competency within hotels, public service buildings, schools, retail and offices
-
Value adding architect- installation competency through BSK Arkitekter and Exengo
-
Long experience in joint contracts and early involvement
- Leading deployment of VDC and digital tools
- Installation and technics through the subsidiary Veitech
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 larger share of joint contracts and early phase projects
- Develop activities within technical installations
Increase profitability towards 2022
- Choose the right project given risks and potential rewards
- Strict project- and risk management
- Build project leader tems with the right and critical competencies
Improvement goals in Building Construction in Sweden
- Focus on safeguarding results in 2019 and 2020
- Phasing-out loss projects in Stockholm
- Increasing competencies, risk management and calculation
- Further develop competitive position in Gothenburg and Stockholm
- Prioritise collaborative construction projects and early-phase projects
| 2014-2018 |
2018 |
2019-2020 |
2021-2022 |
|
|
|
|
Revenue growth p.a.
+32% |
Revenue growth
+14% |
Revenue growth p.a.
+5-10% |
Revenue growth p.a.
+ 5-10% |
Average margin
0,6% |
Margin 2018
1% |
Margin target 2020
2% |
Margin target 2022
3.5% |
|
|
|
|
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 establishment of the Jenåsen Wind Farm in Sundsvall for Eolus Vind.
Jimmy Bengtsson, EVP Capital Markets Update 2019
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 and southwest Sweden
- Established player in the mining segment in northern Sweden
- Good profitability from increased activity
Positive development Solid portfolio, increased activity level and margins
Margin and order book Civil Engineering Sweden NOK billion and % 0% 1% 2% 3% 4% 5% - 1 2 3 4 Q1 13 Q1 14 Q1 15 Q1 16 Q1 17 Q1 18 Q1 19 Orderbook Pre-tax margin % (12m) A balanced project portfolio The 50 largest project wins last 4 years for Civil Engineering Sweden, NOK mill. - 200 400 600 800 1,000 1,200 1,400 50 40 30 20 10 1
© Veidekke Includes contract entered into in Q2 19 with the Swedish Transport Administration to rebuild Lundbyleden in Gothenburg for around NOK 1.25 billion, whereof NOK 100 million to be entered into the order book in Q2 2019 for the first project phase
Civil Engineering Sweden Continued good prospects
Production in various construction segments
SEK billion, nominal
- Increasing activity in the transportation infrastructure segment
- Energy sector turning clearly positive
- Growing market for municipal engineering projects
• Increased production in 2018
Strategy and goals for Civil Engineering Sweden
- Profitability before growth
- Selectivity in the bidding and selection process
- Prioritise projects where we have particular strengths and expertise
- Continuously develop project management skills
- Effective operations throughout the value chain
- Collaborate with competitive partners
| 2014-2018 |
2018 |
2019-2020 |
2021-2022 |
|
|
|
|
|
|
|
|
| Revenue growth p.a. |
Revenue growth |
Revenue growth p.a. |
Revenue growth p.a. |
| +13% |
+7% |
+0-5% |
+0-5% |
|
|
|
|
| Average margin |
Margin 2018* |
Margin target 2020 |
Margin target 2022 |
| 3% |
4% |
4% |
4.5% |
|
|
|
|
|
|
|
|
|
|
|
|
Great potential in the Swedish civil engineering market Attractive position for improved profitability
Profitability before growth
- Eliminate loss projects through project- and risk management
- Selectivity based on risk and expected profitability
3
1
Build expertise and leadership capacity
- Strengthening competence and leadership capacity
- Clear management focus on results and customer satisfaction
- Further develop the brand to retain and attract the right employees and customers
Strengthen competitiveness
- Increased competitiveness through productivity initiatives
- Market leader for a serious building construction industry with competition on equal terms
- Follow the building construction sector's roadmap towards a fossile-free Sweden in 2045
Civil Engineering Norway Turnaround - new strategy
Øivind Larsen, EVP Capital Markets Update 2019 Sogn-Smestad
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.
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
Civil Engineering Norway A leading Norwegian constructor
Underground parking facilities
Groundwork – Foundations - Fixation
Road construction
Power- and industrial facilities
Special units
Kynningsrud Fundamentering AS Tore Løkke AS Veidekke Bane
KEY INFORMATION
Turnover past 12m NOK 4.6 bn.
Order book per Q1 NOK 4.7 bn.
Tunnels About 30 major ongoing projects
80% public, half of which for the Public Roads Administration (SVV)
1 350 employees, whereof 40% engineers and 60% skilled workers
© Veidekke
Civil Engineering Norway High activity level and a changing market
Production in different construction segments
NOK billion, nominal
- High level of activity in all the main segments
- High growth and increasingly large transport infrastructure projects – especially in road construction
Large share of large road projects in the portfolio Seeking better balance in terms of project type and size
- Some road projects have been too large and risky both for our company and other contractors
- Too dominant part of activity and revenues
- Occupying management competence which could have been better utilised
- Unclear responsibilities and risks related to major changes and change orders
- Signs of change increased willingness from major slient like the Public Roads Administration and Bane NOR to split projects
- New contract forms entering the market
Strategic change Project selection, bids and execution
2
3
Selection
- Seek project types we have succeeded with before
- Choose by competence not capacity or employment
- Tenders
- Increase management ownership to the bids
- Common tender unit high quality tender processes
- Correct calculation right pricing
Execution
- Strengthening project management capacity
- Strengthening projecting function
- Enhance customer knowledge and understanding
- Increase technical expertise in core functions
Project selection criteria
Selection strategy for project choices Reduce risk - increase profitability
Absolute size
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
Order book of uneven quality Significant effect of projects that do not generate results*
© Veidekke
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% |
|
|
|
• Veidekke has overdue accounts receivables of ~NOK 1.5 billion in Civil Engineering Norway
- Changes to the portfolio will contribute to reducing the level of accounts receivables and scope of disputes
- Veidekke has some major unresolved final settlements related to transport infrastructure projects and work is in progress to resolve current disputes
We will restore profitability in Civil Engineering Norway
- Profitability before growth
- Changes the portfolio mix
- Cost reductions
- Reducing risk
- Risk management
- Selectivity
- Increasing capital efficiency
- Reducing the machinery fleet lower demand
- Reducing number and scope of disputes
| 2014-2018 |
2018 |
2019-2020 |
2021-2022 |
|
|
|
|
|
|
|
|
Revenue growth
p.a. |
Revenue growth |
Revenue growth
p.a. |
Revenue growth
p.a. |
| -1% |
+0% |
-10% -
0% |
-10% -
+10% |
|
|
|
|
| Average margin* |
Margin 2018* |
Margin target 2020 |
Margin target 2022 |
| -1.6% |
-13.2% |
1.5% |
4% |
|
|
|
|
|
|
|
|
* Including write-downs of NOK 550 millions in 2018. Adjusted margin of -0.8% in 2018 and average +0.7% for 2014-18
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, EVP Capital Markets Update 2019
Aggregates Market share >10 %
Revenue 2018: NOK 0.6 billion
Veidekke Industrial
A strong position in the Norwegian market
© Veidekke
Operational synergies throughout the value chain
Profits and margins Disappointing profitability in Asphalt in 2018
Profitability in a safe and sustainable manner
Further profitable growth in Aggregates
Right entry to priority maintenance contracts
CREATE FLOW THROUGH CONTINUOS IMPROVEMENTS
Optimal process and right capacity in Asphalt
CONTRACT UNDERSTANDING AS A CORE COMPETENCE
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
- Growth strategy
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
- Reduced vulnerability to commodity price fluctuations
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
Road Maintenance - the turnaround works out The new contracts have good profitability
PPP - public-private partnership
- Selective new contracts profitability over growth
- Positive development on contracts started in 2016-2017
- Three profitable contracts started up in the autumn of 2018
- Two contracts won in 2019, both showing good prospects
- Targeted work on calculation and project management to ensure profitability in new contracts
Industrial will recreate good profitability
Securing results in Asphalt and Road Maintenance, growth in Aggregates
- Asphalt: Increase profitability through higher capacity utilisation, contract management, and better calculation and pricing
- Road maintenance: The turnaround works
- Aggregates: Profitable growth opportunities
| 2014-2018 |
2018 |
2019-2020 |
2021-2022 |
|
|
|
|
| Revenue p.a. |
Revenue |
Revenue p.a. |
Revenue p.a. |
| +7% |
+3% |
-5%-0% |
0%-5% |
|
|
|
|
| Average margin |
Margin 2018 |
Margin target 2020 |
Margin target 2022 |
| 3.6% |
0.8% |
3.5% |
5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 from materials by 39 % and by 17% from use of energy
© Veidekke
Financial targets and priorities
Terje Larsen, CFO Capital Markets Update 2019
High growth and good margin development … but abruptly changing trend the last year
NOK billion. Annual growth of ~10% since 2012
Revenue Profitability
NOK million
Order book affects short-term earnings ~NOK 5bn remaining revenue that will not generate profits
Order book, Construction
NOK billion
- ~NOK 5 billion of the order book is remaining revenue in projects that are not expected to generate profits
- 50/50-split Building Construction and Civil Engineering
- ~10% of total orders in Building Construction and ~30% of total orders in Civil Engineering
- Approx. NOK 23 billion of the order book is scheduled for delivery over the next 12 months
- ~NOK 4 billion from projects that will not deliver profits
We aim for significantly improved results Safeguard results to 2020 – higher ambitions for 2022
Financial capacity and flexibility
Reaching targets with healthy balance sheet and attractive dividends
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 Industrial and the size and scope of capital requirements in project development
Increased capital efficiency Reduced capital requirements unties liquidity
- Room for significant reduction of both fixed and current assets
- Reducing receivables in Civil Engineering Norway
- Reducing machinery fleet in Civil Engineering and Industrial
- Lower net capital expenditure from NOK 1.2 bn in 2018 to NOK 500-600 million in 2019
- Higher turnover in the property portfolio
- Reduce capital requirements through transactions and more partnerships
- Targeting total reduction of capital requirements of NOK 2-3 billion from the current level
Target: Slimmer balance sheet – higher capital efficiency NOK billion
Aims to retain "Investment grade" Veidekke shall be a solid company
- Net interest bearing debt to EBITDA should be below 2.5x over time
- Expecting significant improvement from high level in Q1 2019
- Large land investments and low season in Q1
- EBITDA last 12 months includes major write-downs in Q2 2018
- Positive cash flow expected in the second half of 2019
Net interest bearing debt / EBITDA (12 m)
Expects to satisfy requirements with solid margin
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 returns as a combination of dividends and return of shares
- Dividends shall represent at least 50% of the company's net result for the year
- Nominal dividend to increase with increasing profits
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
Photo: Mdh arkitekter sa
Concluding remarks
Arne Giske, CEO Capital Markets Update 2019
Veidekke's ambitions towards 2022
Profitability before growth - maintain attractive dividend