Quarterly Report • Aug 24, 2018
Quarterly Report
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Quarterly Report | August 24, 2018
Q2
Our growth and value creation must never be at the expense of safety. This requires a great effort every day. We were given a strong reminder of how vulnerable we are when an employee of one of our subcontractors died as a result of a work accident on the E18 Tvedestrand-Arendal project in May. When fatal accidents occur, strong growth and a good quarterly result play second fiddle. Although we have a low injury rate, we must never forget that safety work requires constant maintenance. Continuous learning and measures that reinforce the barriers against adverse events therefore have a high priority. It is our responsibility that everyone who works on our projects arrives home safely every day, and this sets the standard for our project implementation.
AF has always been proud of its strength and ability to perform complex tasks. The group's entrepreneurial spirit has been characterised by the ability and will to think differently and to find better, more future-oriented ways to generate value.
REVENUES PER QUARTER (NOK MILLION)
| Key figures (NOK million) | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| Revenues and other income | 4 692 | 3 347 | 8 575 | 6 009 | 13 704 |
| EBITDA | 298 | 292 | 527 | 476 | 1 092 |
| Earnings before finacial items and tax (EBIT) | 256 | 251 | 441 | 396 | 924 |
| Earnings before tax (EBT) | 256 | 250 | 450 | 393 | 935 |
| Result per share (NOK) | 1.53 | 1.77 | 2.86 | 2.66 | 6.43 |
| EBITDA margin | 6.4 % | 8.7 % | 6.1 % | 7.9 % | 8.0 % |
| Operating profit margin | 5.5 % | 7.5 % | 5.1 % | 6.6 % | 6.7 % |
| Profit margin | 5.5 % | 7.5 % | 5.3 % | 6.5 % | 6.8 % |
| Return on capital employed (ROaCE)1) | - | - | 47.4 % | 47.1 % | 42.7 % |
| Cash flow from operating activities | 33 | 203 | 159 | 619 | 1 354 |
| Net interest-bearing receivables (debt) | 609 | 698 | 609 | 698 | 1 210 |
| Equity ratio | 23.8 % | 28.9 % | 23.8 % | 28.9 % | 26.9 % |
| Order backlog | 19 866 | 18 928 | 19 866 | 18 928 | 19 773 |
| LTI rate | 0.8 | 1.4 | 1.1 | 1.2 | 1.1 |
| Absence due to illness | 3.1 % | 2.8 % | 3.4 % | 3.2 % | 3.0 % |
1) 12-month rolling average
Sweden was established as a new business area for AF Gruppen as of 1 January 2018. The new business area consists of the units AF Härnösand Byggreturer, Kanonaden Entreprenad and subsidiaries, Pålplintar, AF Bygg Gothenburg, AF Bygg Syd and AF Projektutveckling.
All the numbers from the business areas for 2017 have been restated in accordance with the new structure so that they are comparable.
Tunnel works in Ålesund
| NOK million | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| Revenues and income | 1 481 | 827 | 2 727 | 1 495 | 3 569 |
| Earnings before financial items and tax (EBIT) | 49 | 52 | 107 | 102 | 249 |
| Earnings before tax (EBT) | 53 | 55 | 120 | 104 | 269 |
| Operating margin | 3.3 % | 6.3 % | 3.9 % | 6.8 % | 7.0 % |
| Profit margin | 3.6 % | 6.6 % | 4.4 % | 7.0 % | 7.5 % |
The Civil Engineering business area encompasses AF's civil engineering activities in Norway.
Civil Engineering consists of two business units:
The Civil Engineering business area reported revenues of NOK 1 481 million (827 million) for the 2nd quarter. This corresponds to growth totalling 79 per cent compared with the same quarter last year. Earnings before tax were NOK 53 million (55 million). Revenues totalled NOK 2 727 million (1 495 million) and earnings before tax were NOK 120 million (104 million) for the 1st half of the year.
AF Anlegg reported a very high level of activity for quarter. Many new projects and strong growth resulted in reduced earnings and a lower margin. Målselv Maskin & Transport delivered good results for the 2nd quarter.
Civil Engineering entered into major contracts with Statkraft Energi, Statkraft and Sporveien in the 2nd quarter. The three contracts have a combined contract value of NOK 480 million excl. VAT.
After the end of the quarter, the Board of Nye Veier announced that AF Gruppen will go on to the concretisation phase for the planning and construction of the new E39 Kristiansand West – Mandal East. The final awarding of the contract is expected in the autumn of 2018. The contract for this project will be valued at NOK 4 400 million, excl. VAT.
The order backlog for Civil Engineering was NOK 5 206 million (5 230 million) as at 30 June 2018.
Demolition of Ruseløkka Elementary School
| NOK million | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| Revenues and income | 178 | 126 | 309 | 226 | 474 |
| Earnings before financial items and tax (EBIT) | 12 | 9 | 20 | 12 | 28 |
| Earnings before tax (EBT) | 12 | 9 | 19 | 12 | 27 |
| Operating margin | 6.8 % | 7.6 % | 6.4 % | 5.3 % | 5.9 % |
| Profit margin | 6.7 % | 7.4 % | 6.2 % | 5.2 % | 5.8 % |
The Environment business area encompasses AF's services related to demolition and recycling onshore in Norway.
The business area consists of a single business unit: • AF Decom
Environment also has operations in Rimol Environmental Park, Nes Environmental Park and Jølsen Environmental Park.
Environment reported revenues of NOK 178 million (126 million) and earnings before tax of NOK 12 million (9 million) for the 2nd quarter. Revenues totalled NOK 309 million (226 million) and earnings before tax were NOK 19 million (12 million) for the 1st half of the year.
There is a good market for environmental services. AF Decom reported a high level of activity in the 2nd quarter, and the unit delivered good results for the quarter.
Rimol Environmental Park in Trondheim and Jølsen Environmental Park in Lillestrøm both had a good level of activity in the 2nd quarter and delivered good results. The new environmental park at Nes in Akershus has been completed, and it has already received materials for decontamination. The environmental park will be the first of its type in Eastern Norway, and it will contribute to the recycling of up to 80% of the materials that would have otherwise ended up at traditional disposal sites.
The order backlog for the Environment business area was NOK 209 million (350 million) as at 30 June 2018.
Lillo Gård in Oslo
| NOK million | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| Revenues and income | 2 258 | 1 762 | 4 066 | 3 245 | 7 474 |
| Earnings before financial items and tax (EBIT) | 139 | 109 | 230 | 189 | 467 |
| Earnings before tax (EBT) | 145 | 112 | 242 | 195 | 481 |
| Operating margin | 6.2 % | 6.2 % | 5.6 % | 5.8 % | 6.3 % |
| Profit margin | 6.4 % | 6.3 % | 5.9 % | 6.0 % | 6.4 % |
The Building business area encompasses activities related to new building and renovation in Norway.
The Building business area is divided into eight business units:
Building reported revenues of NOK 2 258 million (1 762 million) for the 2nd quarter – growth of 28 per cent over the same quarter last year. Earnings before tax were NOK 145 million (112 million). Revenues totalled NOK 4 066 million (3 245 million) and earnings before tax totalled NOK 242 million (195 million) for the 1st half of the year.
There is a high level of activity in the building market in Norway. Building reported a high level of activity for the 2nd
quarter and good quarterly results overall. AF Bygg Oslo, MTH and EIQON all reported very good results for the 2nd quarter. AF Bygg Østfold, AF Byggfornyelse, LAB and Strøm Gundersen reported a high level of activity and delivered satisfactory results for the quarter. AF Nybygg reported an increasing level of activity and delivered a positive result for the 2nd quarter.
In the 2nd quarter, AF Bygg Oslo signed a contract with Sofienberggaten 21-23 AS to build the residential property project Mills-kvartal at Grünerløkka in Oslo. The contract comprises building 149 apartments divided into five structures with a basement. The contract is a turnkey contract valued at NOK 400 million, excl. VAT.
The Building business area reported an additional 10 contracts with a combined value of NOK 1 912 million to the stock exchange in the 2nd quarter.
Building's order backlog was NOK 11 070 million (10 271 million) as at 30 June 2018.
2018
Nordic Choice Hotel at Hasle in Oslo
| NOK million | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| Revenues and income | 49 | 7 | 53 | 12 | 21 |
| Earnings before financial items and tax (EBIT) | 43 | 18 | 61 | 41 | 78 |
| Earnings before tax (EBT) | 40 | 15 | 55 | 34 | 64 |
| Operating margin | - | - | - | - | - |
| Profit margin | - | - | - | - | - |
The Property business area develops residential units and commercial buildings in Norway. The activities take place in geographic areas where AF has its own production capacity. The development projects are organised in associates and joint ventures, which are recognised in accordance with the equity method of accounting, and only AF's share of the earnings are recognised in the accounts.
Property reported earnings before tax of NOK 40 million (15 million) for the 2nd quarter. The earnings before tax for the first half of the year were NOK 55 million (34 million). The earnings are impacted by a high level of activity and partial sale of development projects.
The market in Greater Oslo is now marked by cautious optimism among the residential buyers. A total of 117 (55) apartments were sold in the 2nd quarter, and AF's share was 38 (21). The sales ratio for projects in progress was 72%.
At the end of the 2nd quarter, there was a total of 308 (220) units for sale. AF's share was 121 (98). At the end of the 2nd quarter, Property had 1 (7) unsold completed apartments, of which AF's share was 0.3 (3).
Property has six residential property projects with a total of 973 apartments under construction, of which AF's share is 377:
Lillo Gård at Nydalen (268 apartments)
Nye Kilen Brygge in Sandefjord (76 apartments)
For further information, see Note 7 on page 32.
In the 2nd quarter, Property had two commercial projects under construction in Oslo, with a total gross area of 24 687 square metres (AF's share was 10 615 square metres):
Securitas Building (total gross area of 15 159 square metres), which was completed in the 1st quarter, is expected to be sold in the 3rd quarter of 2018.
AF has a building site inventory (residential units under construction) in Norway that is estimated to yield 1 972 (2 580) residential units. AF's share of this is 816 (1 096) residential units. AF also has commercial property under construction with a total gross area of 73 751 (92 084) square metres. AF's share of this is a total gross area of 36 198 (45 273) square metres. LAB and Målselv Maskin & Transport have development rights that are included in the figures.
Solar panel installation at Kringsjå in Oslo
| NOK million | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| Revenues and income | 69 | 59 | 124 | 110 | 244 |
| Earnings before financial items and tax (EBIT) | -2 | 6 | -2 | 10 | 20 |
| Earnings before tax (EBT) | -3 | 6 | -4 | 10 | 22 |
| Operating margin | -2.8 % | 10.3 % | -1.5 % | 9.3 % | 8.2 % |
| Profit margin | -4.3 % | 10.4 % | -3.6 % | 9.3 % | 9.1 % |
The Energy business area encompasses AF's energy services for onshore activities.
The business area consists of a single business unit:
Miljøteknikk saw an increasing level of activity in the 2nd quarter, but the unit delivered poor results. The earnings are impacted by challenging conclusions for individual EPC contracts, as well as winding up the unit's branch office in Bergen.
• AF Energi & Miljøteknikk and subsidiaries
Revenues for the 2nd quarter were NOK 69 million (59 million) and earnings before tax were NOK -3 million (6 million). Revenues totalled NOK 124 million (NOK 110 million) and earnings before tax totalled NOK -4 million (10 million) for the first half of the year.
The energy services market is good, and the size of the contracts is increasing at the same time. AF Energi & AF Energi & Miljøteknikk has had many EPC contracts in the analysis phase, and several of these are in the process of being converted to projects to be executed.
The order backlog for Energy was NOK 275 million (345 million) as at 30 June 2018.
Skeppsbron, Gothenburg
| NOK million | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| Revenues and income | 629 | 425 | 1 137 | 751 | 1 611 |
| Earnings before financial items and tax (EBIT) | 45 | 24 | 67 | 41 | 83 |
| Earnings before tax (EBT) | 45 | 24 | 66 | 41 | 82 |
| Operating margin | 7.2 % | 5.7 % | 5.9 % | 5.5 % | 5.2 % |
| Profit margin | 7.1 % | 5.7 % | 5.8 % | 5.5 % | 5.1 % |
The Sweden business area encompasses activities related to building, civil engineering, property and environmental activities in Sweden.
The business area consists of six business units:
Sweden reported revenues of NOK 629 million (425 million) and earnings before tax of NOK 45 million (24 million) for the 2nd quarter. Revenues totalled NOK 1 137 million (751 million) and earnings before tax totalled NOK 66 million (41 million) for the first half of the year.
The Swedish civil engineering market is hesitant and marked by strong competition. Kanonaden Entreprenad reported satisfactory results for the 2nd quarter as well.
In Sweden, the residential market is somewhat more hesitant than in Norway. AF Projektutveckling and AF Bygg Syd delivered good results for the quarter, while AF Bygg Göteborg delivered somewhat below expectations.
The market for environmental services is also good in Sweden. AF Härnösand Byggreturer reported a high level of activity and very good profitability for its projects. The unit delivered very good quarterly results.
AF's property activities in Sweden have completed and handed over two residential property projects with a total of 74 apartments during the quarter (AF's share was 74):
AF has a building site inventory (residential units under construction) in Sweden that is estimated to yield 485 (26) residential units. AF's share of this is 343 (10) residential units.
The order backlog for Sweden was NOK 1 513 million (1 155 million) as at 30 June 2018.
HVAC for the Greg Mortimer ship, Ulstein Design & Solutions
| NOK million | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| Revenues and income | 184 | 200 | 366 | 355 | 664 |
| Earnings before financial items and tax (EBIT) | 6 | 17 | 9 | 27 | 59 |
| Earnings before tax (EBT) | 4 | 14 | 8 | 22 | 49 |
| Operating margin | 3.1 % | 8.5 % | 2.5 % | 7.6 % | 8.8 % |
| Profit margin | 2.1 % | 7.2 % | 2.1 % | 6.2 % | 7.4 % |
The Offshore business area encompasses AF's services related to the removal, demolition and decommissioning of offshore installations. Offshore also includes new building, modification and maintenance work related to HVAC and rig services. In addition, Offshore has services related to the maintenance and modification of onshore facilities for the oil and gas industry.
The business area consists of two business units:
Offshore also has activities related to the AF Environmental Base at Vats and the maintenance and modification of onshore facilities (MMO).
Revenues for the 2nd quarter were NOK 184 million (200 million) and earnings before tax were NOK 4 million (14 million). Revenues totalled NOK 366 million (355 million) and earnings before tax were NOK 8 million (22 million) for the 1st half of the year.
AF Offshore Decom reported a lower level of activity, but the unit delivered positive results. As communicated earlier, the market for the removal of offshore installations is marked by strong competition and few projects in the short term. There is no activity at the Environmental Base at Vats, and new projects that were contracted in 2017 will primarily be carried out in 2019 or later.
AF AeronMollier is experiencing challenging market conditions. The unit reported a stable level of activity for the 2nd quarter and delivered positive results for the quarter.
The order backlog for Offshore was NOK 924 million (1 004 million) as at 30 June 2018.
AF Gruppen shall have robust financing with respect to operational and market-related fluctuations. The company's required return on invested capital is 20%, and its financial position shall at the same time reinforce the company's growth strategy and provide an adequate dividend capacity.
Net operating cash flow was NOK 33 million (203 million) and net cash flow from investments was NOK 20 million (-105 million) for the 2nd quarter. Cash flow before capital transactions and financing was NOK 53 million (98 million) for the 2nd quarter. A dividend of NOK 489 million was distributed to AF Gruppen's shareholders in the 2nd quarter. Net operating cash flow was NOK 159 million (619 million) and net cash flow from investments was NOK -225 million (-247 million) for the 1st half of the year. Cash flow before capital transactions and financing was NOK -65 million (372 million) for the 1st half of the year.
AF Gruppen had net interest-bearing receivables of NOK 609 million (698 million) at the end of the 2nd quarter.
AF Gruppen's total financing framework is NOK 1 880 million. AF Gruppen has a credit facility of NOK 1 200 million with Danske Bank that will remain in effect until 2020. The framework also consists of a credit facility of NOK 80 million with DnB. In addition, AF has a credit facility of NOK 600 million with Handelsbanken that will be renewed annually until June 2020.
The available liquidity, including credit facilities, stood at NOK 2 248 million as at 30 June 2018.
Total assets were NOK 7 565 million (7 034 million) as at 30 June 2018. The Group's equity totalled NOK 1 803 million (2 034 million). This corresponds to an equity ratio of 23.8% (28.9%).
AF Gruppen's shares are listed on the Oslo Børs OB Match List and are traded under the ticker AFG. The share is included in the Oslo Børs All Share Index (OSEAX), Benchmark Index (OSEBX) and Mutual Fund Index (OSEFX), as well as the new Oslo Børs Mid Cap Index (OSEMX).
The closing price for the AF share was NOK 131.50 as at 30 June 2018. This corresponds to a return of 2.3% to date this year, adjusted for a dividend of NOK 5.00 per share distributed in the 2nd quarter. The Oslo Børs Benchmark Index showed a return of 7.9% for the same period.
| Name | No. shares | % share |
|---|---|---|
| OBOS BBL | 18 066 733 | 18.4 |
| ØMF HOLDING AS | 14 782 859 | 15.1 |
| CONSTRUCTIO AS | 13 741 782 | 14.0 |
| FOLKETRYGDFONDET | 7 174 956 | 7.3 |
| ARTEL II AS | 2 508 267 | 2.6 |
| LJM A/S | 2 413 900 | 2.5 |
| VITO KONGSVINGER AS | 1 861 676 | 1.9 |
| ARNE SKOGHEIM AS | 1 753 870 | 1.8 |
| LANDSFORSAKRINGAR FASTIGHETSFOND | 1 695 454 | 1.7 |
| STAAVI, BJØRN | 1 570 000 | 1.6 |
| Ten largest shareholders | 65 569 497 | 66.9 |
| Total other shareholders | 32 249 959 | 32.9 |
| Own shares | 141 544 | 0.1 |
| Total number of shares | 97 961 000 | 100.0 |
The company's Board of Directors has been granted authority by the General Meeting to determine the dividend to be distributed in the 2nd half of the year. A decision will be made on this in connection with the presentation of the quarterly results for the 3rd quarter on 9 November 2018.
HSE has high priority in AF Gruppen and is an integral part of the management at all levels. AF has a structured and uniform HSE system that encompasses all the projects. The working environment should be safe for everyone – including those who are employed by our subcontractors. The figures from the subcontractors are therefore included in the injury statistics.
There was an accident with a fatal outcome on 15 May in the E18 Tvedestrand–Arendal project. A contractor employee was injured when removing a counterweight from an excavator and later died from the injuries on 17 May. We worked together with the customer and subcontractor to learn from the incident, and we are introducing additional barriers in our projects.
The LTI (lost time injury) rate is a measurement parameter for safety work at AF. The LTI rate is defined as the number of injuries resulting in absence per million man-hours. A total of three injuries resulting in absence were registered in the 2nd quarter. This gives an LTI rate of 0.8 (1.4) for the 2nd quarter. The LTI rate for the first half of 2018 was 1.1 (1.2).
Through systematic and long-term efforts, the LTI rate has been reduced over the years. Significant resources are invested to further improve our HSE efforts in order to reach our goal of an LTI rate of zero. Key to this work is AF's fundamental understanding and acceptance that all injuries have a cause and can, therefore, be avoided. Identifying risk and risk analysis are a key part of our preventive activities. Physical and organisational barriers are established to reduce the risk of personal injury to an acceptable level based on an assessment of the risks.
In addition to risk assessments, we must also learn from our mistakes. AF has systematised this through reporting and responding to undesired incidents, as well as investigating the most serious ones. The number of reports has increased steadily during the last 14 years, and we see a clear correlation between the increased reporting of undesired incidents and the decrease in injuries.
The registration of sickness absence forms the basis for the measurement of health work at AF. For the 2nd quarter, sickness absence was 3.1 % (2.8 %), and to date this year it was 3.4 % (3.2 %). AF's sickness absence is low compared to that of comparable businesses. Our target is total sickness absence of less than 3.0 %, a level we believe represents a healthy situation without absence due to occupational illnesses/injuries. Systematic efforts such as ongoing risk analysis of exposure that is harmful to health, the establishment of physical and organisational barriers, and close follow-up of employees on sick leave, are being made.
Environmental work has high priority throughout the Group. AF would like to avoid environmental damage and minimise undesirable effects on the environment. Environmental work is an integral part of HSE work, and the tools used are the same that are used otherwise in connection with HSE work.
Follow-up of the source separation rate parameter acts as an extra driving force for AF's environmental work. The parameter is an important factor that AF has an opportunity to influence. It indicates how much of the waste from AF's operations is separated for the purpose of facilitating recycling. For the 2nd quarter, the result for building was 87 % (82 %), the result for renovation was 87 % (85 %) and the result for demolition was 96 % (94 %). To date in 2018, the source separation rate for building was 85 % (81 %), for renovation it was 84 % (86 %) and for demolition it was 95 % (95 %). The results are considered very good, and are well above the government requirement of a minimum of 60 %. A total of 74 469 tonnes (74 780) of waste have been sorted in the 2nd quarter, and a total of 126 966 tonnes (161 887) have been sorted in 2018. Our environmental parks have recycled a total of 50 042 tonnes (67 999) of materials year to date.
With clear growth ambitions and a rapidly increasing order backlog, there is an increasing need for resources. Therefore, the continuous effort to build a uniform corporate culture is more important than ever. Motivated employees and a solid organisation are an important foundation for creating value. AF is experiencing a major influx of competent resources who SICK LEAVE DEVELOPMENT
2ND QUARTER 2018 100 75 50 25 0 85 % Regulatory requirement Bygging Rehabilitering Riving YTD 2017 YTD 2018 84 % 95 %
SOURCE SEPARATION RATE
desire to work for the company, and the number of employees has increased by 374 persons to date this year alone. At AF we are building the organisation with a robust composition of technical expertise and management capacity at all levels. The resources are organised close to production, with project teams where the managers have a major influential force.
The percentage of women at AF is too low (8.3 % in total, 1,3 % among skilled workers and 18.2 % among salaried staff). The company will initiate measures to increase the percentage of women in the company. AF is also, as one of ten companies, cooperating with #ShesGotThis on a three-year research project. The goal is to find measures that will contribute to increasing the percentage of women at the company.
AF focuses on innovation and digitalisation. We work in a structured manner on how new technology can contribute to increased productivity and minimise risk in our projects. In addition, we are continuously seeking new business models on the border of or outside of our current core areas. This last year we have reinforced our efforts further by creating a corporate function for innovation and digitalisation, in addition to a joint venture fund with OBOS (Construct Venture).
AF invests time and resources in the development of employees through training in production and through development of the AF Academy. More than 80 % of the current managers have been recruited internally. Our employees are good ambassadors for the recruitment of new colleagues.
AF Gruppen had a total of 4 142 (3 621) employees at the end of the 2nd quarter. Of these employees, 3 625 (3 216) were employed in Norway, 481 (390) in Sweden, 23 (1) in Lithuania, 8 (9) in China and 5 (5) in Germany.
AF Gruppen is exposed to risk of both an operational and financial nature. AF Gruppen wants to assume operational risk that the business units can influence and control. AF has developed risk management processes that are well adapted to our operations. Standardised, action-oriented risk management processes ensure comprehensive and coherent risk management in all parts of the organisation. AF seeks to limit exposure to risk that cannot be influenced. A risk review is conducted for all projects before a tender is even submitted. Analysis of risk during the tendering phase enables the correct pricing and management of risk in the project. The same project team conduct detailed risk reviews every quarter. The Corporate Management Team will participate in risk reviews of all projects with a contract value in excess of NOK 100 million. In addition, a total of 25 risk reviews in the business units, in which the Corporate Management Team also participated, were conducted in connection with the 2nd quarter of 2018.
Financial risk encompasses market risk, credit risk and liquidity risk. Market risk includes commodity price risk, foreign exchange risk and interest rate risk. AF is exposed to foreign exchange risk, and as a major demolition and recycling operator, AF Gruppen is also exposed to fluctuations in steel prices. AF aims to have low exposure to risks that cannot be influenced, and it uses hedging instruments to mitigate the risk associated with foreign exchange rates and steel prices. AF has credit risk in relation to customers, suppliers and partners. In addition to the parent company and bank guarantees, the use of credit rating tools contributes to reducing risk. The liquidity risk is considered low. AF Gruppen has a total financing framework of NOK 1 880 million and available liquidity of NOK 2 248 million as at 30 June 2018.
The civil engineering market in Norway is good and not very sensitive to cyclical fluctuations, since public sector demand is the greatest driver behind investments in civil engineering. In the 2018 State Budget, NOK 67.5 billion has been allocated to transport, an increase of 6.5% over the budget for 2017. NOK 35.9 billion of this has been allocated to roads. This represents an increase of 7.7 per cent compared with 2017. Prognosesenteret expects a high level of activity in the civil engineering market for the period from 2018 to 2019, with growth in investments of 18.6% and 13.8%, respectively. It is primarily the large road projects in Western and Central Norway that are driving growth. The higher investment estimate for transport and road projects, as well as the planned start-up of many major civil engineering projects, provide a good foundation for further growth of AF's civil engineering activities.
Figures from Property Norway for July 2018 show that residential property prices in Norway remain unchanged. However, adjusted for seasonal variations, the prices rose 0.4%. In July, residential property prices were 2.2% higher than 12 months ago. Property Development Norway reports a moderate price increase nationally in July, where there was a decline in residential prices in all the cities with the exception of the Oslo region and Bergen. Oslo reported the strongest price performance in July with an increase of 1.9%. Property Development Norway expects moderate residential price increases this autumn. In spite of the expectation of a higher key interest rate and lower population growth, a satisfactory level of activity is still expected in the new residential sales market, which will contribute to a good balance between supply and demand in the residential market.
Prognosesenteret expects total growth in the building market to be 1.6% in 2018. A decline of 1.8% is expected for new residential construction. New non-residential buildings are expected to grow 7.6%, especially office, administration and medical buildings. In addition, growth of 1.5–1.8% is expected for renovation, remodelling and extension for residential and non-residential buildings. Overall a high level of activity is expected, and Prognosesenteret is expecting the strongest growth in Central and Western Norway in 2018.
The Environment business area provides traditional demolition services and the subsequent receiving, treating and recycling of materials. The level of demolition activity is closely connected to the general level of activity in the building and civil engineering markets. The positive outlook for the civil engineering market in Norway and moderate growth in the building market is positive for the demand for services in the Environment business area. The market opportunities for the treatment of contaminated materials are huge, since the materials that were previously delivered to disposal sites can now be recycled. Overall, this provides a good foundation for further growth in AF's environmental operations.
The authorities in Norway have defined ambitious energy goals related to a reduction in the consumption of energy towards the year 2030. These goals are to be realised through a significant reduction in the consumption of energy by existing buildings compared with the current level, among other things. Enova has found that there is a major maintenance backlog for public buildings and major conservation opportunities in connection with the rehabilitation of buildings. The delivery of heating and cooling to commercial buildings is another interesting market. The demand here is associated with new residential and commercial building starts, where a high number of starts is expected in 2018. The market for energy savings contracts (EPCs) in municipalities and public enterprises is also an interesting market area. There has been a significant increase in the number of advertised energy savings contracts in recent years, and this growth is expected to continue. Overall, a good market is expected for AF's activities in the Energy area.
Statistics Norway estimates that investments related to oil, gas and pipeline transport will amount to NOK 156 billion in 2018. This is a increase of 1.3% compared with the corresponding figures for 2017. Uncertainty in the oil industry may have an impact on AF's HVAC activities, as well as on maintenance and modification. The market for the removal of offshore installations is marked by strong competition and few demolition projects to be carried out in 2018 and 2019. Estimates from the British industry organisation Oil & Gas UK indicate that more than 200 platforms must be removed fully or partially on the British, Norwegian, Danish and Dutch sectors during the period from 2017 to 2025. This represents good opportunities for AF's offshore activities related to the demolition and removal of decommissioned oil installations. For AF's offshore activities in the HVAC area, as well as maintenance and modifications, the market conditions are still challenging, but growth is expected for certain cruise and passenger vessel segments.
The residential price performance in Sweden, like Norway, has been marked by strong growth over some time now. Throughout 2017, the residential property prices also fell in Sweden. The residential market has been significantly more stable during the last half year, compared with the second half of 2017. To date in 2018, the figures are weakly uplifting, and there have been signs of improvement. The Swedish central bank Riksbanken points out that Sweden and the surrounding world are showing strong economic expansion. The Swedish central bank Riksbanken expects continued high residential demand.
The Swedish Construction Federation assumes there will be declining growth of 2% in building and civil engineering investments in Sweden in 2018 after several years of high growth. The new construction market in Sweden has improved significantly in recent years. Going forward, credit tightening, moderate real wage growth and rising mortgage rates are expected, which is in turn expected to result in flat residential investments overall for 2018. Civil engineering investments are expected to grow 4%, and they will be driven by good performance, for civil engineering activities in particular.
Board of Directors of AF Gruppen ASA
For more detailed information, please contact: CEO Morten Grongstad
[email protected] +47 991 53 905
[email protected] +47 952 45 167
Internet: afgruppen.com
| NOK million | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| Revenues and income | 4 692 | 3 347 | 8 575 | 6 009 | 13 704 |
| Subcontractors | -2 389 | -1 422 | -4 182 | -2 502 | -6 233 |
| Cost of materials | -885 | -771 | -1 636 | -1 164 | -2 277 |
| Payroll cost | -806 | -594 | -1 630 | -1 312 | -2 961 |
| Operating expenses ex. depreciation and impairment | -342 | -316 | -659 | -610 | -1 256 |
| Net gains (losses) and profit (loss) from associates | 27 | 46 | 58 | 55 | 116 |
| EBITDA | 298 | 292 | 527 | 476 | 1 092 |
| Depreciation and impairment of tangible fixed assets | -41 | -41 | -85 | -80 | -166 |
| Depreciation and impairment of intagible assets | -1 | -1 | -1 | -1 | -2 |
| Earnings before financial items and tax (EBIT) | 256 | 251 | 441 | 396 | 924 |
| Net financial items | - | - | 9 | -3 | 12 |
| Earnings before tax (EBT) | 256 | 250 | 450 | 393 | 935 |
| Income tax expense | -65 | -50 | -107 | -89 | -181 |
| Net income for the period | 191 | 200 | 343 | 304 | 754 |
| Attributable to: | |||||
| Shareholders of the parent | 150 | 170 | 280 | 254 | 621 |
| Non-controlling interests | 41 | 30 | 63 | 50 | 133 |
| Net income for the period | 191 | 200 | 343 | 304 | 754 |
| Earnings per share (NOK) | 1.53 | 1.77 | 2.86 | 2.66 | 6.43 |
| Diluted earnings per share (NOK) | 1.53 | 1.77 | 2.86 | 2.66 | 6.43 |
| Key Figures | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
| EBITDA margin | 6.4 % | 8.7 % | 6.1 % | 7.9 % | 8.0 % |
| Operating profit margin | 5.5 % | 7.5 % | 5.1 % | 6.6 % | 6.7 % |
| Profit margin | 5.5 % | 7.5 % | 5.3 % | 6.5 % | 6.8 % |
| Return on capital employed (ROaCE) 1) | - | - | 47.4 % | 47.1 % | 42.7 % |
| Return on equity | - | - | 39.4 % | 38.0 % | 35.8 % |
| Equity ratio | 23.8 % | 28.9 % | 23.8 % | 28.9 % | 26.9 % |
| Net interest-bearing receivables (debt) 2) | 609 | 698 | 609 | 698 | 1 210 |
| Capital employed 3) | 1 908 | 2 154 | 1 908 | 2 154 | 2 198 |
| Order backlog | 19 866 | 18 928 | 19 866 | 18 928 | 19 773 |
1) Return on capital employed (ROaCE) = (Earnings before tax + interest expense) / average capital employed
2) Net interest-bearing receivables (debt) = Cash and cash equivalents + interest-bearing receivables - interest-bearing debt
3) Capital employed = Equity + interest-bearing debt
| NOK million | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| Net income for the period | 191 | 200 | 343 | 304 | 754 |
| Net actuarial gains and losses | - | - | - | - | 1 |
| Currency translation differences minority | -1 | - | -3 | 1 | 2 |
| Items that will not be reclassified to income statement in subsequent periods | -1 | - | -3 | 1 | 3 |
| Net cash flow hedges | 2 | 23 | 10 | 23 | 38 |
| Currency translation differences majority | -15 | 16 | -47 | 25 | 26 |
| Items that may be reclassified to income statement in subsequent periods | -13 | 39 | -37 | 47 | 64 |
| Other comprehensive income for the period | -14 | 39 | -40 | 49 | 67 |
| Total comprehensive income for the period | 177 | 239 | 303 | 353 | 821 |
| Attributable to: | |||||
| -Shareholders of the parent | 137 | 209 | 243 | 301 | 686 |
| - Minority | 40 | 30 | 60 | 51 | 135 |
| Total comprehensive income for the period | 177 | 239 | 303 | 353 | 821 |
| Actuarial pension |
Attribut able to |
|||||||
|---|---|---|---|---|---|---|---|---|
| Paid-in | Translation | gains/ | Cash flow | Retained | share | Total | ||
| NOK million | capital | differences | (losses) | hedge | earnings | holders | Minority | equity |
| As at 31/12/16 | 223 | 6 | -16 | -53 | 1 519 | 1 680 | 270 | 1 950 |
| Comprehensive income | - | 25 | - | 23 | 254 | 301 | 51 | 353 |
| Capital increase | 281 | - | - | - | - | 281 | - | 281 |
| Purchase of treasury shares | - | - | - | - | -8 | -8 | - | -8 |
| Sale of treasury shares | - | - | - | - | 13 | 13 | - | 13 |
| Dividend paid | -121 | - | - | - | -364 | -486 | -73 | -559 |
| Share-based remuneration | 2 | - | - | - | - | 2 | - | 2 |
| Addition of minority by aqusitions | - | - | - | - | - | - | 18 | 18 |
| Transactions with minority | - | - | - | - | -22 | -22 | 6 | -16 |
| Per 30/06/17 | 385 | 31 | -16 | -31 | 1 392 | 1 761 | 273 | 2 034 |
| As at 31/12/17 | 482 | 32 | -14 | -15 | 1 209 | 1 693 | 384 | 2 078 |
| Change in accounting principles | - | - | - | - | 16 | 16 | - | 16 |
| As at 1/1/2018 | 482 | 32 | -14 | -15 | 1 225 | 1 709 | 384 | 2 094 |
| Comprehensive income | - | -47 | - | 10 | 280 | 243 | 60 | 303 |
| Capital increase | - | - | - | - | - | - | - | - |
| Purchase of treasury shares | - | - | - | - | -7 | -7 | - | -7 |
| Sale of treasury shares | - | - | - | - | 8 | 8 | - | 8 |
| Dividend paid | -122 | - | - | - | -367 | -489 | -105 | -594 |
| Share-based remuneration | 8 | - | - | - | - | 8 | - | 8 |
| Put options for minority | - | - | - | - | -3 | -3 | - | -3 |
| Addition of minority by aqusitions | - | - | - | - | - | - | - | - |
| Transactions with minority | - | - | - | - | -2 | -2 | -2 | -4 |
| As at 30/06/18 | 368 | -15 | -14 | -5 | 1 133 | 1 466 | 337 | 1 803 |
| NOK million | 30/06/2018 | 30/06/2017 | 31/12/2017 |
|---|---|---|---|
| Tangible fixed assets | 1 266 | 1 186 | 1 241 |
| Intagible assets | 2 162 | 2 175 | 2 188 |
| Investment in associates and joint ventures | 366 | 430 | 363 |
| Deferred tax asset | 21 | 47 | 26 |
| Interest-bearing receivables | 332 | 260 | 216 |
| Pension plan and other financial assets | 6 | 6 | 10 |
| Total non-current assets | 4 153 | 4 104 | 4 045 |
| Inventories | 223 | 160 | 159 |
| Projects for own account | 19 | 156 | 186 |
| Trade receivables and other receivables | 2 787 | 2 056 | 2 216 |
| Interest-bearing receivables | 13 | 46 | 16 |
| Derivatives | 2 | - | 3 |
| Cash and cash equivalents | 368 | 512 | 1 098 |
| Total current assets | 3 411 | 2 931 | 3 679 |
| Total assets | 7 565 | 7 034 | 7 724 |
| Equity attributable to sharholders of the parent | 1 466 | 1 761 | 1 693 |
| Minority interests | 337 | 273 | 384 |
| Total equity | 1 803 | 2 034 | 2 078 |
| Long-term interest-bearing debt | 92 | 104 | 102 |
| Retirement benefit obligations | 1 | 1 | 1 |
| Provisions | 190 | 155 | 189 |
| Deferred tax | 316 | 282 | 327 |
| Derivatives | 11 | 31 | 23 |
| Total non-current liabilities | 610 | 574 | 643 |
| Short-term interest-bearing debt | 12 | 15 | 19 |
| Trade payables and other short term debt | 4 725 | 3 869 | 4 481 |
| Derivatives | 6 | 31 | 26 |
| Provisions | 217 | 150 | 353 |
| Tax payable | 191 | 360 | 126 |
| Total current liabilities | 5 151 | 4 426 | 5 003 |
| Total liabilities | 5 761 | 5 000 | 5 646 |
| Total equity and liabilities | 7 565 | 7 034 | 7 724 |
| NOK million | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| Earnings before financial items and tax (EBIT) | 256 | 251 | 441 | 396 | 924 |
| Depreciation, amortisation and impairment | 42 | 41 | 86 | 81 | 169 |
| Change in net working capital | -220 | 2 | -272 | 290 | 775 |
| Income taxes paid | -21 | -45 | -44 | -94 | -407 |
| Other adjustments | -24 | -47 | -51 | -53 | -107 |
| Cash flow from operating activities | 33 | 203 | 159 | 619 | 1 354 |
| Net investments | 20 | -105 | -225 | -247 | -119 |
| Cash flow before financing activities | 53 | 98 | -65 | 372 | 1 235 |
| Share issue | - | - | - | 232 | 322 |
| Dividend paid to majority shareholders | -489 | -486 | -489 | -486 | -829 |
| Dividend paid to minority | -15 | -13 | -105 | -73 | -77 |
| Sale (purchase) of treasury shares | - | -3 | - | 5 | -10 |
| Borrowings (repayment of debt) | -56 | 14 | -64 | 1 | 2 |
| Interest paid | -3 | -3 | -6 | -6 | -13 |
| Cash flow from financing activities | -563 | -491 | -664 | -326 | -604 |
| Net decrease (increase) in in cash and cash equivalents | -510 | -394 | -729 | 45 | 632 |
| Net cash and cash equivalents at beginning of period | 879 | 907 | 1 098 | 469 | 469 |
| Change in cash and cash eqivalents without cash effect | - | -1 | -1 | -2 | -2 |
| Net cash and cash equivalents end of period | 368 | 512 | 368 | 512 | 1 098 |
AF Gruppen's division into operating segments is consistent with the division of the business areas: Civil Engineering, Environment, Building, Property, Energy, Sweden and Offshore.
Sweden has been organised as a separate business area as of 1 January 2018. The new business area consists of the units AF Härnösand Byggreturer, Kanonaden Entreprenad and subsidiaries, Pålplintar, AF Bygg Göteborg, AF Bygg Syd and AF Projektutveckling. The comparable figures for the business areas have been similarly restated.
Segment information is presented in accordance with the AF Gruppen's accounting policies in accordance with IFRS with the exception of the principles for revenue recognition for residential property development in accordance with IFRS 15. This policy exception applies to the Building and Property segments. Revenue from projects for own account in these segments is not recognised upon handover as regulated in IFRS 15, but in accordance with the degree of completion method. This means that the recognition of revenue in these projects is the product of the degree of completion, sales ratio and expected contribution margin.
Segment information is presented in accordance with reporting to the Corporate Management Team and is consistent with the financial information utilised by the Company's senior decision-makers when evaluating developments and allocating resources. The effect of the deviant application of principles on the consolidated accounts is illustrated in a separate table in the segment information. Additional information on projects for own account is provided in Note 7.
| NOK million | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| External revenue and income | 1 473 | 816 | 2 715 | 1 475 | 3 511 |
| Internal revenue and income | 8 | 11 | 13 | 20 | 59 |
| Total revenue and income | 1 481 | 827 | 2 727 | 1 495 | 3 569 |
| EBITDA | 66 | 66 | 140 | 129 | 306 |
| Earnings before financial items and tax (EBIT) | 49 | 52 | 107 | 102 | 249 |
| Earnings before tax (EBT) | 53 | 55 | 120 | 104 | 269 |
| EBITDA-margin | 4.4 % | 8.0 % | 5.1 % | 8.6 % | 8.6 % |
| Operating margin | 3.3 % | 6.3 % | 3.9 % | 6.8 % | 7.0 % |
| Profit margin | 3.6 % | 6.6 % | 4.4 % | 7.0 % | 7.5 % |
| Assets | 1 848 | 1 512 | 1 848 | 1 512 | 1 871 |
| Order backlog | 5 206 | 5 230 | 5 206 | 5 230 | 6 082 |
| NOK million | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| External revenue and income | 170 | 111 | 290 | 201 | 404 |
| Internal revenue and income | 8 | 15 | 19 | 25 | 70 |
| Total revenue and income | 178 | 126 | 309 | 226 | 474 |
| EBITDA | 16 | 13 | 28 | 20 | 45 |
| Earnings before financial items and tax (EBIT) | 12 | 9 | 20 | 12 | 28 |
| Earnings before tax (EBT) | 12 | 9 | 19 | 12 | 27 |
| EBITDA-margin | 9.0 % | 10.7 % | 9.0 % | 8.9 % | 9.4 % |
| Operating margin | 6.8 % | 7.6 % | 6.4 % | 5.3 % | 5.9 % |
| Profit margin | 6.7 % | 7.4 % | 6.2 % | 5.2 % | 5.8 % |
| Assets | 275 | 197 | 275 | 197 | 282 |
| Order backlog | 209 | 350 | 209 | 350 | 274 |
| NOK million | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| External revenue and income | 2 223 | 1 760 | 4 018 | 3 240 | 7 455 |
| Internal revenue and income | 35 | 2 | 48 | 6 | 19 |
| Total revenue and income | 2 258 | 1 762 | 4 066 | 3 245 | 7 474 |
| EBITDA | 149 | 120 | 250 | 211 | 512 |
| Earnings before financial items and tax (EBIT) | 139 | 109 | 230 | 189 | 467 |
| Earnings before tax (EBT) | 145 | 112 | 242 | 195 | 481 |
| EBITDA-margin | 6.6 % | 6.8 % | 6.2 % | 6.5 % | 6.8 % |
| Operating margin | 6.2 % | 6.2 % | 5.6 % | 5.8 % | 6.3 % |
| Profit margin | 6.4 % | 6.3 % | 5.9 % | 6.0 % | 6.4 % |
| Assets | 4 641 | 3 313 | 4 641 | 3 313 | 4 449 |
| Order backlog | 11 070 | 10 271 | 11 070 | 10 271 | 9 837 |
| NOK million | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| External revenue and income | 49 | 7 | 53 | 12 | 21 |
| Internal revenue and income | - | - | - | - | - |
| Total revenue and income | 49 | 7 | 53 | 12 | 21 |
| EBITDA | 43 | 18 | 61 | 41 | 78 |
| Earnings before financial items and tax (EBIT) | 43 | 18 | 61 | 41 | 78 |
| Earnings before tax (EBT) | 40 | 15 | 55 | 34 | 64 |
| EBITDA-margin | - | - | - | - | - |
| Operating margin | - | - | - | - | - |
| Profit margin | - | - | - | - | - |
| Assets | 843 | 828 | 843 | 828 | 740 |
| Order backlog | - | - | - | - | - |
| NOK million | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| External revenue and income | 65 | 58 | 116 | 109 | 235 |
| Internal revenue and income | 4 | 1 | 8 | 1 | 9 |
| Total revenue and income | 69 | 59 | 124 | 110 | 244 |
| EBITDA | -2 | 6 | -1 | 10 | 21 |
| Earnings before financial items and tax (EBIT) | -2 | 6 | -2 | 10 | 20 |
| Earnings before tax (EBT) | -3 | 6 | -4 | 10 | 22 |
| EBITDA-margin | -2.5 % | 10.5 % | -1.2 % | 9.5 % | 8.5 % |
| Operating margin | -2.8 % | 10.3 % | -1.5 % | 9.3 % | 8.2 % |
| Profit margin | -4.3 % | 10.4 % | -3.6 % | 9.3 % | 9.1 % |
| Assets | 115 | 133 | 115 | 133 | 163 |
| Order backlog | 275 | 345 | 275 | 345 | 260 |
| NOK million | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| External revenue and income | 629 | 425 | 1 136 | 751 | 1 611 |
| Internal revenue and income | 1 | - | 1 | - | - |
| Total revenue and income | 629 | 425 | 1 137 | 751 | 1 611 |
| EBITDA | 50 | 29 | 76 | 50 | 102 |
| Earnings before financial items and tax (EBIT) | 45 | 24 | 67 | 41 | 83 |
| Earnings before tax (EBT) | 45 | 24 | 66 | 41 | 82 |
| EBITDA-margin | 7.9 % | 6.8 % | 6.7 % | 6.7 % | 6.4 % |
| Operating margin | 7.2 % | 5.7 % | 5.9 % | 5.5 % | 5.2 % |
| Profit margin | 7.1 % | 5.7 % | 5.8 % | 5.5 % | 5.1 % |
| Assets | 1 277 | 970 | 1 277 | 970 | 1 249 |
| Order backlog | 1 513 | 1 155 | 1 513 | 1 155 | 1 760 |
| NOK million | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| External revenue and income | 183 | 204 | 365 | 359 | 665 |
| Internal revenue and income | 1 | -4 | 1 | -4 | -1 |
| Total revenue and income | 184 | 200 | 366 | 355 | 664 |
| EBITDA | 9 | 21 | 16 | 35 | 74 |
| Earnings before financial items and tax (EBIT) | 6 | 17 | 9 | 27 | 59 |
| Earnings before tax (EBT) | 4 | 14 | 8 | 22 | 49 |
| EBITDA-margin | 4.7 % | 10.4 % | 4.3 % | 9.8 % | 11.2 % |
| Operating margin | 3.1 % | 8.5 % | 2.5 % | 7.6 % | 8.8 % |
| Profit margin | 2.1 % | 7.2 % | 2.1 % | 6.2 % | 7.4 % |
| Assets | 1 258 | 1 473 | 1 258 | 1 473 | 1 262 |
| Order backlog | 924 | 1 004 | 924 | 1 004 | 916 |
| NOK million | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| External revenue and income | 4 | 12 | 11 | 34 | 34 |
| Internal revenue and income | 7 | 6 | 13 | 9 | 23 |
| Total revenue and income | 12 | 18 | 24 | 44 | 57 |
| EBITDA | -12 | -5 | -17 | -13 | -18 |
| Earnings before financial items and tax (EBIT) | -15 | -9 | -25 | -20 | -33 |
| Earnings before tax (EBT) | -18 | -9 | -29 | -18 | -32 |
| Assets | 1 766 | 314 | 1 766 | 314 | 2 050 |
| Order backlog | - | - | - | - | - |
| NOK million | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| External revenue and income | -24 | -19 | -70 | -31 | -47 |
| Internal revenue and income | -64 | -30 | -103 | -57 | -177 |
| Total revenue and income | -88 | -49 | -173 | -87 | -224 |
| EBITDA | -3 | -4 | -7 | -5 | -8 |
| Earnings before financial items and tax (EBIT) | -3 | -4 | -7 | -5 | -8 |
| Earnings before tax (EBT) | -3 | -4 | -7 | -5 | -8 |
| Assets | -4 346 | -1 614 | -4 346 | -1 614 | -4 236 |
| Order backlog | 228 | 141 | 228 | 141 | 157 |
| NOK million | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| External revenue and income | -81 | -26 | -58 | -142 | -187 |
| Internal revenue and income | - | - | - | - | - |
| Total revenue and income | -81 | -26 | -58 | -142 | -187 |
| EBITDA | -19 | 27 | -19 | -3 | -19 |
| Earnings before financial items and tax (EBIT) | -19 | 27 | -19 | -3 | -19 |
| Earnings before tax (EBT) | -19 | 27 | -19 | -3 | -19 |
| Assets | -112 | -92 | -112 | -92 | -109 |
| Order backlog | 440 | 433 | 440 | 433 | 486 |
| NOK million | 2Q 18 | 2Q 17 | 1H 18 | 1H 17 | 2017 |
|---|---|---|---|---|---|
| External revenue and income | 4 692 | 3 347 | 8 575 | 6 009 | 13 704 |
| Internal revenue and income | - | - | - | - | - |
| Total revenue and income | 4 692 | 3 347 | 8 575 | 6 009 | 13 704 |
| EBITDA | 298 | 292 | 527 | 476 | 1 092 |
| Earnings before financial items and tax (EBIT) | 256 | 251 | 441 | 396 | 924 |
| Earnings before tax (EBT) | 256 | 250 | 450 | 393 | 935 |
| EBITDA-margin | 6.4 % | 8.7 % | 6.1 % | 7.9 % | 8.0 % |
| Operating margin | 5.5 % | 7.5 % | 5.1 % | 6.6 % | 6.7 % |
| Profit margin | 5.5 % | 7.5 % | 5.3 % | 6.5 % | 6.8 % |
| Assets | 7 565 | 7 034 | 7 565 | 7 034 | 7 724 |
| Order backlog | 19 866 | 18 928 | 19 866 | 18 928 | 19 773 |
AF Gruppen is one of Norway's leading construction and industrial groups. AF Gruppen is divided into seven business areas: Civil Engineering, Environment, Building, Property, Energy, Sweden and Offshore.
AF Gruppen ASA is a public limited company registered and domiciled in Norway. The head office is located at Innspurten 15, 0663 Oslo. AF is listed on the Oslo Børs OB Match List under the ticker symbol AFG.
This summary of financial information for the 2nd quarter and 1st half of 2018 has not been audited.
The consolidated accounts for AF Gruppen encompass AF Gruppen ASA and its subsidiaries, joint ventures and associated companies. The consolidated accounts for the 2nd quarter and 1st half of the year have been prepared in accordance with IAS 34 Interim Financial Reporting. The summary of the financial information presented in the quarterly accounts is intended to be read in conjunction with the annual report for 2017, which has been prepared in accordance with the International Financial Reporting Standards (IFRS).
As a result of rounding off, the numbers or percentages will not always add up to the total.
Sweden has been organised as a separate business area as of 1 January 2018. The new business area consists of the units AF Härnösand Byggreturer, Kanonaden Entreprenad and subsidiaries, Pålplintar, AF Bygg Göteborg, AF Bygg Syd and AF Projektutveckling.
The comparable figures for the business areas have been similarly restated.
The accounting policies applied to the accounts are consistent with those described in the annual report for 2017 with the exception of the principles for revenue recognition.
AF Gruppen has implemented IFRS 15 Revenue Recognition in 2018. The new standard for revenue recognition replaces IAS 11, IAS 18 and IFRIC 15. IFRS 15 stipulates evaluation criteria for revenue recognition that differs from earlier standards. The key principle of IFRS 15 is that compensation that an enterprise expects to be entitled to shall be recognised as revenue based on a pattern that reflects the transfer of the goods or services to the customer. IFRS 15 introduces a new and structured five-step model for the recognition and measurement of revenues.
A significant portion of AF Gruppen's business activities consists of construction and civil engineering projects. The projects are carried out most often on behalf of public and private clients based on contracts, so-called projects for third-party accounts. The characteristic feature of such contracts is that they are client financed.
Projects for third-party accounts are recognised as transferred to the customer over time, and project revenues are recognised in line with the progress made. Each individual project is recognised on an ongoing basis in the income statement based on the progression of the delivery obligation and estimated consideration. The progression of the delivery obligation, the degree of completion, is calculated as the production carried out in relation to the production agreed on. For turnkey contracts (form of contract that encompasses responsibility for the design and construction) and small projects, the production completed is assessed as a rule in accordance with an input-based method in which the costs incurred on the balance sheet date in relation to the estimated total costs are used as a reasonable approximation. For general contracts (form of contract that encompasses a large share of the construction work, such as site preparation and concrete work, carpentry, etc.) the production completed is assessed as a rule in accordance with an output-based method based on the invoiceable deliveries completed in the project.
Revenue from the projects is only recognised when it is highly probably that a significant reversal of the recognised cumulative operating revenue will not occur. In the early stages of a project, a smaller than the proportionate share of the expected profit is recognised as revenue if the remaining risk in the project is assessed as high. In the final stages of the project, a larger share is recognised as revenue, since the expected profit can be estimated with a greater degree of certainty and there is a narrower range of outcomes in the projects. Risk adjustment is particularly relevant for civil engineering projects.
When the outcome of the project cannot be estimated reliably, only revenue equivalent to the incurred project costs will be recognised. If a loss-making project is identified, the contract will be valued in accordance with IAS 37, and a provision for losses will be made in the current period corresponding to the best estimate of the expenses that will be incurred to settle the contractual obligation.
The recognition of revenue from disputed claims, claims for additional work, change orders, incentive bonuses, etc., starts when it has been recognised that AF Gruppen's rights to the consideration are legally enforceable. Provisions are made for identified and expected warranty work.
Projects for own account largely involve the development and construction of apartment buildings for sale. These are self-financed projects. An apartment building consists of many units, and the majority of the units are sold before a project starts.
In Norway the handover of projects for own account is recognised in accordance with the rights and requirements that follow from the Housing Construction Act. In accordance with the Act, a residential buyer is entitled to terminate the sales contract before completion/ handover. Thus apartments constructed in Norway on behalf of a customer are recognised as not being handed over to the customer until possession is taken. Revenue from own account projects in Norway is thus recognised upon the handover. The expenses in projects for own account are capitalised on an ongoing basis in the balance sheet as current assets until they are recognised in the income statement. The associated prepayments from customers is recognised as current liabilities.
In accordance with IFRS 15, projects for own account in Sweden are recognised on an ongoing basis based on the percentage of sales and degree of completion, which corresponds to the recognition of revenue from projects for third-party accounts. This follows from the fact that projects for own account are regarded as constructed on behalf of the customer and the transfer of the apartment is regarded as completed in line with the progress of the project. There is no corresponding right to terminate the sales contract in Sweden as there is in Norway.
The implementation of IFRS 15 entails a change in principle from previous years when revenue from projects for own account in Sweden was recognised upon handover. The effect of the change in principle has been recognised through equity. As of 1 January 2018 the effect of the change in principle that has been recognised increased equity by NOK 16 million in the Sweden segment.
Demolition work encompasses the demolition of buildings, oil platforms and other installations. Demolition work that is recognised as transferred to the customer in step with the progress is treated in accordance with the same accounting policies as for projects for third-party accounts.
Gains/losses on the sale of plant and equipment and other goods are recognised in the income statement when delivery has been made.
Interest is recognised as income in accordance with the effective interest method.
Dividends are recognised as revenue when the shareholders' right to receive a dividend has been established by the General Meeting.
The preparation of the interim accounts requires the use of assessments, estimates and assumptions that have an effect on the application of accounting principles and recognised figures related to assets and commitments, revenues and costs. The estimates are based on the management's best judgement and experience, and there is some uncertainty related to the concurrence of these estimates with the actual result. Estimates and their underlying assumptions are assessed on a continuous basis. Changes in accounting estimates are recognised for the period in which the estimate is changed and for future periods if these are affected by the change in estimate.
The Group's related parties consist of associates, joint ventures, the Company's shareholders and members of the Board of Directors and Corporate Management Team. All business transactions with related parties are carried out in accordance with the arm's length principle.
The segment information is presented in accordance with the Group's accounting policies in accordance with IFRS with the exception of the principles for revenue recognition for residential property development in accordance with IFRS 15. This policy exception applies to the Building and Property segments. Revenue from projects for own account in these segments is not recognised upon handover as regulated in IFRS 15, but in accordance with the degree of completion method. This means that the recognition of income in these projects is the product of the degree of completion, sales ratio and expected contribution margin. The effect of this on the consolidated accounts is illustrated in a separate table in the segment information.
The effect for the year of the deviant application of principles in the segment accounts with respect to earnings before tax is NOK -19 million (27 million) for the 2nd quarter and NOK -19 million (-3 million) for the 1st half of the year. The effect on equity was NOK -107 million (-90 million), and the accumulated reversed revenues were NOK 440 million (433 million) as at 30 June 2018.
The table below shows residential housing projects for our own account that are in the production phase. Contractor values have been included in those cases where group companies are the contractor.
| AF's construction value |
Housing | Construction period | Ownership | ||
|---|---|---|---|---|---|
| Project | ex. VAT (NOK million) | units | Start up | Completion | share AF |
| Krydderhagen C1/C2/C3, Hasle | 169 | 84 | Q3 2016 | Q1 2018 | 50 % |
| Krydderhagen D1/D2/D3/D4, Hasle | 385 | 143 | Q2 2017 | Q2 2019 | 50 % |
| Krydderhagen E1/E2, Hasle | 185 | 102 | Q2 2017 | Q4 2018 | 50 % |
| Thurmannskogen B/C/D, Lørenskog | 220 | 96 | Q4 2015 | Q4 2017/Q1 2018 | 33 % |
| Thurmannskogen F/G, Lørenskog | 150 | 72 | Q3 2016 | Q3 2018 | 33 % |
| Thurmannskogen H/J/K, Lørenskog | 139 | 75 | Q2 2017 | Q2 2019 | 33 % |
| Thurmannskogen C/R, Lørenskog | 67 | 11 | Q2 2018 | Q2 2019 | 33 % |
| Lillo Gård Haugen, Nydalen | 506 | 162 | Q1 2017 | Q2 2019 | 25 % |
| Nye Kilen Brygge, Sandefjord | 224 | 80 | Q1 2018 | Q1 2020 | 50 % |
| Skiparviken, Bergen | 324 | 129 | Q2 2018 | Q2 2021 | 50 % |
On this day, the Board of Directors and the CEO have reviewed and approved the half-year financial statements and the unaudited abridged consolidated half-year accounts for AF Gruppen as at 30 June 2018 and for the 1st half of 2018 (Half-Year Report 2018).
It is confirmed to the best of our knowledge that:
Oslo, 23 August 2018
CEO Board Chairman
Morten Grongstad Pål Egil Rønn Borghild Lunde Hege Bømark Kristian Holth
Arne Baumann Kenneth Svendsen Hilde Wikesland Flaen Arne Sveen
AF Gruppen presents alternative performance targets as a supplement to performance targets that are regulated by IFRS. The alternative performance targets are presented to provide better insight into and understanding of the operations, financial standing and foundation for development going forward. AF Gruppen uses alternative performance targets that are commonly used in the industry and among analysts and investors.
This performance target provides useful information to both AF's management and Board of Directors, as well as to investors concerning the results that have been achieved during the period under analysis. AF uses the performance target to measure the return on capital employed, regardless of whether the financing is through equity capital or debt. Use of the performance target should not be considered an alternative to performance targets calculated in accordance with IFRS, but as a supplement.
The alternative performance targets are defined as follows:
EBITDA – Earnings before i) taxes, ii) net financial items, iii) depreciation and amortisation.
Operating profit (EBIT) – Earnings before i) taxes, ii) net financial items.
EBITDA margin – EBITDA divided by operating revenue and other revenues.
Operating margin – Operating profit (EBIT) divided by operating revenue and other revenues.
Profit margin – Earnings before tax divided by operating revenue and other revenues.
Gross interest-bearing liabilities – Sum total of long-term interest-bearing loans and credits and short-term interest-bearing loans and credits.
Net interest-bearing liabilities (receivables) – Gross interest-bearing liabilities less i) long-term interest-bearing receivables, ii) short-term interest-bearing receivables and iii) cash and cash equivalents.
Capital employed – Sum total of shareholders' equity and gross interest-bearing liabilities.
Average capital employed – Average capital employed in the last four quarters.
Return on capital employed (ROaCE) – Earnings before taxes and interest for the last four quarters divided by the average capital employed.
Equity ratio – Shareholders' equity divided by total equity and liabilities.
Average shareholders' equity – Average shareholders' equity for the last four quarters.
Return on equity – Earnings for the last four quarters divided by the average shareholders' equity.
Order intake – Estimated value of contracts, contract changes and orders that have been agreed upon during the reporting period
Order backlog – Remaining estimated value of contracts, contract changes and orders that have been agreed upon, but have not been earned by the reporting date
The tables below show the reconciliation of alternative performance targets with line items in the reported financial figures in accordance with IFRS.
| NOK million | 30/06/18 | 31/03/18 | 30/06/17 | 31/12/17 |
|---|---|---|---|---|
| Interest-bearing loans and credit facilities – long-term | 92 | 99 | 104 | 102 |
| Interest-bearing loans and credit facilities – short-term | 12 | 14 | 15 | 19 |
| Gross interest-bearing liabilities | 104 | 113 | 120 | 120 |
| Less: | ||||
| Interest-bearing receivables | -332 | -235 | -260 | -216 |
| Interest-bearing receivables | -13 | -16 | -46 | -16 |
| Cash and cash equivalents | -368 | -879 | -512 | -1 098 |
| Net interest-bearing liabilities (receivables) | -609 | -1 017 | -698 | -1 210 |
| NOK million | 30/06/18 | 31/03/18 | 30/06/17 | 31/12/17 |
|---|---|---|---|---|
| Shareholders' equity | 1 803 | 2 127 | 2 034 | 2 078 |
| Gross interest-bearing liabilities | 104 | 113 | 120 | 120 |
| Capital employed | 1 908 | 2 240 | 2 154 | 2 198 |
| NOK million | 30/06/18 | 31/03/18 | 30/06/17 | 31/12/17 |
|---|---|---|---|---|
| Capital employed as at 3rd quarter 2016 | - | - | 1 960 | - |
| Capital employed as at 4th quarter 2016 | - | - | 2 063 | - |
| Capital employed as at 1st quarter 2017 | - | - | 2 396 | 2 396 |
| Capital employed as at 2nd quarter 2017 | - | 2 154 | 2 154 | 2 154 |
| Capital employed as at 3rd quarter 2017 | 2 173 | 2 173 | - | 2 173 |
| Capital employed as at 4th quarter 2017 | 2 198 | 2 198 | - | 2 198 |
| Capital employed as at 1st quarter 2018 | 2 240 | 2 240 | - | - |
| Capital employed as at 2nd quarter 2018 | 1 908 | - | - | - |
| Average capital employed | 2 130 | 2 191 | 2 143 | 2 230 |
| NOK million | 30/06/18 | 31/03/18 | 30/06/17 | 31/12/17 |
|---|---|---|---|---|
| Earnings before tax 3rd quarter 2016 | - | - | 265 | - |
| Earnings before tax 4th quarter 2016 | - | - | 340 | - |
| Earnings before tax 1st quarter 2017 | - | - | 142 | 142 |
| Earnings before tax 2nd quarter 2017 | - | 250 | 250 | 250 |
| Earnings before tax 3rd quarter 2017 | 232 | 232 | - | 232 |
| Earnings before tax 4th quarter 2017 | 310 | 310 | - | 310 |
| Earnings before tax 1st quarter 2018 | 194 | 194 | - | - |
| Earnings before tax 2nd quarter 2018 | 256 | - | - | - |
| Earnings before tax last four quarters | 993 | 986 | 998 | 935 |
| Interest expenses 3rd quarter 2016 | - | - | 9 | - |
| Interest expenses 4th quarter 2016 | - | - | -6 | - |
| Interest expenses 1st quarter 2017 | - | - | 4 | 4 |
| Interest expenses 2nd quarter 2017 | - | 4 | 4 | 4 |
| Interest expenses 3rd quarter 2017 | 5 | 5 | - | 5 |
| Interest expenses 4th quarter 2017 | 4 | 4 | - | 4 |
| Interest expenses 1st quarter 2018 | 4 | 4 | - | - |
| Interest expenses 2nd quarter 2018 | 4 | - | - | - |
| Interest expenses last four quarters | 16 | 16 | 11 | 17 |
| Earnings before tax and interest expenses | 1 009 | 1 003 | 1 008 | 952 |
| Divided by: | ||||
| Average capital employed | 2 130 | 2 191 | 2 143 | 2 230 |
| Return on capital employed | 47.4 % | 45.8 % | 47.1 % | 42.7 % |
| NOK million | 30/06/18 | 31/03/18 | 30/06/17 | 31/12/17 |
|---|---|---|---|---|
| Shareholders' equity | 1 803 | 2 127 | 2 034 | 2 078 |
| Divided by: | ||||
| Total equity and liabilities | 7 565 | 7 854 | 7 034 | 7 724 |
| Equity ratio | 23.8 % | 27.1 % | 28.9 % | 26.9 % |
| NOK million | 30/06/18 | 31/03/18 | 30/06/17 | 31/12/17 |
|---|---|---|---|---|
| Shareholders' equity as at 3rd quarter 2016 | - | - | 1 824 | - |
| Shareholders' equity as at 4th quarter 2016 | - | - | 1 950 | - |
| Shareholders' equity as at 1st quarter 2017 | - | - | 2 275 | 2 275 |
| Shareholders' equity as at 2nd quarter 2017 | - | 2 034 | 2 034 | 2 034 |
| Shareholders' equity as at 3rd quarter 2017 | 2 046 | 2 046 | - | 2 046 |
| Shareholders' equity as at 4th quarter 2017 | 2 078 | 2 078 | - | 2 078 |
| Shareholders' equity as at 1st quarter 2018 | 2 127 | 2 127 | - | - |
| Shareholders' equity as at 2nd quarter 2018 | 1 803 | - | - | - |
| Average shareholders' equity | 2 014 | 2 071 | 2 021 | 2 108 |
| NOK million | 30/06/18 | 31/03/18 | 30/06/17 | 31/12/17 |
|---|---|---|---|---|
| Result 3rd quarter 2016 | - | - | 183 | - |
| Result 4th quarter 2016 | - | - | 281 | - |
| Result 1st quarter 2017 | - | - | 104 | 104 |
| Result 2nd quarter 2017 | - | 200 | 200 | 200 |
| Result 3rd quarter 2017 | 177 | 177 | - | 177 |
| Result 4th quarter 2017 | 274 | 274 | - | 274 |
| Result 1st quarter 2018 | 152 | 152 | - | - |
| Result 2nd quarter 2018 | 191 | - | - | - |
| Result for the last four quarters | 793 | 802 | 768 | 754 |
| Divided by: | ||||
| Average shareholders' equity | 2 014 | 2 071 | 2 021 | 2 108 |
| Return on equity | 39.4 % | 38.7 % | 38.0 % | 35.8 % |
Head office: Innspurten 15 0603 Oslo Norway T +47 22 89 11 00 F +47 22 89 11 01
P.O. Box 6272 Etterstad 0603 Oslo Norway
Pål Egil Rønn, Board Chairman Arne Baumann Borghild Lunde Hege Bømark Kristian Holth Kenneth Svendsen Hilde Wikesland Flaen Arne Sveen Gunnar Bøyum, deputy
Morten Grongstad, CEO Sverre Hærem, CFO Arild Moe, EVP Civil Engineering Henning Olsen, EVP Building Andreas Jul Røsjø, EVP Property and Energy Amund Tøftum, EVP Offshore Eirik Wraal, EVP Environment and Social responsibility Bård Frydenlund, EVP HR and Sweden
24/08/2018 Interim report 2nd quarter 2018 09/11/2018 Interim report 3rd quarter 2018
The interim reports will be presented at the offices of Danske Bank at Aker Brygge (Bryggetorget 4) at 8:30 a.m.
For more information on the company, visit our web site at afgruppen.com
Cover: Eugene Hanssen's retirement home Foto: Magnus Thorsen Helstad
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