Veidekke — Annual Report 2016

Apr 7, 2017

Annual report 2016

CONTENTS

KEY FIGURES

• This is Veidekke
• Business areas
• Introduction by the President and CEO
• Project execution in Veidekke
• The Board of Directors of Veidekke ASA
• The Corporate Management of Veidekke ASA

BOARD OF DIRECTORS' REPORT

• Construction operations
• Property Development
• Industrial
• Other operations
• Strategic goals
• Organisation
• Occupational health and safety
• The external environment
• Corporate governance
• Remuneration of senior executives
• Shareholders and the stock market
• Financial situation and capital structure
• Risk and uncertainty factors
• The market
• Post balance sheet events

ANNUAL FINANCIAL STATEMENT VEIDEKKE GROUP

• Income statement Veidekke Group
• Statement of financial position Group
• Statement of changes in equity Group
• Statement of cash flows Group

NOTES VEIDEKKE GROUP

• ANNUAL FINANCIAL STATEMENT VEIDEKKE ASA
• 100 Income statement Veidekke ASA
• Statement of financial position Veidekke ASA
• Statement of cash flows Veidekke ASA
• NOTES VEIDEKKE ASA
• CORPORATE GOVERNANCE
• AUDITOR'S REPORT
• SHAREHOLDER INFORMATION
• ARTICLES OF ASSOCIATION VEIDEKKE ASA
• VEIDEKKE'S HISTORY

KEY FIGURES 1)

Figures in NOK million	2016	2015	2014	2013	2012
Revenue, segment	30 137	24 509	23 863	21 191	20 460
Profit before tax, segment	1 460	1 043	967	776	680
Business area Construction	804	644	549	446	497
Business area Property Development	567	306	280	221	173
Business area Industrial	136	190	210	158	38
Business area Other / elimination	-47	-97	-73	-49	-26
Earnings per share, segment	9.3	6.5	5.8	4.5	3.9
Dividend per share	4.5	4.0	3.5	3.0	2.5
Profit margin, segment (per cent)	4.8	4.3	4.1	3.7	3.3
Revenue, IFRS 2)	28 613	24 225	24 027	21 781	19 839
EBITDA, IFRS	1 520	1 316	1 383	1 002	948
EBIT, IFRS	1 053	944	1 045	692	645
Profit before tax, IFRS	1 092	950	1 055	718	698
Earnings per share, IFRS (NOK) 3)	6.6	5.7	6.3	4.1	3.9
Net interest-bearing debt	0	606	-274	396	1 506
Total order backlog	24 404	24 814	16 792	18 273	16 518

1) The comments in the report relate to figures taken from the segment accounts.

Comments to the IFRS accounts are specified in the text.

2) Under IFRS, revenue from residential sales is not recognised until the residential unit is taken over by the buyer. In segment reporting, revenue is recognised using the formula: estimated final profit x sales ratio x stage of completion.

3) No dilutive effect.

THIS IS VEIDEKKE

Veidekke is one of Scandinavia's largest construction and property development companies. The company undertakes all types of building construction and civil engineering contracts, develops residential projects, maintains roads, and produces asphalt and aggregates. In 2016 Veidekke had revenue of NOK 30.1 billion and 7,400 employees. Veidekke is listed on the Oslo Stock Exchange, and a large proportion of the employees are shareholders in the company.

The company is organised into three business areas: Construction, Property Development and Industrial, with strong intra-group synergies. Veidekke is a specialised, competence-based company that carries out projects in collaborative interaction with its customers and suppliers. This participative approach helps ensure good solutions and results, good, safe operations, and continuous learning and improvement, as well as fostering loyalty and commitment.

Our most valuable resource is our employees and their expertise, and we therefore attach importance to targeted skills development and recruitment of new staff.

Multi-local strength is generated through our widespread presence in Scandinavia. Veidekke has strong local roots and proximity to customers, at the same time as we have both the size and the expertise to be able to undertake large, complex projects all over Scandinavia.

REVENUE

NOK BILLION

PROFIT BEFORE TAX AND PROFIT MARGIN NOK MILLION AND %

The figures are taken from the segment accounts.

REVENUE DISTRIBUTED BY BUSINESS AREA

BUILDING CONSTRUCTION

51% 25% 11% 13%

CIVIL ENGINEERING PROPERTY

DEVELOPMENT

INDUSTRIAL

BUSINESS AREAS

CONSTRUCTION OPERATIONS

Veidekke is engaged in nationwide building construction and civil engineering activities in Norway and Denmark, while operations in Sweden are concentrated in the largest cities. Construction operations accounted for 76% of Veidekke's revenue in 2016.

Building Construction builds commercial buildings, public buildings and residential buildings. Commercial buildings are mainly office buildings, shopping centres and hotels. Public buildings are primarily schools and health-care buildings. Building construction operations accounted for 69% of the business area Construction's total revenue in 2016.

Civil engineering operations accounted for 31% of the revenue in Veidekke's construction operations in 2016. Transport infrastructure projects (road and rail) and other public infrastructure provide the majority of Civil Engineering's revenue. The portfolio also includes projects in the energy sector and other industrial facilities.

REVENUE NOK 24.6 BILLION PROFIT BEFORE TAX NOK 804 MILLION PROFIT MARGIN 3.3%

PROPERTY DEVELOPMENT

Veidekke's property development operations purchase sites and develop them into residential buildings for sale to end customers, primarily in the largest cities in Norway and Sweden. Veidekke's construction operations are responsible for the construction of the residential buildings and are involved from the earliest phase, before the site has even been purchased, to ensure identification of opportunities and risks. The close collaboration between Veidekke's property development and construction operations provides synergies and is central to good profitability in Veidekke's residential segment. The development of residential buildings constitutes 11% of Veidekke's total revenue.

In Sweden Veidekke is generally the sole owner of residential projects, while in Norway most of the projects are done in joint ventures with other partners. The choice of business model is assessed individually for each project, and the project's scope, risk and financing are the decisive factors.

Property Development has a long-term perspective. It takes several years from a site being purchased to the home being handed over to the buyer. For this reason, the land bank is strategically important, and the portfolio is optimised through purchases and sales in accordance with the current strategy. At year-end 2016 the Group's had a land bank that is expected to yield 16,750 residential units: 7,900 in Norway and 8,850 in Sweden.

REVENUE NOK 3.2 BILLION PROFIT BEFORE TAX NOK 567 MILLION RETURN ON INVESTED KAPITAL 21.4%

INDUSTRIAL

Veidekke Industri AS (Industrial) is the largest asphalt contractor in Norway and the second largest producer of aggregates. Industrial is also a major player in the operation and maintenance of public roads in Norway. In 2016 Industrial accounted for 13% of Veidekke's total revenue.

Industrial's revenue for the 2016 financial year is distributed between the three business units as follows: Asphalt 59%, Road Maintenance 28% and Aggregates 13%.

The business area Industrial has 29 asphalt plants and 28 quarries located across Norway. In 2016 the company laid more than 2.5 million tonnes of asphalt, had 24 ongoing road maintenance contracts, and sold 8.1 million tonnes of aggregates. The Norwegian Public Roads Administration is Industrial's largest single customer.

REVENUE NOK 4.2 BILLION PROFIT BEFORE TAX NOK 136 MILLION PROFIT MARGIN 3.3%

VEIDEKKE TOWARDS 2020

2016 was a good year for Veidekke. With total revenue of over NOK 30 billion we passed a new milestone, as well as substantially increasing our profit. Good order intake in construction operations and record-high residential sales in recent years have paved the way for this growth.

There has been a high level of activity in the Scandinavian construction and civil engineering market in 2016. The demand for asphalt has been strong, and the residential market is flourishing. Good customer solutions, close collaboration with our partners and solid work from the entire organisation have ensured good results and strengthened our positions.

Looking back over 2016, we can confirm that it was a good year for Veidekke, with solid revenue growth and a profit before tax of NOK 1.5 billion. Much of the growth is attributable to good order intake in construction operations, and record-high residential sales. We are particularly proud of the good level of interest in our residential projects. The combined revenue from the sale of residential units amounted to more than NOK 8 billion in 2016.

Our Swedish and Danish operations are increasingly contributing to the Group's results. We have truly become a Scandinavian company. Four out of every ten kroner of Veidekke's combined profit were from our operations in Sweden and Denmark in 2016.

Over the past two years Veidekke has carried out a comprehensive process with the aim of drawing up a roadmap for where Veidekke will be in 2020. Very many people, both managers and employees, have contributed to this process through an extensive, participative collaboration at all levels in the Group. In 2015 we concentrated on analysing the current situation, while in 2016 we continued the efforts to define our vision for the company in 2020.

We have doubled our revenue since 2010 and achieved annual growth of 11%. In the same period, profit has increased by 15%. Our ambitions for the years leading up to 2020 remain unchanged: growth and improved profitability. Our plan assumes that a large part of the improvement will be achieved through development of our existing operations. In addition, selective acquisitions will support our ambitions and strengthen our market position and combined competence. In 2016 too we made a number of acquisitions in Sweden, Denmark and Norway.

In the short term, the main task is to improve profitability in certain parts of our organisation. Good, safe operations, use of our participative approach, and further development and utilisation of our combined expertise and collective muscle are key to this work.

It is our employees who have been responsible for our good development and created the results that Veidekke has achieved over time. There is therefore no doubt that Veidekke's greatest strength lies in the skills and expertise of its employees. At year end we were 7,400 employees, and the potential inherent in creating value together is overwhelming. For Veidekke to succeed in the years leading up to 2020, we must continue to develop our forms of collaboration and make full use of the combined technical competencies and creativity within our organisation.

I am therefore confident that in the coming years we will manage to realise our ambitions for Veidekke towards the year 2020.

There is no doubt that Veidekke's greatest strength lies in the skills and expertise of its employees. At year end we were 7,400 employees, and the potential inherent in creating value together is overwhelming.

Arne Giske President and CEO

PROJECT EXECUTION IN VEIDEKKE

Veidekke's operations are project-based, and the company's project execution builds on a participative approach, development of models for interaction with the customers, investment in our own skilled workers and the use of building information modelling (BIM).

Veidekke collaborates closely with customers, architects, consultants, subcontractors and suppliers right from the project development phase, through planning and design, and throughout the production phase. Collaboration creates added value for all the parties, resulting in better solutions, good production flow, and efficient and safe operations.

A variety of different methods and tools are used to ensure optimal project execution. We have developed some of the methods ourselves, and we also collaborate with universities, colleges and technical colleges, at home and abroad, on the development of good concepts and tools.

Participative Planning

Participative Planning is a project progress planning methodology developed by Veidekke on the basis of the Lean Construction principles. Participative Planning means that plans are drawn up jointly by all parties involved. The objective is to minimise delays, avoid adverse events and improve the flow of production.

Participative Planning builds on five main elements:

• Planning is done within both long-term and short-term frameworks.
• Systematic analyses are conducted to identify and avoid any barriers to production.
• Each strategic plan consists of several detailed operational plans.
• Meetings are scheduled to correspond to the project phase.
• There are continuous, systematic risk analyses.

Use of Participative Planning in Veidekke has resulted in increased efficiency and improved project economy, as well as ensuring better working processes and a better working environment for everyone involved.

Building Information Modelling (BIM)

Building Information Modelling (BIM) allows projects to be

built virtually before they are built in reality. In addition to providing a three-dimensional representation of the building, the models can be further enriched ("4D") with scheduling time data (when the individual parts are to be built), cost data, technical information, maintenance data, etc. Together, this opens up a wealth of possibilities to visualise, communicate and analyse the building through every step of the project from the first preliminary sketches, through design, planning and construction, to management, operation, maintenance and development. Virtual Design and Construction (VDC) is another computer-aided design methodology. At Veidekke, VDC is used in conjunction with Participative Planning and Building Information Modelling (BIM).

Good, safe production

Each project is different, and building sites can be a high-risk workplace. Good, safe production is therefore Veidekke's highest priority. At Veidekke, work on occupational health and safety is thus not a separate process carried out in isolation, but an integral part of our ongoing planning and production.

Commitment to using own employees

Veidekke is a specialised, competence-based company that uses a high proportion of own employees in its production. Our strategy is to train our own skilled workers, and we are a major apprenticeship company with more than 230 apprentices working for us. On completion of their apprenticeship, candidates who pass the trade examination and join the company as employees are valuable resources for us. A significant portion of the capacity required in Veidekke's core skills is covered by our own permanently employed skilled workers

Targeted further training of managers and specialist skilled workers to ensure that they constantly possess the latest knowledge about methods, tools, products and solutions is also important to our ability to retain skilled resources and for Veidekke to be a preferred partner.

Veidekke's competitive advantage lies in the intersection between people, working methods and local knowledge.

AVERAGE NUMBER OF PROJECTS UNDER CONSTRUCTION

AVERAGE NUMBER OF COMPLETED AND DELIVERED PROJECTS

SELECTED PROJECTS IN 2016

THE MUNCH MUSEUM ("LAMBDA") IN BJØRVIKA IN OSLO.

The construction of what will be one of Norway's most important cultural institutions started in 2015. The new Munch Museum in Oslo will house Edvard Munch's art collection and the Stenersen collections. Veidekke is responsible for the groundwork and construction of the building shell. The ground conditions in Bjørvika are very demanding, and a platform had to be constructed as the foundation for the building. This platform stands on 311 piles, which are secured in the bedrock some 40–50 meters below ground level. Altogether, we have drilled 14,000 metres to get all the piles in place. Half of the building is in the sea, and it has been designed to stand for at least 200 years.

Veidekke built the 60 metre-high building shell using slipform casting over 33 days in late autumn 2016, which is approximately 2 metres a day. The casting took 32,040 work-hours. It took 650 tonnes of steel and 3,400 cubic metres of concrete to construct 10,000 square metres of wall. The detailed planning for the casting alone took half a year, and this is one of the largest and most advanced slipform projects ever carried out in Norway. Veidekke's part of the construction project ends in autumn 2017, and the final building will be completed in 2019.

• Customer: The City of Oslo, represented by Kulturog idrettsbygg Oslo KF
• Architect: Estudio Herreros / LPO arkitekter AS
• Contractor: Veidekke Entreprenør (Kynningsrud Fundamentering, Hallingdal Bergboring)
• Scope: Groundwork and 13 storey building shell.
• Building period: 2015–2017
• Total contract value: NOK 470 million

PROJECTS AT OSLO AIRPORT, GARDERMOEN

Oslo Airport is being expanded in line with the strong growth in traffic. On completion in April 2017, Norway's main airport will have the capacity to handle around 30 million passengers a year. The budget for the project is almost NOK 14 billion. Veidekke is a central player in the projects, with contracts totalling NOK 1 billion.

Veidekke's largest single contract in the airport expansion is the North Pier project, encompassing 11 new aircraft parking places and technical infrastructure around the new pier. Another contract, TangoBravo 2, includes extension of the Tango taxiway by 1,000 metres. Veidekke was responsible for both the construction work and asphalt laying. Both projects have entailed working in areas very close to air traffic, and with other construction work going on nearby, requiring extremely strict safety requirements.

In addition to the projects linked to expansion of the airport, Veidekke has a contract with Avinor for winter maintenance of the runways, which includes clearing snow on the taxiways and hauling away snow during the winter half of the year. This maintenance contract is a five-year contract, and the current contract runs until 2019.

• Customer: OSL
• Contractor: Veidekke Entreprenør, Veidekke Industri
• Scope: North Pier, traffic plaza, taxiway, asphalt laying, winter maintenance.
• Building period: 2014–2017
• Total contract value: NOK 1 billion

HAGATERRASSEN, HAGASTADEN

A new urban neighbourhood called Hagastaden is being developed between the Karolinska University Hospital and Vasastaden in Stockholm. This new neighbourhood will have 6,000 homes and around 50,000 workplaces when it is completed in 2019. The area is currently considered to have the heaviest traffic in Sweden, and the motorway and railway are being placed in underground tunnels, freeing up space for a new urban connection between Solna and Stockholm.

Veidekke's residential project, Hagaterrassen, has been well received. People want to live near the city centre while still having access to green spaces, parks and recreational areas. Hagastaden will have excellent public transport connections, with train, metro and bus links.

There was huge interest in the project among home-buyers, and Veidekke welcomed 3,000 people to viewings in connection with the opening of sales in April. At the beginning of 2017 around 80% of the apartments in the project were sold.

Facts

• Customer: Veidekke Bostad
• Architect: Brummberg & Forshed Arkitektkontor
• Contractor: Veidekke Entreprenad
• Building period: 2017–2019
• Scope: 205 Swan-certified apartments in two building phases, plus a kindergarten and shops.
• Contract value: NOK 355 million

FREDERIKSBJERG SCHOOL

It is 100 years since a school was last built in the centre of Aarhus. Hoffmann was awarded the contract to build this new school that won the Danish School Building of the Year award in 2016. Designed as a school of the future, it has been built as a low-energy 2020 class building in accordance with Aarhus municipality's 360° sustainability model. For example, the building features recycled tiles, solar panels and high-insulating windows, and importance has been attached to protecting the environment, choosing sustainable materials with a long life and ensuring a healthy indoor climate. Priority was also given to ensuring good spaces for learning and playing, and both the interior of the building and the surrounding outdoor areas have been designed to promote creativity, collaboration and, not least, a tranquil environment. The school has several terraces and green rooftops, and many of the outdoor areas are accessible outside school hours. The school has become a natural meeting point in what will become a centre for children and young people in Aarhus.

• Customer: Aarhus municipality
• Architects: GPP Arkitekter A/S, Henning Larsens Architects A/S
• Contractor: Hoffmann
• Scope: School for 870 pupils, with a youth club and kindergarten.
• Building period: 2013–2016
• Contract value: NOK 242 million

PORTALEN

Veidekke is building a large and complex project next to the railway station in Lillestrøm. Homes, offices, retail premises, a hotel and a car park are being built next to one of Norway's busiest railway stations, Lillestrøm station, with normal rail traffic running throughout the entire construction period. This kind of project requires excellent planning, and use of the Participative Planning approach and the 3D modelling tool BIM has ensured that the construction project has progressed according to plan. Participative Planning means that all parties involved know when the project is going to start. Each party develops a sense of ownership to the plans, communication is simplified, and problems can be identified before they arise. Participative Planning also means logistics can be optimised and risks minimised.

Facts

• Customer: Jernbanegata AS (OBOS) and Portalen Boliger AS (Veidekke Eiendom AS and OBOS)
• Architect: LPO Arkitekter
• Contractor: Veidekke Entreprenør
• Building period: 2015–2018
• Scope: 144 apartments in two tower blocks, 219 hotel rooms, retail premises, BREEAM NOR certified office space for 868 workplaces. A total of 55,000 m2.
• Contract value: NOK 821 million

MOHOLT 50|50

Moholt 50|50 is a pioneering project for Veidekke and to date the largest solid timber project in Norway. This project is a pilot project in the collaboration programme "Buildings of the Future", headed by the National Association of Norwegian Architects (NAL). The buildings that are covered by this programme are climate-friendly and shall inspire others to develop similar buildings. This project in Trondheim is being built as a passive house with geothermal heat as the energy source. The buildings are built of solid wood to reduce their carbon footprint, and the interior also features a lot of wood.

The lifetime greenhouse gas footprint from materials and use of energy have been reduced by 54% and 69% respectively, compared with a reference building.

The project was awarded the Veidekke Scandinavian Environmental Award for 2016. It was also awarded the construction industry's own Wooden Building of the Year Award for 2016.

• Customer: Student Welfare Organisation in Trondheim
• Architect: MDH Arkitekter AS
• Contractor: Veidekke Entreprenør
• Building period: 2015–2016
• Scope: 632 student bedsits in five nine-story blocks. Kindergarten for 170 children. Total: 25,000 m2.
• Contract value: NOK 450 million

THE BOARD OF DIRECTORS OF VEIDEKKE ASA

Berglund has been a member of the Board of Directors since 2016. Previous positions include CEO of Atrium Ljungberg AB. She is currently running her own consultancy business in Stockholm.

PER OTTO DYB Born 1955

Deputy chair Dyb has been a member of the Board of Directors since 2012. Previous positions include President and CEO of Siemens Norway and he currently sits on a number of boards.

ANN-CHRISTIN ANDERSEN Born 1966

Andersen has been a member of the Board of Directors since 2012. She is Managing Director of TechnipFMC in Norway and VP Subsea Projects Norway & Russia of Technip FMC.

INGE RAMSDAL Born 1962

Employee representative Ramsdal has been a member of the Board of Directors since 2008. He previously worked as a crane operator and concrete worker in Construction Norway.

ODD ANDRE OLSEN Born 1961

Employee representative Olsen has been a member of the Board of Directors since 2011. He previously worked as an iron fixer in Construction Norway.

ARVE FLUDAL Born 1970

Employee representative Fludal has been a member of the Board of Directors since 2015. He is a construction manager in Construction Norway.

THE CORPORATE MANAGEMENT OF VEIDEKKE ASA

HEGE SCHØYEN DILLNER Born 1967

Executive Vice President, responsible for HR, Health and Safety, Environment, Communications and Legal Hege Schøyen Dillner has been Executive Vice President since 2013. She holds a master's degree in education from the University of Oslo.

TERJE LARSEN Born 1961

Executive Vice President, responsible for Accounting & Finance, IT, Procurement and Strategy

Terje Larsen has been employed at Veidekke since 2001 and has been Executive Vice President since 2013. Larsen holds a master's degree in Business and Economics from BI Norwegian Business School and an MBA from the University of Wisconsin.

LARS ERIK LUND Born 1969

Executive Vice President, responsible for Communications and Public Affairs Lars Erik Lund started as Executive Vice President at Veidekke i 2016. Lund holds a master's degree in Business and Economics from the Norwegian School of Economics (NHH).

BOARD OF DIRECTORS' REPORT

Veidekke had healthy growth and improved profits in 2016. Revenue increased by 23%, and profit before tax was up 40% compared with 2015.

The construction and civil engineering market continued to perform well in large parts of Scandinavia in 2016 too. In Norway, investments were at a high level, and growth was stronger than in the previous year. The economic upturn in Sweden led to increased investments in all market segments, and especially in the residential segment. In Denmark, investments in the construction and civil engineering market remained at a low level in 2016 too, but growth was nevertheless stronger than for many years, driven mainly by higher housing investments.

HIGHLIGHTS – GROUP

Veidekke's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), meaning residential projects are not recognised until they are handed over to the customer. All the figures in the annual report are taken from the segment accounts, in which residential projects are accounted for on a continuous basis.

The Group had revenue of NOK 30.1 billion in 2016, compared with NOK 24.5 billion in 2015, and profit before tax was NOK 1,460 million, compared with NOK 1,043 million in 2015. The profit for 2016 includes a positive non-recurring effect of NOK 108 million as a result of amendment of the rules in the Occupational Pensions Act concerning disability pensions in Norway.

Veidekke's construction operations saw revenue increase by 25% in 2016. Strong growth in both the Norwegian and the Swedish operations contributed to the revenue growth. Profit before tax rose to NOK 804 million. The profit growth is largely ascribable to volume growth in all three countries, and especially Norway and Sweden, while some project write-downs in the Norwegian civil engineering operations dragged profitability down. The profit for 2016 included a positive non-recurring effect of NOK 81 million as a result of changes to Veidekke's disability pension scheme in Norway. The profit margin before tax was 3.3% for construction operations, which is on a par with 2015.

Veidekke's property development operations sold a total of 1,870 residential units in 2016, including jointly-owned projects, with a total value of NOK 8.6 billion. Revenue rose to NOK 3.2 billion in 2016, up from NOK 2.1 billion in 2015. Profit before tax increased to NOK 567 million, from NOK 306 million the previous year. The increase in revenue and profit is attributable to the Swedish property development operations. Return on invested capital in property development operations was 21.4% in 2016, up from 13.1% in 2015.

Industrial's revenue rose by 3% in 2016. Profit before tax was NOK 136 million, compared with NOK 190 million in 2015. The profit for the year included a positive non-recurring effect of NOK 19 million from changes to the disability pension. The decline in profit from the previous year is related to losses in several contracts for Road Maintenance. The business units Asphalt and Aggregates delivered good results in 2016. Industrial had a combined profit margin of 3.3%, compared with 4.7% in 2015.

The Group had an order backlog of NOK 24.4 billion at year-end, which is in line with the order backlog at the end of 2015. Total order intake in 2016 was NOK 25.6 billion.

The Group's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), and profit before tax in accordance with IFRS was NOK 1,092 million for 2016. The figure for profit in accordance with IFRS is lower than the profit in the segment accounts, and the difference is due to increased residential production and relatively fewer hand-overs of completed residential projects during the year (see note 2).

Veidekke had no net interest-bearing debt at the end of 2016. By comparison, the company had net interest-bearing debt of NOK 606 million at year-end 2015. The decrease in net interest-bearing debt is a result of strong cash flow during the year. Higher profits, sale of interests in PPP (Public–Private Partnership) projects and good liquidity performance in the building construction operations in Norway contributed to a strong cash flow in 2016.

In line with Veidekke's dividend policy and as a result of its strong financial position, the Board proposes an ordinary dividend of NOK 4.5 per share for the 2016 financial year. This corresponds to a dividend pay-out ratio of 68% (IFRS).

OPERATIONS IN 2016

CONSTRUCTION OPERATIONS

NOK million	2016	2015	2014	2013	2012
Revenue	24 629	19 795	18 502	16 968	16 311
Profit before tax	804	644	549	446	497
Profit margin %	3.3	3.3	3.0	2.6	3.0
Order backlog	23 368	23 686	15 810	16 728	15 007

Revenue from Veidekke's construction operations amounted to NOK 24.6 billion, up from NOK 19.8 billion in 2015. This 24% growth came from the operations in Norway and Sweden and was primarily related to higher volumes in Building Construction in the Oslo and Stockholm regions. Civil Engineering also saw growth, primarily in the Norwegian operations, due to high activity in several infrastructure projects.

Profit before tax rose 25% to NOK 804 million, and most of the increase is attributable to increased activity in the Norwegian and Swedish building construction operations. The Norwegian civil engineering operations had significantly lower profitability in 2016 than in 2015 as a result of a number of project write-downs. The profit margin before tax was 3.3% in 2016, which is on a par with 2015. The profit for 2016 includes a positive non-recurring effect of NOK 81 million as a result of changes to Veidekke's disability pension scheme in Norway.

Construction operations had an order backlog of NOK 23.4 billion at year-end, which is at roughly the same level as at the end of 2015. Total order intake in 2015 was NOK 25.0 billion.

Construction Norway

NOK million	2016	2015	2014	2013	2012
Revenue	15 096	12 031	11 878	12 132	11 480
Profit before tax	596	493	423	360	357
Profit margin %	4.0	4.1	3.6	3.0	3.1
Order backlog	14 408	15 195	10 437	10 769	11 217

There was high activity in the construction market in Norway in 2016, largely driven by an upswing in the residential market and increased civil engineering activity. High residential demand contributed to an increased number of new residential projects, and there was high investment in public buildings. The market for commercial buildings was stable at a moderate level. The decline in activity in the oil sector again resulted in low activity in southern and western Norway in 2016. Further growth is expected in the construction and civil engineering market in the future, driven mainly by residential projects and investments in transport infrastructure.

Construction Norway's revenue increased by 25% in 2016 to NOK 15.1 billion. The revenue growth was greatest in the building construction operations in central eastern Norway and in the nationwide civil engineering operations. The growth was mainly organic, but several acquisitions in the second half of 2015 and in 2016 also contributed, accounting for approximately NOK 1.2 billion of the revenue in 2016.

Profit before tax increased to NOK 596 million in 2016 from NOK 493 million in 2015. The profit margin was 4.0%, compared with 4.1% in 2015. The profit included a positive non-recurring effect of NOK 81 million as a result of changes to Veidekke's disability pension scheme. The remaining profit growth is attributable to higher volumes in Building Construction, which had good profitability in 2016 with a profit margin of 4.5%, at the same level as the previous year. By contrast, the profit for Civil Engineering was marked by write-downs in a number of projects due to budget overruns and operational challenges. Civil Engineering's profit margin was 1.1%, compared with 3.3% in 2015.

Construction Norway had a good order backlog at the end of the year, amounting to NOK 14.4 billion, down from NOK 15.2 billion the previous year. Building Construction's order backlog increased, while Civil Engineering's order backlog decreased by 25%. At the close of 2016 the order backlog consisted of roughly 70% building construction projects and 30% civil engineering projects.

Major projects awarded in 2016:

• Vitaminveien in Storo, Oslo, for the Thon Group. Total area of 60,000 m2 comprising a hotel, multiplex cinema, commercial premises, apartments and a kindergarten. Contract value NOK 1,015 million.
• Diagonale in Bjørvika, Oslo. Student accommodation, offices and retail premises for A9 Palekaia AS. Contract value NOK 650 million.
• Tullinkvartalet in Oslo. New university building for the Faculty of Law, contracted by Entra ASA. Contract value NOK 528 million.
• Hydro Karmøy. New electrolysis hall, new rectifier building, new service building and various other works for Hydro Aluminium AS's new plant. Contract value NOK 486 million.
• Horten upper secondary school for Vestfold County. A new school for 1,200 pupils with an area of 18,000 m2. Contract value NOK 451 million.
• Finansparken in Stavanger for Sparebank 1 SR-bank. Commercial buildings with an area of 22,600 m2 with wooden load-bearing structures. Contract value NOK 406 million.
• The Bragernes Quarter in Drammen. Apartments and commercial premises for Vestaksen Eiendom AS. Contract value NOK 317 million.

Construction Norway completed one acquisition in 2016: in the first quarter Veidekke Entreprenør AS acquired 80% of the shares in Tore Løkke AS, a construction company with 78 employees. This company primarily operates in Trøndelag, but also has mobile resources that undertake assignments all over Norway. Tore Løkke AS had revenue of NOK 269 million in 2016.

Construction Sweden

NOK million	2016	2015	2014	2013	2012
Revenue	7 819	6 156	4 804	3 499	3 556
Profit before tax	102	56	19	11	88
Profit margin %	1.3	0.9	0.4	0.3	2.5
Order backlog	7 698	7 160	4 164	4 250	2 733

The economic upturn in Sweden continued in 2016, contributing to strong growth in the construction and civil engineering sector. The growth was primarily driven by high demand for housing and commercial and public buildings. In the civil engineering market there was high activity on the major infrastructure projects in Stockholm and Gothenburg throughout the year, while activity in the north and south was low.

Construction Sweden's revenue increased to NOK 7.8 billion in 2016, which is growth of 24% in local currency. Building construction operations accounted for about 80% of the growth, which was largely related to increased activity in the Stockholm area.

Profit before tax increased to NOK 102 million in 2016 from NOK 56 million in 2015. The profit margin before tax was 1.3%, compared with 0.9% in 2015. Most of the profit growth was in the building construction operations and was driven by both higher volumes and improved margins, particularly in the residential segment. However, profitability in the building construction operations is still low. The profit from civil engineering operations also increased from last year, primarily due to greater activity in some parts of the business unit.

The order backlog increased by 15% measured in local currency and was NOK 7.7 billion at year-end, compared with NOK 7.2 billion at the end of 2015. The order backlog consisted of approximately 70% building construction projects and 30% civil engineering projects.

Major projects awarded in 2016:

• Svea Symfoni. Residential buildings in Stockholm for Convea Produktion. Contract value NOK 400 million.
• Enzymet. Residential units in Stockholm for Veidekke Bostad AB. Contract value NOK 355 million.
• Transmission lines for a new energy plant and treatment plant for Borås Energi & Miljö. Contract value NOK 388 million.

• Patienten. Eye clinic in Stockholm for Vitartes. Contract value NOK 320 million.

• E4 Vårgårda–Ribbingsberg. 26 kilometres of dual carriageway for the Swedish Transport Administration. Contract value NOK 291 million.

• LAB of the Future. Renovation of the research and training facilities at the Karolinska Institute for Akademiska Hus. Contract value NOK 213 million.

Two medium-sized companies were acquired in 2016. In the second quarter Veidekke Entreprenad AB bought Åkersberga Lastbilcentral AB in Stockholm, a stone-crushing and landfill company with 11 employees and revenue of NOK 168 million in 2016. In June Veidekke Entreprenad AB bought Berggren & Bergman AB, which is engaged in civil engineering operations in northern Sweden. The company has 45 employees and reported revenue of NOK 135 million in 2016.

Construction Denmark

NOK million	2016	2015	2014	2013	2012
Revenue	1 713	1 608	1 820	1 336	1 275
Profit before tax	105	96	108	74	52
Profit margin %	6.2	6.0	5.9	5.6	4.1
Order backlog	1 262	1 331	1 209	1 709	1 057

The construction market in Denmark developed positively in 2016, mainly driven by public investments and increased demand for new homes. However, the market for commercial buildings remained weak with low activity.

Veidekke's Danish construction company, Hoffmann A/S, reported revenue of NOK 1.7 billion for 2016, a 2% increase from 2015 measured in local currency. There was high activity in the building construction operations in Jutland and in technical installations, while the building construction operations in Zealand had low activity.

Profit before tax amounted to NOK 105 million, up from NOK 96 million in 2015. The profit margin before tax was 6.2%. The improvement in profit is attributable to both higher volumes and better margins, combined with consistently good profitability in the project portfolio. In the fourth quarter 2016 Hoffmann started construction of the residential project Central House. This is an own-account project in Amager in Copenhagen with a total of 115 units. The sales ratio at yearend was 60%.

Hoffmann had an order backlog of NOK 1.3 billion at the close of the year, which is on a par with the previous year.

Major projects awarded in 2016:

• Central House. Own-account residential project in Copenhagen. Contract value NOK 323 million.
• Vildtbanegård. Renovation of rental apartments for Det Sociale Boligselskab. Contract value NOK 149 million.

Hoffmann A/S acquired the three technical installation companies Alpedalens VVS A/S, Techniq Installation A/S and Installationsgruppen A/S in the second quarter of 2016, all of which are located in Fredericia in Jutland. The companies had combined annual revenue of NOK 124 million in 2016.

PROPERTY DEVELOPMENT

NOK million	2016	2015	2014	2013	2012
Revenue	3 202	2 126	2 276	1 783	2 111
Profit before tax	567	306	280	221	173
Number of units under construction 1) 2)	2 422	1 739	1 149	1 417	1 277
Number of units sold 1)	1 397	1 416	770	689	652

1) A significant portion of Veidekke's property development operations take place in joint ventures, particularly in the Norwegian operations. The figures in the table illustrate Veidekke's share.

2) Includes 115 residential units in an own-account project in Denmark. The project is reported in the accounts under Construction Denmark.

There was high demand for new homes in both Norway and Sweden in 2016. Veidekke's projects sold well in both countries, especially the projects in the Oslo and Stockholm regions.

Veidekke sold a total of 1,870 residential units in 2016, including jointly-owned projects, with a total value of NOK 8.6 billion. By comparison, Veidekke sold 1,804 residential units with a total value of NOK 6.5 billion in 2015. Veidekke's share of the sales in 2016 was 1,397 residential units with a value of NOK 5.9 billion.

The close collaboration between Veidekke's property development and construction operations is key to good project execution. Involvement of the contractor from the earliest stages, such as acquisition of sites and concept design, allows early identification of risk factors and broad consideration of the various options. Veidekke's construction operations build almost all the residential projects developed by Property Development. In 2016 Property Development provided Construction with residential projects with a combined contract value of NOK 3.8 billion.

Revenue from property development operations rose to NOK 3.2 billion in 2016, up from NOK 2.1 billion in 2015. Profit before tax was significantly higher at NOK 567 million, compared with NOK 306 million the previous year. The increase in revenue and profit is attributable to the Swedish property development operations.

At the close of the fourth quarter there were 2,422 residential units in production, compared with 1,739 one year earlier. Most of this increase was in the Swedish operations. Production started on a total of 1,405 residential units in 2016: 948 in Sweden, 342 in Norway, and 115 in Denmark.

Veidekke strengthened its land bank during the year with the purchase of several sites in and around the major growth areas. At the end of the year Veidekke had a total land bank that is expected to yield 16,750 residential units, of which Veidekke's share was 13,550 units. By comparison, the land bank consisted of 14,850 residential units in 2015, of which Veidekke's share was 11,800 units.

Invested capital was NOK 3.1 billion at the end of 2016. The profitability of property development operations is measured by return on invested capital, which was 21.4% for 2016 as a whole, up from 13.1% the previous year. Over the last five years return on invested capital has averaged 12.6%.

Property Development Norway

NOK million	2016	2015	2014	2013	2012
Revenue	338	413	747	1 070	1 341
Profit before tax	149	146	175	170	174
Number of units under construction 1)	600	541	399	749	905
Number of units sold 1)	433	406	246	307	451

1) Veidekke's share.

Veidekke had good residential sales in Norway in 2016, at roughly the same level as the previous year. There was high demand for residential projects, especially in the Oslo area and in Trondheim.

Some 806 residential units were sold in 2016, up from 764 in 2015, of which Veidekke's share was 433 units, compared with 406 the previous year. Good residential sales resulted in the initiation of more projects, and construction started on a total of 14 projects (in all 342 residential units) in 2016, compared with 390 residential units started in 2015.

Revenue for 2016 totalled NOK 338 million, compared with NOK 413 million the previous year. The decline in revenue is attributable to the fact that most projects are now carried out in joint venture operations, which do not generate accounting revenues in Veidekke's consolidated financial statements.

Profit before tax in the Norwegian property development operations amounted to NOK 149 million in 2016, compared with NOK 146 million in 2015. The contribution from projects under construction increased in 2016, while property development gains from the sale of sites and shares in residential projects was NOK 49 million, compared with NOK 61 million in 2015. Profit adjusted for tax in joint ventures was NOK 209 million in 2016, compared with NOK 182 million in 2015.

Residential production increased in 2016, and Veidekke's share of residential units under construction was 600, compared with 541 units at the end of 2015. The sales ratio for residential units under construction rose to 86% from 71% one year earlier. Veidekke's share of unsold completed units at year-end was 16.

At the end of the year, Property Development Norway had a land bank that is expected to yield 7,900 residential units, of which Veidekke's share was 5,250 in 40 projects. Sites worth a total of NOK 1.1 billion were recognised in the statement of financial position for 2016. The land bank was strengthened in 2016 through acquisition of several sites both for Veidekke's own account and in joint ventures with partners.

The largest acquisitions in 2016:

• Ranheim senter in Trondheim in partnership with Coop. Potential for 450 residential units.
• Stavjordet in Skedsmo municipality. Own-account project with approx. 300 residential units.
• Ensjø in Oslo. Own-account project with approx. 180 residential units.
• Kvartal 15 in Lillestrøm in partnership with a local partner. Potential for 100 residential units.
• Storetveit in Bergen. Joint venture project with local partners. Potential for 100 residential units.

Invested capital amounted to NOK 2.3 billion at the end of 2016. Return on invested capital was 12.1% in 2016, compared with 11.8% in 2015. The return is adjusted for taxes in joint ventures.

Property Development Sweden

NOK million	2016	2015	2014	2013	2012
Revenue	2 864	1 712	1 529	713	770
Profit before tax	418	159	105	50	-0.8
Number of units under construction 1)	1 707	1 198	750	720	371
Number of units sold 1)	889	1 010	536	382	201

1) Veidekke's share.

There was great interest in Veidekke's Swedish residential projects also in 2016. This business area sold a total of 989 residential units in 2016, of which Veidekke's share was 889. By comparison, Veidekke's share of residential units sold in 2015 was 1,010. The sales value of the residential units increased to NOK 4.8 billion from NOK 3.1 billion in 2015, and the increase in value is mainly a result of higher prices and improved product mix. In 2016 construction started on 13 projects with a total of 948 residential units, most of which are located in the Stockholm area. By comparison, construction started on 517 residential units in 2015.

Revenue amounted to NOK 2.9 billion in 2016, up from NOK 1.7 billion in 2015. Most of the projects are carried out as own-account projects.

Profit before tax was NOK 418 million, a record high for the business unit and a significant increase from the profit of NOK 159 million in 2015. Most of the profit growth is attributable to an increased number of units under construction and good profitability in the projects. In 2016 property development gains of NOK 65 million were recognised, compared with NOK 25 million in 2015.

At year-end Veidekke's share of the residential production was 1,707 units, up from 1,198 at the end of 2015. Ongoing projects had a sales rate of 94% at year-end, compared with 98% in 2015. Veidekke's share of unsold, completed units at the end of the year was 4.

The Swedish property development operations had a land bank that is expected to yield 8,850 residential units at the close of the year, of which Veidekke's share was 8,300 units. Some 60% of the sites are option-based agreements. Sites worth a total of NOK 1.2 billion were recognised in the statement of financial position at the end of 2016. This figure includes sites in Denmark worth NOK 100 million. The land bank in Sweden was strengthened in 2016 through acquisition of several sites both for Veidekke's own account and in joint ventures with partners.

The largest acquisitions in 2016:

• Klosterbacken in Lund. Own-account project with approx. 160 residential units.
• Västra Ursvik in Sundbyberg. Own-account project with approx. 130 residential units.
• Måsen 21 in Lund. Own-account project with approx. 100 residential units.
• Cementen 4 in Malmö. Own-account project with approx. 100 residential units.

Capital invested amounted to NOK 0.7 billion at the end of 2016. Return on invested capital rose to 45.1% in 2016, from 18.0% in 2015.

INDUSTRIAL

NOK million	2016	2015	2014	2013	2012
Revenue	4 162	4 033	4 127	3 476	3 192
Profit before tax	136	190	210	158	38
Order backlog	1 035	1 128	1 274	1 217	1 511

A high level of funding for both maintenance of the existing road network and construction of new roads contributed to a high level of activity in Veidekke's industrial operations in 2016. Revenue increased to NOK 4.2 billion from NOK 4.0 billion in 2015, with growth in all three business units.

Profit before tax was NOK 136 million, compared with NOK 190 million in 2015. The profit for the year includes a positive non-recurring effect of NOK 19 million from changes to the disability pension. The decline in profit compared with the previous year is due to significant losses in Road Maintenance as a result of write-downs in several maintenance contracts. By contrast, the business units Asphalt and Aggregates delivered good results in 2016. Industrial had a combined profit margin of 3.3%, compared with 4.7% in 2015.

Asphalt's revenue increased by 4% in 2016 to NOK 2,453 million. The growth is largely attributable to increased volumes for the Norwegian Public Roads Administration, but there was also strong demand from the private market. The business area Asphalt's profit was at a historically high level of NOK 156 million as a result of high volumes, good and efficient operations and good profitability in the contracts.. The profit margin was 6.0%, compared with 6.2% the previous year.

Road Maintenance had revenue of NOK 1,151 million, which is on a par with 2015. This business unit reported a significant loss in 2016 due to write-downs on several contracts and low profitability in other parts of the project portfolio, resulting in a result for the year of NOK -76 million, against NOK -14 million in 2015. This business area is under restructuring, and several improvement measures have been implemented, which are expected to yield improvements in the longer term.

Aggregates increased its revenue by 17% in 2016 to NOK 557 million. Over time this business unit has strengthened its market position through acquisitions and is working continuously to further improve productivity. This business unit has good profitability, with a profit for 2016 of NOK 56 million and a profit margin of 9.7%.

OTHER OPERATIONS

Other operations consist of unallocated costs associated with the Group's corporate administration and financial management, the Group's ownership role in Public–Private Partnerships (PPP), and the elimination of intra-group profits.

This unit posted a result of NOK -47 million for 2016, compared with NOK -97 million in 2015. The improvement in profit is attributable to gains from the sale of shares in PPP projects, less elimination of intra-group profits and lower financial costs.

STRATEGIC GOALS

Veidekke is a leading Scandinavian construction and property development company. This requires Veidekke to be established with operations in all the growth areas in Scandinavia and to be a leader in terms of profitability and size in its local markets. Veidekke creates good solutions and results by actively involving customers, suppliers and all the employees in a working method that promotes good, safe operations, continuous learning and improvement. This participative approach also helps foster loyalty and commitment, as well as contributing to job satisfaction among the employees and a stable workforce for the company. A key element of Veidekke's corporate philosophy is value-creating partnerships with customers and suppliers, which will increasingly determine the company's competitiveness and further growth.

Our position as a leading Scandinavian player is supported by the businesses' targeted work to ensure good, safe operations, development of value-creating partnerships, and individual and collective expertise and skills.

In keeping with the companies' growth ambitions, Veidekke has acquired companies and invested in sites for development in recent years. Several acquisitions were made in 2016: Tore Løkke AS in Norway, Åkersberga Lastbilcentral AB and AB Berggren & Bergman in Sweden, and the technical installation companies Alpedalens VVS AS, Installationsgruppen AS and Techniq Installation AS in Denmark. These acquisitions further strengthen Veidekke's position and competitiveness, both locally and regionally. Veidekke's land bank was also strengthened in 2016 through the acquisition of a number of sites. The number of residential units has increased by about 1,800 this year. However, most of the revenue growth in 2016 was organic and is attributable to a consistently high order backlog throughout the year and high activity in residential development.

Strategic financial goals have been defined for Veidekke's three business areas. The goals for the business areas Construction and Industry are a profit margin before tax of 5% and 6.5% respectively, and the goal for Property Development is a 15% return on invested capital. In 2016, both Construction and Industrial achieved a profit margin before tax of 3.3%, while Property Development achieved a return on invested capital of 21.4%.

Veidekke aims to give its shareholders a stable, high return on their investment in the company, and the dividends shall correspond to at least 50% of the profit for the year. Veidekke's shareholders received a total return of 17.5% (including dividends) in 2016. By comparison, the return on the Oslo Stock Exchange was 12.1%. The Board proposes a dividend for the 2016 financial year of NOK 4.5 per share, which corresponds to a pay-out ratio of 68% (IFRS). This is NOK 0.5 per share higher than the dividend for 2015.

Veidekke shall be a safe workplace and therefore has a long-term goal of zero serious injuries. In addition, the total number of injuries is to be reduced by 20% a year. The number of serious injuries in the Group was down by 36% from last year, but the total number of injuries rose by 26% in 2016.

ORGANISATION

Veidekke is a specialised, competence-based company, and the employees are the company's most valuable resource. The company's attainment of its commercial goals depends on its ability to retain, attract and develop qualified employees. A great deal of work has therefore been done to ensure an optimum recruitment process and to develop good training courses and skills development programmes.

Number of employees

		Administrative
	Skilled workers	staff	Total
Norway	2 977 (2 912)	2 195 (2 088)	5 172 (5 000)
Sweden	663 (727)	1 051 (829)	1 714 (1 556)
Denmark	295 (234)	218 (205)	513 (439)
Total	3 935 (3 873)	3 464 (3 122)	7 399 (6 995)

Last year's figures in brackets.

At the end of 2016 the Group had 7,399 permanent employees in Scandinavia. Veidekke hired a total of 1,243 new employees in 2016, and the net workforce growth for the year was 6%. Of the new employees, 84% were employed through recruitment, while the remainder came as a result of acquisitions in Norway, Sweden and Denmark. Employee turnover in the Group was 11%.

Professional development and training

Skills development of our own employees is a high priority. All new employees in Veidekke's project organisation draw up a careers plan together with their immediate superior, detailing mentoring, further education and increasing responsibility. Through the Veidekke School the company offers a variety of courses and programmes in Norway and Sweden, including project and production management, finance and business administration, contract law, energy and the environment, occupational health and safety, compliance and leadership skills.

Veidekke has special programmes for young managers. This year Veidekke launched a Scandinavian development programme called BaseCamp. In 2016 this network group comprised 38 young managers in Scandinavia, who are given the opportunity to make suggestions to the management about possible improvements that can further develop the company. In Hoffmann A/S in Denmark, selected young engineers are given the opportunity to head up projects at an early stage in their career with support from experienced colleagues through the Next Generation business concept.

Veidekke wants to be ahead of the game in terms of solutions and technology and has therefore collaborated with leading research groups at universities, technical colleges and colleges for several years. The operations in Norway collaborate with the Norwegian University of Science and Technology (NTNU), BI Norwegian Business School and the University of Agder. The Swedish operations collaborate with several educational institutions, including the Royal Institute of Technology in Stockholm, Luleå University of Technology and the Smart Built Environment strategic innovation programme. Veidekke's Danish operations, Hoffmann A/S, is collaborating with the Technical University of Denmark on a project. In addition, Veidekke has collaborations with Berkeley and Stanford universities. The collaboration projects focus on areas such as development and improving competencies in the use of digital tools (such as building information modelling (BIM) and Virtual Design and Construction (VDC), project steering methods and project management. This provides valuable knowledge and expertise, which are important to develop good products, ensure good, efficient project execution, retain and attract qualified employees, and be among the leading players in priority fields.

Recruitment

Veidekke recruits a large number of new employees each year. The company attends career fairs and other employment market events at several universities and colleges, where it makes company presentations and meets students who may become future employees of the company. Educational institutions are thus an important recruitment arena. Many of Veidekke's employees are recruited into the company via summer jobs and internship schemes, which have in turn led to traineeships and ultimately permanent employment. Veidekke has a twoyear trainee scheme in Norway and Sweden where practical work in the projects is combined with theoretical training. At year-end there were a total of 119 trainees in the Group: primarily engineers, but also financial and other administrative personnel. 107 of these were in Norway and 12 in Sweden.

Veidekke's strategy is to train a significant proportion of its skilled workers itself within 11 subject areas. The company is a major apprenticeship company, and candidates who pass the trade examination are qualified to work in the company on completion of their apprenticeship. In 2016 Veidekke had 171 apprentices in the Norwegian operations, 21 in Denmark and 40 in Sweden.

Veidekke has a good reputation in the employment market in all three countries. In Universum's annual survey in Norway for 2016, Veidekke was voted the industry's most attractive employer among young engineers and engineers with a few years' experience. In a similar survey in Sweden, Veidekke was voted newcomer of the year among engineering students. However, it is a major challenge for the construction and civil engineering industry in general and for Veidekke that ever fewer young people are choosing a vocational education. Veidekke therefore supports a range of industry initiatives to raise the reputation of and increase professionalism in the construction industry. In the last few years campaigns have been carried out on social media in Norway to attract young people to the building and construction trade and training as a skilled worker. Media campaigns aimed at engineering students and young engineers were also continued in 2016 to maintain interest among target groups in the industry and the company. The operations in all three countries actively use social media both for recruitment purposes and as a channel for promoting the industry.

Working environment and diversity

Veidekke aims for diversity among its employees and attaches importance to creating an involving and inspiring working environment characterised by mutual respect and equality. There is zero tolerance for harassment and behaviour that can be perceived as threatening or demeaning. Veidekke's ethical guidelines encourage employees to report any actions that may be contrary to legislation, rules or internal procedures. Procedures have been developed for reporting irregular activities ("whistle-blowing"), and such matters can be reported internally or externally.

The proportion of women in the construction and civil engineering industry is generally low. The proportion of women in Veidekke as a whole is 11%. Among administrative staff, the proportion of women is 22%, while only 2% of the skilled workers are women.

Management

In 2016 Veidekke's corporate management was expanded with the addition of a new executive vice president with responsibility for communication and public affairs. At the end of 2016 Veidekke's corporate management comprised the President and CEO, three executive vice presidents for the business areas and three executive vice presidents for central staff functions. Veidekke's corporate management is presented on pages 20 and 21.

OCCUPATIONAL HEALTH AND SAFETY

Veidekke shall safeguard the health and safety of everyone who works at the company's workplaces. As one of Scandinavia's largest construction companies, Veidekke shall be a driving force in changing attitudes in this industry with significant risks. Veidekke's goal is zero serious injuries and an annual reduction in the total number of injuries of 20%.

Occupational health and safety is an integral part Veidekke's daily operations, and for many years the company has worked systematically to modify and improve routines and attitudes. This work has focused on good planning, use of correct equipment and training. In 2015 the management defined six priority areas for achieving the long term goal of zero serious injuries. Among other things, special safety dialogue training has been initiated for managers, equipping them with a set of communication tools for use in their work on safety. In addition, priority is being given to further improvements in processes to eliminate risk right from the planning stage, with a focus on involving subcontractors in the safety work.

In 2016 Veidekke registered a 36% decrease in the number of serious injuries, while the total number of injuries rose by 26%. The number of injuries among Veidekke's own employees was on a par with last year, while there was an increase in the number of reported injuries among subcontractors. The increase in the total number of injuries must also be seen in the context of the increase in activity.

NUMBER OF INJURIES, OWN EMPLOYEES AND SUBCONTRACTORS

At the end of 2016 Veidekke had a lost-time injury rate of 4.5, which is the same as in 2015.

Prevention of sickness absence is a high priority at Veidekke, and in addition, good routines have been established for close follow-up of employees on sick leave to facilitate their prompt return to work. Sickness absence is low and can be said to reflect a high level of job satisfaction among the employees, which the annual working environment surveys confirm. Sickness absence was 3.7%, down from 3.9% the previous year. The rates for the individual countries were: Norway 3.9% (4.2%), Sweden 3.9% (3.6%) and Denmark 1.6% (1.9%).

SICKNESS ABSENCE, OWN EMPLOYEES (%)

Each year Veidekke arranges a group-wide Safety Week to highlight the work on safety. The theme in 2016 was "Get involved – report", with the aim of nurturing a culture where the employees increasingly speak up and report when situations arise that may lead to injury. All Veidekke's projects focused on this topic through a wide range of activities.

Each year Veidekke awards a special Health and Safety Award to a project or initiative that has excelled in the area of safety. The winner of the 2016 award was Construction Norway, District Oslo, for the project Prinsensgate 26 for the Storting in central Oslo. The jury highlighted the outstanding health and safety work in what has been called Norway's most demanding renovation project ever. Clear management has resulted in excellent safety in the project.

THE EXTERNAL ENVIRONMENT

The construction and civil engineering industry has significant impacts on the climate and the natural environment, and Veidekke – in line with the industry in general – has a responsibility to limit the consumption of energy and natural resources, minimise emissions and avoid generating large volumes of waste. The ability to manage the company's impact on the environment and identify and manage the environmental risks in daily operations is an important part of Veidekke's corporate social responsibility and affects the company's attractiveness to employees, customers, partners and increasingly also to investors, as well as helping increase Veidekke's competitiveness. The government is tightening the requirements relating to energy consumption in buildings. Veidekke's customers are becoming increasingly environmentally aware and are requesting energy and environmental classification of their buildings. Investors are also setting requirements regarding environmental measures, including through the annual Carbon Disclosure Project survey, which monitors large companies' greenhouse gas emissions and their strategies to reduce them. For Veidekke to remain an attractive partner, employer and investment object, the company must be able to meet these requirements and expectations. Veidekke has committed to operate in accordance with the UN's two-degree target. All the units have been tasked with defining specific measures that together will help the company reduce its greenhouse gas emissions.

In keeping with the Group's environmental ambition, Veidekke's business areas all contribute to reducing the company's environmental impact in varying ways. The units within the Group are quite different and must therefore adopt different approaches to cutting greenhouse gas emissions; both from production and from the final product.

The significant increase in activity also resulted in higher carbon emissions from own operations in 2016.

Veidekke's work related to the external environment is discussed in more detail in the company's CSR Report.

CORPORATE GOVERNANCE

Corporate governance in Veidekke is based on the principles laid down in the Norwegian Code of Practice for Corporate Governance of 30 October 2014 published by the Norwegian Corporate Governance Board (NUES).

Veidekke's operations consist of a large number of ongoing projects. Veidekke is a multi-local organisation with a high degree of local responsibility and autonomy, allowing us to meet our customers' needs and ensure project performance and value creation in the individual projects. Control and oversight are maintained through the Group's management and quality assurance systems and through systematic reporting from the individual projects. Reporting is performed ten times per year and covers financial and non-financial matters. The profitability and risk associated with the projects are important control parameters.

Veidekke is owned primarily by financial investors, and independence from the shareholders is therefore not a significant issue. Veidekke's main shareholder is OBOS, which has an ownership share of 17.8%. OBOS is also a strategically important business partner. Veidekke and OBOS collaborate on the development of various residential projects, and Veidekke is the executing contractor on several of OBOS's residential projects.

Employees hold a combined total of 14.9% of the shares, but no individual employee holds more than 0.3% of the shares. For a complete account of corporate governance in Veidekke, see the section on Corporate Governance in this report.

REMUNERATION OF SENIOR EXECUTIVES

The Board has appointed a Remuneration Committee that, within the Board's mandate, prepares matters and proposals for all significant matters relating to the salary and other remuneration of the President and CEO. The Committee also advises the President and CEO on salaries and compensation schemes for the other members of the corporate management.

The Board of Veidekke prepares a declaration on the principles for determining salaries and other remuneration for senior executives in accordance with section 6-16a of the Norwegian Public Limited Companies Act. The declaration will be presented and processed at the Annual General Meeting on 10 May 2017. For more information on salaries and remuneration of senior executives, see note 30 in this report.

SHAREHOLDERS AND THE STOCK MARKET

At year-end Veidekke had 9,029 shareholders. The largest shareholders in the company were OBOS BBL (17.8%), Folketrygdfondet (12.5%) and IF Skadeförsäkring AB (6.9%). Foreign ownership was 26.7% (28.7%).

A total of 25 million Veidekke shares were traded on the Oslo Stock Exchange in 2016, representing a turnover rate of 18.1%. There were 65,629 trades of Veidekke shares during the year. The share price ranged between NOK 96.75 at the lowest and NOK 126.5 at the highest. The return including dividends for the year was 17.5%. By comparison, the Oslo Stock Exchange Benchmark Index had a return of 12.1%. All Veidekke shares are freely transferable, cf. section 5-8a of the Securities Trading Act.

Share issues to employees

In line with Veidekke's strategy to foster employee loyalty through co-ownership of the company, discount sales of shares to employees were carried out in 2016. The shares have a lock-in period of two to three years. After this year's sale, 3,767 employees own a combined total of 19.9 million Veidekke shares. This means that 50.9% of the employees own 14.9% of the company. For more information on the share scheme for employees, see Shareholder information in this report.

Share buyback and share capital expansion

On 10 May 2016 the Annual General Meeting renewed the Board's authorisation to buy back own shares corresponding to just under 10% of the share capital and the Board's authorisation to increase the share capital by up to NOK 6.5 million by issuing new shares. The company did not buy back any of its own shares in 2016. The buy-back of shares is considered on an ongoing basis in connection with the work to ensure an optimal financial structure for the Group. Nor was the share capital expanded in 2016.

FINANCIAL SITUATION AND CAPITAL STRUCTURE

Veidekke aims to maintain a strong financial position. This can best be achieved through good operational management, low risk exposure and sound management of the parameters that exert an influence on the company's financial risk. Financial development is an integral part of the Group's strategy process, and the Group's financial policy governs the management of financial risk.

The Group had a solid financial position and had no net interest-bearing debt at the end of 2016. By comparison, the company had net interest-bearing debt of NOK 606 million at the end of 2015. The decrease in net interest-bearing debt is a result of strong cash flow during the year. Higher profits, sale of units in PPP (Public–Private Partnership) projects and good liquidity performance in the building construction operations in Norway contributed to a strong cash flow in 2016. The Group's net cash flow from operations for the year was NOK 1.9 billion (NOK 0.8 billion).

The Group's total assets increased to NOK 17.4 billion (NOK 14.8 billion), primarily as a result of increased activity in the Group. Total equity was NOK 3.4 billion (NOK 3.2 billion), corresponding to an equity ratio of 19.9% (21.8%). Capital invested in property development operations amounted to NOK 3.1 billion, up from NOK 3.0 billion in 2015.

Total investments in operating equipment amounted to NOK 718 million, compared with NOK 516 million in 2015. The increase in investments is a consequence of higher activity in the Group. Non-current assets totalling NOK 58 million were sold. Acquisitions amounted to a net investment of approximately NOK 200 million in 2016 and were primarily related to the acquisition of Tore Løkke AS in Norway, Åkersberga Lastbilcentral AB and AB Berggren & Bergman in Sweden, and the technical installation companies Alpedalens VVS AS, Installationsgruppen AS and Techniq Installation AS in Denmark.

RISK AND UNCERTAINTY FACTORS

Veidekke's operations consist of individual projects. The projects vary greatly in terms of complexity, size, duration and risk, meaning that systematic risk management in all parts of the business is of crucial importance. Veidekke analyses and assesses risk at the tendering stage, and risk is managed systematically by the businesses in all the phases of a project. The general management and governance of the businesses are reviewed in the Board's audit. Correct expertise is an important success factor for good operational efficiency and project execution.

To ensure that the Group has sound and updated expertise, Veidekke devotes significant resources to development of employees through its internal courses and training programmes and continuously works on recruitment throughout the Group.

The composition of project portfolios can affect the risks Veidekke faces, and the risk of known and unknown factors must be reflected in the financial reporting. Revenue recognition is therefore assessed cautiously in the projects until the potential risks have been clarified. Some contracts have very complex terms, allowing room for different interpretations of what constitutes proper fulfilment of the contract. As a result, disagreement may arise about the final settlement between the contractor and the contracting client. At the close of the year Veidekke had several unresolved final settlements related to infrastructure projects. Outstanding claims after deductions for recognised provisions and assessment of uncertain income were in the order of NOK 400 million (excl. VAT) at 31 December 2016. The outcome of the individual disputes, positive or negative, may have an effect on the results.

Veidekke is a major property developer, and the Group's overall results depend on good financial performance in Property Development. The residential market is cyclical, and the profit from property development is very closely related to the start-up of and production in new residential projects. A weak residential market may affect the future development of Veidekke's projects and the value of Veidekke's property portfolio. To reduce the risk associated with unsold projects, Veidekke will not, as a general principle, initiate new residential projects until a sales ratio of 50% is achieved. Consequently, slow residential sales may delay residential projects. Veidekke is primarily exposed to financial risks associated with financial instruments such as trade receivables, liquidity and interest-bearing debt. These risks are classified as credit, market and liquidity risks. For a more detailed presentation of the company's financial risk, see note 29 in this report.

THE MARKET

Market development in 2016 and outlook for 2017

Growth in the global economy is projected to be 3.3% in 2017, compared with 3.0% in 2016. Scandinavia's main trading partners are expected to see moderate growth in line with 2016.

Interest rates are expected to remain low, but the trend in the second half of 2016 raises the likelihood of some minor increases in interest rates going forwards.

Norway

The Norwegian economy grew by 0.8% in 2016, compared with growth of 1.4% in 2015. The labour market had a negative development throughout 2016, weakening the growth in households' purchasing power. GDP growth is estimated to be 1.5% for 2017. Forecasts indicate low and unchanged key policy rates throughout 2017, but higher money market rates may result in a slight increase in borrowing rates for households.

Investments in the construction and civil engineering market increased by 6% in 2016. Most of the growth was in households and the public sector, while demand from industry for new buildings and civil engineering projects remained moderate.

Growth of 6% is expected in the construction and civil engineering market in 2017, mainly driven by continued growth in housing investments and in civil engineering. House prices and sales of new homes are expected to remain stable or decline slightly going forwards, in part as a result of the new mortgage regulations that came into force in 2017. Growth of 2% is expected in the market for commercial buildings and of 4% in the market for public buildings in 2017. In the civil engineering market, the growth trend from 2016 will continue, with expected growth of 6% in 2017.

Sweden

The Swedish economy grew by 3.4% in 2016. The labour market is strong with high employment growth, and a shortage of labour is increasingly posing capacity challenges. House price inflation slowed down in 2016 in both Stockholm and Gothenburg, while prices in Skåne rose in 2016.

Growth for 2017 is estimated at 2.2%. Although the growth rate is lower, the economic upturn will continue. Interest rates are expected to remain low, but the likelihood of interest rate hikes has increased.

The Swedish construction and civil engineering market grew 12% in 2016, driven primarily by investments in new homes. A more moderate growth rate of 7% is expected for 2017. This levelling off is attributed to slightly lower growth in residential investments. A stable, but moderate positive development is expected for non-residential buildings, particularly for public buildings. Civil engineering activity will be dominated by the start-up of several major infrastructure projects in Stockholm and Gothenburg. At the same time, the government has scaled down the number of small and medium-sized projects in its plans for 2017. The investments in roads and railways will be on a par with previous years, with a large number of national and international actors on the supply side.

Denmark

The Danish economy grew by 0.8% in 2016. The employment market developed positively, with unemployment falling by more than 2% in 2016. GDP growth of 1.7% is expected in 2017.

The Danish construction and civil engineering market grew by 7% in 2016. The increase is mainly attributable to growth in housing construction investment. A similar growth rate is expected for 2017, with investments in new homes still being the main growth driver. Growth of 8% is expected in commercial buildings in 2017. The vacancy rate is declining moderately, although still at a high level, which will limit demand for new commercial buildings also in 2017.

POST BALANCE SHEET EVENTS

No events have occurred after the balance sheet date that have any significant effect on the submitted accounts.

THE PARENT COMPANY VEIDEKKE ASA

The primary task of the parent company Veidekke ASA is to exercise ownership over the operative entities in the Group. The company has 45 (50) employees, of whom 20 (23) are women. Veidekke ASA's accounts are prepared in compliance with NGAAP (Norwegian accounting rules).

Veidekke ASA performs a number of group functions for the subsidiaries, including services related to financial management, IT infrastructure, insurance schemes, communication and public relations. Veidekke ASA invoices each of the subsidiaries for these services.

The company's operating result was a loss of NOK -90 (-37) million. Dividends and group contributions from subsidiaries totalled NOK 835 million (NOK 851 million).

The Board proposes an ordinary dividend of NOK 4.5 per share for the 2016 financial year. This corresponds to a pay-out ratio of 68% (IFRS), which is in line with the dividend policy of a minimum of 50% of earnings per share. The parent company, Veidekke ASA, reported a profit for the year of NOK 684 million (NOK 739 million). At the Annual General Meeting on 10 May 2017, the Board will propose that the profit be distributed as follows:

	NOK million
Allocated to dividend	602
Transferred to other equity	82
Profit for the year	684

GOING CONCERN

In accordance with section 3-3a of the Norwegian Accounting Act, the Board confirms that the company is a going concern. The financial statements for 2016 have been prepared on the basis of this assumption. A statement on corporate governance has been prepared in accordance with section 3-3b of the Norwegian Accounting Act. This statement is included in this report as a separate document. An account of Veidekke's corporate social responsibility work has been prepared in accordance with section 3-3c of the Norwegian Accounting Act. See Veidekke's CSR Report for 2016.

Oslo, 27 March 2017 The Board of Directors

Martin Mæland Chair

Per Otto Dyb

Deputy Chair

Hans von Uthmann Odd Andre Olsen Inge Ramsdal Arve Fludal

Gro Bakstad Ingalill Berglund Ann-Christin Andersen

Arne Giske President and CEO

INCOME STATEMENT VEIDEKKE GROUP

Figures in NOK million	Note	2016	2015
Revenue	2, 3, 7, 31, 33	28 613	24 225
Subcontractors		-14 430	-11 561
Cost of materials		-3 939	-3 673
Personnel expenses	4, 5, 21, 30	-5 838	-5 233
Other operating expenses		-3 077	-2 573
Depreciation	10, 11	-466	-372
Operating expenses		-27 750	-23 412
Share of net income from joint ventures	13, 33	190	130
Operating profit		1 053	944
Financial income	6, 29	98	94
Financial costs	6, 29	-60	-88
Profit before tax		1 092	950
Income tax expense	22	-170	-167
Profit for the year		922	782
PROFIT FOR THE YEAR ATTRIBUTABLE TO
Equity holders of Veidekke ASA		887	765
Non-controlling interests		35	18
Total		922	782
Earnings per share (NOK) (ordinary / diluted)	8	6.6	5.7

STATEMENT OF COMPREHENSIVE INCOME

Figures in NOK million	Note	2016	2015
Profit for the year		922	782
Revaluations of pensions after tax	21, 22	4	25
Net items that will not be reclassified subsequently to profit or loss		4	25
Currency translation differences		-102	97
Fair value adjustment of financial assets after tax	22, 29	8	-
Net items that will be reclassified subsequently to profit or loss		-93	97
Total other income and expenses after tax		-90	123
Comprehensive income		832	905
COMPREHENSIVE INCOME ATTRIBUTABLE TO
Equity holders of Veidekke ASA		801	885
Non-controlling interests		31	20
Total		832	905

Figures in NOK million Note 2016 2015 ASSETS Non-current assets Goodwill 9, 12 1 248 1 151 Other intangible assets 10 136 104 Deferred tax assets 22 65 65 Land and buildings 11 560 556 Plant and machinery 11 1 954 1 689 Investments in joint ventures 13 1 363 1 134 Financial assets 15 649 852 Total non-current assets 5 975 5 550 Current assets Residential projects 16 4 877 3 355 Inventories 17 455 310 Trade receivables 18 5 025 4 597 Other receivables 470 574 Cash and cash equivalents 19 644 402 Total current assets 11 470 9 238 Total assets 17 445 14 788 EQUITY AND LIABILITIES Equity Share capital 20 67 67 Other equity 3 219 3 006 Non-controlling interests 12 179 145 Total equity 3 465 3 218 Non-current liabilities Pension liabilities 21 404 512 Deferred tax liabilities 22 474 427 Bonds 23 750 750 Debts to credit institutions 23 212 517 Other non-current liabilities 23 136 103 Total non-current liabilities 1 975 2 309 Current liabilities Debts to credit institutions 44 43 Trade payables 24 4 182 3 778 Public duties 656 689 Warranty provisions 25 915 848 Taxes payable 22 128 71 Other current liabilites 24 6 080 3 832 Total current liabilities 12 005 9 261 Total equity and liabilities 17 445 14 788

STATEMENT OF FINANCIAL POSITION VEIDEKKE GROUP AT 31 DECEMBER

STATEMENT OF CHANGES IN EQUITY VEIDEKKE GROUP

				EQUITY HOLDERS OF VEIDEKKE ASA				MINORITY
Figures in NOK million	Note	Share capital	Other paid-in capital 1)	Currency translation differences	Other retained earnings	Fair value adjust ment 2)	Total	Non controlling interests	Total
Equity at 01 January 2015		67	305	26	2 369	-94	2 673	71	2 744
Profit for the year		-	-	-	765	-	765	18	782
Other comprehensive income		-	-	95	25	-	121	2	123
IFRS 2 - share-based transactions (employees)		-	-	-	-17	-	-17	-	-17
Transactions with non-controlling interests		-	-	-	-1	-	-1	-	-1
Additions from business acquisition - non-controlling interests	12	-	-	-	-	-	-	75	75
Changes in non-controlling interests	5	-	-	-	-	-	-	-3	-3
Dividend		-	-	-	-468	-	-468	-17	-485
Equity at 31 December 2015	12	67	305	122	2 674	-94	3 073	145	3 218
Equity at 01 January 2016		67	305	122	2 674	-94	3 073	145	3 218
Profit for the year		-	-	-	887	-	887	35	922
Other comprehensive income		-	-	-98	4	8	-86	-4	-90
IFRS 2 - share-based transactions (employees)	5	-	-	-	-20	-	-20	-	-20
Options - non-controlling interests	23	-	-	-	-33	-	-33	-	-33
Additions from business acquisition - non-controlling interests	12	-	-	-	-	-	-	20	20
Changes in non-controlling interests		-	-	-	-	-	-	-1	-1
Dividend	20	-	-	-	-535	-	-535	-16	-551
Equity at 31 December 2016		67	305	24	2 976	-86	3 286	179	3 465

1) Paid-in capital over and above nominal value of shares.

2) Change in fair value of available-for-sale shares and hedging instruments that qualify for hedge accounting. See note 29 for details.

STATEMENT OF CASH FLOWS VEIDEKKE GROUP

Figures in NOK million Note	2016	2015
OPERATING ACTIVITIES
Profit before tax	1 092	950
Net interest items 6	40	36
Tax paid 22	-79	-226
Depreciation, amortisation and impairments 10, 11	466	372
Gains on sale of property, machinery etc. 11	-29	-39
Gains on sale of companies 6,14	-23	-12
Gain from termination of pension plan 21	-108	-40
Share-based transactions directly over equity 5, 22	-20	-17
Profit and loss items without cash effect	-127	-65
Generated from this year's activities	1 212	960
Change in residential projects 16	-1 627	-471
Change in trade receivables 18	-198	-885
Change in other current receivables	7	-99
Change in trade payables etc. 24	364	530
Change in other current liabilities 24	2 122	737
Net cash flow from operating activities (A)	1 880	771
INVESTING ACTIVITIES
Acquisition of tangible, non-current assets 9, 10, 11	-718	-516
Disposal of tangible, non-current assets 11	59	59
Acquisition of subsidiaries 12	-159	-317
Disposal of subsidiaries 14	47	-
Sale of other shares	-	15
Interest received 6	18	32
Sale/purchase of interest-bearing investment 15, 29	-	407
Investments in Public-Private Partnership projects (PPP) 14	-247	-384
Net cash flow other investments 15	-1	54
Net cash flow from investing activities (B)	-1 000	-648
FINANCING ACTIVITIES
New long-term borrowing 23	3	386
Repaiment of non-current debt 23	-21	-
New short-term borrowing	1	-
Repayment of current liabilities	-	-12
Interest paid 6	-58	-68
Dividend paid to non-controlling interests 20	-16	-17
Dividend paid to equity holders of Veidekke ASA 20	-535	-468
Net cash flow from financing activities (C)	-627	-178
TOTAL NET CHANGE IN CASH AND CASH EQUIVALENTS (A+B+C)	253	-55
Cash and cash equivalents at 1 January	402	435
Exchange rate adjustments cash and cash equivalents	-12	22
Cash and cash equivalents at 31 December	644	402
Additional information:
Long-term borrowing facility	3 600	3 600
Used committed borrowing facilities at 31 December	-	168

TABLE OF CONTENTS NOTES VEIDEKKE GROUP

Note 1. Accounting policies – Veidekke Group Note 2. Segment information Note 3. Revenue Note 4. Personnel expenses Note 5. Share issues to employees Note 6. Financial income and financial costs Note 7. Projects in progress Note 8. Earnings per share Note 9. Goodwill Note 10. Other intangible assets Note 11. Plant, machinery, land and buildings Note 12. Acquisitions and disposals of businesses Note 13. Investments in associates and joint ventures Note 14. Public–Private Partnership (PPP) projects Note 15. Financial assets Note 16. Residential projects Note 17. Inventory Note 18. Trade receivables Note 19. Cash and cash equivalents Note 20. Number of shares, shareholders etc. Note 21. Pensions Note 22. Income tax expense and deferred tax Note 23. Non-current liabilities Note 24. Trade payables and other current liabilities Note 25. Warranty provisions etc. Note 26. Mortgages, guarantees and joint and several liability Note 27. Capital management Note 28. Financial risk Note 29. Financial instruments Note 30. Compensation to senior executives Note 31. Lease commitments and rental income Note 32. Disputes and claims related to projects Note 33. Related party transactions Note 34. Events after the reporting date Note 35. Alternative performance indicators Note 36. Corporate structure accounting policies

NOTE 1. ACCOUNTING POLICIES – VEIDEKKE GROUP

Corporate information

Veidekke is a Scandinavian construction and property development company headquartered in Oslo. The company operates nationwide in Norway and Denmark and has operations in central regions in Sweden. Veidekke ASA is domiciled in Norway and is listed on the Oslo Stock Exchange under the ticker symbol VEI. The company's address is Skabos vei 4, NO-0214 Oslo, Norway. The consolidated accounts were approved by the Board of Directors on 27 March 2017.

Basis for preparation of the accounts

Veidekke's consolidated accounts have been prepared in accordance with EU-approved International Financial Reporting Standards (IFRS) and Interpretations, together with the disclosure requirements stipulated by the Norwegian Accounting Act. Only standards that are effective on 31 December 2016 have been applied.

The consolidated accounts have been prepared on a historical cost basis, with the exception of certain financial instruments that are measured at fair value. Transactions related to step acquisitions are measured at fair value on the transaction date if the transaction has entailed a change in control of the company.

Unless otherwise specified, all the figures in the financial statements and notes are presented in millions of Norwegian kroner. In the notes all amounts have been rounded off to the nearest million.

No new accounting principles have been implemented in the presentation of the financial statements for 2016 and the accounting principles applied are therefore consistent with those applied in the previous financial year.

Material accounting assessments, estimates and assumptions

Veidekke's operations primarily consist of construction work. For its projects, Veidekke recognises revenue using the percentage of completion method, based on the anticipated final profit (final outcome) and stage of completion. This means that income is recognised as work progresses.

The percentage of completion method entails some uncertainty, since it is based on estimates and assessments. For projects under construction, there is uncertainty associated with the progress of ongoing work, disputes, final outcome, etc. The final profit may therefore differ from the anticipated profit. For completed projects, there is uncertainty about hidden deficiencies, including guarantee work, and the outcome of possible disputes with the client.

AREAS CHARACTERISED BY SIGNIFICANT ESTIMATION UNCERTAINTY

Accounting items with significant estimation uncertainty	Estimates / assumptions	Discussed in the following notes	Carrying amount
Trade receivables / Trade payables (creditors) / Warranty provisions	At 31 December 2016 project assessments had been carried out for all projects, focusing on the expected earnings of the individual project on completion. The assessment is based on estimates, experience, profes sional judgement and interpretation of contracts.	7, 18, 24, 25, 32	Most of the Group's current assets and current liabilities are related to projects.
	The revenue recognition for additional claims against the client and disputed amounts with a high level of uncertainty is based on assessments of the likely out come of the dispute. The degree of uncertainty in the estimates will affect the proportion of the claim that is recognised in the income statement.
Goodwill	Calculation of the present value of future cash flow. The main assumption in this calculation is expected future earnings.	9	NOK 1 248 million (2015: NOK 1 151 million)
Sites under development	Valuation of the land bank is based on estimates concerning expected degree of utilisation, how long it will take to get planning permission, and thus before construction can start, and expected sales price.	16	NOK 2 410 million (2015: NOK 2 137 million)
Pension liabilities	The Group's pension liabilities are calculated by an actu ary, based on a number of actuarial assumptions.	21	NOK 404 million (2015: NOK 512 million)

1. CONSOLIDATION

Consolidated accounts

The consolidated accounts include Veidekke ASA (the parent company) and all of its subsidiaries. Subsidiaries are defined as companies in which Veidekke has a controlling interest. Controlling interest is normally achieved, directly or indirectly, when the Group owns more than 50% of the shares in the company, or when the Group is in a position to exercise actual control over the company. Control of a company can also be achieved through agreements or articles of association. In assessing control, currently exercisable voting rights are taken into account. In terms of accounting, "control" is defined as when one company has influence over another company, is exposed or has rights to variable returns from the company, and has the ability to affect those returns to a significant degree by using its power to control activities in the company.

Group formation can be achieved by establishing new companies, by purchasing companies or through mergers. Subsidiaries are consolidated in the accounts when a controlling interest is achieved and continue to be consolidated until control ceases.

The consolidated accounts show the Group's profit and financial position as if they are one legal entity and are a collective statement of all the companies in the Group. The companies' accounts are consolidated line by line. The consolidated accounts are drawn up in accordance with uniform accounting standards. Partly owned subsidiaries are incorporated in the consolidated accounts in their entirety. The non-controlling share of the subsidiary's equity constitutes part of the Group's equity. The share of the profit attributable to non-controlling interests is included in the consolidated profit for the year. The non-controlling share of the profit and equity are presented as separate items in the accounts. When purchasing a subsidiary with non-controlling interests, 100% of the identifiable assets and liabilities are entered in the consolidated statement of financial position, whereas in terms of goodwill a decision can be made for each individual acquisition as to whether only the parent's (Veidekke's) share of goodwill is entered, or whether the non-controlling party's share of goodwill will also be recognised.

When Veidekke acquires a non-controlling interest in a subsidiary, the purchase price beyond the non-controlling party's share of the book value is recorded as a reduction in the equity of the owners of the parent company. In connection with the sale of shares in a subsidiary where the controlling interest is retained, this must be accounted for as an equity transaction. Such transactions, therefore, involve no change in goodwill or other assets or liabilities and thus are not recognised in profit and loss.

All intra-group transactions and balances are eliminated, as are intra-group profits and unrealised gains.

Step acquisitions and disposals

In connection with the purchase and sale of companies, it will normally be assessed whether the transaction is an asset transaction or a business transaction. In Veidekke's construction and industrial operations, the purchase and sale of companies will normally be treated as a business transaction. In Veidekke's property development operations, the purchase and sale of companies will normally be treated as an asset transaction. The same also applies to disposal of PPP companies (Public–Private Partnerships).

When a business is acquired in steps such that the status changes from having a non-controlling stake in the company to having a controlling stake (i.e. becoming a subsidiary), the previously held stake is valued at fair value and the gain or loss is recognised in the income statement.

The fair value of the previous non-controlling ownership interest is included in the calculation of goodwill.

When part of a subsidiary is sold such that Veidekke retains more than 50% of the shares, no gain or loss is recognised in the income statement. If the sale results in a loss of control, normally when there is a stake of 50% or lower, the gain or loss is recognised in the income statement as if the entire company had been sold. This means that the remaining ownership interest is accounted for at fair value.

In connection with step acquisitions in a company that is an asset, such that the status changes from having a non-controlling stake in a company to it becoming a subsidiary, the original cost price is allocated to the identifiable assets and liabilities based on their relative fair value on the acquisition date.

In connection with sale of shares in a subsidiary where more than 50% of the shares are retained, no gain or loss is recognised in the income statement. If the sale results in loss of control, normally when there is a stake of 50% or lower, a gain or loss is recognised in the income statement corresponding to the realised asset.

Business combinations

Business combinations may be achieved through the acquisition of a company's operations, the acquisition of companies, or mergers. Business combinations are accounted for using the purchase method, where identifiable assets and liabilities are valued and recognised at fair value. Identifiable assets also include intangible assets, such as patents, licences, trademarks, logos, and customer portfolios.

That part of the price that exceeds the fair value of identifiable assets and liabilities constitutes goodwill. Only acquired goodwill is recorded in the income statement, and acquisition costs are expensed. Identifiable excess value in connection with acquisitions is included in the calculation of deferred tax, whereas no provision is made for deferred tax in the case of goodwill. The fair value of tangible assets is depreciated systematically, while goodwill and intangible assets with an undetermined lifespan are tested annually for impairment.

Conditional consideration is recognised in the statement of financial position at fair value on the acquisition date. Any subsequent changes in the conditional consideration are recognised in the income statement.

Excess value and goodwill are determined at the time of group establishment. If there are subsequent changes in ownership, the changes will not affect goodwill or identified excess value, as these are locked from the acquisition date. However, the change in ownership will affect allocations between controlling and non-controlling interests.

Joint ventures

Veidekke is also engaged in operations with other enterprises, called joint ventures. These operations are managed through separate legal entities, which may be limited companies or general partnerships. Joint venture companies are primarily used in property development, but also for investments in PPP (Public–Private Partnership) companies. In joint ventures, joint control is exercised over the company, governed by an agreement. Joint control requires unanimity among the participants on important decisions. Veidekke uses the equity method to account for joint ventures, and the activities are included from the date that joint control of the company commences and until the joint control ceases. The accounts of joint ventures are adapted to IFRS, in keeping with Veidekke's accounting policies, before they are incorporated in Veidekke's consolidated financial statements.

Under the equity method, investments are measured as the share of the equity in the company, and the share of the profit of the associated company is recognised in the income statement. Any share of other income and expenses is included in the financial statements. When a portion of a company is acquired, the investment is reported at original cost, i.e. the share of the equity measured at fair value on the acquisition date, including goodwill. The share of the profit is recognised on a separate line under operating profit on the income statement. The investment is classified as non-current assets in the statement of financial position. Any subordinated loan is presented as part of the investment. Profit less distributions is added to the investment in the statement of financial position. When calculating the share of the profit, depreciation of the fair value of tangible assets on the acquisition date and internal gains are taken into account.

Negative equity in the company is recognised when the Group is obligated to cover such loss, or when there are agreements making it likely that Veidekke will have to inject new equity into the company.

Joint operations

Veidekke also runs operations along with other enterprises through working partnerships. A working partnership is a collaboration between two or more participants who undertake a construction project together, and where they share the risk in the project (profit and loss). Separate accounts are kept for working partnerships. Activities within a working partnership are often organised as a general partnership. The fact that the activities are organised in a legal company does not affect the participants' joint and several responsibilities to fulfil the contractual obligations that the working partnership has undertaken. Working partnerships constitute part of Veidekke's ordinary activities, and the Group is actively involved in the management of these entities. A working partnership is a jointly controlled activity, and it is regarded as joint operations. This means that the participants control operations jointly, as laid down in an agreement, and requires unanimity on important decisions.

Veidekke has jointly controlled operating arrangements in its property development operations. This type of arrangement is used in connection with major investments in sites, as the risk is reduced when the site is purchased jointly with partners.

For working partnerships and jointly controlled operating arrangements, Veidekke recognises its share of assets, liabilities and revenues in line with the arrangements specified in the agreement (usually in line with its interest in the project). This means that Veidekke includes its share of the partnership's accounts, and each line in the income statement and statement of financial position is incorporated. Intra-group transactions are eliminated with a proportionate share.

Associates

Veidekke has investments in associates. Associates are companies in which the investing company has significant influence over financial and operating policies, but which are not subsidiaries or joint ventures. Significant influence will normally mean that the investing company holds between 20% and 50% of the shares in the company.

Associated companies are accounted for using the equity method from the date that significant influence commences until the significant influence ceases, and the accounts are adapted to IFRS in keeping with Veidekke's accounting policies, before they are incorporated in Veidekke's consolidated accounts.

Put options in non-controlling interests

The present value of the future purchase price related to non-controlling interests' put options is accounted for as liabilities (see note 23). The liabilities are recognised using estimated value, and the estimate may change in future periods since the amounts to be paid relate to future fair value and/or future profits. Any changes in the estimate in future periods are recognised through other comprehensive income.

Translation of foreign operations

The Group presents its financial statements in Norwegian kroner, which is the functional currency of the parent company and its Norwegian subsidiaries. The accounts of foreign companies with a different functional currency are converted as follows:

• Assets and liabilities are converted at the exchange rate on the balance sheet date.
• Income statement items are converted at the average exchange rate for the month.
• Currency translation differences are recognised in other income and expenses in total comprehensive income.

Translation differences are recorded on an ongoing basis against other income and expenses in total comprehensive income. In the case of disposal of a foreign entity, the accumulated currency translation differences are recognised in the income statement. Sale and liquidation of a company, repayment of capital etc. count as disposal.

Goodwill on the purchase is considered part of the foreign entity and is treated as an item in foreign currency.

2. REVENUE RECOGNITION Construction projects

Veidekke's operations consist largely of the execution of all kinds of construction and civil engineering projects lasting anything from a few months to three or four years. For reporting of projects Veidekke primarily uses the stage of completion method, based on the estimated final profit. This means that income is reported in line with production, based on degree of completion.

The revenue recognition for additional claims against the client and disputed amounts with a high level of uncertainty is based on assessments of the likely outcome of the dispute and elements that can be measured reliably. The degree of uncertainty in the estimates will affect the proportion of the claim that is recognised in the income statement.

Provision is made for guarantee work based on historical experience and identified risks. The guarantee period is normally from three to five years. For projects that are expected to make a loss, the whole loss is recognised in the income statement as soon as it is identified. Costs related to tenders and other costs related to obtaining projects are recognised as expenses as they are incurred. The stage of completion is determined on the basis of the work completed and is normally calculated as the ratio of accrued expenses to date to estimated total expenses for the project. Accrued expenses to date are equal to book expenses adjusted for time lag in invoicing (Accrued but not recorded). Income to date is equal to total anticipated expenses plus project contributions multiplied by the stage of completion.

Accrual accounting is used for both income and expenses. Non-invoiced earned income is booked under trade receivables (Work done, but not invoiced). Unearned invoiced income (pre-agreed payment plans) is booked under trade receivables (Work invoiced in advance / not recognised). Only one of these items may be applied per project. If the item "Work invoiced in advance" is a larger negative amount than invoiced trade receivables for the project, the surplus is recorded as advance payment from customers (Other current liabilities). Each project thus shows either a net receivable from the customer or a net debt to the customer. Cost accruals (Accrued, not recorded) are entered under Trade payables, while provisions for guarantee work on completed projects are entered under Warranty provisions etc.

Please refer to note 7 Projects in progress, note 18 Trade receivables, note 24 Trade payables and other current liabilities, note 25 Warranty provisions etc., and note 32 Disputes and claims related to projects.

These accounting principles also apply largely to projects in Veidekke's asphalt operations.

Residential projects

Residential projects comprise the development and construction of residential buildings for sale for Veidekke's own account. Sites that are acquired with a view to constructing residential buildings for sale are classified as current assets (Residential projects). Sites are capitalised when control over future economic benefits related to them is taken over, which is normally at the time ownership control is transferred. A residential project consists of many units and, normally, a minimum sales ratio of 50% measured in value must be achieved before the project begins.

Projects under development

From the time a right is gained, by either buying a site or

entering into an option agreement, costs associated with the development of the site are capitalised. Interest costs are included in the acquisition cost and are capitalised on the property from the time Veidekke takes over control of the property. Interest expenses are capitalised as long as there is development activity on the property. The property is valued at the lower of acquisition cost (including development costs and interest expenses) and fair value. If acquisition cost exceeds fair value, an impairment loss is recorded for the site.

Projects under construction

Revenue and gains from sales of fully developed residential buildings for Veidekke's own account are not recognised in the accounts until an apartment is complete and is contractually handed over to the buyer. This means that all costs except general sales and administration costs are capitalised as part of the acquisition costs as current assets under the item Residential projects. This principle follows from interpretation IFRIC 15 and results in deferred revenue recognition compared with the percentage of completion method. Prepayments from customers are recorded as current liabilities. Interest costs related to residential projects under construction are capitalised on an ongoing basis and are included in the project's initial cost. This means that at the time of handover, interest is expensed as a part of the project costs and is classified as operating expenses.

Unsold units and sites for development

Unsold completed units and sites under development are capitalised under Residential projects. The fair value of sites and unsold units is based on specific individual assessments. If the fair value is considered to be lower than the cost price, the site is written down to fair value.

Accounting policies for property development projects in the segment accounts (note 2)

In the segment accounts, projects under construction are accounted for using the stage of completion method. Profit is accrued in accordance with the project's estimated final profit multiplied by the sales ratio multiplied by the stage of completion. Revenue to date is calculated in the same way. When calculating the estimated final profit, only directly attributable costs are regarded as project costs, including interest costs. Loss-making projects are charged to income in the period they are identified. Veidekke adheres to the principle that the final decision regarding whether to go ahead with a project is not normally made until a minimum sales ratio of 50% (measured in value) has been reached. Starting construction on a project before the minimum sales ratio has been reached usually entails an elevated level of uncertainty linked to the final outcome in terms of profit. Projects are not recognised in the accounts before the sales ratio (measured in value) exceeds 50%.

Long-term contracts for the operation and maintenance of public roads

Operation and maintenance contracts usually have a term of five years. In general, the same accounting principles are applied to operation and maintenance contracts as to construction projects. For projects that are expected to show a net loss in the remaining contract period, the loss is recognised as soon as it is identified. The loss shall cover the remaining ordinary term.

PPP projects

Veidekke has ownership shares in companies that have entered into PPP contracts (Public–Private Partnerships) for the construction of roads and schools with a subsequent operation and maintenance period. The PPP contracts are accounted for according to IFRIC 12 Service Concession Arrangements (The Financial Asset Model), as a financial asset at cost amortised over the contract period. This is discussed in more detail in note 14.

Veidekke's owner function in the PPP companies is reported in the business area "Other operations". Profit is recognised in income over the entire lease period in line with the ownership interest. Services in the form of construction or operation are reported under the business areas Construction or Industrial. Construction services are accounted for as an ordinary building construction project. Deliveries related to maintenance are expensed as they are incurred.

Other operations

Income from sales of products (aggregates, asphalt, etc.) is recognised on delivery. For leasing operations the agreed rental fee is recognised on a straight-line basis. This also applies to services rendered, consultancy work, etc. Sales of non-current assets are recognised in the income statement on delivery.

3. FINANCIAL INSTRUMENTS

A financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise. Veidekke recognises financial assets and financial liabilities in the statement of financial position when the enterprise becomes a party to the provisions of the contract. On initial recognition, Veidekke measures a financial asset or financial liability at fair value plus transaction costs that are directly attributable to the acquisition or issue of the financial asset or liability.

The Group classifies financial investments in the following categories:

A. Financial assets at fair value through profit or loss

A financial asset is classified in this category if it is acquired primarily with the intention of selling it in the short term. Gains and losses on investments held for sale are recognised as they occur.

B. Held-to-maturity investments

Veidekke does not undertake these kinds of investments. This category is therefore not described in any further detail.

C. Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are measured at amortised cost using the effective rate of interest method, with a deduction for any impairment. Gains and losses are charged to income when loans or receivables are derecognised or impaired. Effective interest on loans and receivables is recognised as interest income.

D. Financial assets available for sale

Available-for-sale financial assets are financial investments that are either designated in this category or cannot be classified in the other categories. Assets that are available for sale are measured at fair value. Any changes in value are recognised in total comprehensive income as a separate component, until the investment is sold or it is determined that an impairment loss must be recognised for the investment. At this point, the accumulated values that were previously recognised in total comprehensive income are transferred to the income statement. When an investment is derecognised, the accumulated gain or loss is transferred to income under financial items. Dividends and interest income on investments in financial instruments are recognised as financial income when the Group's right to the dividends or interest income is determined.

E. Other financial liabilities

Financial liabilities not included in the above categories are classified as other financial liabilities. The category "Other liabilities" is included in the following items in the statement of financial position: Non-current interest-bearing liabilities, Other non-current liabilities, Current interest-bearing liabilities and Other current liabilities. On initial recognition other financial liabilities are measured at fair value. After initial recognition, other financial liabilities are measured at amortised cost using the effective rate of interest method. Effective interest is recognised as financial costs. For practical reasons, effective interest is not calculated for financial liabilities that are short-term by nature.

Impairment of financial assets

If there are indications of impairment relating to loans and receivables that are measured at amortised cost, the need to record an impairment loss shall be considered. The impairment amount is calculated as the difference between the asset's recognised value and the present value of anticipated future cash flows. The impairment amount is charged to income.

Veidekke has two types of financial risks relating to the Group's trade receivables: credit risk and project risk. Credit risk relates to the customer's ability to pay. This risk has always been low at Veidekke in part because contracts normally require guarantees related to the underlying contract. Provision for such losses is made using a separate "Provision for bad debts" account. Provisions are made based on historical experience related to various customer groups. Specific debts are impaired when the company regards them as non-recoverable, based on a specific assessment. Project risk relates to the customer's willingness to pay, and this risk is treated as part of the project valuation. In the accounts, any such impairment will be presented as a reduction of the trade receivables. In the note, this risk will be presented as part of the item "Work invoiced in advance". See notes 18 and 29 for more details.

If a financial asset classified as available for sale based on objective criteria has been the object of significant or prolonged impairment, the loss is expensed in the income statement as impairment. A reversal of the impairment of available-for-sale equity instruments is not recognised in the income statement, but is recognised directly in the Group's total comprehensive income. A reversal of the impairment of available-for-sale debt instruments is recognised in the income statement.

Derivatives and hedging transactions

On initial recognition, derivatives are recognised at fair value. Thereafter, the item is valued at each balance sheet date. On entering into a derivative agreement, the Group defines whether this is a fair value hedge of an accounting item or hedging of an obligation it has entered into (a cash flow hedge). Changes in the fair value of derivatives that are both defined as hedging and satisfy the requirements for hedging are recognised in total comprehensive income. Such items are reversed and recognised as income or expenses during the period the hedged obligation or transaction affects the income statement. Changes in the fair value of derivatives that do not qualify as hedging or where there are inefficiencies in the hedge are recognised as they occur.

IAS 39 defines special rules with respect to fair value accounting for financial derivatives where an agreement has been concluded but no withdrawals have been made. This type of financial instrument should only be recognised at fair value once withdrawals are made. For Veidekke this means that fixed rate loans that have been granted, but where no withdrawals have been made against the facility, are recorded at NOK 0. See the more detailed discussion in note 14.

Financial obligations – loans

Loans are reported in the accounts by recognising the amount that is received less directly related transaction costs. The loan is then measured at amortised cost using the effective rate of interest method.

Deduction of financial assets and obligations

A financial asset is derecognised if the right to receive cash flows from the asset no longer exists. Similarly, a financial obligation is deducted if the obligation has been honoured, cancelled or has expired as agreed.

Financial income and expenses

Financial income includes interest income on financial investments, dividends received, currency gains and gains from available-for-sale financial assets. Financial income also includes changes in the fair value of financial assets classified as financial assets at fair value through other comprehensive income and gains from hedging instruments recognised in the income statement.

Financial costs include interest charges on loans, currency losses, changes in the fair value of financial assets at fair value through the income statement, impairment of financial assets and recognised losses on hedging instruments. All loan expenses are recognised using the effective rate of interest method.

Financial expenses on residential projects are capitalised at handover and expensed as an operating expense.

Interest expenses in connection with loans to senior executives

In connection with the Group's share programme for senior executives, Veidekke provides loans to the employees. Accounting of these loans is performed in accordance with IAS 39 for amortised cost. Interest costs are measured using the effective rate of interest method based on estimated market interest rates and are classified as payroll expenses. Interest on these is currently 0%, and the difference between the nominal value of the loans and their fair value, based on discounting the future cash flow by the estimated market interest rate, represents the prepaid benefit to employees. The prepaid benefits are recognised in the income statement over the period from when a loan is granted until it is paid off.

4. OTHER POLICIES

Classification

Assets and liabilities relating to the supply of goods (projects) are classified as current assets and current liabilities. Veidekke has an agreement with a credit institution in the form of a line of credit that is used to finance both non-current assets (investments) and working capital. The agreed due date is 2 November 2020. If this overdraft facility is used, the loan is classified as a non-current liability.

Other amounts due to credit institutions that are taken up to finance non-current assets (investments) and that have a maturity of more than 12 months are classified as non-current liabilities. Loans that are taken up to finance working capital (current assets) are classified as current liabilities. Other receivables and amounts due for payment after more than a year are classified as non-current assets and non-current liabilities.

Warranty provisions are closely related to the supply of goods and are therefore classified as current liabilities even if it is likely that large parts of the item will be due for payment after more than 12 months.

Pensions

Veidekke has pension schemes for all its employees consisting of both defined-contribution and defined-benefit plans. In defined-contribution plans the employer makes a contribution to the employee's pension savings. The future pension depends on the size of the contribution and the return on the pension assets. In defined-contribution pensions the cost to the company is equal to the contributions for the year, and the company's only commitment is to make an annual contribution. Thus, no liability is recorded in the statement of financial position.

In the case of defined-benefit plans, the company commits itself to providing a pension of a specified size. An actuarial calculation is made each year of the pension costs and pension liabilities. Pension liabilities equal the present value of the accrued pension rights. The employees' pension rights are recognised as costs as they are earned, and provision is made for pension liabilities in the statement of financial position.

The pension calculation takes into account estimated wage growth, and pension costs are recognised on a straight-line basis over the employment period. Here, Veidekke bears the risk for the return on the pension assets.

Defined-benefit plans are measured at the present value of the future pension payments that for accounting purposes are regarded as accrued on the balance sheet date. The pension assets are recognised at fair value. The net of pension liabilities and pension assets is recognised as non-current debt or receivables. Pension assets consist of a premium fund and a share of the life assurance company's funds (premium reserves). Pension costs consist of the present value of the year's earning plus interest on the net pension liabilities. This means that the cost is calculated using the same discount rate for pension liabilities as is used to calculate expected return on pension assets. In defined-benefit plans, an annual difference arises between the estimated and actual return on pension assets and between estimated and actual pension liabilities, called actuarial gains and losses. Actuarial gains and losses may arise as a result of discrepancies and changes in the assumptions on which estimates were based; for example the actual return on the pension assets might be different from the estimate. Actuarial gains and losses are recognised in total comprehensive income. Any changes in plans are recognised in profit and loss when they are adopted, unless the change depends on the employees remaining in the Group, in which case the change is amortised over the remaining service period.

Most companies in Norway have contractual early retirement schemes (AFP) for their employees. Although the AFP pension scheme is a defined-benefit multi-company scheme, because the administrator is not in a position to procure reliable calculations concerning accrued rights, the accounting for the scheme will be conducted as for a defined-contribution scheme. This is discussed in more detail in note 21.

Tax

Income taxes are tax on the Group's profit. Tax is treated as an expense in the accounts. Tax payable and deferred tax relating to items recorded as other income and expenses in total comprehensive income are recognised in total comprehensive income. The income tax expense for the year consists of payable tax, deferred tax and adjustments from previous years. Payable tax is calculated based on the company's taxable profit for the year. Deferred tax is a provision (accrual) for future payable tax.

Deferred tax liabilities / assets are recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Temporary differences arise because some items are accrued differently in the financial accounts and the tax accounts. Both tax-increasing and tax-reducing timing differences occur. Deferred tax is calculated on net temporary differences, i.e. by offsetting tax increasing against tax-reducing differences within the same tax jurisdictions. Deferred tax is measured on the basis of the current future tax rate in those companies in the Group where temporary differences have arisen. Deferred tax is recognised at the nominal rate and is classified as a non-current asset or non-current liability.

Deferred tax assets relating to loss carry-forwards are recognised in the accounts when it is probable that the company will be able to make use of the advantage. Tax payable and deferred tax are recognised in the income statement, unless the tax is related to a transaction or event that has already been recognised in total comprehensive income or directly in equity, or it is related to a merger.

Goodwill

Goodwill arises when the Group acquires a business. Goodwill includes synergies, organisation, know-how, market position, etc. Goodwill is calculated as the fair value of the purchase price at the time of the acquisition less the fair value of the acquired company's identified assets, liabilities and contingent liabilities. If the acquisition does not involve 100% ownership for the parent company, the entire fair value can be used as the basis for determining goodwill. This entails the non-controlling party's share of goodwill being recognised as goodwill as well. The principle used for measurement of non-controlling interests is determined separately for each business combination. Goodwill is not amortised, but is tested for impairment at least annually. See note 9 Goodwill.

Other intangible assets

Intangible assets with a determinable useful life are measured at original purchase price less accumulated amortisation and impairment losses. This applies, among other things, to extraction rights for aggregates, for which amortisation is determined based on actual extractions.

Tangible non-current assets

Tangible non-current assets consist of plants, buildings, machinery and equipment, etc. Veidekke records tangible non-current assets in the statement of financial position using a historical cost model. This means that tangible non-current assets are measured at original cost less accumulated depreciation and impairments. Tangible non-current assets are recognised when it is probable that future economic benefits linked to the asset will accrue to the company and the original cost can be measured reliably. This applies both to first-time purchases of operating equipment and to subsequent changes, conversions, overhauls, etc. Other repairs and maintenance are recognised as expenses as they arise. Tangible non-current assets are depreciated on a straight-line basis over their estimated useful lives.

The estimated expected useful lives for the current period and comparable periods are as follows:

- Vehicles:	5 years
- Machinery etc.:	5–7 years
- Asphalt plants and quarries:	10–15 years
- Buildings:	20–50 years

The depreciation period and residual value are assessed annually. Gains and losses on disposals of non-current assets are recognised and represent the difference between sales price and carrying value. Gains on sales of non-current assets are presented under operating revenues, while losses on sales of assets are presented under other operating expenses.

Impairment of non-current assets

If there is an indication of impairment in value of a tangible, non-current asset, the recoverable amount is calculated. An impairment loss is recognised if the recoverable amount of a non-current asset is less than its carrying amount. The recoverable amount is the higher of net sales value and value in use. Value in use is the present value of the future cash flows that the asset is expected to generate. If there is an indication that the asset is impaired in value, the recoverable amount is used and the necessary impairment is recorded.

Intangible non-current assets with an indeterminable life and goodwill are tested for impairment each year, and any impairment is recorded. Impairment testing may also be performed on a quarterly basis if there are indications of impairment. The value in use is calculated for each cash-generating unit (CGU). If a CGU is impaired, goodwill is written down first, and other assets are then written down proportionately. If the value of impaired intangible non-current assets rises again later, the impairment may be reversed; however, impairment of goodwill is not reversed. The calculation of the value in use of a CGU is based on future estimated cash flows for the unit, discounted at a suitable rate in light of the Group's required rate of return. The calculation is based on the CGU's budgets and forecasts, including terminal value. Maintenance costs and replacement investments are also taken into account, but not investments for expansion. Financing expenses and tax are not included in the calculation. A cash-generating unit is determined as the smallest identifiable group of assets that generates incoming cash flows and that in all essence is independent of incoming cash flows from other assets or groups of assets. Units with significant synergies and that perform similar types of activities are considered as one cash-generating unit. Within construction operations a cash-generating unit will normally be on the company level, whereas for industrial operations, they will normally encompass business units, for example Asphalt or Aggregates.

Financial lease agreements

Financial lease agreements (leasing) are agreements in which the significant risks and rewards of the leased asset have been transferred to the lessee. Financial lease arrangements for equipment are recognised and depreciated in the normal way, but not over a longer period of time than the underlying lease, while the leasing commitments are presented as amounts due to credit institutions. The lease commitment is recognised at the lower of the present value of the leasing payments and the fair value of the leased asset. The year's leasing payment consists of interest, which is presented in interest expenses, and repayment of capital, which is presented as repayment of debts.

Operating lease agreements

Lease agreements where the significant risks and rewards have not passed to the lessee are classified as operating lease agreements. For operating lease agreements, lease payments are expensed on a straight-line basis over the lease period and the liabilities are not recognised.

Currency transactions

Transactions involving foreign currency are converted at the exchange rate at the time of the transaction. Monetary items in foreign currency are assessed at the exchange rate on the balance sheet date, and related currency gains or losses are recognised in the income statement. Monetary items are items that will be settled at a fixed nominal amount. This applies to liquid assets, receivables, debts, etc. For non-monetary items, the exchange rate at the time of the transaction is taken as the basis for the original cost. This applies to tangible non-current assets, inventory, etc.

Inventories

Inventories consist of the project inventories and the inventory for industrial operations. Project inventories are included in project valuations. The inventory for industrial operations is measured at the lower of total production costs and net sales price.

Warranty provisions etc.

A provision is made in the accounts when the Group has an obligation (legal or self-imposed) as a result of a previous event, and it is probable that a financial settlement will take place as a result of that obligation, and the amount can be measured reliably. Provisions are made for confirmed work under guarantee and for probable concealed deficiencies. See note 25.

Cash and cash equivalents

These consist of cash and cash equivalents and bank deposits, including deposits subject to certain conditions, and short-term liquid investments with a maximum term of three months, which can be converted into cash immediately.

Share discounts

Veidekke purchases its own shares and then sells them to the employees at a discount with a lock-in period. These sales of shares are reported in accordance with IFRS 2 on sharebased payments. The discount is recognised in the income statement at fair value at the time of issue, taking into account the lock-in period. The discount is calculated according to an option-pricing model. The fair value of the discount is charged to personnel expenses. See note 5.

Proposed dividend

Proposed dividends are not recognised as liabilities in the accounts until they have been approved by the Annual General Meeting.

Disputes and claims related to projects

Veidekke's profits from projects are strongly influenced by estimates, entailing some uncertainty. See the discussion on page 39 under "Estimates". See also note 32 Disputes and claims related to projects.

Borrowing costs

Borrowing costs that are directly attributable to the procurement, manufacturing or production of a qualified asset are recorded as part of the acquisition cost of the asset concerned. For Veidekke, this involves capitalising interest costs in connection with the company's own property development projects. This means that interest rates are classified as cost of materials when they are expensed. In connection with the purchasing of operating equipment where it takes a long time before the operating equipment can be used for its intended purpose, interest will also be capitalised. This concerns, for example, construction of an asphalt plant. Other borrowing costs will be entered in the income statement as they incur.

Earnings per share

Earnings per share is calculated by dividing the profit for the period attributable to the owners of the parent company by the weighted average number of outstanding shares in the period.

Statement of cash flows

The statement of cash flows is prepared using the indirect method.

In the property development divisions, investments are made continuously in new development projects, including sites. Investments also include acquisitions of companies. Investments in the property development segment are regarded as part of the operating activities and are presented under operating activities in the statement of cash flows. Associates and joint ventures are also used as part of the operating activities for the development of property development projects. Both acquisitions and sales of associates and joint ventures are regarded as operating activities. In the other parts of the Group, acquisitions and sales of companies are classified as investment activities.

Segment reporting (note 2)

The Group's business segments are presented in accordance with the internal financial reporting that is presented to the Group's most senior decision-maker. In essence, internal financial reporting follows current IFRS rules with one exception – accounting for residential projects for own account. For these projects profit is recognised in accordance with the project's estimated final profit, multiplied by the sales ratio, multiplied by the stage of completion. Revenue to date is calculated in the same way. When calculating the estimated final profit, only directly attributable costs are regarded as project costs, including interest costs. No profit is recognised in the accounts before the sales ratio measured in value exceeds 50%. Project losses are expensed as soon as they are identified.

See note 2 on segment reporting for more details. See also the detailed description under income recognition for residential projects.

IFRS STANDARDS AND IFRIC INTERPRETATIONS NOT YET EFFECTIVE

IASB has adopted a number of new standards, interpretations and amendments to existing standards and interpretations that were not effective for the financial year ending 31 December 2016 and that have not been applied in the preparation of these consolidated financial statements. Standards and interpretations that are expected to have an impact on the Group's financial position, profit or disclosures are discussed below:

IFRS 15 Revenue from Contracts with Customers

IASB and FASB have issued a new common standard for revenue recognition, IFRS 15. This standard replaces all the existing standards and interpretations on revenue recognition. The core principle of IFRS 15 is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard applies to all revenue contracts and provides a model for the recognition and measurement of sales of some non-financial assets.

Preliminary assessments indicate that the new standard will have a major impact on accounting for the Group's property development operations. According to the current principles, revenue from the sale of a residential unit is not recognised until it is handed over to the buyer. It is assessed that the new standard will entail that sales of residential units can be recognised on a percentage of completion basis, with reference to the sales ratio and stage of completion. As a result Veidekke's segment accounts and financial statements will be identical. The new standard means that the financial statements will provide a better expression of the ongoing value creation. See note 2 for further details on the differences between reporting under current standards and future principles. The overall conclusion is that the new standard will not have a major impact on the accounting for ordinary projects in construction operations. The exception is projects with disputed claims. The new standard raises the threshold for reporting of unresolved claims against customers. In such cases the new standard may require postponement of revenue recognition, even in cases where there is a high degree of probability that the claim will be satisfied. Veidekke is expected to implement the new standard from 1 January 2018. Work on assessments related to the new standard will continue in 2017.

IFRS 16 Leases

IASB has published a new leases standard requiring recognition in the balance sheet of the present value of all leases with a duration of more than one year, with the exception of leases where the underlying asset has a low value. In respect of the income statement, the new standard will entail that lease payments will be split into two cost components: depreciation and interest costs.

The new standard will affect Veidekke's accounting of leasing of machinery and equipment. Veidekke leases a lot of equipment in connection with the construction of buildings and civil engineering projects, and a large portion of these agreements have a term of more than 12 months. The new standard will also have an impact on the accounting of leasing of premises. Veidekke owns relatively few of the buildings it operates its business from, and the new standard will have an impact on the accounting related to these leases. It has not yet been analysed in detail what consequences the new standard will have for Veidekke's consolidated accounts. Veidekke is expected to implement the new standard from 1 January 2019.

NOTE 2. SEGMENT INFORMATION

The segment information is divided up into the business areas as they are reported to the President and CEO and the corporate management, who are the Group's top operative management and decision-making body. The business areas are based on the type of delivery and the market being served.

Veidekke is engaged in nationwide building construction and civil engineering activities in Norway and Denmark, while operations in Sweden are mainly in the largest cities. Building Construction builds commercial and public buildings and residential buildings. Commercial buildings are mostly office buildings, shopping centres and hotels. Public buildings are primarily schools and health-care buildings. Transport projects (road and rail) and other public infrastructure provide the majority of Civil Engineering's revenue. The portfolio also includes projects in the energy sector and other industrial facilities.

Veidekke's property development operations purchase sites and develop them into residential buildings for sale to the end customer, mainly in the largest cities in Norway and Sweden. Veidekke's construction operations are responsible for the construction of the residential buildings and are involved from the earliest phase, before the site has even been purchased, to ensure identification of opportunities and risks. Many of the projects are run in partnership with other property developers.

In the segment accounts, property development projects are recognised in the income statements in line with sales and stage of completion, while in the financial statements,

BUSINESS AREAS

	Construction		Property Development
Figures in NOK million	2016	2015	2016	2015
INCOME STATEMENT
Revenue	24 629	19 795	3 202	2 126
Operating expenses	-23 587	-18 981	-2 827	-1 935
Share of net income from joint ventures	16	14	216	115
Depreciation	-295	-217	-1	-1
Operating profit	763	611	589	305
Financial income	68	73	20	27
Financial costs	-27	-40	-42	-25
Profit before tax	804	644	567	306
STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER
Non-current assets	2 792	2 471	1 587	1 321
Current assets	5 183	4 918	3 334	2 924
Cash and cash equivalents	2 707	2 261	66	119
Total assets	10 682	9 651	4 987	4 364
Equity	2 114	2 003	1 264	1 203
Non-current liability	932	932	1 493	1 447
Current liabilities	7 637	6 716	2 230	1 714
Total equity and liabilities	10 682	9 651	4 987	4 364
KEY FIGURES
Operational cash flow	1 252	218	295	389
Cash flow from investments	-479	-400	-16	-47
Investments in non-current assets 1)	430	288	12	5
Capital invested 2)	-	-	3 115	3 004
Investments in joint ventures	83	79	1 348	1 092
Number of employees	6 090	5 732	158	117
Order backlog	23 368	23 686	-	-
- due for completion within 12 months	16 087	15 932	-	-

1) Does not include investments in companies or financial assets.

2) Capital invested is only listed for the two capital-intensive business areas Property Development and Industrial.

income is not recognised until the property is handed over to the customer. See the more detailed information at the end of this note. The business area Industrial is engaged in the production and laying of asphalt and is a major producer of aggregates. Industrial is also a major player in the operation and maintenance of public roads. The business area Other operations includes unallocated costs associated with the Group's corporate administration and financial management and the Group's ownership role in Public–Private Partnerships (PPP). Revenue and internal profit between the segments are eliminated under the item "Eliminations".

The Group's largest single customer, the Norwegian Public Roads Administration, accounts for 12% of the Group's total revenues in 2016: NOK 3,736 million (NOK 3,041 million). This revenue is presented under the business areas Industrial and Construction Norway. Veidekke does not regard the Norwegian and Swedish governments as enterprise groups.

	Industrial	Other operations			Eliminations		Group
2016	2015	2016	2015	2016	2015	2016	2015
4 162	4 033	1	1	-1 856	-1 444	30 137	24 509
-3 860	-3 684	-108	-74	1 870	1 413	-28 512	-23 261
15	17	17	15	-	-	263	161
-167	-154	-3	-	-	-	-466	-372
151	211	-94	-59	13	-32	1 422	1 037
10	7	79	66	-79	-79	98	94
-24	-29	-46	-76	80	82	-60	-88
136	190	-61	-69	14	-28	1 460	1 043
1 252	1 154	2 090	1 973	-1 583	-1 277	6 137	5 641
711	690	1 214	764	-1 740	-1 587	8 703	7 709
6	14	23	2	-2 158	-1 995	644	402
1 969	1 858	3 327	2 738	-5 481	-4 859	15 484	13 752
401	575	1 891	1 206	-1 552	-1 445	4 117	3 541
725	649	1 069	1 321	-2 227	-2 033	1 992	2 316
843	634	367	211	-1 702	-1 381	9 375	7 895
1 969	1 858	3 327	2 738	-5 481	-4 859	15 484	13 752
365	278	-32	-113	-	-	1 880	771
-244	-188	-261	-13	-	-	-1 000	-648
261	223	15	0	-	-	718	516
1 133	1 114	-	-	-	-	4 979	4 795
62	53	31	0	-	-	1 524	1 224
1 106	1 096	45	50	-	-	7 399	6 995
1 035	1 128	-	-	-	-	24 404	24 814
716	752	-	-	-	-	16 802	16 684

CONSTRUCTION

	Norway		Sweden		Denmark		Total Construction
Figures in NOK million	2016	2015	2016	2015	2016	2015	2016	2015
INCOME STATEMENT
Revenue	15 096	12 031	7 819	6 156	1 713	1 608	24 629	19 795
Operating expenses	-14 322	-11 439	-7 664	-6 032	-1 601	-1 510	-23 587	-18 981
Share of net income from joint ventures	8	4	8	9	-	-	16	14
Depreciation	-212	-142	-72	-67	-10	-8	-295	-217
Operating profit	570	454	91	66	102	91	763	611
Net financial items	26	38	11	-10	4	5	41	33
Profit before tax	596	493	102	56	105	96	804	644
STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER
Non-current assets	1 786	1 533	781	745	225	193	2 792	2 471
Current assets	3 315	3 153	1 421	1 433	447	333	5 183	4 918
Cash and cash equivalents	2 094	1 615	110	77	503	569	2 707	2 261
Total assets	7 195	6 300	2 312	2 255	1 175	1 095	10 682	9 651
Equity	1 343	1 210	442	446	329	347	2 114	2 003
Non-current liability	739	777	161	142	32	13	932	932
Current liabilities	5 114	4 313	1 709	1 668	814	735	7 637	6 716
Total equity and liabilities	7 195	6 300	2 312	2 255	1 175	1 095	10 682	9 651
KEY FIGURES
Share of turnover from construction	9 460	7 917	6 270	4 702	1 322	1 223	17 052	13 842
Share of turnover from civil engineering	5 636	4 113	1 549	1 454	391	386	7 577	5 953
This year's investments in operating equipment	372	228	52	51	6	8	430	288
Investments in joint ventures	29	28	54	51	-	-	83	79
Number of employees	3 962	3 798	1 615	1 496	513	438	6 090	5 732
Order backlog	14 408	15 195	7 698	7 160	1 262	1 331	23 368	23 686
- due for completion within 12 months	9 605	10 294	5 435	4 714	1 046	923	16 087	15 932

PROPERTY DEVELOPMENT

	Norway		Sweden 1)			Total Property Development 2)
Figures in NOK million	2016	2015	2016	2015	2016	2015
INCOME STATEMENT
Revenue	338	413	2 864	1 712	3 202	2 126
Operating expenses	-349	-362	-2 478	-1 573	-2 827	-1 935
Share of net income from joint ventures	185	100	30	15	216	115
Depreciation	-	-1	-1	-1	-1	-1
Operating profit	174	150	416	155	589	305
Net financial items	-25	-4	3	5	-23	1
Profit before tax	149	146	418	159	567	306
STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER
Non-current assets	1 130	1 079	456	242	1 587	1 321
Current assets	1 479	919	1 856	2 006	3 334	2 924
Cash and cash equivalents	30	29	36	90	66	119
Total assets	2 639	2 026	2 348	2 338	4 987	4 364
Equity	622	623	641	580	1 264	1 203
Non-current liability	1 621	1 051	5	395	1 493	1 447
Current liabilities	396	352	1 701	1 362	2 230	1 714
Total equity and liabilities	2 639	2 026	2 348	2 338	4 987	4 364
KEY FIGURES
Capital invested	2 257	1 818	858	1 186	3 115	3 004
Investments in joint ventures	1 086	1 011	262	81	1 348	1 092
Number of employees	59	56	99	61	158	117

1) Property Development Sweden also includes some remaining activity in Denmark, with sites recognised at NOK 110 million.

2) NOK 133 million has been eliminated on the lines for non-current and current liabilities.

Geographical segments

The geographical distribution of the Group's activities corresponds to the geographical location of the resources used for the respective activities. This corresponds in the main to the geographical location of the customers.

The statement has been prepared in accordance with the accounting policies used in the income statement (IFRS).

	Norway		Sweden		Denmark			Shared		Group
Figures in NOK million	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
INCOME STATEMENT
Revenue	19 040	16 112	7 866	6 473	1 706	1 653	1	-13	28 613	24 225
Operating profit	821	789	198	146	101	92	-66	-82	1 053	944
Profit before tax	808	802	213	143	103	95	-32	-89	1 092	950
STATEMENT OF FINANCIAL POSITION
Total non-current assets	4 028	3 695	1 215	967	225	193	507	695	5 975	5 550
Capital invested	3 407	2 734	962	1 290	-43	447	-	1	4 326	4 472
Number of employees Order backlog	5 127 15 444	5 000 16 323	1 714 7 698	1 556 7 160	513 1 262	439 1 331	45 -	- -	7 399 24 404	6 995 24 814
- due for completion within 12 months	10 321	11 046	5 435	4 714	1 046	923	-	-	16 802	16 684

INTRA-GROUP SALES BY SEGMENT

		Property Construction Development			Industrial Other operations				Eliminations		Group
Figures in NOK million	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
External revenue	23 053	18 591	3 198	2 121	3 949	3 767	1	1	-64	29	30 137	24 509
Internal revenue	1 575	1 204	3	4	214	265	-	-	-1 792	-1 473	-	-
Total revenue	24 629	19 795	3 202	2 126	4 162	4 033	1	1	-1 856	-1 444	30 137	24 509

RECONCILIATION BETWEEN SEGMENT ACCOUNTS AND FINANCIAL ACCOUNTS

Deferred income reporting on residential projects

Under IFRS, interpretation IFRIC 15, income and earnings from the construction and sale of residential buildings shall not be recognised in the accounts until the property is handed over to the buyer. Interpretation IFRIC 15 governs the accounting of contracts for completed residential units. According to this interpretation, revenue and profit from the sale of completed residential units shall not be recognised in the accounts until the property has been contractually handed over to the buyer. In Veidekke's internal follow-up of residential projects, measurements are conducted using percentage of completion reporting, whereby revenue and profit are recognised in line with the estimated final outcome of the project, stage of completion and sales ratio. Veidekke's segment reporting follows these principles. IFRIC 15 adjustments apply to the business areas Property Development and Construction.

		Segment accounts	IFRIC 15 adjustments		Financial accounts
Figures in NOK million	2016	2015	2016	2015	2016	2015
INCOME STATEMENT
Revenue	30 137	24 509	-1 523	-284	28 613	24 225
Operating expenses	-28 512	-23 261	1 228	222	-27 284	-23 039
Share of net income from joint ventures	263	161	-73	-30	190	130
Depreciation	-466	-372	-	-	-466	-372
Operating profit	1 422	1 037	-369	-93	1 053	944
Net financial items	38	6	-	-	38	6
Profit before tax	1 460	1 043	-369	-93	1 092	950
STATEMENT OF FINANCIAL POSITION
Non-current assets	6 137	5 641	-162	-91	5 975	5 550
Current assets	8 703	7 709	2 123	1 127	10 826	8 836
Cash and cash equivalents	644	402	-	-	644	402
Total assets	15 484	13 752	1 961	1 036	17 445	14 788
Equity	4 117	3 541	-652	-323	3 465	3 218
Non-current liability	1 992	2 316	-17	-7	1 975	2 309
Current liabilities	9 375	7 895	2 631	1 366	12 005	9 261
Total equity and liabilities	15 484	13 752	1 961	1 036	17 445	14 788

EARNED INCOME AND PROFIT FROM RESIDENTIAL PROJECTS UNDER CONSTRUCTION

Figures in NOK million	2016	2015
REVENUE
Accumulated revenue from non-delivered projects at start of period	1 352	956
+ Revenue from non-delivered projects during the period	2 826	1 573
- Revenue from delivered projects during the period	-1 302	-1 289
Net IFRIC 15 adjustments to revenues during the period	1 523	284
+/- Currency translation differences	-166	112
Accumulated revenue from non-delivered projects at end of period	2 710	1 352
PROFIT BEFORE TAX
Accumulated profit before tax from non-delivered projects at start of period	330	219
+ Profit before tax from non-delivered projects during the period	796	435
- Profit before tax from delivered projects during the period	-428	-342
Net IFRIC 15 adjustments to profit before tax during the period	369	93
+/- Currency translation differences	-29	19
Accumulated profit before tax from non-delivered projects at end of period	669	330

The statement above is to be understood such that at 31 December 2016, revenue of NOK 2,710 million and profit before tax of NOK 669 million had accrued on sales of units under construction. These results cannot be recognised in accordance with IFRS, and will be recognised in the financial statements when the individual units are handed over to the buyer. Uncertainty related to the final results is low because only sold units are included in the statement above, the sales price is fixed, and the project is normally at such an advanced stage that there is very little risk associated with the final building costs. It normally takes about 18 months from production start until a residential building is handed over.

NOTE 3. REVENUE

Figures in NOK million	2016	2015
Construction, building construction	15 183	12 005
Construction, civil engineering	7 577	5 953
Property	1 633	2 288
Asphalt	2 586	2 365
Road Maintenance	1 091	1 108
Aggregates	570	497
Elimination	-160	-134
Ordinary revenue	28 480	24 082
Other revenue	134	143
Revenue	28 613	24 225

NOTE 4. PERSONNEL EXPENSES

Figures in NOK million	2016	2015
Payroll	4 694	4 142
Pension costs 1)	301	293
Employer's National Insurance contributions	737	648
Other payroll costs (social benefits etc)	105	150
Personnel expenses	5 838	5 233
Number of full time equivalents	7 164	6 593
Number of employees at 31 December	7 399	6 995

1) See note 21.

NOTE 5. SHARE ISSUES TO EMPLOYEES

Twice a year Veidekke sells shares to its employees at a discount to the current market price. In the spring, senior executives are given the opportunity to buy shares with a three year lock-in period, and in the autumn, all the employees can buy shares with a two-year lock-in period. These sales of shares are reported in accordance with IFRS 2 on share-based payments. The recognised discount is calculated as the difference between market price and purchase price at the time of purchase, taking into account the agreed lock-in period for the shares and historical fluctuations in the share price. The value of the option is calculated using the Black-Scholes model. The portion of the discount that is not expensed is recognised directly in equity in accordance with IFRS 2.

Loans to senior executives are currently interest-free and repaid at 5% a year. The loans are revocable after ten years and are secured by collateral in the shares.

The loans to employees in connection with the share scheme for all employees are also interest-free and secured by collateral in the shares. The loan term is up to one year. Calculated interest expenses related to the long-term interest-free loans are classified as payroll expenses. See notes 6 and 30.

SALES OF SHARES TO EMPLOYEES

Figures in NOK million	2016	2015
Sales of shares to employees (number of shares)	1 665 074	1 282 895
Expensed discount after tax	20	8
Discount entered directly as a reduction in equity related to the Group's share programme	20	17

SHARE LOANS TO EMPLOYEES

Figures in NOK million, except number of executives and employees	2016	2015
Loans to senior executives for purchases of Veidekke shares	161	160
Expensed change in the present value of the share loan	5	5
Number of executives with loans	597	563
Share scheme loans for all employees	23	15
Number of employees with loans	897	862

NOTE 6. FINANCIAL INCOME AND FINANCIAL COSTS

Figures in NOK million	2016	2015
Interest income	3	10
Interest income from joint ventures	13	19
Other interest income from non-financial institutions	13	18
Foreign currency gains	27	18
Dividends received	3	5
Financial income from long-term PPP project's receivables	8	10
Gains on sale of shares	23	-
Other financial income	9	14
Financial income	98	94
Interest costs 1)	-37	-36
Interest charges from non-financial institutions	-7	-5
Foreign currency losses	-12	-23
Impairment of financial instruments	-2	-20
Other financial costs	-1	-5
Financial costs	-60	-88
Net financial items	38	6

1) Interest income for loans to employees is presented as reduced interest costs. Expensed advances on pay are presented as personnel expenses (see note 15). For 2016 this represents NOK 5 million. The corresponding figure for 2015 was NOK 5 million.

SPECIFICATION OF CAPITALISED INTEREST

Veidekke's property development operations capitalise interest, both on sites under development and on property development projects under construction. These interest costs are expensed as operating expenses when the projects are handed over to the customer.

Figures in NOK million	2016	2015
Capitalised interest at 1 January	46	39
Capitalised interest charges for the year	31	17
Realisation of assets	-32	-11
Disposals on sales of companies	-2	-
Currency translation differences	1	1
Capitalised interest at 31 December	44	46
The capitalised interest charges relate to the following assets:
Sites under development and property projects under construction	38	40
Operating equipment	6	7
Capitalised interest at 31 December	44	46
Interest capitalisation rate	2.2%	2.3%

NOTE 7. PROJECTS IN PROGRESS

Figures in NOK million	2016	2015
Total income from construction projects	22 760	17 958
DETAILS OF PROJECTS IN PROGRESS AT 31 DECEMBER
Accumulated income included in the financial statements	26 267	22 468
Accumulated profit included in the financial statements	1 744	1 808
Loss-making projects in progress - remaining income 1)	1 019	338
Due from customers 2)	747	557
Earned, not invoiced income 3)	983	986
Advance payments from customers 4)	1 152	755

1) Anticipated losses on these projects have been charged to income.

2) The balance is money retained as security for the contracting client. Included in the statement of financial position under Trade receivables (see note 18). 3) Included in the statement of financial position under Trade receivables (see note 18).

4) Included in the statement of financial position under Other current liabilities (see note 24).

ORDER BACKLOG

Figures in NOK million	2016	2015
Construction	23 368	23 686
Road maintenance (due for completion within 18 months)	1 035	1 128
Total order backlog	24 404	24 814
- of which due to be completed within the next 12 months	16 802	16 672

NOTE 8. EARNINGS PER SHARE

Figures in NOK million	2016	2015
Earnings per share (NOK)	6.6	5.7
Profit for the year	922	782
Equity holders of Veidekke ASA's share of the profit for the year	887	765
Average no. of shares (million)	133.7	133.7
No. of shares at 1 January (million)	133.7	133.7
No. of shares at 31 December (million)	133.7	133.7

Veidekke does not have any financial instruments that have a diluting effect.

NOTE 9. GOODWILL

Figures in NOK million	2016	2015
At 1 January
Original cost	1 420	1 074
Accumulated depreciation and impairment	-270	-270
Carrying amount at 1 January	1 151	804
Accounting year
Carrying amount at 1 January	1 151	804
Currency translation differences	-42	37
Additions	140	310
Disposals	-	-
Carrying amount at 31 December	1 248	1 151
At 31 December
Original cost	1 513	1 420
Accumulated depreciation	-251	-251
Accumulated impairment	-13	-18
Carrying amount at 31 December	1 248	1 151

The Group has recognised goodwill from the acquisition of a total of 52 businesses. Each goodwill item is allocated to a cash-generating unit (CGU). When an acquired business continues to be operated as an independent unit, this business is designated the cash-generating unit. Units with significant synergy effects and which carry out similar activities, are together considered as a single cash-generating unit. This is the case when acquired operations are integrated with an

existing Veidekke company or when an acquired business is operatively closely linked to an existing Veidekke company. In these cases, the combined business is considered the cash-generating unit for which goodwill is measured and followed-up. The Group has recorded 32 cash-generating units associated with capitalised goodwill.

The Group's largest goodwill items, plus the goodwill for each business area, are specified in the table:

GOODWILL PER BUSINESS AREA ATTRIBUTED TO THE CASH GENERATING UNITS:

Figures in NOK million	31.12.16	31.12.15
Construction Norway
Leif Grimsrud AS	177	177
Veidekke Entreprenør AS (Reinertsen)	88	88
Veidekke Entreprenør AS, Region Syd (Agder)	71	71
Other	237	193
Construction Sweden
Arcona AB	94	104
Veidekke Entreprenad AB, Region Väst	86	95
Other	201	160
Construction Denmark
Hoffmann A/S	92	97
Other	37	-
Industrial
Business unit Aggregates	79	79
Business unit Asphalt	73	73
Property Development Sweden	13	14
Total goodwill	1 248	1 151

Testing goodwill for impairment

Goodwill is not amortised, but is tested for impairment in the fourth quarter each year. In the event of a particular indication of possible impairment, the test is carried out on a quarterly basis. The test is carried out by comparing the estimated recoverable amount with capital invested for the unit in question. When the recoverable amount exceeds capital invested, the carrying value of the goodwill is upheld. When the recoverable amount is lower than capital invested, the carrying value is impaired to the estimated recoverable amount. Capital invested is the units' total capital less interest-free current and non-current liabilities. The recoverable amount is the estimated present value of future cash flows for the unit and is based on the businesses' expected earnings for the next three years.

Assumptions used in impairment testing

1. Revenue and profit margin in the next three years

Impairment tests are based on the management's approved budget and strategy for the next three years, which in turn are based on current revenue and margins and expected market development.

2. Revenue and profit margin in the subsequent periods

Assumed annual growth used in the cash flows in years 4 and 5 corresponds to marginally higher growth than is expected in the Scandinavian economy, as building activity in Scandinavia is expected to increase by more than GDP growth. The calculation is based on a nominal growth rate of 2.5% per year for year four and beyond. This calculation assumes a terminal value after five years based on the Gordon growth model.

3. Discount rate

The discount rate is based on the weighted average cost of capital (WACC) method. The nominal discount rate before tax is based on the Group's estimated capital cost calculated as a weighted average of the cost for the Group's equity and the cost of its debt. The discount rate takes into account the debt interest rate, risk-free rate, debt ratio, risk premium and a liquidity premium. The discount rates applied to cash flow and terminal value are presented in the following table:

	Norway	Sweden	Denmark
Discount rate (WACC) before tax	7.4%	7.7%	6.4%
Before-tax discount rate for calculation of the terminal value	8.8%	9.1%	7.8%

4. Investment needs / reinvestment

The unit's anticipated future investment needs in order to maintain current levels are reflected in the calculations. These are set according to the management's approved budget and strategy for the next three years. For the period beyond the next three years, reinvestment needs are assumed to correspond to expected depreciation. Changes in working capital needs have been assessed and in all essence set at NOK 0.

Assessment of the assumptions forming the basis for last year's estimates

The assumptions used in the calculations made at the end of 2015 were largely achieved by a good margin, with the exception of Leif Grimsrud AS, which delivered a margin of -0.6% for 2016. Restructuring measures have been implemented that are expected to improve this company's profitability going forwards.

DETAILS OF GOODWILL ITEMS WITH A CARRYING AMOUNT EXCEEDING NOK 50 MILLION

Figures in NOK million	CGU revenue for 2016 1)	Margin achieved in 2016	Revenue growth after 2017 2)	Impairment indica tor: Profit margin over time 3)
Construction Norway - Leif Grimsrud AS	647	-0.6%	2.5%	3.3%
Construction Sweden - Arcona AB	2 052	2.5%	2.5%	0.9%
Construction Denmark - Hoffmann A/S	1 713	6.2%	2.5%	0.4%
Construction Sweden - Veidekke Entreprenad, Region Väst	1 468	-0.1%	2.5%	0.4%
Construction Norway - Veidekke Entreprenør AS (Reinertsen)	12 318	4.0%	2.5%	4)
Industrial - Aggregates	572	10.1%	2.5%	5.7%
Industrial - Asphalt	2 521	6.4%	2.5%	1.7%
Construction Norway - Veidekke Entreprenør AS, Region Syd (Agder)	3 069	0.6%	2.5%	0.6%

1) Revenue in the cash-generating unit (CGU) which the goodwill will be measured against.

2) Expected growth in revenue used in tests at 31 December 2016.

3) "Break-even" level. If the future expected profit margin (over time) is lower than the stated profit margin in the table, this indicates that goodwill impairment is necessary.

4) For the Reinertsen acquisition, other indicators will determine whether impairment is necessary.

Sensitivity analysis for goodwill items with a value of over NOK 50 million

The Group has carried out sensitivity analyses to assess the calculated present values for each cash-generating unit with goodwill in excess of NOK 50 million. This indicates the need for impairment for a single CGU in the event of a negative change in the assumptions. The sensitivity analysis is based on the financial assumptions described above. Calculations are made on the basis that one of the estimated financial assumptions changes and that the remaining assumptions remain the same. The sensitivity calculations are based on a reasonable outcome range. A reduction in revenue of over 20% is considered unlikely. However, if this were to occur, such a reduction could have a significant impact on the units' performance and would most likely result in impairment.

THE FOLLOWING TABLE SHOWS IMPAIRMENT FOR CHANGES IN THE ASSUMPTIONS USED IN THE SENSITIVITY ANALYSIS:

	Discount rate		Revenue 1)		Profit margin
Change in assumption	+100 bp	+200 bp	-10%	-20%	-20%	-40%
Impairment need	36	89	-	52	87	163

1) Margins maintained.

NOTE 10. OTHER INTANGIBLE ASSETS

Other intangible assets include extraction rights in the business area Aggregates and purchased customer portfolios. Depreciation of the right to extract crushed stone and gravel is determined on the basis of extraction of gravel. Customer relations are depreciated on a straight-line basis over four to five years.

Figures in NOK million	2016	2015
Carrying amount at 1 January	104	110
Original cost at 1 January	154	143
Additions in purchase of companies	56	13
Translation differences original cost	-10	8
Original cost at 31 December	201	154
Accumulated depreciation and impairments 1 January	-50	-33
Depreciation	-18	-14
Translation differences depreciation	4	-3
Accumulated depreciation and impairments at 31 December	-64	-50
Carrying amount at 31 December	136	104

NOTE 11. PLANT, MACHINERY, LAND AND BUILDINGS

		2016			2015
Figures in NOK million	Plant and machinery	Land and buildings	Total	Plant and machinery	Land and buildings	Total
Carrying amount at 1 January	1 689	556	2 245	1 389	501	1 889
Original cost at 1 January	4 270	835	5 105	3 817	761	4 578
Additions	686	23	709	493	19	512
Additions from acquisition of operations	63	7	70	135	55	189
Disposals original cost	-188	-72	-260	-238	-2	-240
Reclassification/other changes	2	-3	-1	9	-9	-
Translation differences original cost	-56	-11	-67	54	11	66
Original cost at 31 december	4 777	779	5 556	4 270	835	5 105
Accum. depreciation/impairments at 1 January	-2 581	-279	-2 859	-2 428	-260	-2 689
Accum. depreciation disposal operating equipment	158	72	230	221	-	221
Depreciation for the year	-433	-15	-448	-344	-15	-359
Translation differences depreciation	33	3	36	-29	-3	-33
Accumulated depreciation/impairments at 31 December	-2 823	-219	-3 041	-2 581	-279	-2 859
Carrying amount at 31 December	1 954	560	2 514	1 689	556	2 245
Depreciation method	Lineær	Lineær		Lineær	Lineær
Depreciation rate	7–25%	2–5%		7–25%	2–5%

Under «Plant and machinery» NOK 59 million has been capitalised related to financial leasing. As at 31 December 2016, the Group has entered into contracts worth NOK 166 million on delivery of operating equipment, which are due for delivery in 2017.

ADDITIONS AND DISPOSALS (SALES PRICE)

	2016		2015
Figures in NOK million	Additions	Disposals	Additions	Disposals
Plant and machinery	686	59	493	31
Land and buildings	23	1	19	28
Additions and disposals (sales price)	709	59	512	59

NET GAIN (LOSS) ON SALE OF OPERATING EQUIPMENT 1)

Figures in NOK million	2016	2015
Plant and machinery	28	14
Land and buildings	-	25
Total net gain on sales	29	39

1) Gains on sale of operating equipment are included in revenues, see note 3. Losses on sale of operating equipment are included in operating expenses.

NOTE 12. ACQUISITIONS AND DISPOSALS OF BUSINESSES

Acquisitions

Veidekke's acquisitions of businesses in 2016 and 2015 are summarised in the table below.

Year of purchase		2016				2015
Company	Norway 1)	Sweden 2)	Danmark 3)	Total	Leif Grimsrud AS	Other acquisitions
Figures in NOK million
Acquisition cost	80	116	59	254	300	111
CARRYING AMOUNTS ON THE ACQUISITION DATE:
Intangible assets	-	35	-	35	2	8
Plant and machinery, land and buildings	62	11	8	81	124	64
Trade and other receivables	33	61	21	116	208	68
Pension and deferred tax liabilities	-8	-9	-4	-20	-56	-17
Long-term debt	-18	-29	-	-48	-51	-
Trade payables and other current liabilities	-25	-44	-20	-89	-122	-74
Cash received	12	33	16	61	48	9
Non-controlling interests	-20	-	-	-20	-	-
Net identified assets and liabilities	36	58	21	115	154	56
Value 100% of shares / Assets acquired	100	116	59	274	375	144
Excess value	44	58	38	139	221	88
Goodwill allocated	44	58	38	139	221	88
Revenue after takeover	269	213	67	549	100	-
Profit before tax after takeover	16	22	4	42	1	-
Revenue before takeover	-	102	57	160	583	5
Profit before tax before takeover	-	1	5	7	34	-3

1) Tore Løkke AS (80%)

2) AB Berggren & Bergmann (100%), Åkersberga Lastbilcentral AB (100%) and Tautech AB (100%)

3) Alpedalens VVS AS (100%), Installationsgruppen AS (100%) and Techniq Installation AS (100%)

Tore Løkke AS

On 11 January 2016 Veidekke Entreprenør AS acquired 80% of the shares in the engineering contractor Tore Løkke AS. The company has offices in Sør-Trøndelag and carries out contracts all over Norway. The company has 78 employees. According to the financial statements for 2016, the company had revenue of NOK 269 million and profit before tax of NOK 16 million. The expected purchase price for 80% of the shares is NOK 80 million, of which NOK 68 million was paid on takeover. NOK 44 million has been allocated to goodwill, including the non-controlling party's share. There is a sale and purchase option on the remaining 20% of the shares. The price will be determined on the basis of expected future earnings and is expected to be NOK 20 million and has been recognised as a liability in the financial statements. See note 23 for more information about this option.

Åkersberga Lastbilcentral AB

On 1 April 2016 Veidekke Entreprenad AB acquired 100% of the shares in the company Åkersberga Lastbilcentral AB. The company owns gravel and dumping rights in the central Stockholm area and provides earthwork services. The company reported revenues of NOK 135 million for 2016 and profit before tax of NOK 18 million. The purchase price for the company was NOK 50 million, NOK 7 million of which will not be paid until 2017. The company had NOK 28 million in cash on the acquisition date. NOK 7 million has been allocated to goodwill.

AB Berggren & Bergmann

On 4 July 2016 Veidekke Entreprenad AB acquired 100% of the shares in the company AB Berggren & Bergmann, which is engaged in civil engineering operations in northern Sweden. This acquisition complements Veidekke's existing civil engineering operations in the area. The company has 45 employees and reported revenue of NOK 168 million for 2016 and profit before tax of NOK 6 million. The purchase price for the company was NOK 59 million. The company had NOK 4 million in cash on the acquisition date. NOK 45 million has been allocated to goodwill.

Alpedalen VVS AS and others

Hoffmann AS acquired 100% of the shares in the companies Alpedalens VVS AS, Installationsgruppen AS and Techniq Installation AS on 23 June 2016. The companies reported combined revenues of NOK 124 million for 2016 and profit before tax of NOK 10 million. The companies have 60 employees in total. The acquisition strengthens our expertise and own production in the western part of Denmark in technical disciplines such as electrical installations, HVAC and sanitary installations. The purchase price was NOK 59 million. The companies had NOK 16 million in cash on the acquisition date. NOK 38 million has been allocated to goodwill.

ACCOUNTING EFFECTS OF THIS YEAR'S ACQUISITIONS:

2015 Leif Grimsrud AS

On 13 November 2015 Construction Norway acquired 80% of the shares in the civil engineering contractor Leif Grimsrud AS and its subsidiaries Leif Grimsrud AB and Øst AS, with a total of 260 employees. The recognised goodwill of NOK 221 million also includes the non-controlling party's share of goodwill. Goodwill is related to the organisation and its ability to carry out profitable projects over time, as well as synergies with Veidekke's regional operations. A purchase option for the remaining 20% of the shares has been entered into. This liability has been recognised at NOK 0 on 31 December 2016.

Reinertsen

On 1 September 2015 Construction Norway acquired Reinertsen AS's onshore construction and civil engineering operations. This business undertakes construction work in eastern Norway, Trøndelag and Nordland, and civil engineering projects all over Norway. The transaction includes 215 employees. Goodwill is related to the employees' expertise and competencies, established project teams, and the reinforcing effect the acquisition will have on Veidekke's organisation.

Figures in NOK million	2016	2015
Cash and bank deposits	61	57
Other intangible assets	35	10
Machinery, buildings etc.	81	188
Trade and other receivables	116	258
Pension and deferred tax liabilities	-20	-72
Non-current liabilities	-48	-52
Trade payables and other current liabilities	-89	-221
Net identified assets and liabilities	135	168
Goodwill acquisitions	139	310
Non-controlling interests	-20	-75
Joint venture realisation, step by step acquisition	0	8
Purchase price	254	411
Agreed purchase price	254	411
Net Receivables/debts received when buying assets	-	-37
Deferred payment	-35	-
Cash received	-61	-57
Net cash outflow	159	317

NOTE 13. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

The movements for the year for investments in associates and joint ventures are presented in the table below:

	Joint ventures Associates		Total
Figures in NOK million	2016	2015	2016	2015	2016	2015
Carrying value of investment on 1 Jan.	1 046	1 060	87	91	1 134	1 151
Share of the profit for the year	178	121	12	10	190	130
Dividends received	-61	-150	-13	-2	-75	-152
Capital increases	49	466	3	0	52	466
Disposal of companies	-71	-104	-4	-15	-75	-119
Change in subordinated loans	163	-340	3	1	166	-339
Change in value recognised directly to equity	-18	-13	-	-	-18	-13
Currency translation differences	-9	7	-2	2	-12	9
Carrying value of investment on 31 Dec.	1 276	1 046	86	87	1 363	1 134

The Group's total share of assets, liabilities, revenue and expenses related to investments in associates and joint ventures is presented in the table below. The statement has been prepared in accordance with the Group's accounting policies for segment reporting.

	2016
Figures in NOK million	Construction	Property	Industrial	PPP projects	Total
INCOME STATEMENT
Revenue	376	1 810	124	16	2 325
Expenses	-356	-1 534	-105	5	-1 989
Profit before tax	20	276	19	22	336
STATEMENT OF FINANCIAL POSITION
Non-current assets	58	579	58	1 125	1 820
Current assets	116	3 290	51	73	3 529
Total assets	174	3 868	109	1 198	5 350
Non-current liabilites	37	1 660	17	1 047	2 761
Current liabilites	54	1 148	31	130	1 362
Total liabilities	91	2 808	47	1 176	4 123
Net assets	83	1 061	62	22	1 227
Subordinated loans	-	297	-	-	297
IFRIC 15 adjustments	-	-162	-	-	-162
Investments in associates and joint ventures	83	1 196	62	22	1 363

	2015
Figures in NOK million	Construction	Property	Industrial	PPP projects	Total
INCOME STATEMENT
Revenue	439	1 165	104	16	1 725
Expenses	-421	-1 015	-88	-	-1 524
Profit before tax	18	150	16	16	201
STATEMENT OF FINANCIAL POSITION
Non-current assets	83	143	48	726	1 000
Current assets	163	3 385	46	58	3 652
Total assets	246	3 528	94	784	4 652
Non-current liabilites	61	1 237	20	753	2 071
Current liabilites	107	1 329	21	32	1 489
Total liabilities	167	2 567	41	785	3 559
Net assets	79	961	53	-	1 093
Subordinated loans	-	131	-	-	131
IFRIC 15 adjustments	-	-91	-	-	-91
Investments in associates and joint ventures	79	1 002	53	-	1 134

Reconciliation between profit in the companies' accounts and accounting in Veidekke's consolidated financial statements:

		Profit
Figures in NOK million	2016	2015
Profit before tax in associates and joint ventures	336	201
Tax on profit for the year	-73	-46
Profit after tax in associates and joint ventures	263	155
Sale of shares and value adjustments	-	8
Profit after tax associates and joint ventures, segment reporting (note 2)	263	163
Adjustment of profit in accordance with IFRIC 15	-73	-30
Share of net income from associates and joint ventures	190	130
Other comprehensive income	-4	2
Total comprehensive income from associates and joint ventures	187	132

Details of significant investments in associates and joint ventures

The figures in the table are from the companies' IFRS accounts and are presented 100%. All investments are consolidated using the equity method.

Company	Lilleby Eiendom AS	D1a Utvikling AS	Lørenvangen Utvikling AS	M17 Utvikling AS	Allfarveg AS 1)
Figures in NOK million
Business area	Property Norway	Property Norway	Property Norway	Property Norway	Other
Type of company	JV	JV	JV	JV	JV
Business office	Trondheim	Oslo	Oslo	Oslo	Oslo
Dividend paid to the shareholders	-	-	-	-	20
Revenue	389	635	844	11	-
Depreciation	-	-	-	-	-
Other costs	-337	-519	-724	-7	-
Operating profit	52	116	119	4	-
Interest income	-	1	-	-	1
Interest costs	-16	-21	-5	-7	-
Other net financial items	-	-	-	-	26
Profit before tax	37	95	115	-2	26
Income tax expense	-9	-24	-30	-	-4
Profit after tax	28	71	84	-1	22
Other comprehensive income	-	-	-	5	8
Total comprehensive income	28	71	84	3	30
Non-current assets	-	-	-	2	1 072
Cash and cash equivalents	21	250	19	1	65
Other current assets / property projects	1 013	169	898	863	13
Current assets	1 034	418	917	864	77
Non-current financial liabilities	303	-	504	614	1 106
Other non-current liabilites	21	-3	28	-	20
Non-current liabilities	323	-3	532	614	1 127
Current financial liabilities	356	-	141	1	-
Other current liabilities	19	74	47	3	23
Current liabilities	375	74	188	4	23
Total equity	336	348	196	249	-
The Group's ownership share (%)	50%	50%	50%	50%	50%
The Group's share of equity	168	174	98	124	-
Carrying value at 31 Dec. 2016	168	174	98	124	-

1) See note 14 for more details on the accounting of Allfarveg AS.

NOTE 14. PUBLIC–PRIVATE PARTNERSHIP (PPP) PROJECTS

Veidekke has interests in five PPP projects: four school projects and one road project.

PPP (Public–Private Partnership) projects are a collaboration between a public and a private operator on a building construction project, where a municipality or government agency orders a service, which in Veidekke's case relates to the lease of a road or school for an agreed lease period. For Veidekke this involves the establishment of a limited liability ("AS") company, which assumes the role of client, performs the project planning and design, and is responsible for the construction, financing, operation and maintenance during a given lease period. In connection with the school projects, Veidekke Entreprenør AS (Construction Norway) is responsible for both the construction and the operation and maintenance of the buildings during the lease period, while for the road project, the construction work is carried out by Veidekke Entreprenør AS (Construction Norway), while Veidekke Industri AS (Industrial) undertakes the operation and maintenance work.

Figures for the performance of the owner role for the five projects are reported under the segment Other operations. The actual construction and operation are accounted for in the same way as for ordinary projects and are included in the respective business area's income statement. The PPP contracts are entered in the accounts as financial assets according to IFRIC 12 Service Concession Arrangements (The Financial Asset Model), based on amortised cost. Income from the operation and maintenance contract is recognised over the operation period, as the work is done.

In 2016 Veidekke has signed two new PPP contracts: Justvik School in Kristiansand and Gystadmarka School in Ullensaker.

Overview of PPP contracts	Lease period	Construction contract	Ownership share	Status	Legal owner
Rykkinn School	2016–2041	0.2 bn.	50%	Lease period	Skuleveg AS
Jessheim College	2017–2042	0.8 bn.	50%	Under construction	Skulebygg AS
Gystadmarka School	2018–2043	0.2 bn.	100%	Under construction	Skuleplass AS
Justvik School	2018–2043	0.1 bn.	100%	Under construction	Skulegaard AS
E39 Lyngdal-Flekkefjord	2006–2031	1.2 bn.	50% 1)	Lease period	Allfarveg AS

1) Veidekke's share of profit is 64%.

In the financial statements, activities are entered on the following lines:

Figures in NOK million	2016	2015
INCOME STATEMENT
Share of net income from joint ventures	17	15
Other financial income	31	10
Other interest costs	-5	-6
Profit before tax	44	19
STATEMENT OF FINANCIAL POSITION
Investments in joint ventures 1)	22	0
Non-current financial assets	126	416
Total non-current assets	148	416
Current assets	24	17
Total assets	172	433
Equity	36	47
Non-current liabilities	123	383
Current liabilities	13	3
Total equity and liabilities	172	433

1) At 31 December 2016 Veidekke's ownership interest in the joint venture Allfarveg AS has been recorded as NOK 0. This is because the associated interest rate swap contracts must be recognised in the accounts at fair value and there has been a large reduction in the long-term interest rates since the contract was signed. This is discussed in more detail below.

Sales of PPP projects

In 2016 Veidekke has reduced its holding in the two companies that are the contract partners for the PPP projects Rykkinn School and Jessheim College from 100% to 50%. The sale generated an overall gain in the financial statements of NOK 23 million and has been included in the income statement under Other financial income.

Financial Instruments – financing of PPP projects

Dedicated funding has been obtained for all the projects in the construction and lease period. To ensure predictability in the lease period, interest rate agreements have been entered into. These agreements run over the lifetime of the projects. The rental income from the state or municipality is largely determined at the signing of the contract, making it expedient to hedge the project's interest expense over the same period in order to reduce the overall financial risk. Hedging ensures that any subsequent changes in interest rates will not have a significant impact on the profitability of the projects. The interest hedges are designed to satisfy the requirements for hedge accounting. Key figures for loans and interest rate swaps are shown in the tables below:

PPP SCHOOL PROJECTS

Veidekke's share of interest rate derivatives entered into to cover obligations related to the construction and leasing of schools.

Figures in NOK million	Nominal value	Due date	Fair value 1)
Financing - fixed rate loans	95	August 2041	-11
Hedging - interest rate swaps	374	August 2017	-1
Hedging - interest rate swaps	267	February 2018	0
Financing - fixed rate loans 2)	389	August 2042	-45
Financing - fixed rate loans 2)	220	December 2042	7
Financing - fixed rate loans 2)	97	December 2042	3

1) Fair value is the market value of the financial instrument on 31 December 2016. A negative figure means that the applicable interest rate is lower than it was at the time the contract was signed and indicates, theoretically, what must be paid to the counterpart beyond the principal amount in the event of termination of contract.

2) No withdrawals have been made on the loans, and it therefore follows from IAS 39 that in terms of accounting the loans shall not be recognised at fair value until a withdrawal is made.

PPP PROJECT NATIONAL HIGHWAY E39 LYNGDAL–FLEKKEFJORD

The ownership role in the PPP project E39 is exercised through Veidekke's 50% stake in the company Allfarveg AS. The table below shows Veidekke's share of the interest rate derivative.

Figures in NOK million	Nominal value	Due date	Fair value
Hedging - interest rate swaps	596	August 2030	-158

Hedging has had the following effect on equity:

Figures in NOK million	2016	2015
Hedge reserve at 1 January	-137	-142
This year's changes in the hedge reserve	17	5
Hedge reserve at 31 December	-120	-137
Adjustment of hedge reserve by not including negative equity	43	63
Hegde reserve at 31 December included in the financial statements	-77	-74

This table shows that at 31 December 2016 Veidekke's share of the fair value of the interest rate derivative has been reduced by NOK 120 million after tax (NOK 158 million before tax), of which NOK 77 million is included in the financial statements as a reduction of the investment in a joint venture. A sensitivity analysis has been conducted of the effect of a possible change in interest rates by 100 basis points up or down. A change of this magnitude would not have an effect on the accounts. Specification of the item in the statement of financial position Investment in the joint venture Allfarveg AS:

Figures in NOK million	2016	2015
Carrying value at 1 January	-	-
Recognised profit	14	15
Dividends	-12	-15
Adjustments for fair value of long-term interest rate swaps	17	5
Adjustment for negative equity not recognised from joint ventures	-20	-5
Carrying value at 31 December	-	-

NOTE 15. FINANCIAL ASSETS

Figures in NOK million	2016	2015
Share loans to employees	161	160
Financial investments	146	123
Financial assets PPP projects 1)	126	416
Other non-current receivables	202	144
Other shares	13	8
Financial assets	649	852

1) See note 14.

The item Financial investments includes NOK 146 million in a bond fund. The funds are to cover pension liabilities and have been pledged. The investment is regarded as available for sale and has been recognised in the accounts at fair value. Other shares are financial instruments available for sale and recognised in the accounts at fair value. The original cost prices are used as an estimate of fair value.

Share loans to employees can be subdivided into the following categories:

Figures in NOK million	2016	2015
Loans to employees at fair value	139	138
Long-term advance to employees	22	22
Carrying value of share loans to employees	161	160

Loans to employees are recognised at fair value in accordance with the principles of IAS 39. The loans are currently interest-free. Carrying value is estimated by discounting the expected future repayments by an estimated market interest rate. The estimations are based on an assumed market interest rate of 3.0% (3.0%) after tax and an assumed average remaining term of five years. The difference between the carrying value and the nominal value of the loans is treated as advance payments to employees. In the statement of financial position the advance payment is presented together with an estimated fair value of the loans. Satisfactory security has been furnished for the loans. See note 5.

NOTE 16. RESIDENTIAL PROJECTS

Residential projects involve the construction of residential buildings for sale for Veidekke's own account. Costs incurred in respect of sites for development and units under construction are recognised under this item. Most of the projects run for longer than 12 months, and assets may therefore not be realised and settled until after more than 12 months have passed. In terms of accounting, sites and projects are presented as inventory.

Figures in NOK million 2016 2015

Sites under development	2 410	2 137
Projects under construction	2 423	1 158
Unsold completed residential units	32	48
Total residential projects	4 865	3 343
Non-residential projects	12	12
Total carrying amount residential projects (wholly owned)	4 877	3 355

Residential projects are developed both as own projects (wholly owned) and in collaboration with others. When projects are undertaken with others, a company is generally established in which Veidekke has a 50% holding. Many projects are undertaken in joint ventures because this ensures risk sharing and better utilisation of the investment limit, as well as providing a larger volume of projects for the Group's construction operations.

Figures in NOK million	2016	2015
Residential projects in joint ventures	1 155	971
Residential projects in associates	32	31
Carrying value residential projects in Associates and Joint Ventures (partly owned)	1 187	1 002

GEOGRAPHICAL CATEGORY

Residential projects at 31 December Figures in NOK million	Sites under development	Under construction	Unsold completed	Total wholly owned projects	Carrying value Associates and JV's
Norway	1 136	214	25	1 375	956
Denmark	111	96	-	207	-
Sweden	1 163	2 113	7	3 283	294
Total carrying value	2 410	2 423	32	4 865	1 251

Residential projects at 31 December Figures in NOK million	Sites under development	Under construction	Unsold completed	Total wholly owned projects	Carrying value Associates and JV's
Norway	765	33	44	842	944
Denmark	147	1	-	147	-
Sweden	1 225	1 125	5	2 355	59
Total carrying value	2 137	1 158	48	3 343	1 002

Valuation of sites for development

All the sites in the portfolio are valued each year. The carrying amount includes the purchase price of the site, development costs incurred, capitalised interest charges and any deferred payments in connection with the purchase of the site. If a site has a purchase option, the purchase price of the site is not capitalised until the option is exercised.

Veidekke performs an internal valuation of all its properties. Sites for development are valued using a model that calculates the present value of the sites on the basis of a number of assumptions, such as expected utilisation of the site measured as gross floor area for sale (GFAS), expected construction costs, expected construction start date and length of the construction period. All the cash flows in the model are discounted by the Group's required rate of return for property investment, which is 15%.

The site portfolio

At the end of 2016 Veidekke had a portfolio of sites in Scandinavia that is expected to yield around 13,550 residential units. A substantial share of the portfolio consists of purchase options, primarily linked to the Swedish property development operations. The portfolio of sites comprises only sites under development. The sites are distributed as shown in the following table:

Residential units	Owned by Veidekke 1)	Call options	Total	No. of projects
Norway	4 493	779	5 272	40
Sweden	3 199	5 075	8 274	112
Total	7 692	5 854	13 546	152

1) Veidekke's share of wholly and partly owned projects.

2015

2016

Project	Ownership share	Purchase price NOK mill. 1)	Rental income 2016 NOK mill.	Price per GFAS 2) (NOK)	No.of units
Middelthunsgate 17, Oslo	50%	414	6	28 259	181
Nye Lilleby, Trondheim	50%	260		7 670	463
Sinsenveien 45-49, Oslo	50%	193	7	14 191	203
Peter Møllers vei 45-49, Oslo	50%	152	3	11 648	192
Nycoveien, Oslo	100%	215	9	12 322	267
Stavjordet, Lillestrøm	100%	169		5 198	328
Skogsnarveien, Ski	100%	100		10 294	125
Lövholmen 13, Stockholm	67%	163		17 504	115
Projects Norway (purchase price < NOK 100 mill.)		430		2 609	1 939
Projects Sweden (purchase price < NOK 100 mill.)		698		3 247	2 922
Projects Denmark (purchase price < NOK 100 mill.) 3)		164		2 304
Total		2 958

OVERVIEW OF SITES WITH A PURCHASE PRICE EXCEEDING NOK 100 MILLION

1) Veidekkes's share may be adjusted based on the final permits.

2) GFAS is the housing units' expected gross floor area for sale.

3) NOK 53 million has already been written down on projects in Denmark. The carrying amount at 31 December 2016 is NOK 111 million. The sites have been put up for sale.

Discretionary judgement

Valuation of sites involves discretionary judgement, such as expected utilisation of the site measured as gross floor area for sale (GFAS), construction costs, interest rates, expected construction start date, project costs and sales price.

Sensitivity analysis of site value

In connection with the value assessment, the following parameters were considered: construction start date, sales price and construction costs. It is as difficult to quantify the excess value of a development portfolio as it is to identify exactly the effects of changes in the market. Nevertheless, the effect of a few scenarios can be described as follows:

1. Moderate fall in sales prices (10–15%)

There is a correlation between variations in sales prices and construction costs, but it is not parallel. If the sales prices go down, construction costs will gradually fall in line with the declining number of residential projects. This means that it is possible to keep profit margins in residential projects relatively stable even if sales prices fall. The impact on the project profit margin is smaller if the cost of the site is a relatively small part of the project costs. This means that the book value of the sites generally remains intact.

2. Dramatic fall in sales prices (25–30%)

Although there is a correlation between sales prices and construction costs, there is a limit to how far construction costs can fall. Furthermore, the cost of the site as a percentage of the project costs will increase with a dramatic fall in prices. The value of projects not yet initiated will fall. Write-downs will most likely be under NOK 250 million.

3. Delays in the start-up of construction projects

With a required rate of return of 15%, the value of a site will be affected by changes in the construction start date. In the calculations performed when a site is purchased, assumptions are made regarding how long it will take to get planning permission, and thus before sales and construction start. All else being equal, a one-year delay in the construction start date will reduce the value of the portfolio by 15%. Therefore, only delays of two to three years will have a significant impact on the valuation.

WRITE-DOWNS MADE IN THE CAPITALISED PORTFOLIO OF SITES

Figures in NOK million	2016	2015
Write-downs in the portfolio at the beginning of the period	65	73
Reversal of previous write-downs	-12	-8
Write-downs in the course of the year	39	-
Write-downs in the portfolio at the end of the period	92	65

Deferred payment in connection with the purchase of sites

Normally some time passes between a site being purchased and takeover of the site. During this period, a binding purchase agreement has been signed, but since Veidekke has not taken over control of the site, the site is not capitalised in Veidekke's financial statements. In connection with the purchase of some sites, the parties agree to postpone payment of part of the purchase price until the official land-use regulation of the site has been finalised.

	Senere
Deferred payment for site purchases 1) 178 299 797 40	23

1) Includes only site obligations Veidekke is obligated to fulfil.

Veidekke has signed an agreement for the purchase of Nedre Skøyenvei 24–26 in Oslo with handover in March 2019. The site will house a new head office for Veidekke and development of around 400 residential units. The agreed purchase price is NOK 799 million. An advance payment of NOK 50 million has been paid, which has been recognised under Other current receivables in the statement of financial position. The outstanding sum will be paid in March 2019.

UNITS UNDER CONSTRUCTION AND UNSOLD COMPLETED UNITS

In terms of accounting, sold units under construction are part of Veidekke's inventory throughout the entire construction period. This means that no revenue or profit is recognised in the income statement until the property is handed over to the buyer.

By the time a residential project is initiated, there is normally only limited uncertainty regarding the financial outcome of the project. At this point the main risk is generally related to whether the remaining units under construction will be sold. There is limited risk regarding the construction costs, as most of the main purchases have already been agreed upon at an early stage in the construction phase. To ensure good corporate governance Veidekke's property development units report on project contributions on an ongoing basis in the segment reporting. In the segment accounts (note 2) the projects report progress using the following principle: estimated final profit of the project x sales ratio x stage of completion. This helps ensure that the management at all times has a good overview of activities.

Carrying amount wholly owned projects (NOK million)	2016	2015
Units under construction	2 423	1 158
Unsold completed units	32	48
Total	2 455	1 206

NUMBER OF UNITS UNDER CONSTRUCTION AND UNSOLD COMPLETED UNITS AT 31. DESEMBER 2016

	Residential units under construction	Unsold residen tial units under construction	Unsold completed residential units	Average sales ratio 1)	Average stage of completion 2)
Projects in Norway - wholly owned	107	28	6	74%	23%
Projects in Norway - JV (Veidekke's share) 2)	493	55	10	89%	53%
Projects Sweden - wholly owned	1 612	95	4	94%	71%
Projects in Sweden - JV (Veidekke's share) 2)	95	8	-	92%	35%
Projects in Denmark - wholly owned	115	40		65%	11%
Total number/total sales ratio	2 422	226	20	91%

1) For units under construction.

2) Shares in joint ventures are reported in the statement of financial position under Investments in joint ventures. See note 13.

NUMBER OF UNITS UNDER CONSTRUCTION AND UNSOLD COMPLETED UNITS AT 31 DECEMBER 2015:

	Residential units under construction	Unsold residen tial units under construction	Unsold completed residential units	Average sales ratio 1)	Average stage of completion 2)
Projects in Norway - wholly owned	12	1	11	92%	59%
Projects in Norway - JV (Veidekke's share) 2)	529	157	5	70%	49%
Projects Sweden - wholly owned	1 149	20	2	98%	63%
Projects in Sweden - JV (Veidekke's share) 2)	49	-	-	100%	95%
Total number/total sales ratio	1 739	178	18	91%

1) For units under construction.

2) Shares in joint ventures are reported in the statement of financial position under Investments in joint ventures. See note 13.

EARNINGS FROM SOLD UNITS UNDER CONSTRUCTION 1)

		No. of units under Recognised in the construction sold segment accounts on 31 Dec. before tax (note 2)1)		Recognised in the financial statements		Difference financial statements and segment accounts
Business area	2016	2015	2016	2015	2016	2015	2016	2015
Property Norway	517	383	136	63	-14	-	150	63
Construction Norway	-	-	33	47	-	-	33	47
Property Sweden	1 604	1 178	440	215	-17	-18	457	233
Construction Sweden	-	-	29	-13	-	-	29	-13
Total	2 121	1 561	638	312	-31	-18	669	-330

1) In the segment accounts, profit from the construction and sale of completed residential projects is taken to income in line with the estimated final profit, sales ratio and stage of completion. The segment accounts are considered to provide the most accurate picture of the ongoing value creation.

The table shall be read as follows: Veidekke had 2,121 sold units under construction at 31 December 2016. In the segment accounts Veidekke has recorded a profit of NOK 638 million for these projects, while the financial statements show a loss of NOK -31 million. The difference of NOK 669 million will be recognised in the financial statements when the units are handed over to the buyer.

The financial statements show a loss because the administrative costs and costs of sales are expensed as they are incurred in the financial statements, while income is not recognised until the unit is handed over to the buyer.

Development gains

Veidekke optimises the portfolio of sites on an ongoing basis. This means that assessments relating to sales or partial sales of projects are part of the operating activities.

The following transactions have had a significant impact on the financial statements for 2016 and 2015:

2016
Project	Unit	Accounting line	Effect on operating revenue	Effect on profit
Commercial site in Asker	Property Norway	Revenue, cost of materials	36	36
Development project in Stockholm	Property Sweden	Revenue, cost of materials	56	40
2015

Project	Unit	Accounting line	Effect on operating revenue	Effect on profit
Site for development in region Vest. Partial sale from 100% to 50%	Property Norway	Revenue, cost of materials	84	37

NOTE 17. INVENTORY

Inventory includes project inventories in Construction and the inventory for industrial operations. Project inventories in Construction consist of materials, spare parts, small equipment, etc., while the inventory for industrial operations consists of raw materials (crushed stone, gravel and bitumen).

Figures in NOK million	2016	2015
Inventory for industrial operations	174	155
Inventory in construction operations	241	155
Inventory in other parts of the operations	40	-
Total inventory	455	310

NOTE 18. TRADE RECEIVABLES

Trade receivables in the statement of financial position at 31 December consist of the following elements:

Figures in NOK million	2016	2015
Invoiced trade receivables	5 141	4 976
Provisions for bad debts	-33	-28
Due from customers	747	557
Accrued revenue	1 293	1 217
Work invoiced in advance (not recognised income)	-2 124	-2 126
Trade receivables	5 025	4 597

See the section on revenue recognition in the presentation of the Accounting Policies for more detailed information on invoicing and accrual of projects.

Maturity structure of invoiced trade receivables at 31 December:

Figures in NOK million	2016	2015
Receivables not due for payment	2 741	2 564
Less than 30 days since due date	637	630
30–60 days since due date	219	590
60–90 days since due date	45	119
90–80 days since due date	49	256
More than 180 days since due date 1)	1 450	817
Invoiced trade receivables	5 141	4 976

1) Receivables that are overdue by more than 180 days comprise significant sums. These are generally related to disputes, which take time to resolve and which, in some cases, have to be resolved in a court of law. Any impairment of a receivable is based on project risk and is included in the evaluation of the project's likely outcome (estimated final result). See note 32 Disputes and claims related to projects.

Changes in the provision for impairment related to credit risk from trade receivables:

Figures in NOK million	2016	2015
Provisions at 1 January	28	30
Currency translation differences	-1	-
Provisions made during the year	29	23
Provisions used during the year	-	-2
Provisions reversed during the year	-23	-23
Provisions at 31 December	33	28

Provisions are mainly made on a group basis.

Credit risk exposure

Credit risk is the risk that Veidekke will incur a loss as a result of a customer's inability to fulfil their obligations (bankruptcy risk).

Unhedged credit risk for trade receivables is calculated using the following table:

Figures in NOK million	2016	2015
Trade receivables	5 025	4 597
Of which:
Received bank guarantees to trade receivables	382	403
Other guarantees	224	192
Receivables from public authorities (state and municipal level) 1)	2 250	3 426
Total secure receivables	2 857	4 021
Maximum unhedged credit risk in the trade receivables	2 168	575

1) Receivables from public authorities in Scandinavia are assumed to have zero credit risk.

NOTE 19. CASH AND CASH EQUIVALENTS

The Group's cash and cash equivalents consist of bank deposits. At 31 December 2016 the Group has NOK 39 (36) million in restricted cash.

NOTE 20. NUMBER OF SHARES, SHAREHOLDERS ETC.

Veidekke ASA's largest shareholders at 31 December 2016 are presented in the following table:

		Ownership
	No. of shares	share
OBOS BBL	23 769 440	17.8%
Folketrygdfondet	16 695 114	12.5%
If Skadeförsäkring AB	9 229 207	6.9%
Handelsbanken Fonder	4 586 715	3.4%
Danske Invest Norske Instit. II	2 815 576	2.1%
Must Invest AS	2 775 000	2.1%
MP Pensjon PK	2 708 284	2.0%
Swedbank Robur (Smabolagsfond Norden)	2 051 320	1.5%
Verdipapirfondet DNB Norge (IV)	1 932 536	1.4%
Taiga Fund	1 724 987	1.3%
Odin Norge	1 713 836	1.3%
Danske Invest Norske Aksjer Inst	1 321 200	1.0%
Skandinaviska Enskilda Banken AB (NOM)	1 115 948	0.8%
KLP Aksje Norge Indeks VPF	1 046 641	0.8%
State Street Bank and Trust CO. (NOM)	987 411	0.7%
Total 15 largest shareholders	74 473 215	55.7%
Employees (3 767 individuals)	19 945 713	14.9%
Others	39 286 014	29.4%
Total	133 704 942	100%

CHANGE IN NUMBER OF SHARES

No. of shares 1 January 2016	133 704 942
No. of shares 31 December 2016	133 704 942

Each share has a nominal value of 0.50.

Shares owned by board members and members of the corporate management on 31 December 2016:

No. of shares
10 000
4 000
13 000
-
2 500
2 000
7 285
3 325
8 275
48 385

MEMBERS OF THE CORPORATE MANAGEMENT

Arne Giske	146 905
Dag Andresen	177 110
Jimmy Bengtsson	43 400
Jørgen Wiese Porsmyr	103 920
Lars Erik Lund	600
Terje Larsen	106 055
Hege Schøyen Dillner	8 705
Total shares owned by corporate management	586 695
Total	635 080

Own shares

Veidekke does not own any of its own shares.

Dividend

The dividend for financial year 2015, which was paid out in 2016, amounted to NOK 535 million (NOK 4.0 per share). The proposed dividend for the 2016 financial year is NOK 602 million (NOK 4.5 per share).

Payment of dividends to Veidekke ASA's shareholders does not affect the company's tax payable or deferred tax.

NOTE 21. PENSIONS

Veidekke has both defined-contribution and defined-benefit pension plans. In the defined-contribution plans, the cost is equal to the contributions towards the employees' pension savings made during the period. The future pension depends on the size of the contribution and the return on the pension savings. In defined-benefit plans, Veidekke is responsible for paying an agreed pension to an employee on the basis of expected final salary. The cost for the period shows the employees' pension accrual in the financial year. Most of Veidekke's pension plans are defined-contribution schemes, but there are defined-benefit plans for employees over the age of 62 years in Norway and for some Norwegian managers.

Norway

In Norway, Veidekke has the following pension schemes:

• General pension scheme
• Contractual early retirement scheme (AFP)
• Early retirement scheme for executives
• Additional pension for employees with salaries exceeding 12G

General pension scheme

Veidekke has a defined-contribution scheme, whereby Veidekke pays a fixed monthly contribution into the individual employee's pension account. The size of the contribution depends on the employee's salary. In 2016 the contribution was 5% of the pay for salaries between 1G and 6G and 8% for salaries between 6G and 12G. With effect from 1 January 2017, these rates were increased to 5.5% for salaries between 1G and 7.1G and 11% for salaries between 7.1G and 12G. The employees can choose the risk profile for the management of their pension funds. In the event of death, the pension account accrues to the employee's survivors.

There is a defined-benefit pension scheme for employees older than 62 years who worked in Veidekke on 31 December 2012. In the defined-benefit plan Veidekke has committed to paying a pension of a specified amount, and the company bears the risk for the return on the pension funds. The service period for a full retirement pension under this pension scheme is a minimum of 30 years. Veidekke's pension plan is a supplemental pension which, together with the National Insurance pension, provides a retirement pension of roughly 60% of the employee's salary on retirement, assuming a full service period. Pension credit is only earned on salary up to 12G (the National Insurance basic amount) in this plan. Both retirement pensions – from the National Insurance scheme and Veidekke's defined-benefit pension – are life-long. The pension is financed by funds accumulated in a life insurance company, which manages the funds and administers the scheme.

Prior to 1 January 2013 Veidekke had a defined-benefit pension scheme for all its employees. In connection with the transition to a defined-contribution pension, a compensation scheme was introduced for employees who would lose out as a result of the switch to the new pension plan. Provisions have been made in the accounts for this scheme.

Contractual early retirement scheme (AFP)

The private-sector AFP early retirement scheme is a life-long supplement to the public retirement pension scheme and is paid no earlier than age 62. The Norwegian group companies have AFP early retirement pensions for their employees. Employees must satisfy a number of conditions to be eligible for early retirement under the AFP scheme.

The AFP scheme is a defined-benefit, multi-employer pension plan and is financed through premiums, which are determined as a percentage of the salary. There is currently no reliable measurement and allocation of liabilities and assets in the scheme. For accounting purposes, the scheme is treated as a defined-contribution plan for which premium payments are expensed as incurred, and no provisions are made in the accounts. If the scheme had been capitalised, its implementation would have had significant impact on the accounts. The premium for 2016 was 2.5% of salaries between 1G and 7.1G.

Early retirement scheme for executives

Veidekke has an early retirement scheme for some of its senior executives in Norway covering retirement between the ages of 64 and 67. It is a defined-benefit plan and has 15 members. These individuals have the right to retire at the age of 64, with an early retirement pension that is 60% of their final salary, financed through operations. The scheme is closed. For further details, see note 30.

Pensions on salaries over 12G

Veidekke has a pension scheme for employees in Norway with salaries exceeding 12G giving pension credit for salary above 12G. The scheme covers retirement pension, disability pension and children's pension, and consists of two parts. For employees aged 62 or older there is a scheme that, assuming a full service period, provides a retirement pension amounting to roughly 60% of the salary on retirement, including National Insurance pension benefits and Veidekke's general pension scheme. The earliest retirement age is 67, and the pension will be paid for life. The pension scheme is financed through operations. The scheme is closed. For other employees there is an allocation scheme where 20% of salary over 12G is set aside. The allocated amount is adjusted each year in line with defined indices. The pension is paid from 67 years at the earliest and for ten years from when it is first drawn.

Termination of the disability pension plan 2016

In Norway, a new Act on disability pensions came into force on 1 January 2016. The Act is intended to ensure that private disability pension schemes are adapted to the Norwegian National Insurance Scheme's rules on disability benefit. As a result of the changes in the rules, Veidekke has terminated the company's disability pension scheme for employees in Norway and from the same date established a new scheme with corresponding coverage, but without the accumulation of paid-up value. Discontinuation of the old scheme has had a positive effect on the accounts of NOK 108 million.

Denmark and Sweden

Veidekke ASA has defined-contribution pension schemes for its employees in Denmark and Sweden whereby the company makes a monthly contribution to the scheme, while the employees bear the risk for the return on the pension funds. The pension funds are placed in life insurance companies, which manage the funds and administer the schemes. The pension schemes cover retirement and disability pension.

In Denmark Veidekke pays two-thirds of the contributions, while the employee pays the remaining third. The employer's contribution constitutes 8% of the salary. The retirement age in Denmark is between 65 and 69 years, depending on year of birth. The payment of the retirement pension is very flexible, and, in the event of death before retirement, the pension is payable to surviving dependants. There is a corresponding defined-contribution scheme for the management of the Danish company, but in this scheme the employer's contribution is 10% of the salary.

In Sweden, Veidekke pays a contribution of 10% of the salary for skilled workers and 18% of the salary for administrative staff. Pensionable age in Sweden is 65. The payment of the retirement pension is very flexible, and, in the event of death, the pension is payable to surviving dependants.

Figures in NOK million	2016	2015
PENSION COSTS
Current service cost	46	52
Interest cost on net pension liabilities	12	13
Termination of defined-benefit scheme in Norway 1)	-108	-40
Total costs (defined-benefit schemes)	-51	25
Cost of defined-contribution plan	352	268
Pension costs	301	293
1) For 2016 the figure is discontinuation of the disability pension scheme with accumulation of paid-up value. For 2015 the figure is discontinuation of the defined-benefit pension scheme in the subsidiary Block Berge Bygg AS.
COMPOSITION OF NET PENSION LIABILITIES
Pension liability - defined-benefit schemes	-1 201	-1 350
Pension assets	874	885
Net pension liability defined-benefit schemes	-327	-465
Pension liability - other schemes	-76	-47
Pension liability at 31 December	-404	-512
CHANGE IN GROSS PENSION LIABILITY DURING THE YEAR
Gross pension liability at 1 January	-1 350	-1 414
Current service cost	-44	-52
Interest cost	-33	-33
Additions from acquisition of companies	-	-55
Termination of defined-benefit schemes	108	40
Issue of paid-up policies on termination of pension plan	58	74
Actuarial gains and losses recognised in comprehensive income	-5	41
Payroll tax of employer's contribution	8	4
Benefits paid during the year	58	45
Gross pension liability at 31 December	-1 201	-1 350
CHANGE IN PENSION ASSETS DURING THE YEAR
Pension assets at 1 January	885	923
Expected return	20	20
Additions from acquisition of companies	-	46
Transfer of pension assets to defined-contribution fund	-58	-74
Employer's contributions	64	27
Transfer of pension assets to defined-contribution premium fund	-	-8
Year's actuarial gains and losses recognised in total comprehensive income	11	-7
Payroll tax of employer's contribution	-8	-4
Benefits paid during the year	-39	-39
Premium assets as of 31 December	874	885

OVERVIEW OF NET PENSION LIABILITIES AND ACTUARIAL GAINS AND LOSSES

Figures in NOK million	2016	2015
Gross pension liabilities	-1 201	-1 350
Pension assets	874	885
Net pension liability defined-benefit schemes	-327	-465
OVERVIEW OF ACTUARIAL GAINS AND LOSSES - DEFINED-BENEFIT SCHEMES
Liabilities:
Changes in economic assumptions	4	34
Changes in population and demographic assumptions	-15	8
Pension assets:
Actual return v. actuarial assumption	17	-7
Year's actuarial gains and losses recognised in total comprehensive income before tax	6	34
Year's actuarial gains and losses recognised in total comprehensive income after tax	4	25

Figures in NOK million	2016	2015
FINANCIAL ASSUMPTIONS
Discount rate/return on pension investments	2.6%	2.5%
Annual wage growth	2.5%	2.5%
Annual adjustment of G (National Insurance Scheme basic amount)	2.3%	2.3%
Annual adjustment of pensions under payment	0.0%	0.0%
Mortality table	K2013	K2013
PENSION ASSETS
Investment
Property	14%	12%
Bonds	61%	55%
Short-term investments	14%	24%
Shares	10%	9%
Total investments	100%	100%
Return
Book return	6.4%	5.4%
Adjusted return	5.0%	3.9%

Pensions 2017

The estimated premium for defined-benefit plans for 2017 is NOK 32 million.

The cost of defined-benefit pension plans for 2017 is expected to be NOK 35 million. The future annual cost of the defined-benefit schemes depends on a number of factors beyond actual wage growth. Annual service cost is calculated using actuarial assumptions, which have a major impact on the cost. This includes expectations concerning future wage growth, future adjustments of the National Insurance scheme basic amount ("G"), future pension adjustments, the discount rate and mortality tables.

Sensitivity analysis

Veidekke's defined-benefit pension schemes are mostly arranged

as asset-based pension schemes managed by life insurance companies. This means that the life insurance company at all times has premiums in line with the accrued pension rights. Approximately half of the recognised pension liabilities and assets are related to asset-based schemes for former employees who are now retired. For this group, it is expected that the life insurance company will not require additional premium payments in the event of changes in the underlying economic and demographic assumptions. Any changes made in the economic assumptions that are categorised as probable will not have a significant impact on the ordinary income statement. The effect on the statement of financial position may be larger, as pension liabilities are recognised at fair value. Changes in actuarial assumptions may entail differences in the Group's equity of up to NOK 100 million.

NOTE 22. INCOME TAX EXPENSE AND DEFERRED TAX

Figures in NOK million	2016	2015
INCOME TAX EXPENSE
Tax payable	145	60
Change in deferred tax	26	105
Adjustments previous years	-2	2
Total	170	167
RECONCILIATION OF THE GROUP'S TAX RATE
Calculated income tax based on Norway's current tax rate (25% in 2016, 27% in 2015)	273	256
Actual income tax expense	170	167
Difference	103	89
EXPLANATION DIFFERENCE INCOME TAX EXPENSE
Tax from activity in joint ventures 1)	47	31
Tax-exempted sales of companies 2)	22	13
Other permanent differences:
Non-deductible expenses	-15	-18
Effect of changes in the tax rate 3)	19	37
Deferred tax asset, not previously recognised	23	29
Lower tax rate in Sweden and Denmark	10	9
Other items	-2	-13
Total	103	89
Group tax rate	15.6%	17.6%

1) Profit from associates and joint ventures are recognised in the income statement after tax and therefore do not affect the Group's recognised tax expense. 2) Relates primarily to sales of companies in the Group's property development operations

3) For 2016, the effect is related to the lowering of the tax rate in Norway from 25% to 24%. In 2015 there was a corresponding effect related to a reduction in the tax rate from 27% to 25%.

DEFERRED TAX LIABILITIES

Figures in NOK million	2016	2015
DEFERRED TAX
Current items 1)	579	609
Total current items	579	609
Operating equipment - additional depreciation	128	119
Other non-current items	93	57
Provisions for liabilities	-216	-205
Pension liabilities	-92	-122
Total non-current items	-88	-151
Losses carried forward	-83	-96
Net deferred tax liabilities	408	362

1) In Norway and Denmark construction projects in progress are not taxed until completion and handover. Given stable orders, this will provide a permanent tax credit of approx. NOK 600 million.

PRESENTATION OF DEFERRED TAX IN THE STATEMENT OF FINANCIAL POSITION

Figures in NOK million	2016	2015
Deferred tax assets 1) 2)	-65	-65
Deferred tax liabilities	474	427
Net deferred tax liabilities	408	362

1) Tax assets that cannot be offset against deferred tax.

2) At 31 December 2016 Veidekke had NOK 65 million (NOK 65 million) in deferred tax assets in Sweden. The amount is net after calculation of tax liabilities. The loss carry-forwards in Sweden have no time limit. In addition Veidekke has deferred tax assets in Sweden with a nominal value of NOK 13 million that had not been recognised on 31 December 2016.

CHANGE IN DEFERRED TAX

Figures in NOK million	2016	2015
Current items	-30	138
Non-current items - accelerated depreciation	9	37
Other non-current items	36	3
Provisions for liabilities	-10	17
Pension liabilities	29	14
Losses carried forward	13	-14
Change in deferred tax	46	194
Currency translation differences	1	-2
Deferred tax in connection with acquisition/sale of companies	-17	-56
Corrections previous years	-	-21
Change in deferred tax recognised in total comprehensive income	-3	-9
Change in deferred tax in the income statement	26	105

TAX INCORPORATED INTO TOTAL COMPREHENSIVE INCOME

		2016
Figures in NOK million	Profit before tax	Income tax expense	Comprehensive income	Profit before tax	Income tax expense	Comprehensive income
STATEMENT OF COMPREHENSIVE INCOME
From the income statement	1 092	170	922	950	167	782
Other income recognised in comprehensive income:
Revaluation of pensions	5	1	4	34	9	25
Currency translation differences	-102	-	-102	97	-	97
Fair value adjustments of financial assets	10	2	8	-	-	-
Total comprehensive income	1 005	173	832	1 081	176	905

Tax recognised directly in equity

In 2016 NOK 6 million (NOK 6 million) was recorded as a reduction in tax payable and an increase in equity related to sale of own shares at a discount to Group employees. See note 5.

NOTE 23. NON-CURRENT LIABILITIES

NON-CURRENT LIABILITIES TO BONDHOLDERS AND CREDIT INSTITUTIONS, ETC.

Figures in NOK million 2016	2015
Bonds 750	750
Non-current loans from credit institutions 194	473
Non-current loans from others 19	44
Non-current interest bearing liabilities 962	1 267

OTHER NON-CURRENT LIABILITIES, NON-INTEREST BEARING

Figures in NOK million	2016	2015
Option agreements Sweden 1)	55	46
Option agreements Norway 1)	34	13
Other non-current liabilities	46	44
Other non-current liabilities	136	103

1) Veidekke has the following stakes in subsidiaries: Recess AB (70%), Seby AS (70%), Hammerfest Entreprenør AS (83%), Tore Løkke AS (80%) and Veitech (90%). For these companies, there are option agreements with the minority shareholders whereby Veidekke has a right to buy the shares and minority shareholders have a right to sell the shares covered by the option.

Instalment profile details can be found in note 29.

NOTE 24. TRADE PAYABLES AND OTHER CURRENT LIABILITIES

Figures in NOK million	2016	2015
TRADE PAYABLES
Trade payables	2 146	1 994
Provision for accrued costs	2 036	1 785
Total trade payables	4 182	3 778
OTHER CURRENT LIABILITIES
Advance payments from customers	4 404	2 400
Other liabilities	1 676	1 431
Other current liabilites	6 080	3 832

Advance payments from customers include both unearned invoiced income on projects (work invoiced in advance) and advance payments from customers in connection with residential sales. The large increase in advance payments compared with the previous year is linked to increased activity in property development operations.

NOTE 25. WARRANTY PROVISIONS ETC.

Provision is made for guarantee work under the item Warranty provisions etc., for example to remedy any defects or omissions on completed projects. Warranty provisions etc. also covers other liabilities, such as claims from subcontractors, claims from third parties, etc. Provisions are made to cover both accrued warranty liabilities and contingent liabilities, etc. Among other things the provisions must cover future expenses for the remedy of hidden defects, i.e. defects and omissions that have not been detected. In addition, they must also cover issues that are detected, but where there is uncertainty regarding the scope, responsibility, costs, etc. (disputes).

Figures in NOK million	2016	2015
Warranty provisions etc. at 1 January	848	825
Currency translation differences	-21	17
+ new warranty provisions (additions)	412	438
- reversed warranty provisions (disposals)	-170	-231
- actual claims expenses (consumption)	-153	-200
Warranty provisions etc. at 31 December	915	848

Liability for material defects

All projects shall be handed over to the customer in accordance with the contract. If defects or omissions are detected in projects that have been handed over, the contractor may be liable to remedy them at no extra charge. The projects have different warranty periods, but the norm is three to five years.

NOTE 26. MORTGAGES, GUARANTEES AND JOINT AND SEVERAL LIABILITY

Figures in NOK million	2016	2015
MORTGAGES
Recorded liabilities secured by mortgages etc.	178	78
Book value of mortgaged assets	363	183
GUARANTEES
Guarantees to joint ventures and associates	11	60
Guarantees to other companies	128	18

Guarantees can only be enforced if the joint venture or associated company is unable to meet its obligations.

The Group has given a negative pledge for loans and guarantees.

As a result of its participation in partnerships and joint ventures, Veidekke could become liable for other participants' inability to fulfil their obligations.

However, Veidekke is not liable until the company in question is unable to meet its obligations.

Veidekke has pledged financial assets with a carrying amount of NOK 146 million at 31 December 2016 to cover pension liabilities incurred. See note 15 Financial assets.

NOTE 27. CAPITAL MANAGEMENT

The aim of the Group's capital management is to ensure sufficient financial flexibility for the Group to be able to undertake operational and strategic actions in the short and long term. Veidekke shall have a strong financial position that promotes profitability and value creation throughout the entire Group and thus provides the shareholders with a return. Key parameters in the efforts to ensure a solid capital structure are the Group's equity, its level of and developments in net interest-bearing debt, ongoing cash flow and financial constraints. The Group's liquidity is strongly affected by seasonal variations with the highest debt burden through the summer half of the year due to the high activity levels. The Group's capital management is adapted to take these variations into account.

Veidekke's dividend policy calls for a pay-out ratio of at least 50% of the profit after tax. Shareholders shall receive continuous returns that are directly correlated with results. The average pay-out ratio for the last ten years is 70%.

Veidekke can use repurchase of own shares as an instrument to optimise the capital structure of the company during periods in which the Group has a strong financial position. Repurchase of own shares is thus a supplement to the current dividend policy. Repurchase of own shares is only applicable if the share price is considered to be below actual market value. Between 2006 and 2008 Veidekke repurchased 6.7% of the outstanding shares. In recent years Veidekke has prioritised dividend pay-outs and operational investments rather than repurchase of own shares. The Board is authorised to repurchase up to 10% of the company's share capital.

Operations are financed at the Group level. Veidekke has a differentiated portfolio of loans with respect to both sources of loans and maturity structure. The Group uses the bank, bond and commercial paper markets as sources of financing. Veidekke has a loan agreement with DNB with a credit limit of NOK 3.6 billion, which matures in 2020. In addition Veidekke has a bond loan of NOK 750 million, which matures in 2018. The Group had no outstanding commercial papers at 31 December 2016. Veidekke has no official credit rating, but has "investment grade" shadow ratings of BBB from SEB and of BBB- from DNB.

The Group has substantial amounts of capital tied up in its property development operations in the form of sites and residential units under construction in Norway and Sweden. Property Development has a limit for capital invested of NOK 4.0 billion. At year-end capital invested was NOK 3.1 billion (NOK 3.0 billion). Capital management is based on the risk exposure in both the various different market segments according to geography, product (type of housing, sales ratio, land bank, etc.) and through the various forms of collaboration with external partners, including joint ventures.

At the end of 2016 the Group had no net interest-bearing debt and the credit facility of NOK 3.6 billion was unused. The maturity and repayment structure are discussed in note 29.

NOTE 28. FINANCIAL RISK

Veidekke aims to maintain a strong financial position. This can best be achieved through good operational management, low risk exposure and sound management of the parameters that exert an influence on the company's financial risk. Financial management and control are an integral part of the Group's strategy process, and the Group's financial policy sets the guidelines for the handling of financial risk management.

Veidekke has a central finance department that shall ensure the Group financial flexibility in the short and long term and monitor and manage financial risk in collaboration with the individual companies. The finance unit is responsible for tasks relating to financing and management of interest-rate and currency risk, while the business areas manage the risks relating to ongoing operations, including credit risk and payment conditions.

Veidekke is primarily exposed to risks related to trade receivables, liquidity and interest-bearing debt.

(1) Credit risk

Credit risk is the risk of financial losses due to the inability of a customer or the counterparty of a financial instrument to fulfil their contractual obligations. The Group's credit risk is mainly related to the settlement of receivables, the largest risk of which is inherent in the Group's trade receivables. The credit risk attached to trade receivables is related to the customer's ability to pay, not the customer's willingness to pay (project risk). The Group has a substantial share of public-sector customers (approx. 30%), for whom the credit risk is considered very low. For private customers (approx. 70%), the credit risk is handled through the contracts with the clients and good credit follow-up routines in the business areas. The Group's largest single customer, measured by revenue, is the Norwegian Public Roads Administration.

On signing contracts, the credit risk depends on the specific design of agreements with the client. As a part of Veidekke's risk management, the management systems contain procedures for the drafting of contracts, including specifications stating that agreed payment plans shall be closely linked to planned progress. In addition, turnkey contracts are, to a large extent, based on national standards (e.g. Standards Norway), which contain requirements regarding the client's provision of security for the contract price (Standards Norway requires up to 17.5% of the contract price during the building period). Together, these two measures mean that exposure to credit risk within ordinary construction projects is regarded as low. In Sweden, there is no national standard provision for bank guarantees, making the risk somewhat higher in this market. In the business area Industrial, which has a considerably larger number of customers, importance is placed on procedures for credit rating, timely invoicing, guarantees and active follow-up of outstanding claims. Property Development seeks to minimise risk through advance payments, and by ensuring that handover does not take place until full payment has been received.

The Group has no significant credit risk relating to any one party. The Group has not acted as guarantor for any third party's debts with the exception of the matters discussed in note 26.

There is always a risk that a customer may not be willing to settle its debts. This is regarded as an operating risk and not a financial risk, and is handled as part of the ordinary project valuation. For further details, see note 18 Trade receivables and note 32 Disputes and claims related to the projects.

(2) Liquidity risk

Liquidity risk is the risk that Veidekke will not be able to fulfil its payment obligations when they fall due. Good liquidity is an important prerequisite to profitability in Veidekke and the company's ability to invest and take risks in capital-intensive activities. Liquidity risk management has high priority as an element in the objective of financial flexibility. Management, measurement and control of liquidity are carried out from the project level and on through all the levels of the organisation. In Property Development liquidity risk in projects for own account is limited by the fact that, as a main rule, residential projects shall not be started until the sales rate exceeds 50%. For Construction operations the Group also has other substantial borrowing facilities available to it to meet its current performance guarantees for construction projects.

Veidekke has a credit facility of NOK 3.6 billion, which matures in 2020. The borrowing facilities are based on a negative mortgage declaration and are conditional on Veidekke's financial key figures (covenants), sales of significant assets without consent, and own-account risk in residential and non-residential projects. Veidekke meets all the requirements laid down in the loan agreement with a clear margin and has good financial flexibility.

Key financial figures for the loan agreement (covenants):

(i) Net interest-bearing liabilities divided by EBITDA for the previous four quarters shall not exceed 3.5. At 31 December 2016, the ratio was 0. Net interest-bearing liabilities is defined as the Group's current and non-current interest-bearing liabilities minus the Group's cash and cash equivalents and interest-bearing receivables. EBITDA is defined as the Group's operating profit plus depreciation, amortisation and impairment.

(ii) The Group's share of own projects shall not exceed 75% of the Group's book equity. Share of own projects is defined as the value of started, unsold residential and non-residential buildings in projects implemented under the control of the borrower or another Group company, calculated on the basis of the expected sales price. At 31 December 2016, share of own projects was 23% of book equity.

If Veidekke approaches the limits of the key financial figures, the following will be implemented:

• Net interest-bearing debt will be reduced through the sale of assets in the two capital-intensive business areas: Industrial and Property Development.
• Share of own projects will be reduced by stopping or delaying the start-up of new residential projects that have not achieved 100% sales.

See note 19 for information on cash and cash equivalents, note 23 for information on current interest-bearing liabilities, note 26 for information on mortgages and guarantees, and note 29 for information on sensitivity analysis and maturity structure.

(3) Market price risk Shares

The Group is exposed to price risk related to equity instruments through investments classified as available for sale. This type of investment is normally not a part of the Group's investment strategy. Veidekke prioritises investments in companies and projects that allow the Group considerable influence on future operations and development.

The Group has financial investments classified as available for sale of NOK 159 million at 31 December 2016, of which NOK 146 million has been invested in a bond fund. The investment is related to funds to cover pension liabilities.

Hedging of raw material costs

Veidekke has little hedging of input factors for use in production, and then only after an order has been placed.

The petroleum product bitumen is an important input factor for the asphalt operations in the business area Industrial. The price of this product is closely linked with developments in oil prices. However, bitumen costs are rarely hedged. The reason for this is that our largest customer, the Norwegian Public Roads Administration, contractually bears most of the risk related to changes in the price of bitumen. As for deliveries to other customers, the time between order placement and execution is usually short, thus reducing the risk of price changes. At 31 December 2016 Veidekke had entered into hedging contracts for two projects where work will be performed up to two years into the future.

(4) Interest rate and currency risk

Veidekke's interest rate risk is linked to the Group's portfolio of debt. This risk is managed on the Group level. The various business areas are exposed to interest rate risk, and in some partly owned companies, interest derivatives are used to reduce considerable long-term interest risk.

Historically the Group has used interest rate derivatives to some extent to reduce fluctuations in profit figures arising from changes in interest rate levels, i.e. interest rate swaps as cash flow hedges of loans. In June 2013 Veidekke ASA signed a five-year, fixed-rate agreement for NOK 500 million. Under this agreement, Veidekke pays a fixed interest rate of 2.22% plus a loan margin until June 2018. This agreement is accounted for as hedging.

The value of the Group's interest rate swaps is estimated using the forward rate on the balance sheet date and is confirmed by the financial institution with which the agreement is signed.

Veidekke has ownership interests in five PPP companies: the school projects Skuleveg AS (50%), Skulebygg AS (50%), Skulegard AS (100%), Skuleplass AS (100%) and the road project Allfarveg AS (50%). Long-term fixed-rate financing agreements have been signed for all the projects. Interest rate risk is eliminated by linking the agreed financing to signed lease contracts. There is a more detailed presentation of the PPP projects in note 14.

The current interest rate level is expected to have a significant effect on the demand for the Group's products, particularly among private customers. Therefore, an indirect interest rate risk is inherent in the general market risk. Rising interest rates normally result in lower activity for the Group's building and construction operations and also reduce sales of homes for Property Development.

Fluctuations in currency rates have little direct influence on Veidekke, as its operations are largely national in character and the project cash flows are normally in the same currency. Any substantial currency risks that arise are hedged through forward exchange contracts or similar arrangements. Equity in foreign subsidiaries is not hedged, and any changes will affect the Group's total comprehensive income. Net currency gains in 2016 amounted to NOK 15 million (NOK -5 million).

NOTE 29. FINANCIAL INSTRUMENTS

The carrying value of assets and liabilities can be broken down into the following categories:

Figures in NOK million	Balance sheet as of 31.12.2016	Financial assets and liabilities at fair value through profit and loss	Loans and receivables	Available-for-sale financial assets	Other financial liabilities
Non-current financial assets	649	-	489	159	-
Trade and other receivables	5 494	-	5 494	-	-
Current financial assets	-	-	-	-	-
Cash and cash equivalents	644	-	644	-	-
Total financial assets	6 787	-	6 628	159	-
Non-current interest-bearing liabilities	962	-	-	-	962
Other non-current liabilities	136	-	-	-	136
Current interest-bearing liabilities	44	-	-	-	44
Tax payable	128	-	-	-	128
Other current liabilities	10 918	-	-	-	10 918
Total financial liabilities	12 188	-	-	-	12 188

Financial instruments at fair value 1)

Veidekke's financial instruments recorded at fair value are reconciled in the following table:

Figures in NOK million	Financial assets available for sale	Financial assets at fair value through profit and loss	Interest rate derivatives	Total
Financial instruments at 1 January 2016	131	-	-758	-627
Additions	23	-	-108	-85
Sales / disposal	-2	-	240	238
Gains (losses) recognised in Other comprehensive income	7	-	9	16
Gains (losses) recognised in the income statement	-	-	-	-
Financial instruments at 31 December 2016	159	-	-616	-457

1) Veidekke's share of financial instruments in joint ventures is not included.

The table below analyses financial instruments recorded at fair value according to valuation method. The different levels are defined as follows:

Level 1: Fair value is measured using quoted prices from active markets for identical financial instruments. No adjustment is made for these prices.

Level 2: Fair value is measured using other observable input than that used in level 1, either directly (prices) or indirectly (derived from the prices).

Level 3: Fair value is measured using input that is not based on observable market data.

Figures in NOK million	Level 1	Level 2	Level 3	Total
Financial assets available for sale	-	123	8	131
Interest rate derivatives	-	-758	-	-758
Total at 31 December 2015	-	-634	8	-627
Financial assets available for sale	-	146	13	159
Interest rate derivates	-	-616	-	-616
Total at 31 December 2016	-	-470	13	-457

The carrying value of cash and cash equivalents and liabilities to credit institutions is virtually the same as their fair value, since these instruments have a short maturity term. Correspondingly, the carrying value of trade receivables and trade payables are virtually the same as the fair value, as they are agreed upon under "normal" terms. This also applies to unpaid government charges, tax payable and current liabilities. Non-current liabilities have variable interest rates and continuous interest rate adjustment and therefore the carrying value is substantially the same as the fair value. The fair value of the Group's interest rate hedging is estimated using the forward rate on the balance sheet date and is confirmed by the financial institution with which the agreement is signed.

Financial instruments not recognised at fair value

The following financial instruments are not recognised at fair value: Cash and cash equivalents, trade receivables and other current receivables, debt to credit institutions, trade payables (creditors), unpaid government charges and tax and other current liabilities.

For details concerning maturity structure and credit risk for trade receivables, see note 18 Trade receivables.

The Group's long-term financing

Maturity structure and contractual cash flows for the Group's non-current liabilities are presented in the following table:

		Maturity structure					Total
Figures in NOK million	Carrying value	2017	2018	2019	2020	After 2020	contractual cash flows
Bonds 1)	750	27	761	-	-	-	788
Non-current bank loans 2)	-	-	-	-	-	-	-
Other loans, credit institutions	194	12	147	14	19	14	206
Non-current interest-bearing loans to others	19	-	19	-	-		19
Other non-current liabilities	136	7	17	3	2	107	136
Deferred payment for sites 3)	-	178	299	797	40	23	1 337
Total	1 098	225	1 242	814	61	144	2 486

1) Total contractual cash flows include accumulated interest paid up until the loan expires on 4 June 2018.

2) The Group has a long-term credit facility with DNB with a credit limit of NOK 3.6 billion, of which NOK 0 million had been utilised on 31 December 2016. 3) Includes only site obligations where Veidekke has not taken over control of the site and where the site has not been capitalised in the financial statements.

See note 16.

Effective interest rates for selected financial instruments:

Figures in NOK million	31.12.2016 1)	2016 2)	2015 2)
Liquidity	0.3%	0.3%	0.6%
Current interest-bearing liabilities	2.1%	1.9%	2.2%
Non-current interest-bearing liabilities	2.1%	1.9%	2.2%

1) Actual interest rates at 31 December 2016. The stated interest rates are exclusive of interest rate swaps.

2) Average effective interest rate is calculated as the average of the rates applicable through the year.

At 31 December 2016 the Group had undrawn committed borrowing facilities of NOK 3,600 million (NOK 3,432 million at 31 December 2015). At 31 December 2016 withdrawals from the group account were classified as non-current liabilities, as the credit facility runs until 2020.

Interest rate derivatives

The Group uses interest rate derivatives to hedge against fluctuations in profit as a result of changes in interest rates, i.e. interest rate swaps as cash flow hedging of loans. At 31 December 2016 the Group had two such interest rate derivatives that are consolidated in the financial statements.

Figures in NOK million	Nominal value	Due date	Swap interest rate	Change in value 2016
Skulebygg AS	267	February 2018	0	0
Veidekke ASA - 5-year hedge	500	June 2018	-9	7

The Group uses hedge accounting for the interest rate agreement with a nominal value of NOK 500 million, and it is recorded in the statement of financial position at fair value with revaluation over Other comprehensive income. See the description of interest rate derivatives in PPP companies in note 14.

The Group's short-term financing

Maturity structure and expected cash flow for the Group's current liabilities are presented in the following table:

Figures in NOK million

2016	Carrying value	Payable on demand/ due date not set	0–3 months	3–12 months	Over 12 months	Anticipated cash flow
Current liabilities to credit institutions	4	-	3	1	-	4
Other current interest-bearing liabilities	41	-	1	38	1	41
Trade payables 1)	4 182	1 842	2 291	35	14	4 182
Unpaid government charges	656	-	595	58	3	656
Tax payable	128	-	1	128	-1	128
Current liabilities	6 080	781	902	4 174	223	6 080
Total current financial liabilities	11 090	2 623	3 792	4 434	241	11 090

Figures in NOK million

2015	Carrying value	Payable on demand/ due date not set	0–3 months	3–12 months	Over 12 months	Anticipated cash flow
Current liabilities to credit institutions	2	-	2	-0	-	2
Other current interest-bearing liabilities	42	-	1	39	2	42
Trade payables 1)	3 778	1 813	1 936	19	10	3 778
Unpaid government charges	689	-	574	112	3	689
Tax payable	71	-	3	68	-	71
Current liabilities	3 832	299	817	2 140	576	3 832
Total current financial liabilities	8 413	2 112	3 333	2 378	591	8 413

1) When the due date is not set for trade payables, this is largely related to project accrual due to invoices not having been received.

SPECIFICATION OF «FAIR VALUE ADJUSTMENT» IN THE STATEMENTS OF CHANGES IN EQUITY

Figures in NOK million	2016	2015
Hedge reserves, joint ventures 1)	-87	-77
Interest rate derivatives, wholly-owned companies	-6	-19
Financial assets available for sale, fair value adjustments	7	-
Foreign exchange contracts	-	2
Total	-86	-94

1) NOK -77 (74) millions is related to PPP E39 Lyngdal Flekkefjord. See note 14.

SPECIFICATION OF THE ACCOUNTING ITEM IN OTHER COMPREHENSIVE INCOME

Revaluation of financial assets at fair value

Figures in NOK million	2016	2015
Hedge reserves, joint ventures	-3	3
Interes swap agreements, wholly-owned companies	7	-6
Financial assets available for sale, fair value adjustments	7	-
Foreign exchange contracts	-2	2
Total	8	0

Sensitivity analysis of cash flow for financial instruments Veidekke generally has its strongest financial position at the end of the year. There are seasonal fluctuations in some parts of the organisation, which in turn have an effect on the Group's financial instruments. There may be considerable variation in the Group's contract types and terms of payment. Overall, this means that there are a number of risk factors linked to estimating sensitivity to changes in interest rates.

Based on average interest-bearing liabilities in 2016, our estimate is that a general increase in interest rates of 1 percentage point would lead to a NOK 8 million decrease in profit before tax for the year. A one percentage point decrease in interest rates would cause a corresponding improvement in profit before tax. The assessment does not include the investments in joint ventures.

NOTE 30. COMPENSATION TO SENIOR EXECUTIVES

Declaration to the Annual General Meeting on the principles for determining management salaries

The Board of Directors must report to the Annual General Meeting on how salaries and other compensation to senior executives are determined, as laid down in Section 6-16a of the Public Limited Companies Act. The declaration for 2017 will be enclosed with the Notice of the Annual General Meeting.

Salaries for the Group's senior executives are determined on the basis of information obtained from wage statistics and the responsibilities and complexity of their positions, as well as comparisons with pay levels in other enterprises within and outside the industry. The company's strategy is to offer salaries that are competitive, but not above those of other similar companies. A bonus programme has been established under which the maximum payment is set at 30% of the annual salary. This is based on budgets and target achievement in relation to agreed action plans. The bonus consists of two parts: the maximum bonus for achievement of financial results is 20% of the annual salary, while the maximum bonus linked to fulfilment of the targets in individual action plans is 10%.

The bonus for achievement of financial results is based on defined margin targets, with half of the business leaders' bonus linked to the consolidated profit and the other half linked to the business unit's profit. The bonus for the heads of staff related to financial performance is based on the consolidated results. Veidekke's senior executives also participate in the Group's general programme of offering shares to managers at discount prices. Veidekke has no share option schemes.

Implemented management compensation policy for 2016 and effects for the Group and the shareholders of agreements both entered into and revised

The salary adjustments in 2016 have been made in accordance with the declaration that was submitted to the Annual General Meeting on 10 May 2016. There have been no significant changes in the salary conditions for senior executives. For 2016 the company had a bonus scheme for the President and CEO and senior executives with a maximum achievable bonus of 30% of their annual salary. The bonus is calculated on the basis of the Group's and the individual business unit's results in terms of margin, as well as achievement of individual goals. Of the maximum bonus achievement of 30%, 20% was bonus linked to Group and business unit performance and 10% was bonus based on targets defined in individual action plans.

President and CEO

There is a 12 month mutual period of notice for the President and CEO. On termination of employment the President and CEO is guaranteed a further 12 months' salary. A deduction will be made from this guaranteed salary for any salary or other remuneration he may receive from any new employers. The President and CEO is entitled to resign from his position on reaching the age of 64. The annual early retirement pension shall, from the date of retirement and until he reaches 67 years of age, account for 60% of the salary on retirement from the position of President and CEO. Any payments from the National Insurance, the early retirement scheme (AFP), collective insurance schemes and paid-up policies will be deducted from the guaranteed pension.

A retirement pension will be paid for life from the age of 67. This life-long pension constitutes 60% of his salary above 12G. For salary up to 12G, a pension is earned in accordance with the ordinary pension scheme for employees in Norway. The annual early retirement and the retirement pension for salaries exceeding 12G are adjusted each year according to the annual increase in the consumer price index from the date of retirement. If Veidekke's annual pay settlement is lower than the annual increase in the consumer price index, this rate can be used as the basis for adjustment instead.

The President and CEO participates in Veidekke's employee share programme and purchased a total of 2,100 shares through the programme in 2016. This share programme is discussed in more detail in note 5. Veidekke has granted a loan to the President and CEO for the purchase of Veidekke shares amounting to NOK 1.1 million at 31 December 2016. The loan is currently interest-free, is being repaid on an ongoing basis, and is secured by collateral in the shares. The interest rate advantage has been reported to the tax authorities.

Corporate management

Members of the corporate management have employment contracts stipulating a mutual notice period of six months. Upon termination, they are guaranteed salary for a further 12 months. Salaries and other remuneration received from potential new employers will be deducted from the guaranteed salary.

Dag Andresen, Terje Larsen and Jørgen Wiese Porsmyr are entitled to take early retirement from the age of 64. During the period from resignation to the age of 67, an annual pension will be paid equivalent to 60% of the pensionable salary on retirement from the position of executive vice president. A retirement pension will be paid for life from the age of 67 and will be the equivalent of 60% of the pensionable salary on retirement. The annual early retirement and retirement pension are adjusted each year according to the annual increase in the consumer price index from the date of retirement. If Veidekke's annual pay settlement is lower than the annual increase in the consumer price index, this rate can be used as the basis for adjustment instead. Any payments from the National Insurance, the early retirement scheme (AFP), collective insurance schemes and paid-up policies will be deducted from the guaranteed pension.

Hege Schøyen Dillner and Lars Erik Lund will receive a pension and are entitled to retire at the age defined in the ordinary pension scheme for employees in Norway. See note 21 for more information about Veidekke's pension arrangements.

For Jimmy Bengtsson, the ordinary retirement age is 65. He has a defined-contribution plan, where Veidekke pays 35% of his salary in annual premiums. If his contract is terminated by Veidekke, he will receive resignation compensation equal to 12 months' salary in addition to salary during the six-month notice period.

The corporate management participates in Veidekke's employee share programme and purchased a total of 9,860 shares through the programme in 2016. This share programme is discussed in more detail in note 5.

Veidekke has granted loans to members of the corporate management for the purchase of Veidekke shares amounting to NOK 4.3 million at 31 December 2016. A list of loans to members of the corporate management team is shown in the table on the next page. The loans are currently interest-free and are secured by collateral in the shares.

COMPENSATION TO THE PRESIDENT AND CEO AND THE CORPORATE MANAGEMENT TEAM

	2016
Figures in NOK thousand	Salary	Paid bonus	Car, phone, interest rate advantage etc.	Total compensation	Total compensation
PRESIDENT AND CEO
Arne Giske	3 674	700	249	4 623	4 440
CORPORATE MANAGEMENT
Dag Andresen	3 049	650	213	3 912	3 762
Hege Schøyen Dillner	2 103	400	5	2 508	2 594
Jørgen Wiese Porsmyr	2 710	550	179	3 438	3 335
Terje Larsen	2 433	500	18	2 952	2 934
Jimmy Bengtsson 1)	2 630	196	169	2 995	-
Lars Erik Lund 2)	538	-	1	538	-
Per-Ingemar Persson 1)	-	-	-	-	3 933
Total CEO and corporate management	17 136	2 996	834	20 966	20 998

Figures in NOK thousand	Year's change in pension rights	Present value of pension liabilities	Premium pension plan	Loan for share purchases	Earned bonus
PRESIDENT AND CEO
Arne Giske	1 576	24 613	-	1 117	850
CORPORATE MANAGEMENT
Dag Andresen	2 268	20 533	-	676	650
Hege Schøyen Dillner	-	-	266	62	450
Jørgen Wiese Porsmyr 2)	2 167	14 266	-	578	650
Terje Larsen	1 960	13 623	-	660	550
Jimmy Bengtsson 1)	-	-	1 103	2 332	618
Lars Erik Lund 2)	-	-	22	-	200
Total CEO and corporate management	7 971	73 035	1 391	5 425	3 968

1) Per-Ingemar Persson retired from his position as head of the Swedish operations on 31 December 2015. Jimmy Bengtsson took over on 1 January 2016. 2) Joined the corporate management team on 1 October 2016.

COMPENSATION TO THE BOARD OF DIRECTORS:

			Total	Loan for share
Figures in NOK thousand	Fees	Salary 1)	compensation	purchases
Martin Mæland (chair)	584	-	584	-
Per Otto Dyb (deputy chair)	338	-	338	-
Hans von Uthmann	338	-	338	-
Annika Billström 2)	289	-	289	-
Gro Bakstad	366	-	366	-
Ann-Christin Andersen	289	-	289	-
Ingalill Marie Berglund 3)	-	-	-	-
Inge Ramsdal (employee representative)	240	676	916	-
Odd Andre Olsen (employee representative)	240	1 105	1 345	-
Arve Fludal (employee representative)	240	737	977	417
Total Board of Directors	2 924	2 519	5 443	417

1) Total salary compensation for work other than board-related work done for Veidekke during term of service.

2) Board member until 5 May 2016. Salary compensation during term of board service.

3) Board member from 5 May 2016. Salary compensation in period after appointment to the Board.

Veidekke has established audit, compensation and property committees. Compensation for participation in these committees is included in the board members' fees.

For an overview of corporate management and Board shareholdings, see note 20.

REMUNERATION TO AUDITORS:

Figures in NOK thousand	2016	2015
Statutory audit	14 262	13 604
Tax-related assistance	836	695
Other services in addition to auditing	710	-
Total remuneration to auditors	15 808	14 299

Remuneration excludes VAT.

NOTE 31. LEASE COMMITMENTS AND RENTAL INCOME

Leasing commitments

Veidekke has various non-cancellable lease agreements linked to properties, sites, operating equipment, etc. The lease agreements are due for payment as shown in the table below:

LEASING COMMITMENTS FOR VEIDEKKE

	Rent Operating equipment 1)		Other commitments
Figures in NOK million	2016	2015	2016	2015	2016	2015
Expenses this year	160	127	71	48	2	2
Expenses next year	113	104	31	27	-	-
Total expenses next 2–5 years	284	304	48	41	-	-
Total expenses after 5 years	71	121	-	-	-	-

1) Operating equipment that has been leased for a building construction project and where the lease expires during the construction period are not included in this statement.

Rental income

Veidekke has various lease agreements linked to properties, sites, operating equipment, etc. Income from these kinds of leases is presented in the table below:

VEIDEKKE'S INCOME FROM LEASE OF PROPERTIES

Figures in NOK million	2016	2015
Rental income this year	44	24
Rental income next year	22	35
Total rental income next 2–5 years	21	56
Total rental income after 5 years	-	-

NOTE 32. DISPUTES AND CLAIMS RELATED TO PROJECTS

Through its ongoing operations, Veidekke is involved in disputes with clients regarding the interpretation and understanding of signed contracts. This applies particularly to complex projects where the contract terms are demanding and large sums of money are involved. Veidekke strives to resolve these kinds of disputes outside the courts whenever possible, but some cases must nevertheless be decided by arbitration or in court. Disputes may be Veidekke's claims on customers (additional claims) and customers' claims on Veidekke (remedy of defects, compensation, etc.). Thorough assessments are conducted in connection with disputed claims to ensure the most correct reporting in the accounts. Reference is made to the Group's accounting policies:

"The revenue recognition for additional claims against the client and disputed amounts with a high level of uncertainty is based on assessments of the likely outcome of the dispute. The degree of uncertainty in the estimates will affect the proportion of the claim that is recognised in the income statement."

At year-end Veidekke was involved in 15 disputes for claims over NOK 10 million, which are being processed by the judicial system. A total of 10 disputes were resolved during the year, either through a court ruling or through negotiations with the contracting client.

At year-end 2016 Veidekke had unresolved final settlements related to some infrastructure projects. Outstanding claims after deductions for recognised provisions and assessment of uncertain income in these projects were in the range of NOK 400 million (excl. VAT) at 31 December 2016.

NOTE 33. RELATED PARTY TRANSACTIONS

Veidekke's related parties include associates and joint ventures (see note 13), Veidekke's shareholders, members of the Board and senior executives in Veidekke.

Veidekke has stakes in associates and joint ventures, and these are reported in Veidekke's accounts using the equity method.

TRANSACTIONS WITH ASSOCIATES (ASS.) AND JOINT VENTURES (JV):

	2016		2015
Figures in NOK million	Ass.	JV	Ass.	JV
REVENUE
Construction operations	215	1 745	115	977
Industrial operations	-	26	-	11
Property development operations	-	87	-	225
Total revenue	215	1 858	115	1 213
STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER
Receivables	23	213	42	302
Liabilities	-	3	10	3

OBOS BBL has a 17.8% stake in Veidekke and is also a major business partner. The collaboration with OBOS consists in the joint development of residential projects and in deliveries by Veidekke to companies within the OBOS Group.

The residential projects developed in partnership with OBOS are undertaken through the establishment of joint ventures. There are currently eight companies that are jointly controlled by OBOS and Veidekke with ongoing projects.

TRANSACTIONS WITH OBOS

Figures in NOK thousand	Revenue 2016	Receivables 31.12 2016
OBOS	801	97
Joint ventures 1)	232	17

1) 50% owned by OBOS and 50% by Veidekke Eiendom (Property Development Norway).

Other than this, Veidekke does not have any agreements or transactions that have any significant effect on the submitted accounts.

NOTE 34. EVENTS AFTER THE REPORTING DATE

No events have occurred after the balance sheet date that have significant effect on the financial statements.

NOTE 35. ALTERNATIVE PERFORMANCE MEASURES

Veidekke generally reports its financial results in line with International Financial Reporting Standards (IFRS). In addition, the following alternative performance measures are also reported:

Net interest-bearing debt

This key figure expresses the Group's financial position and is determined on the basis of the Group's capitalised interest-bearing debt on the date of calculation, less bank deposits and interest-bearing receivables, both current and non-current. This key figure is also included in the calculation of covenants in the loan agreement. This performance indicator is presented in the Board of Directors' Report and note 27.

Order backlog

The order backlog provides an indication of future activity in the Group's construction operations. The order backlog is defined as contracted and signed contracts on the measurement date. This key figure also includes road maintenance contracts in Industrial's Road Maintenance unit, but only those parts of the contracts that will be executed during the next 18 months. This performance indicator is presented in notes 2 and 7.

Capital invested in property development operations

Capital invested is defined as the sum of book equity and net interest-bearing debt and is an expression of the capital tied up in property development operations. The Group has a maximum investment limit of NOK 4.0 billion for investments in property development operations.

Return on invested capital in Property Development

Property Development's performance is measured by return on invested capital, calculated using the following formula:

Profit before tax + interest expenses + tax in joint ventures (Opening balance invested capital

• Closing balance invested capital) / 2

The figures used in the formula are taken from the segment reporting. Interest expenses include all expensed interest expenses, both those classified as interest expenses and those classified as cost of materials (operating expenses) in the accounts.

The calculation is adjusted to take account of the fact that the profit reported by joint ventures has already been taxed. This performance indicator is presented in the Board of Directors' Report under the discussion of Property Development and also under strategic objectives.

Sales ratio in Property Development

Sales rate indicates the risk that units under construction will not be sold and is calculated using the following formula:

Sales value of signed contracts for sold residential units Total sales value of all projects under construction

For projects carried out in associates or joint ventures, only Veidekke's share of the project is included. See note 16.

Number of unsold units under construction

This figure is the number of units under construction that have not been sold on the reporting date. See note 16.

Site portfolio

The site portfolio provides an expression of possible future activity in the various markets in Property Development. The site portfolio consists of sites owned by Veidekke on the measurement date, sites for which there is a binding contract for transfer in the future, and signed options where it is expected that Veidekke will exercise the option. See note 16.

NOTE 36. CORPORATE STRUCTURE

OVERVIEW OF THE MAIN SUBSIDIARIES IN THE GROUP:

			Ownership share
Figures in NOK million	Business area	Head office	2016	2015
Veidekke Entreprenør AS	Construction	Oslo, Norway	100%	100%
- Block Berge Bygg AS	Construction	Klepp, Norway	100%	100%
- Kynningsrud Fundamentering AS	Construction	Fredrikstad, Norway	80%	79%
- Leif Grimsrud AS	Construction	Halden, Norway	80%	80%
Hoffmann A/S	Construction	Glostrup, Denmark	100%	100%
Veidekke Sverige AB	Construction	Stockholm, Sweden	100%	100%
- Veidekke Entreprenad AB	Construction	Stockholm, Sweden	100%	100%
- Arcona AB	Construction	Stockholm, Sweden	100%	100%
- Veidekke Bostad AB	Property development	Stockholm, Sweden	100%	100%
-VeiBo Group AB	Property development	Stockholm, Sweden	100%	100%
Veidekke Eiendom AS	Property development	Oslo, Norway	100%	100%
- Veidekke Bolig AS	Property development	Oslo, Norway	100%	100%
Veidekke Industri AS	Industrial	Oslo, Norway	100%	100%

Altogether the Group consists of approx. 50 operative subsidiaries owned directly or indirectly by Veidekke ASA.

INCOME STATEMENT VEIDEKKE ASA

Figures in NOK million	Note	2016	2015
Revenue		108	133
Personell expenses	1, 10	-83	-95
Other operationg expenses	3	-112	-75
Depreciation		-4	-1
Total operating expenses		-198	-170
Operation profit		-90	-37
Dividends and group contributions from subsidiaries	2	835	851
Other financial income	2	74	45
Financial costs	2	-49	-67
Profit before tax		769	792
Income tax expense	9	-85	-53
Profit for the year		684	739
Allocation of profit
Dividend		602	535
Other equity		82	204
Total		684	739

Figures in NOK million	Note	2016	2015
ASSETS
Non-current assets
Deferred tax assets	9	22	23
Property and machinery	4	31	9
Investments in subsidiaries	5	2 429	2 255
Investments in associates and joint ventures	6	92	66
Financial investments	7	147	131
Other non-current receivables	7	161	160
Total non-current assets		2 882	2 644
Current assets
Receivables from group companies	13	869	851
Other receivables		5	29
Cash and cash equivalents		3	-
Total current assets		877	880
Total assets		3 759	3 524
EQUITY AND LIABILITIES
Equity
Share capital		67	67
Other equity		1 491	1 405
Total equity	8	1 557	1 472
Non-current liabilities
Pension liabilities	10	121	128
Bonds	11	750	750
Debts to credit institutions	11	374	306
Total non-current liabilities		1 245	1 184
Current liabilities
Trade payables		55	43
Taxes payable	9	23	2
Dividends payable	8	602	535
Current liabilities to group companies	13	269	279
Other current liabilities		8	11
Total current liabilities		956	869
Total equity and liabilities		3 759	3 524

STATEMENT OF FINANCIAL POSITION VEIDEKKE ASA AT 31 DECEMBER

STATEMENT OF CASH FLOWS VEIDEKKE ASA

Figures in NOK million Note	2016	2015
OPERATING ACTIVITIES
Profit before tax	769	792
Recognised dividends and group contributions, not yet paid	-841	-849
Received dividends and group contributions from subsidiaries	845	309
Group contributions to subsidiaries	-278	-92
Tax paid 9	-	-39
Depreciation	4	1
Effects of items directly over equity	-7	8
Gains / losses on sale of property 4	-	-25
Gains / losses on sale of shares 2	-26	-
Pensions, difference expensed/paid	5	-4
Generated from this year's activities	471	101
Change in other current assets	12	-1
Change in other items	-30	-23
Net cash flow from operating activities (A)	453	77
INVESTING ACTIVITIES
Acquisition of tangible non-current assets 4	-25	-
Sale of property 4	-	27
Proceeds from sale of shares	47	-
Equity contributions in subsidiaries	-18	-
Cash flow from financial investments 7	-	407
Net cash flow from investing activities (B)	4	434
FINANCING ACTIVITIES
New long-term loans	68	306
Repayment current liabilities	-	-364
Dividends received from joint ventures	12	15
Dividends paid	-535	-468
Net cash flow from financing activities (C)	-455	-511
Total net change in cash and cash equivalents (A+B+C)	3	0
Cash and cash equivalents at 1 January	0	0
Cash and cash equivalents at 31 December	3	0
Supplementary information
Borrowing facility DNB 1)	3 600	3 600
Used committed borrowing facilities at 31 December	-	168

ACCOUNTING POLICIES

The parent company Veidekke ASA is a holding company with no operations. Its activities consist of investments in subsidiaries and associated companies, and its income consists of dividends and group contributions from these companies. In addition, Veidekke ASA invoices its subsidiaries for their share of costs related to administration of the Group. Veidekke ASA prepares its financial statements in accordance with Norwegian accounting standards.

Investments in subsidiaries and joint ventures are accounted for using the cost method. This means that investments are booked at cost price, and only distributions from the companies are recognised in income. Investments are written down if the carrying value exceeds fair value.

The parent company applies the same accounting policies as the Group, except for the point in time when dividends and group contributions and financial instruments (interest swaps) are recognised in the accounts.

Group contributions are recognised in the income statement in the same year as they are accrued by the subsidiary. Dividends from subsidiaries are recognised in the income statement in the same year as they are allocated in the subsidiary (the year before distribution). The dividend proposed in Veidekke ASA was recognised as a liability on 31 December 2016.

Unless otherwise specified, all amounts are in NOK million.

NOTE 1. PERSONNEL EXPENSES

Figures in NOK million	2016	2015
Payroll	63	69
Pension costs	9	10
National Insurance contributions	7	9
Other payroll costs (social benefits etc.)	4	6
Total	83	95
Number of fulltime equivalents	47	49
Number of employees at 31 December	45	50

NOTE 2. FINANCIAL INCOME AND FINANCIAL EXPENSES

Figures in NOK million	2016	2015
Dividend and group contributions from subsidiaries	835	851
Interest income	34	29
Dividends from joint ventures	12	15
Foreign currency gains	-	1
Proceeds from sale of shares	26	-
Other financial income	2	-
Total other financial income	74	45
Interest costs	-39	-49
Foreign currency losses	-8	-
Other financial costs	-2	-18
Total financial costs	-49	-67
Net financial items	859	829

NOTE 3. REMUNERATION TO AUDITORS

In 2016 remuneration to the auditors was NOK 1.1 million for auditing, NOK 0.2 million for other assistance, and NOK 0.3 million for tax-related assistance. The corresponding figures for 2015 are NOK 0.9 million, NOK 0.1 million and NOK 0.1 million. All amounts are stated excluding VAT.

NOTE 4. PLANT, MACHINERY, LAND AND BUILDINGS

			Plants under
Figures in NOK million	Properties	Machinery	development	Total 2016	Total 2015
Carrying value at 1 January	8	1	-	9	12
Original cost at 1 January	11	14	-	24	61
Acquisitions	-	15	10	25	-
Disposals original cost sold operating equipment	-	-	-	-	-37
Original cost at 31 December	11	29	10	49	24
Accumulated depreciations at 1 January	-2	-13	-	-15	-49
Impairment	-0	-3	-	-4	-1
Accumulated depriciation sold operating equipment	-	-	-	-	35
Accumulated depriciation at 31 December	-3	-16	-	-18	-15
Carrying value at 31 December	8	13	10	31	9
Depriciation method	Linear	Linear	No
Depreciation rate	2–5%	10–25%	depreciation

NOTE 5. SHARES IN SUBSIDIARIES

Company	Location	Ownership share (%)	Value in the state ment of financial position 1)
Veidekke Entreprenør AS	Oslo	100	720
Veidekke Eiendom AS	Oslo	100	671
Hoffmann A/S	Copenhagen	100	366
Veidekke Industri AS	Oslo	100	322
Veidekke Sverige AB	Lund	100	296
Veidekke Danmark AS	Copenhagen	100	22
Hovinmoen Utvikling AS	Oslo	100	18
Skuleplass AS	Oslo	100	13
Skulegard AS	Oslo	100	1
Total			2 429

1) Carrying value in Veidekke ASA' s accounts at 31 December 2016 (cost method).

NOTE 6. SHARES IN ASSOCIATES AND JOINT VENTURES

Company	Location	Ownership share (%)	Carrying amount in NOK million 1)
Allfarveg AS	Oslo	50	66
Skulebygg AS	Oslo	50	21
Skuleveg AS	Oslo	50	5
Total			92

1) Carrying amount in Veidekke ASA' s accounts at 31 December 2016 (cost method).

NOTE 7. FINANCIAL INVESTMENTS AND OTHER NON-CURRENT RECEIVABLES

Figures in NOK million	2016	2015
Share loans to employees	161	160
Financial assets	147	131
Total	308	291

See note 15 to the group statements for further information on share loans to group employees.

The company has invested NOK 146 million in a combination fund consisting of both bonds and shares. The investment is intended to cover incurred pension liabilities and has been pledged.

NOTE 8. RECONCILIATION OF EQUITY

Figures in NOK million	2016	2015
Equity at 1 January	1 472	1 262
Profit for the year	684	739
Dividends payable	-602	-535
Change in value of net pension assets	4	6
Equity at 31 December	1 557	1 472

Figures in NOK million	Share capital	Share premium	Other equity	Total equity
Equity at 1 January	67	304	1 101	1 472
Profit for the year			684	684
Dividends payable			-602	-602
Change in value of net pension assets			4	4
Equity at 31 December	67	304	1 186	1 557

NOTE 9. INCOME TAX EXPENSE AND DEFERRED TAX

Figures in NOK million	2016	2015
INCOME TAX EXPENSE
Tax payable in the statement of financial position	23	2
Tax payable on group contributions	67	46
Change in deferred tax	-1	6
Adjustment previous year	-4	-
Total income tax expense	85	53
RECONCILIATION OF THE GROUP'S TAX RATE
25% of profit before tax (2015: 27%)	192	214
Actual income tax expense	85	53
Difference	107	161
DIFFERENCE IN INCOME TAX EXPENSE
Tax-exempted dividends from subsidiaries	98	163
Tax-exempted gains from sale of shares	6	-
Effect of change in tax rate	-1	-2
Adjustments previous year	4	-
Total	107	161
DEFERRED TAX
Temporary differences
Current items	-5	-3
Gains and loss account	34	42
Operating equipment	-2	-2
Pensions	-121	-128
Basis for deferred tax	-94	-91
Deferred tax (- deferred tax asset) 24% (2015: 25%)	-22	-23
Recognised deferred tax (- deferred tax asset)	-22	-23

NOTE 10. PENSIONS

Figures in NOK million	2016	2015
PENSION COSTS
Current service cost	6	3
Interest cost on net pension liabilities	3	3
Gain from termination of disability pension plan	-3	-
Cost of defined-benefit plan	5	6
Cost of defined-contribution plans	4	4
Pension costs	9	10
Pension liabilities	200	209
Pension assets	-79	-81
Net pension liability	121	128
Change in value (actuarial gains and losses)	-5	8
Change in value after tax recognised directly in equity	-4	6

The company is required by law to have occupational pension arrangements under the Norwegian Mandatory Occupational Pension Act. The company's pension plans comply with the statutory requirements laid down in this Act. See the accounting policies and the presentation of the schemes in note 21 to the consolidated accounts.

NOTE 11. NON-CURRENT LIABILITIES

At 31 December 2016 the recorded non-current liability consists of bond loans and drawings on the Group's account. Veidekke has borrowing facilities in DNB of NOK 3,600 million, which run until 2 November 2020. Veidekke ASA is responsible for the Group's total withdrawals from the group account, which at 31 December 2016 totalled NOK 0. For further details see notes 28 and 29 to the consolidated accounts.

NOTE 12. GUARANTEES

At 31 December 2016 Veidekke ASA has provided guarantees for its subsidiaries totalling approx. NOK 3 100 million in connection with specific construction projects for Group companies. The company has a current bank guarantee to cover payroll tax obligations.

NOTE 13. RECEIVABLES AND LIABILITIES WITH GROUP COMPANIES

Figures in NOK million	2016	2015
Trade receivables from group companies	1	2
Outstanding dividends and group contributions	839	849
Other short-term receivables from group companies	30	-
Total receivables from group companies	869	851
Trade payables to group companies	1	1
Outstanding group contributions	268	278
Total liabilities to group companies	269	279

NOTE 14. OTHER NOTES

The following requirements are covered in notes to the consolidated accounts:

• Note 20: Number of shares, shareholders etc.

• Note 28: Financial risk

• Note 29: Financial instruments

• Note 30: Compensation to senior executives

DECLARATION IN ACCORDANCE WITH ARTICLE 5-5 OF THE SECURITIES TRADING ACT

We hereby confirm that, to the best of our knowledge and belief, the Group and company financial statements for 2016 have been prepared in compliance with current accounting standards, and that the information in the accounts gives a true and fair view of the Group and company assets, liabilities and financial position, as well as the results of their operations in their entirety.

The Board of Director's Annual Report gives a true and fair view of the Group and company development, result and position, as well as of the main risk and unceirtanty factors the Group is faced with.

Oslo, 27 March 2017 The Board of Directors

Martin Mæland Chair

Per Otto Dyb Deputy Chair

Hans von Uthmann Odd Andre Olsen Inge Ramsdal Arve Fludal

Gro Bakstad Ingalill Berglund Ann-Christin Andersen

Arne Giske President and CEO

CORPORATE GOVERNANCE

Veidekke's principles for good corporate governance form a solid foundation that enables the company to create lasting value for its shareholders, employees and society at large.

1. Statement on corporate governance

Good corporate governance is the responsibility of the Board of Directors. Veidekke's reporting is in accordance with the most recent version of the «Norwegian Code of Practice for Corporate Governance», dated 30 October 2014, and explanations are provided for any deviations from the Code of Practice. Below is an account of Veidekke's implementation of the provisions in the Code of Practice. The statement on corporate governance will be considered at the Annual General Meeting on 10 May, 2017. The company's auditor has checked that the information provided in this statement pursuant to section 3-3b of the Accounting Act is consistent with the information provided in the financial statements.

For the Group to achieve its objectives over time, a number of important factors must be in place. Veidekke maintains a firm focus on profitable operations and good risk management, combined with its strong corporate culture. The company's core values – professional, honest, enthusiastic and ground-breaking – shall guide and be reflected in all the employees' behaviour in all their dealings. In addition, all employees shall comply with the company's ethical guidelines and policies for compliance with the Competition Act. The guidelines are available at veidekke.com/en/corporate-governance.

2. Operations

Veidekke's operations are defined in its Articles of Association, which are available on Veidekke's website under «Corporate Governance».

Veidekke ASA is a public limited company. Its registered head office is in Oslo, and the Group has operations in Norway, Sweden and Denmark. Veidekke's operations are managed by the companies Veidekke Entreprenør (Construction), Veidekke Eiendom (Property Development) and Veidekke Industri (Industrial), all in Norway, and Veidekke Sverige in Sweden and Hoffmann in Denmark.

Veidekke's operations in Norway and Sweden include building construction and civil engineering projects, renovation and specialised civil engineering contracts, as well as development of sites and construction of residential and non-residential buildings. In Norway, Veidekke is also engaged in asphalt operations, production of aggregates, and road maintenance. In Denmark, operations mainly comprise building construction and renovation projects.

The Group has a decentralised business model in terms of distribution of responsibilities and authority, entailing a high degree of responsibility and authority in the various units. This ensures closer proximity to our customers and suppliers, which has proven to be an advantage for Veidekke in the competition for contracts, and thereby increasing business opportunities for the Group.

The corporate management team consists of the President and CEO, the heads of the three business areas (Construction, Property Development and Industrial), the head of the operations in Sweden, and three heads of the central staff functions.

3. Equity and dividends

At 31 December 2016 Veidekke had an equity ratio of 19.9%. This is within the defined target with regard to capital strength, optimised risk-adjusted yield and future investment requirements.

The Group's growth is expected to be primarily organic, but Veidekke also considers acquisition opportunities in the Group's business areas in Scandinavia. Veidekke has a strong financial position and uses its own financial resources to carry out such acquisitions.

Veidekke aims to give its shareholders a stable, high return on their investment in the company. To achieve this, ambitious strategic targets have been set at the unit level. The target for Construction is a profit margin of 5.0%, while the actual profit margin for 2016 was 3.3%. Operations in Norway reported a profit margin of 4.0%, operations in Sweden had a profit margin of 1.3%, while operations in Denmark achieved a profit margin of 6.2%. The target for the business area Industrial is a profit margin of 6.5%. Industrial's profit margin target is higher than that for Construction because of this business area's higher proportion of tied-up capital. Industrial achieved a profit margin of 3.3% in 2016. The target for Property Development is a return on invested capital of 15%. Return on invested capital was 21.4% in 2016. The Group must have a strong financial position, and with its current balance sheet structure, a gearing ratio of 40–60% at year-end would fulfil these minimum requirements. At 31 December 2016 the Group had a gearing ratio of 0. Veidekke is working on a number of measures to ensure profitability through improved competitiveness. This includes control of risk exposure and capital efficiency, as well as participative planning processes and other measures to improve efficiency.

Dividend policy

Veidekke's target is to distribute at least 50% of the Group's profit for the year to the shareholders. A dividend of NOK 4.5 per share is proposed for the 2016 financial year. This corresponds to a dividend pay-out ratio of 68% (IFRS). The Board justifies this proposal on the basis of the company's dividend target and the company's strong financial position. The dividend must be approved by the Annual General Meeting.

Board authorisation – capital expansion

Each year the Board of Directors is authorised by the Annual General Meeting to increase the share capital by up to NOK 6.5 million, divided into 13 million new shares, each with a nominal value of NOK 0.50. This authorisation may be used when deemed necessary, for example in connection with corporate takeovers, the company's schemes whereby employees can buy shares in the company, and for investment in real property. The authorisation helps ensure that the company can undertake necessary transactions quickly and efficiently, as needs dictate. In the event that this authorisation is exercised, the shareholders' pre-emptive rights are disapplied and the Board must explain the reasons for the decision.

Board authorisation – buyback of own shares

The Board of Directors has been authorised by the Annual General Meeting to buy back Veidekke shares at a total nominal value of up to NOK 6.5 million, which is equivalent to just under 10% of Veidekke's share capital. The reason for this authorisation is to ensure the highest possible return for the shareholders over time and, if the share price appears favourable, purchase of own shares will be a good supplement to dividends. Share buyback may also be relevant if the equity and liquidity situation is good and there are limited other attractive investment opportunities. It is the company's intention to cancel these shares at the next Annual General Meeting.

4. Equal treatment of shareholders and transactions with related parties

It is the company's policy to treat all shareholders equally.

Veidekke's main shareholder is OBOS, which has an ownership share of 17.8%. There are rules regarding impartiality, which ensure that resolutions do not favour the main shareholder in any contexts. OBOS is a major property developer, and for several years OBOS and Veidekke have worked together on the development of a number of property projects. In order to ensure that all terms and conditions and agreements are based on commercial terms, it has been the practice of the two parties, Veidekke and OBOS, to set up a company of which they each own 50%. These companies develop and sell projects. This helps ensure that the main shareholder does not gain an unfair advantage at the expense of the other shareholders. If significant transactions are carried out with major shareholders over and above ordinary commercial contracts, independent consultants are engaged to ensure a correct valuation.

Whenever possible, existing shareholders have pre-emptive rights in the event of capital increases.

The Board's rules of procedure provide guidelines concerning the duty of board members and the President and CEO to disclose any conflicts of interest. The board members have a duty to disclose any conflicts of interest.

Veidekke works continuously to maintain the employees' ownership share, and strives each year to give the employees the opportunity to buy shares at a discount. Veidekke regards the involvement of its employees as shareholders as an important and positive element in the development of the company. The company's aim is for at least half of its employees to hold shares in the company, totalling at least 15% of the shares. Veidekke offers financial assistance for share purchases, with a lock-in period of two to three years. At the end of 2016, 3,767 employees held a combined 14.9% stake in the company. It also wishes each of its senior executives (903 people) to hold a significant number of shares in the company. This group currently has a combined stake of 10.5%.

The Group abides by the Oslo Stock Exchange's insider trading rules and trade restrictions. See the section on shareholder information for more details about the insider trading rules for employees.

5. Freely negotiable shares

Veidekke has one class of shares, and there are no marketing restrictions for trading. In 2016, 25.0 million shares were traded on the Oslo Stock Exchange, with a turnover rate of 18.1%. The Group works continuously to maintain satisfactory liquidity in Veidekke shares. This is done primarily through good ongoing communication with investors and the market. See also «Shareholder information».

6. Annual General Meeting

Veidekke strives to ensure that all shareholders can exercise their rights by participating in the Annual General Meeting and that it is an effective meeting place for shareholders and the Board. In 2017 the Annual General Meeting will be held on 10 May.

Notice of the meeting and case documents are published on the company's website no later than three weeks before the Annual General Meeting is held. Shareholders can participate in the Annual General Meeting by attending in person or by proxy. Proxy forms are distributed with the notice of the meeting. Shareholders who are unable to attend the Annual General Meeting, either in person or by proxy, may vote in advance on each individual item of business.

In addition to the company's management, the Board of Directors, the Nomination Committee and the auditor attend the Annual General Meeting. The Chair of the Board usually opens the meeting and asks the meeting to propose a chair for the meeting. If no proposals are made, it is standard practice for the Chair of the Board to offer to chair the meeting. The minutes of the Annual General Meeting are published the first working day after the meeting.

7. Nomination Committee

Use of a nomination committee is stipulated in the company's Articles of Association. The Nomination Committee submits recommendations to the Annual General Meeting on the election of members for the Board of Directors and for the Nomination Committee, and proposes Board fees. Candidates who are nominated for the Board should be shareholders or representatives of shareholders. The Nomination Committee contacts managers, board members and relevant shareholders in connection with preparing recommendations.

The Nomination Committee shall have at least three members. The majority of the Nomination Committee must be independent of the Board of Directors and the company's management. The company's Chief Executive Officer or other senior executives may not be members of the Nomination Committee.

The Annual General Meeting elects the Nomination Committee's chair and other members, and determines the remuneration of the committee members. Since it is the responsibility of the Nomination Committee to propose candidates for the Board of Directors, there is no deadline for the submission of such proposals to the Nomination Committee. Shareholders can submit Board candidate proposals to the Nomination Committee via the company's website. In 2016 the Nomination Committee consisted of Harald Norvik (chair), Erik Must, Olaug Svarva, and Jan Tore Berg-Knutsen (until May 2016) and Arne Baumann (from May 2016).

8. Corporate assembly, Board of Directors, composition and independence

The Board of Directors is Veidekke's highest administrative body and is responsible directly to the Annual General Meeting. Six members are elected by the shareholders, and three are elected by and from among the employees. The shareholder-elected board members are elected for one year at a time.

In 2003, Veidekke entered into an agreement with its employees that the company would not have a corporate assembly. In return, the employees' representation on the Board of Directors was increased. Since the Group does not have a corporate assembly, the Board elects its own chair as laid down in the Public Companies Act. The Board also elects its own deputy chair.

In determining the composition of the Board, importance is attached to safeguarding the joint interests of the shareholders and the skills, capacity and diversity of the company. Effort is made to have board members from all three Scandinavian countries. The composition of the Board of Directors of Veidekke ASA complies with the provisions of the Public Companies Act regarding the percentage of women in listed companies.

The composition of the Board of Directors ensures that it is able to act independently of the shareholders' special interests. The Board's rules of procedure also contain instructions for dealing with issues in which a board member has a vested interest. The rules in the Articles of Association governing the election of the Nomination Committee help ensure the Board of Directors' independence.

All board members who are elected by the shareholders are independent of the company's management. The Chair of the Board was President and CEO of OBOS, Veidekke's main shareholder, from 1983 to 2015.

According to the company's Articles of Association, board members ought to own shares in the company themselves or be representatives of shareholders.

9. The work of the Board Of Directors

The Board of Directors defines targets, lays down strategies and budgets, and actively contributes expertise and experience. In accordance with adopted plans, the Board carries out an annual review of the company's business areas, and follows a systematic annual plan for matters to be discussed at board meetings. Nine ordinary board meetings are held each year.

The work of the Board is laid down in its rules of procedure, and each year it evaluates its own work and competence.

The Audit Committee

The Audit Committee is composed of three board members elected by the shareholders, and its work is governed by mandates and instructions that have been approved by the Board. The task of the Audit Committee is to develop the collaboration between the Board and the management, and between the Board and the external auditors. On behalf of the Board, the Audit Committee shall make itself familiar with and develop insight into and knowledge of accounting and financial matters, supervision and risk management in the Group. The Committee reports to the Board of Directors.

In 2016 the Audit Committee consisted of Gro Bakstad (chair), Hans von Uthmann and Ann-Christin Andersen.

The Remuneration Committee

The Remuneration Committee is composed of three board members elected by the shareholders, and its work is governed by mandates and instructions that have been approved by the Board. The Committee submits proposals to the Board on salaries and compensation schemes for the President and CEO. The Committee also gives advice to the President and CEO on salaries and compensation schemes for the management. The Committee reports to the Board of Directors.

In 2016 the Remuneration Committee consisted of Martin Mæland (chair), Per Otto Dyb and Hans von Uthmann.

The Property Committee

The Property Committee is composed of three board members elected by the shareholders, and its work is governed by mandates and instructions that have been approved by the Board. The Property Committee reviews all major investment decisions to ensure good internal control and sufficient checks in connection with major purchases of land for development. In 2016 the Remuneration Committee consisted of Annika Billström (chair until May 2016, when she resigned from the Board of Veidekke ASA), Martin Mæland (chair from May 2016), Gro Bakstad and Ingalill Berglund (member from May 2016).

10. Risk management and internal control

The ability to plan, structure, execute and evaluate building processes is a key skill at Veidekke. Effective management is a central critical success factor for the company and an integrated part of the running of the business. With a large number of projects in progress at any time, systematic reporting from each project to each division is needed, from where it can be passed on to the corporate management and Board. Reporting is performed ten times per year and covers financial and non-financial parameters. Each project must focus on profitability, liquidity, risk, injuries, absence and the environment.

The management continuously monitors the overall portfolio of projects to ensure an acceptable level of risk exposure and a sound basis for profitability. The management systems for the different businesses provide clear guidelines for risk management in the tendering phase and for how projects are to be carried out with regard to quality, progress, cost-effectiveness, health, safety and the environment.

These tools play an important part in ensuring quality in our order backlog and a uniformly high standard in the execution of projects. The status and profitability of the order backlog is an important item on the agenda for the management of the individual companies, the corporate management and the Board of Directors.

Risk exposure in the property development operations, through unsold completed units and unsold units under construction, is measured continuously. The start-up of new property development projects will be postponed if the risk for Veidekke's own account is deemed to be too high. The Property Committee helps ensure good internal control with regard to starting any new projects for own account and site acquisitions.

Veidekke's financial policy provides guidelines for the different entities' financial management and activities. The objective of the guidelines is to avoid, limit, control and measure financial risk, promote capital rationalisation and optimise the Group's financial resources.

Planning

Veidekke's financial and strategic planning is based on the company's «annual planning wheel». A fixed agenda is defined throughout the year for the production of framework documents, strategy plans, budgets and monitoring of the businesses.

Financial management

The Group is governed by clear financial objectives linked to profit margins, capital yield and capital structure. These objectives are then broken down and translated into achievable targets in the businesses, which have clear requirements regarding profitability and cash flow. In Construction and Industrial, requirements are set for the projects' profit margins, including financial items. Property Development is a capital-intensive business, and performance here is measured by return on invested capital.

Financial reporting

Veidekke's Group accounts are prepared in accordance with the applicable IFRS regulations. The Group's chosen accounting policies are communicated to the businesses divisions with particular emphasis on new and significant standards and any amendments to them. Accounting information is reported through the Group's common reporting system. All companies report to the Group ten times a year based on information from their own systems. The reporting system has an overall chart of accounts and has built-in control systems to ensure consistency of information. Reporting is expanded for yearend financial reporting to meet the disclosure requirements.

Consolidation and control of accounting information takes place at several levels of the organisation, in accordance with Veidekke's decentralised business model. Each unit is responsible for compliance with the applicable laws and regulations for financial reporting, and for seeking assistance from the division and/or corporate staff in cases requiring significant judgement or transactions outside the ordinary course of business. The Group has a special procedure that it follows in connection with the purchase and sale of businesses.

The greatest risk in a project-based organisation is associated with financial reporting related to the correct status and risk assessment of projects. Veidekke therefore attaches importance to ensuring it has the necessary project reporting expertise. For example, courses are held in relevant financial and management systems.

Ethical guidelines

Using the company's core values – professional, honest, enthusiastic and ground-breaking – as a basis, Veidekke has drawn up ethical guidelines for its employees. The guidelines are implemented through the active participation of the employees in the process, discussions and involvement in ethical issues that the company's activities raise. The company's ethical guidelines are available on Veidekke's intranet and website.

Reporting irregular activities

In-house rules have been drawn up for reporting irregular activities («whistle-blowing») in the company, and an external ombudsman has been appointed. The guidelines are available on Veidekke's intranet.

Compliance with competition law

Veidekke has a comprehensive compliance programme that gives the employees insight into the basic rules of competition law that apply to Veidekke's activities. The purpose of the programme is to increase understanding of and ensure compliance with relevant laws and regulations. This compliance programme is accessible on Veidekke's intranet and website.

11. Remuneration of board members

Remuneration of board members is determined by the Annual General Meeting based on the recommendations of the Nomination Committee. The remuneration reflects the Board's responsibility, expertise and time commitment, and is independent of the company's financial results.

None of the board members elected by the shareholders have special responsibilities over and above what follows from their office. See also note 30.

Several of the board members hold shares in Veidekke. These members are listed in note 20. None of the board members have share option agreements.

12. Remuneration of senior executives

A statement is given to the Annual General Meeting each year regarding the company's guidelines for remuneration of senior executives.

Salaries for the company's executives are based on information obtained from comparative statistics showing pay levels in other enterprises in the industry and other relevant enterprises. The company's strategy is to offer salaries that are competitive, but not above those of other similar companies. A bonus scheme has also been established where the maximum payment to each individual is set at 30% of their annual salary. This scheme has been incorporated into budgets and is linked to target achievement in a pre-determined action plan. Managers also participate in Veidekke's general share programme under which employees are invited each year to purchase Veidekke shares at a discount price and with financial assistance. For further information, see the section on shareholder information.

Veidekke has no share option schemes. See also notes 5 and 30.

13. Information and communication

Investor relations have a central place in Veidekke. The company attaches importance to providing high-quality information based on openness and transparency in a timely manner, thus ensuring that the share price reflects the assets of the company.

Veidekke complies with the Oslo Stock Exchange's Code of Practice for Investor Relations of 10 June 2014. The management meets investors and the financial market both in Norway and abroad several times a year and makes active use of the feedback from these meetings. To ensure that identical information is made available to investors and the market, these kinds of meetings are based on information provided in connection with publication of the quarterly accounts. See also «Shareholder information».

14. Corporate takeover

If an offer is received to take over the company's shares, the company's Board of Directors should not use authorisations or pass other resolutions that obstruct the offer unless this has been approved by the Annual General Meeting after the offer is known. Veidekke departs from the recommendation in the Norwegian Code of Practice for Corporate Governance that the board of directors should establish guiding principles for how it will act in the event of a take-over bid. The company has not found it necessary to establish such guidelines, but the Board will abide by the principles set forth in the Code.

15. Auditor

The external auditor attends at least two board meetings a year, including the meetings dealing with the annual accounts and audit summary. Arrangements are made to ensure that the Board of Directors has the opportunity to ask the auditor questions without the management being present. The auditor attends all the meetings of the Audit Committee. The plan for the execution of the audit is presented to the Audit Committee. At these meetings, the auditor also presents a report from the interim audit and a report for the annual accounts, in which the auditor gives his/her opinion on the quality of internal control in all parts of the Group, and discusses any accounting problems revealed by the audit. Veidekke has guidelines for the scope and type of additional services provided by the auditor. Each year the auditor confirms to the Board of Directors in writing that he/she meets the stipulated requirements regarding independence.

See note 30 for more detailed information about the amount of services provided.

16. Corporate social responsibility

Veidekke requires that all business units in the company abide by the respective national laws and regulations in Norway, Sweden and Denmark. A number of guidelines and models have been established that govern the company's behaviour in society, and the company works to continuously improve and implement these across the organisation.

The ISO guidance standard on social responsibility, ISO 26000, which was launched in December 2010, provides advice on how to integrate CSR into the organisation and how companies can best contribute to sustainable development through their activities. Veidekke uses ISO 26000 to inspire and guide the continuous improvement and systematisation of its corporate social responsibility work. Veidekke uses the Global Reporting Initiative (GRI) 4 as the basis for its corporate social responsibility reporting. For more information on corporate social responsibility in Veidekke, see Veidekke's CSR Report on http://veidekke.com/en.

Statsautoriserte revisorer Ernst & Young AS

Dronning Eufemias gate 6, NO-0191 Oslo Postboks 1156 Sentrum, NO-0107 Oslo

Foretaksregisteret: NO 976 389 387 MVA Tlf: +47 24 00 24 00 Fax: +47 24 00 24 01 www.ey.no Medlemmer av Den norske revisorforening

INDEPENDENT AUDITOR'S REPORT

To the Annual Shareholders' Meeting of Veidekke ASA

Report on the audit of the financial statements

Opinion

We have audited the financial statements of Veidekke ASA comprising the financial statements of the parent company and the Group. The financial statements of the parent company comprise the balance sheet as at 31 December 2016, the income statement and the statements of cash flows for the year then ended and notes to the financial statements, including a summary of significant accounting policies.

The consolidated financial statements comprise the balance sheet as at 31 December 2016, the income statement, statements of comprehensive income, cash flows and changes in equity for the year then ended and notes to the financial statements, including a summary of significant accounting policies.

In our opinion,

• ► the financial statements are prepared in accordance with the law and regulations;
• ► the financial statements present fairly, in all material respects, the financial position of the parent company as at 31 December 2016, and of its financial performance and its cash flows for the year ended in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway;
• ► the consolidated financial statements present fairly, in all material respects the financial position of the Group as at 31 December 2016 and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU.

Basis for opinion

We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Norway, and we have fulfilled our ethical responsibilities as required by law and regulations. We have also complied with our other ethical obligations in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for 2016. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the financial statements.

Revenue recognition in construction operations

Revenues from projects in the construction operations are recognised in accordance with the percentage of completion method, determining the final profit and progression based on estimates. The degree of uncertainty is related to the expected total revenues, costs, the outcome of disputes and any other commitments that form the basis of these estimates. The projects can be complex and continue for several years. The recognition of revenues from projects has been a key audit matter due to the estimation uncertainty, the projects complexity and significance of the amounts.

We evaluated the application of the accounting principles and routines for monitoring projects, tested controls related to project evaluations and the recognition of revenue. We discussed the status on selected projects with project management and the Company's management by region and unit, and visited selected projects. For selected contracts, we tested project revenue against agreements, assessed the treatment of additional and change orders in addition to disputes and claims. We also tested costs charged to the projects against invoices and timesheets, assessed the estimated total project costs, assessed the estimated final profit against comparable projects and analysed the development in profit for selected projects and for the total project portfolio. In addition, we have performed analyses of actual profits on selected projects against estimated final profit throughout the project period in order to evaluate management's accuracy in judgments and estimates.

Note 7 has information on construction projects in progress and note 24 on trade payables and other current liabilities.

Disputes and claims in large infrastructure projects

The Group has some disputes with customers regarding the interpretation and understanding of contracts. This applies particularly to infrastructure projects where the contractual amounts are significant and the projects and contracts are complex. The disputes and claims concern both claims from Veidekke against the customers (due to contracts with variable volumes and the settlement of volumes, etc.) as well as claims from customers against Veidekke (remedy of defects, compensations etc.). Management uses a significant degree of judgment in the consideration of such disputes. Disputes and claims have been a key audit matter due to estimation uncertainty, the disputes' complexity and the significance of the amounts.

We assessed and tested the Company's internal controls related to the identification, evaluation and follow-up of disputes. We evaluated management's assessment of estimates and possible outcome of disputes. We discussed the knowledge of disputes with management on various levels in the Group, reviewed relevant internal and external correspondence and had meetings with the in-house legal department in addition to obtaining statements from external and in-house lawyers. We assessed the actual outcome of historical disputes and possible relevance for existing cases.

We refer to note 1 for information on areas involving significant estimation uncertainty, and note 32 for information regarding disputes and claims related to projects.

Other information

Other information consists of the information included in the Company's annual report other than the financial statements and our auditor's report thereon. The Board of Directors and President & CEO (management) is responsible for the other information. Our opinion on the financial statements does not cover the other information, and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information, and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Independent auditor's report – Veidekke ASA

A member firm of Ernst & Young Global Limited

Responsibilities of management for the financial statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway for the financial statements of the parent company and International Financial Reporting Standards as adopted by the EU for the financial statements of the Group, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with law, regulations and generally accepted auditing principles in Norway, including ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• ► identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• ► obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control
• ► evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• ► conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• ► evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• ► obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other

Independent auditor's report – Veidekke ASA

A member firm of Ernst & Young Global Limited

matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements

Opinion on the Board of Directors' report and in the statements on corporate governance and corporate social responsibility

Based on our audit of the financial statements as described above, it is our opinion that the information presented in the Board of Directors' report and in the statements on corporate governance and corporate social responsibility concerning the financial statements, the going concern assumption and proposal for the allocation of the result is consistent with the financial statements and complies with the law and regulations.

Opinion on registration and documentation

Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements (ISAE) 3000, «Assurance Engagements Other than Audits or Reviews of Historical Financial Information», it is our opinion that management has fulfilled its duty to ensure that the Company's accounting information is properly recorded and documented as required by law and bookkeeping standards and practices accepted in Norway.

Oslo, 27 March 2017 ERNST & YOUNG AS

Erik Mamelund State Authorised Public Accountant (Norway)

(This translation from Norwegian has been made for information purposes only.)

Independent auditor's report – Veidekke ASA

A member firm of Ernst & Young Global Limited

SHAREHOLDER INFORMATION

Veidekke is and shall be a financially robust company, where good profitability and operations create value for our shareholders in the form of a high and stable return. In 2016 Veidekke shares delivered a total return of 17.5%. A dividend per share of NOK 4.0 was paid.

There is often a clear correlation between return on shares (measured by rising share prices and dividends) and the company's value creation over time. Value creation is primarily reflected in the company's current financial results. Veidekke is listed on the Oslo Stock Exchange (Oslo Børs), and shares are traded on the main index under the ticker symbol VEI. All shares have equal rights and are freely transferable.

Turnover and returns

2016 saw a total of 25.0 million Veidekke shares traded on the Oslo Stock Exchange, yielding a turnover rate of 18.1%. By comparison, 37.3 million shares were traded in 2015, yielding a turnover rate of 27.9%. There were 65,629 trades of Veidekke shares during the year, compared with 77,679 the previous year. At the close of 2016 the share price was NOK 123.50, which corresponds to a market value of NOK 16.5 billion. In 2016 Veidekke shares delivered a return including dividends of 17.5% to its shareholders. By comparison, the return on the Oslo Stock Exchange was 12.1%.

Dividend

Veidekke's dividend policy calls for a pay-out ratio of at least 50% of the profit for the year.

The Board proposes a dividend of NOK 4.5 per share for the 2016 financial year, compared with NOK 4.0 for 2015, corresponding to a pay-out ratio of 68%, compared with 70% in 2015. Shareholders will thus receive a direct return of 3.6%, based on the share price at the end of the year, which was NOK 123.50.

The dividend will be paid on 24 May 2017 to all the shareholders who are registered as owners on the date of the Annual General Meeting, which has been set for 10 May 2017.

Ownership structure

At the close of the year Veidekke had 9,029 shareholders, compared with 8,704 at the beginning of the year. The largest shareholders in the company are OBOS (17.8%), Folketrygdfondet (12.5%) and IF Skadeforsäkring AB (6.9%). A total of 3,767 employees own shares in the company, with a combined stake of 14.9%, compared with 15.4% in 2015. During the year foreign ownership decreased to 26.7% from 28.7%.

Veidekke's share capital at 31 December 2016 was NOK 66,852,471, divided into 133,704,942 shares of NOK 0.50 each. Veidekke has one share class, and each share carries one vote.

Employee co-ownership

Employee ownership has always been a priority in Veidekke, ever since its initial public offering in 1986. The management firmly believes that employee co-ownership promotes increased loyalty and commitment, motivation, and understanding of the business. The employees benefit from the company's value creation and gain a long-term perspective on the company's development. The co-ownership scheme is important to attract and retain employees.

All trainees who join Veidekke are given shares worth NOK 10,000. Apprentices who stay on in Veidekke after passing their trade examination are given shares worth NOK 1,000.

Each spring and autumn Veidekke gives the employees the opportunity to buy Veidekke shares at a discount. The discount for share purchases without financial assistance is 30% of the market price of the shares; the discount with financial assistance is 20%. The shares have a lock-in period of three and two years respectively. There is great interest in buying shares through these schemes: in 2016 a total of 2,978 employees bought shares under the scheme, and 1.66 million shares worth NOK 138.5 million were awarded.

Authorisation to issue shares and purchase of own shares

The Annual General Meeting has authorised the Board of Directors to issue and buy back shares. The Board of Directors is authorised to issue up to 13 million shares. Since 1986 this authorisation has been successively renewed. This authorisation has not been used since 2004. The Board of Directors is also authorised to purchase the company's own shares for a total nominal value of up to NOK 6.5 million, equivalent to just under 10% of the share capital. This authorisation has not been used since 2009. See also the section on corporate governance for more information on the Board's authorisations.

Inside information

The company's internal insider trading rules are stricter than is required by the Securities Trading Act. In addition to the extended statutory duty to investigate, the company observes the duty to obtain clearance for primary insiders, in order to ensure more thorough compliance with the duty to investigate. This is in keeping with the recommendations of the Oslo Stock Exchange. Veidekke has also drawn up internal rules, which apply to all employees in key positions and to senior union representatives. These rules entail, among other things, that trading in Veidekke shares is prohibited during the four weeks prior to the publication of the interim results and that employees must exercise great caution at all times when buying and selling Veidekke shares.

The investor market

Veidekke's main aim for its investor market work is to build trust by ensuring that all parties are treated equally in terms of equal access to identical financial information. Dialogue with investors, analysts and other stakeholders in the financial markets helps ensure that the Group's values are reflected in the pricing of the Veidekke share.

Interim results are reported in accordance with the financial calendar printed on the inside cover of this Annual Report. Veidekke holds presentations for shareholders, investors, brokers, analysts, the press and employees in connection with the disclosure of the annual and interim results. These presentations can be followed via webcast. The company publishes information in Norwegian and English. Veidekke's quarterly reports, analyst presentations, economic activity reports, and other important press releases and presentations, as well as information about the Veidekke share, share price, shareholder information, up-to-date lists of shareholders and analysts who follow the Veidekke share are available on our website at: http://veidekke.com/en/.

SHARE PRICE DEVELOPMENT, INDEXED 1)

1) The share prices in this graph have been adjusted for dividends. The scale is logarithmic. Source: Oslo Stock Exchange and Veidekke

LARGEST SHAREHOLDERS AT 31 DECEMBER 2016

	Ownership share in %
OBOS BBL	17.8
Folketrygdfondet	12.5
IF Skadeforsäkring AB	6.9
Handelsbanken Fonder	3.4
Danske Invest Norske Instit. II	2.1
Must Invest AS	2.1
MP Pensjon PK	2.0
Swedbank Robur (Smabolagsfondnorden)	1.5
Verdipapirfondet DNB Norge (IV)	1.4
Taiga Fund	1.3
Total ten largest shareholders	51.0
Employees (3 767 shareholders)	14.9
Others	34.1
Total	100.0

There is a list of the 20 largest shareholders on Veidekke's website, which is updated each week. The company's share registrar is Nordea.

SHARE DISTRIBUTION AT 31 DECEMBER 2016:

Shareholding	From	To	No. of shareholders	No. of shares	%
	1	100	1 938	91 066	0.1
	101	1 000	3 438	1 678 876	1.2
	1 001	10 000	2 792	9 862 4883	7.4
	10 001	100 000	743	19 671 052	14.7
	100 001		118	102 401 065	76.6
Total			9 029	133 704 942	100.00

		Amount paid in	No. of shares after increase	Share capital
	Form of issue	(NOK millioner)	(1,000)	after increase	Adjustment factor
1986	Dispersion issue, price NOK 11.71	25.3	3 053	30.5
1986	Issue employees, price NOK 10.54	3.1	3 113	31.1
1988	Bonus issue 5:1		3 736	37.4	0.833
1989	Merger Hesselberg Vei		4 693	46.9
1989	Dividend shares	0.5	4 746	47.5	0.998
1990	Merger Folke A. Axelson A/S		4 802	48.0
1990	Dividend shares	0.6	4 861	48.6	0.999
1991	Merger Stoltz Røthing Haugesund A/S		4 912	49.1
1991	Merger Aker Entreprenør A/S		5 623	56.2
1995	Issue employees, price NOK 26.24	8.0	5 698	57.0
1998	Share split 1:2		11 396	57.0
2000	Share split 1:2		22 791	57.0
2000	Rights issue 6:1	191.2	26 590	66.5	0.981
2001	Issue employees, price NOK 42.00	19.0	27 039	67.6
2002	Issue employees, price NOK 43.00	11.6	27 309	68.3
2003	Issue employees, price NOK 44.00	13.2	27 609	69.0
2004	Issue employees, price NOK 66.00	66.0	28 609	71.5
2007	Share split 1:5		143 045	71.5
2007	Cancellation of shares		140 164	70.1
2008	Cancellation of shares		135 959	68.0
2009	Cancellation of shares		133 705	66.9

KEY FIGURES FOR THE VEIDEKKE SHARE

	2016	2015	2014	2013	2012
Market price at 31 December	123.50	108.50	73.75	48.8	44.0
- high	126.50	109.00	74.25	51.25	48.8
- low	96.75	69.50	46.0	43.5	37.9
Earnings per share 1)	6.6	5.7	6.3	4.1	3.9
Market price/earnings (P/E)	18.7	19.0	11.7	11.9	11.3
Market price/book value per share (P/B)	4.8	4.5	3.6	2.7	2.7
Dividend per share	4.50	4.0	3.5	3.0	2.5
Pay-out ratio (%)	68	70	55.5	73.2	64.1
Turnover rate (%)	18.7	27. 9	23.9	20.1	15.1
Earnings yeld (%)	3.6	3,7	4.7	6.1	5.7
Outstanding shares (average million)	133.7	133.7	133.7	133.7	133.7
Market price at 31 December (NOK million)	16 512	14 507	9 861	6 525	5 883
No. of shareholders at 31 December	9 029	8 704	7 328	7 356	7 306

1) No dilutive effect.

ARTICLES OF ASSOCIATION FOR VEIDEKKE ASA

(Gjeldende fra 7. mai 2014)

Article 1 The name of the Company is Veidekke ASA. The Company is a public limited company.

The Company's purpose is construction and property development activities, and other economic activities related with the aforementioned. Activities may be conducted by the Company itself, by subsidiaries at home and abroad, or through participation in other companies or in cooperation with others.

• Article 2 The Company's registered office is in Oslo.
• Article 3 The Company's share capital is NOK 66 852 471 divided into 133 704 942 shares, each with a nominal value of NOK 0.50 fully paid and registered by name. The Company's shares shall be registered in the Norwegian Central Securities Depository.
• Article 4 Each share carries one vote at the Annual General Meeting of the Company.
• Article 5 The Company's Board of Directors shall have from seven to nine members. A maximum of six members and alternates shall be elected by the Annual General Meeting. A maximum of three members and alternates for those members shall be elected by and from among the Company's employees in accordance with regulations issued in pursuance of provisions in the Public Limited Companies Act [Norway] relating to employee representation on the board of directors of public limited companies. The period of office is one year. The Board of Directors elects its chairperson.
• Article 6 The Company shall have a nomination committee. The committee shall have at least three members. The Annual General Meeting shall elect the nomination committee's chairperson and other members and determine the remuneration of the committee's members. The term of office is one year. The nomination committee shall submit a recommendation to the Annual General Meeting on the election of members to the nomination committee. Nominated candidates should be shareholders or representatives of shareholders. The proposal for a new nomination committee shall be such that the majority of the new nomination committee is independent of the Board of Directors and senior executives of the Company. The nomination committee may not propose the Company's chief executive officer or other senior executives as members of the nomination committee. The Board of Directors shall submit a recommendation to the Annual General Meeting on the remuneration of the nomination committee's members. The nomination committee shall submit a recommendation to the Annual General Meeting on the election of and fees to be paid to members of the Board of Directors. The nomination committee shall justify its recommendations.
• Article 7 Two members of the Board jointly or one member of the Board and the President and CEO jointly shall have the right to sign on behalf of the Company.
• Article 8 The Annual General Meeting is held each year no later than the end of May at a time and place determined by the Board of Directors. Notice shall be sent in writing at least three weeks in advance. The notice shall be accompanied by the agenda. Shareholders or proxies for those shareholders who wish to attend and vote at the Annual General Meeting must give notification to this effect to the Company before the deadline stated in the notice. The deadline must not expire more than five days prior to the Annual General Meeting.

The Annual General Meeting shall:

• Adopt the annual accounts and annual report, including employment of profit or covering of loss, and approve the distribution of a dividend.
• Elect members of the nomination committee.
• Determine the number of Board members, elect the Board members who by law shall not be elected by the employees and any alternates for the Board members elected by the shareholders.
• Consider the Board of Directors' statement on remuneration to senior executives.
• Deal with other business that is by law to be addressed by the General Meeting.
• Article 9 Unless otherwise provided for in these Articles of Association, the provisions in the Public Limited Companies Act [Norway] shall apply.

VEIDEKKE'S HISTORY

Veidekke was founded in 1936 as a cobblestone cutting and laying company in Østfold county. The business gradually expanded and took on road improvement projects in several municipalities and counties in eastern Norway. The real breakthrough came in 1948, when the small company was awarded the major civil engineering contract for the construction of Sola Airport in Stavanger. With time Veidekke became a central player in airport construction in Norway, and in the late 1950s it undertook its first overseas assignment: construction of an airport in Ethiopia.

Large civil engineering projects accounted for the bulk of the business in the 1960s and '70s, and in the following decades the company became a sizeable road builder. Other major civil engineering projects, such as construction of power stations and large industrial facilities for the oil sector, were added as new market areas.

The 1980s were marked by structural changes in the construction industry, and several of the larger construction companies merged. Veidekke's strategy was to continue to develop as an independent company, marking the beginning of an era of acquisitions. A total of ten companies were merged into the Group during this decade. Since then, over 70 other companies have joined the Group. In the 1980s Veidekke expanded into a new market: residential and non-residential building construction. Another milestone was the listing on the Oslo Stock Exchange in 1986.

The acquisition of Aker Entreprenør in 1991 resulted in a doubling of the company's revenue, marking the advent of a decade of strong growth. In addition Veidekke decided to focus on the residential segment with property development as a new business area, while also looking to expand into neighbouring countries. The company established civil engineering operations in Gothenburg in 1998 in partnership with local players, marking the beginning of Veidekke's development as a Scandinavian construction company. In 2000 Veidekke acquired Denmark's oldest and fourth largest construction company, Hoffmann A/S, and in the same year the company also established construction and property development operations in Sweden.

Today Veidekke is Norway's largest and Scandinavia's fourth largest construction and property development company. The ambition is to continue to develop the company within the existing product and market segments, based on a strategy of profitable growth.

TOGETHER, WE BUILD THE FUTURE

Veidekke is one of Scandinavia's largest construction and property development companies. The company undertakes all types of building construction and civil engineering contracts, maintains public roads and produces aspahlt and aggregates. The company is characterised by involvement and local knowledge. Turnover is NOK 30.1 billion (2016), and half of the 7,400 employees own shares in the company. Veidekke is listed on the Oslo Stock Exchange and has always posted a profit since it was founded in 1936.

Veidekke – local presence, Scandinavian strength.

veidekke.com/en