Veidekke — Audit Report / Information 2014

Mar 9, 2015

ECONOMIC ACTIVITY REPORT

Skøyen, 9 March Rolf Albriktsen Kristoffer Eide Hoen

HOW DID WE DO....?

	Our forecast for 2014	Actual figures for 2014
Norway
Construction and civil engineering market	-1%	-1.5% *
House prices	3%	8.6%
Residential building	26 000	27 000
Sweden
Construction and civil engineering market	5%	12%
House prices (Stockholm)	8%	9%
Residential building	34 000	38 500 *
Denmark
Construction and civil engineering market	4%	4%*

HIGHLIGHTS

• Norway: Lower GDP growth
• Lower activity in the oil sector will have repercussions
• Civil engineering operations are driving investments in construction and civil engineering
• Sweden: The Swedish economy continues to perform well
• Growth across the board in the construction and civil engineering market
• Denmark: Growth, but markets continue to be demanding
• The capital region and a handful of large cities are leading the recovery

Photo: Arbyreed/Creative Commons

THE ECONOMY IN GENERAL

INTERNATIONAL ECONOMIES

GDP GROWTH 2014–2016
	2014	2015	2016
Euro zone	0.8	1.2	1.4
Germany	1.5	1.3	1.5
United Kingdom	2.6	2.7	2.4
USA	2.4	3.6	3.3
China	7.4	6.8	6.3
Global	3.3	3.5	3.7

HIGHLIGHTS

• Continued economic recovery globally
• Moderate improvement in our export markets
• Commodity prices have fallen, especially for oil
• With both positive and negative effects on growth in Scandinavia
• Interest rates likely to remain low for a long time

SLOWER GROWTH IN THE NORWEGIAN ECONOMY

GROWTH FORECASTS FOR NORWAY	HIGHLIGHTS
Annual average (%)	2012–2014	2015–2016*
GDP growth for mainland Norway	2.9	1.6
Growth in employment	1.5	0.2
Unemployment (level)	3.4	4.0
Key policy rate (level)	1.5	1.2

Source: Statistics Norway and * Forecasts Norges Bank

• Uncertainty regarding the effect of reduced oil activity on the Norwegian economy
• Negative forces:
  • Lower demand from the oil sector
  • Weaker employment market and income growth
• Positive forces:
  • Interest rate rises postponed or even cut further?
  • Improved competitiveness due to exchange rates
  • Strong public finances
• Regional differences in development

CONTINUING GROWTH

GROWTH FORECASTS FOR SWEDEN HIGHLIGHTS

Annual average (%)	2012–2014	2015–2016*
GDP growth	0.9	2.7
Employment growth	1.1	1.2
Unemployment (level)	8.0	7.6
Interest – key interest rate (level)	0.6	0.1

Source: Statistics * Forecasts Sweden

• Increase in GDP growth towards 2016
• Further boosted by the export sector
• Positive development for households
• The employment market will develop positively
• Interest rates will remain low for some time
• Political consensus to minimise public deficits
• Higher tax or reduced expenditure?

GROWTH FROM LOW LEVEL

GROWTH FORECASTS FOR DENMARK	HIGHLIGHTS
Annual average (%)	2012–2014	2015–2016*
GDP growth	-0.1	1.8
Employment growth	0.1	0.5

GDP growth	-0.1	1.8
Employment growth	0.1	0.5
Unemployment (level)	5.7	4.8
Key policy rate (level)	0.3	0.2

* Forecasts Source: The Danish Construction Association and Danske Bank

• Growth at long last ... (?)
• Expect ~ 2 per cent GDP growth in 2016
• Interest rates will remain low
• Positive signals in the Copenhagen region
• Growth in other major cities too
• Rising house prices
• Supporting growth in consumption and new dynamism in the residential market

NORWEGIAN CONSTRUCTION AND CIVIL ENGINEERING MARKET: NEW GROWTH WITH REGIONAL DIFFERENCES

STABLE PRODUCTION

PRODUCTION INDEX FOR CONTRACTORS HIGHLIGHTS

• Rising trend in production among contractors
• Matches our investment estimates
• Civil engineering: decline in production in the last half year
• Major transport projects play a key role
• Building construction: Residential and commercial buildings increasing steadily
• Growth largely due to public commercial buildings
• Private commercial buildings levelling off

NEW RESIDENTIAL AND CIVIL ENGINEERING PROJECTS

CONTINUED NEW INFLOW OF NEW ORDERS

THE RESIDENTIAL MARKET: HOUSE PRICES ROSE MORE QUICKLY THAN EXPECTED

HOUSE PRICES HIGHLIGHTS

• Prices of resale homes rose 8.6 per cent in 2014
• Low interest rates, low unemployment and good income growth
• Growth has continued into 2015
• High turnover rate
• Prices up 5 per cent in 2015 and 3 per cent in 2016
• Developments in the Norwegian economy are an important driver
• Low interest rates are boosting growth

WEAKER MARKET IN ROGALAND

DECLINING DEMAND FOR COMMERCIAL BUILDINGS IN ROGALAND

RESIDENTIAL MARKET: REGIONAL DIFFERENCES

HOUSE PRICES AND TRENDS

Apartments	Price level January 2015 NOK per m2	Change Jan. 14 to Jan. 15
Oslo	53 360	10.3%
Bergen	39 923	10.3%
Trondheim:	38 836	8.2%
Stavanger	41 891	3.1%
		Source: Finn / Norwegian Real Estate Association (EFF)

HIGHLIGHTS

• The metropolitan regions continue to have rapidly rising prices
• The Stavanger area is pulling the figures down
• Centralisation will continue to contribute to rapidly rising prices in urban areas

THE RESIDENTIAL MARKET: HOUSING STARTS

Dashed line = Veidekke's projection

REGISTERED RESIDENTIAL BUILDING PERMITS HIGHLIGHTS

• Over 27,000 residential building permits in 2014
• Good sales of new homes in autumn 2014 have boosted residential building
• Residential building on the same level (27,000) in 2015 too
• The metropolitan regions will continue to enjoy a strong residential market
• Continued strong sales of new homes
• Declining to around 26,000 homes in 2016
• Increasing unemployment
• Weaker income growth
• Access to plots that are ready to be developed

COMMERCIAL BUILDINGS: MORE SCHOOLS

SLOWER GROWTH WITHIN COMMERCIAL BUILDINGS

REGISTERED COMMERCIAL BUILDING PERMITS HIGHLIGHTS

• Drivers for the start-up of commercial buildings
• Private: Employment, interest rates and income trends
• Public: State and municipal finances, centralisation
• Stable development in commercial buildings
• Unchanged activity in private commercial building
• Continued growth in public buildings

CIVIL ENGINEERING INVESTMENTS

INVESTMENTS IN CIVIL ENGINEERING (VOLUME 2011 PRICES) HIGHLIGHTS

• 6 per cent growth in the civil engineering market this year and next year
• Capacity challenges in respect of planning of new facilities
• Road investments are still dominated by large projects
• The Follobanen rail project is buoying up growth in railways
• Increasing activity in the power sector
• Growth in upgrades of existing facilities
• Wind power is growing

Source: Statistics Norway and Veidekke 18 * Annual growth rate 2014–2016

CIVIL ENGINEERING INVESTMENTS EXAMPLES OF MAJOR CIVIL ENGINEERING PROJECTS

EXAMPLES OF PROJECTS WORTH OVER NOK 1 BILLION 2015–16

Project	County
E 39 Svegatjørn – Rådal	Hordaland
E 134 Damåsen – Saggrenda	Buskerud
E 136 Ålesund – Breivika	Møre og Romsdal
Rv 4 Roa – Gran	Oppland
E18 Rugtvedt – Dørdal	Telemark
E39 Rogfast	Rogaland
New Sotra link	Hordaland
Port terminal	Kirkenes
Saugland Power station	Telemark

CONSTRUCTION AND CIVIL ENGINEERING MARKETS IN NORWAY

INVESTMENTS IN CONSTRUCTION AND CIVIL ENGINEERING (VOLUME 2011 PRICES) HIGHLIGHTS

• Continued high levels of activity in the construction and civil engineering market in 2015 and 2016
• Growth of around 2 per cent in the total market
• Housing investments to rise by approx. 1 per cent p.a.
• 1 per cent growth for private commercial buildings
• 3 per cent annual growth for public commercial buildings
• Continued growth from a high level of activity within civil engineering

SWEDISH CONSTRUCTION AND CIVIL ENGINEERING MARKET: 2015 GOT OFF TO A GOOD START

CONSTRUCTION AND CIVIL ENGINEERING COMPANIES' EXPECTATIONS

BUILDING PERMITS FOR COMMERCIAL BUILDINGS HIGHLIGHTS

• The market performed exceptionally well in 2014
• Housing starts were up 22 per cent
• Prices continued to rise sharply in the largest cities
• Annual investment growth of approx. 4 per cent in 2015 and 2016
• Improvements in the employment market
• Population growth remains strong
• Expectations regarding interest rates have been further lowered
• Are there any limits to growth?
• Rapidly rising prices and amortisation requirements are causing a slight drop in the housing affordability index

Dashed line = Veidekke's projection. The dashed line for 2014 is Statistics Sweden's own preliminary estimate

HOUSE PRICES AND FORECASTS HIGHLIGHTS

• The market performed exceptionally well in 2014
• Housing starts were up 22 per cent
• Prices continued to rise sharply in the largest cities
• Annual investment growth of approx. 4 per cent in 2015 and 2016
• Improvements in the employment market
• Population growth remains strong
• Expectations regarding interest rates have been further lowered
• Are there any limits to growth?
• Rapidly rising prices and amortisation requirements are causing a slight drop in the housing affordability index

UNEMPLOYMENT HIGHLIGHTS

• The market performed exceptionally well in 2014
• Housing starts were up 22 per cent
• Prices continued to rise sharply in the largest cities
• Annual investment growth of approx. 4 per cent in 2015 and 2016
• Improvements in the employment market
• Population growth remains strong
• Expectations regarding interest rates have been further lowered
• Are there any limits to growth?
• Rapidly rising prices and amortisation requirements are causing a slight drop in the housing affordability index

POPULATION. ANNUAL GROWTH (%) HIGHLIGHTS

Dashed line = Veidekke's projection

• The market performed exceptionally well in 2014
• Housing starts were up 22 per cent
• Prices continued to rise sharply in the largest cities
• Annual investment growth of approx. 4 per cent in 2015 and 2016
• Improvements in the employment market
• Population growth remains strong
• Expectations regarding interest rates have been further lowered
• Are there any limits to growth?
• Rapidly rising prices and amortisation requirements are causing a slight drop in the housing affordability index

THE COST OF BUYING A HOME HIGHLIGHTS

• The market performed exceptionally well in 2014
• Housing starts were up 22 per cent
• Prices continued to rise sharply in the largest cities
• Annual investment growth of 4 per cent in 2015 and 2016
• Improvements in the employment market
• Population growth remains strong
• Expectations regarding interest rates have been further lowered
• Are there any limits to growth?
• Rapidly rising prices and amortisation requirements are causing a slight drop in the housing affordability index*

PROGRESS FOR PRIVATE COMMERCIAL BUILDINGS

BUILDING PERMITS FOR PRIVATE COMMERCIAL BUILDINGS HIGHLIGHTS

• Market developments were mixed in 2014
• Industrial and storage went up, then declined
• Positive trends in the office market
• The shops segment hit a new low ...
• 6 per cent annual investment growth in 2015 and 2016
• Only positive driving forces in individual segments?
• Employment +
• Consumption +
• Dependent on the international economic situation

PROGRESS FOR PRIVATE COMMERCIAL BUILDINGS

HIGHLIGHTS

• Market developments were mixed in 2014
• Industrial and storage went up, then declined
• Positive trends in the office market
• The shops segment hit a new low ...

6 per cent annual investment growth in 2015 and 2016

• Only positive driving forces in individual segments?
• Employment +
• Consumption +
• Dependent on the international economic situation

PROGRESS FOR PRIVATE COMMERCIAL BUILDINGS

INVESTMENT ESTIMATES FOR 2014 AND 2015 MADE THE PREVIOUS YEAR HIGHLIGHTS

Forecasts made 1 year earlier	2014	2015	Diff. %
Industrial	5.5 bill.	5.6 bill.	+0%
Shops	2.3 bill.	2.9 bill.	+26%
Transport and storage	9.0 bill.	10.6 bill.	+18%
Banking and insurance	NOK 1.1	NOK 2.1	+84%
Commercial property development companies	NOK 30.2	NOK 34.0	+11%

• Market developments were mixed in 2014
• Industrial and storage went up, then declined
• Positive trends in the office market
• The shops segment hit a new low ...
• 6 per cent annual investment growth in 2015 and 2016
• Only positive driving forces in individual segments?
  • Employment +
  • Consumption +
• Dependent on the international economic situation

Source: Statistics Sweden

PUBLIC COMMERCIAL BUILDINGS MORE MODERATE

BUILDING PERMITS – PUBLIC COMMERCIAL BUILDINGS HIGHLIGHTS

• 2014 was another year of strong growth with ~12 per cent investment growth
• 2015 got off to a flying start
• Market growth will slow down through 2015
• Expect a 5 per cent decline in 2016
• Tighter budgets in the coming years:
  • Schools and care services in the municipal sector
  • Tenants who finance operations via public budgets

THE CIVIL ENGINEERING MARKET

INVESTMENTS IN CIVIL ENGINEERING (VOLUME 2011 PRICES) HIGHLIGHTS

• Strong market growth in 2014 with 6 per cent growth
• Annual investment growth of 3 per cent in 2015 and 2016
• The power sector has solid growth plans for 2015 too
• Weaker growth in municipal infrastructure and extractive industries
• Levelling off in transport, but regional growth for Stockholm with the Förbifarten and Slussen projects from 2016

CONSTRUCTION AND CIVIL ENGINEERING MARKETS IN SWEDEN – SUMMARY

Source: Statistics Sweden and Veidekke * Annual growth rate 2014–2016

HIGHLIGHTS

General upturn

• Residential +4%
• Private commercial buildings +6%
• Civil engineering +3%
• Weaker in public commercial buildings

DANISH CONSTRUCTION AND CIVIL ENGINEERING MARKET: GROWTH, BUT MARKETS ARE STILL DEMANDING

HOUSE PRICES HIGHLIGHTS

• Residential: Prices continuing to rise
• Trend being seen in more cities
• 7 per cent annual growth in residential investments in 2015 and 2016
• Private commercial buildings: 2014 was a weak year
• Helped by the economic situation employment, consumption, industry
• 7 per cent annual growth in investments in 2015 and 2016
• Markets continue to be very demanding

Dashed line = Veidekke's projection

HOUSE PRICES ANNUAL GROWTH (%) HIGHLIGHTS

• Residential: Prices continuing to rise
• Trend being seen in more cities
• 7 per cent annual growth in residential investments in 2015 and 2016
• Private commercial buildings: 2014 was a weak year
• Helped by the economic situation employment, consumption, industry
• 7 per cent annual growth in investments in 2015 and 2016
• Markets continue to be very demanding

LABOUR MARKET HIGHLIGHTS

Dashed line = Veidekke's projection

• Residential: Prices continuing to rise
• Trend being seen in more cities
• 7 per cent annual growth in residential investments in 2015 and 2016
• Private commercial buildings: 2014 was a weak year
• Helped by the economic situation employment, consumption, industry
• 7 per cent annual growth in investments in 2015 and 2016
• Markets continue to be very demanding

HOUSING STARTS HIGHLIGHTS

• Residential: Prices continuing to rise
• Trend being seen in more cities
• 7 per cent annual growth in residential investments in 2015 and 2016
• Private commercial buildings: 2014 was a weak year
• Helped by the economic situation employment, consumption, industry
• 7 per cent annual growth in investments in 2015 and 2016
• Markets continue to be very demanding

COMMERCIAL BUILDING STARTS HIGHLIGHTS

• Residential: Prices continuing to rise
• Trend being seen in more cities
• 7 per cent annual growth in residential investments in 2015 and 2016
• Private commercial buildings: 2014 was a weak year
• Helped by the economic situation employment, consumption, industry
• 7 per cent annual growth in investments in 2015 and 2016
• Markets continue to be very demanding

CONSTRUCTION AND CIVIL ENGINEERING MARKETS IN DENMARK – SUMMARY

INVESTMENTS IN CONSTRUCTION AND CIVIL ENGINEERING (VOLUME 2011 PRICES)

HIGHLIGHTS

• Rapid growth for new homes in 2015-2016, from a low level
• Growth for private commercial buildings, but the market in coming years will continue to reflect three years of negative growth
• Weak development in public-sector segments

SCANDINAVIAN CONSTRUCTION AND CIVIL ENGINEERING MARKET TOWARDS 2016

Investments in construction and civil engineering NOK billion* 2011 prices (volume)

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

* Exchange rates for Q4 2014 ** Compound annual growth rate (CAGR)

APPENDIX

FORECASTS

	Level 2013 SEK bill.	2014 Growth	2015 Growth	2016 Growth	Growth rate 15–16
Residential	114	-10%	1%	1%	1%
Private commercial	50	5%	1%	1%	4%
Public commercial	25	5%	3%	3%	3%
Civil engineering	59	6%	6%	4%	5%
Construction and civil engineering – total	248	-2%	2%	2%	2%
	2013	2014	2015	2016
Number of units	29 000	27 000	27 000	26 000

Legend: Unchanged forecast Adjusted down / up

Source: Statistics Norway and Veidekke

FORECASTS		Level 2013 SEK bill.	2014 Growth	2015 Growth	2016 Growth	Growth rate 15–16
	Residential	100	19%	5%	3%	4%
	Private commercial	76	6%	5%	7%	6%
	Public commercial	33	13%	5%	-5%	0%
	Civil engineering	68	7%	3%	2%	3%
	Construction and civil engineering – total	278	12%	5%	4%	4%
		2013	2014	2015	2016
	Number of units	30 000	39 000	40 000	40 000
Legend:	Unchanged forecast	Adjusted down / up			Source: Statistics Sweden and Veidekke

FORECASTS

	Level 2013 DKK bill.	2014 Growth	2015 Growth	2016 Growth	Growth rate 15–16
Residential	35	1%	5%	10%	7%
Private commercial	17	-5%	5%	10%	7%
Public commercial	15	0%	-5%	0%	-3%
Civil engineering	32	10%	0%	3%	1%
Construction and civil engineering – total	100	4%	2%	6%	4%

Legend: Unchanged forecast Adjusted down / up

Source: Statistics Denmark and Veidekke