Veidekke — Earnings Release 2015

Mar 7, 2016

VEIDEKKE ECONOMIC ACTIVITY REPORT:

7 March 2016 Kristoffer Eide Hoen

NEW ERA IN SCANDINAVIA?

Estate agent specialising in holiday homes: "Swedes and Danes are paying the most

Weak Norwegian krone: Petter Birkrem sees a new trend

Facsimile from the Norwegian financial newspaper Finansavisen, 18 February 2016

GREATEST INCOME GROWTH IN SWEDEN REAL ANNUAL WAGE GROWTH IN 2015 (%)

Source: Norges Bank, the Norwegian Technical Calculation Committee for Wage Settlements (TBU), the Swedish National Institute of Economic Research (KI) and the Swedish Ministry of Finance

NEW EXCHANGE RATES – ESPECIALLY FROM A NORWEGIAN PERSPECTIVE

CONTENTS

Economic trends

• Regional differences in Norway
• Forecasts for 2016 and 2017
• Key market areas:
• The residential market in key regions
• Private non-residential buildings mixed outlook
• Expansive public sector

VEIDEKKE'S ECONOMIC ACTIVITY REPORT: – BACKGROUND AND METHODS

• Veidekke's Economic Activity Report shows the Group's forecasts for developments in the Scandinavian construction and civil engineering market in 2016 and 2017
• Economic forecasts (GDP, employment, consumption, etc.):
• Estimates based on the consensus of established forecasting agencies in the three countries
  • Statistics Norway (Norway), Norges Bank (Norway), the National Institute of Economic Research (KI) (Sweden), the Danish Economic Councils (Denmark), and others
• Forecasts for construction and civil engineering:
• Veidekke's own assessments based on economic forecasts, internal sources, public budgets and action plans, and economic forecasts from the Federation of Norwegian Construction Industries (BNL), the Swedish Construction Federation (BI) and the Danish Construction Association

ECONOMIC GROWTH: – SWEDEN LEADING THE WAY

Norway: weaker outlook

• Zero growth in Q4 2015
• 1–1.5% in 2016 and 2017 (?)

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

Sweden: heading for an upturn

• Peak at 4% in 2016
• Growth will slow down, but remain high

Denmark: moderate growth

• GDP weaker than expected in 2015
• Close to 2% growth in 2017

Legend:

• Red dashed line shows forecasts for 2016 and 2017
• Blue dashed line shows forecasts from March 2015

INTEREST LEVELS < 0

• Historically low interest rates during the forecast period
• Sweden: moderate rise in interest rates from the 1st half of 2017
• Norway: towards 0% in 2016
• Denmark: possibility of interest rate rise in 2017

LABOUR MARKET: – DIFFERING TRENDS

Norway: Moderate, with gradual slowdown

• Increasing regional differences
• Unemployment is 4.5% and rising

Sweden: Positive development

• High growth projections for employment
• Unemployment is 7.0% and falling

Denmark: Positive development

• Employment growth remains good
• Unemployment is 6.2% and falling

Legend:

Red dashed line shows forecast for 2016 and 2017 Blue dashed line shows forecast from March 2015

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

9 07.03.2016

CAPACITY UTILISATION DECLINING

Share of companies with challenges in finding labour force:

• The slowdown started before the fall in oil prices in summer 2014
• Generally lower capacity utilisation
• Greatest change in the south-west and north-west

DEPENDENCY ON THE OIL INDUSTRY IS AN IMPORTANT EXPLANATORY FACTOR

IRIS's calculation of oil-related employment:

• Rogaland has a particularly high share of people in oilrelated activities
• Many counties with few oil-related activities

Employees in oil-related businesses

Registered unemployment as at February 2016:

• Rapid rate of change, but low levels
• In Rogaland unemployment has risen to 4.9% as at February
• Still 3–3.5% in Oslo, Akershus and Hordaland

REGIONAL DIFFERENCES: INVERSE DEVELOPMENT

Employment growth in 2015 vs. 2010–2014: Annual growth (%), selected counties

2010-2014 2015

• Regions dependent on the petroleum industry had strong growth until 2014 – necessary downward adjustment now?
• Counties that have been in the "shadow" of the oil industry since the financial crisis are experiencing better times:
• Cause: Weak exchange rate, trading partners experiencing moderate recovery
• Effect: Increased investments in traditional industries, tourism, etc.

REGIONAL DIFFERENCES: INVERSE DEVELOPMENT

• Regions dependent on the petroleum industry had strong growth until 2014 – necessary downward adjustment now?
• Counties that have been in the "shadow" of the oil industry since the financial crisis are experiencing better times:
• Cause: Weak exchange rate, trading partners experiencing moderate recovery
• Effect: Increased investments in traditional industries, tourism, etc.

REGIONAL DIFFERENCES: INVERSE DEVELOPMENT

• Regions dependent on the petroleum industry had strong growth until 2014 – necessary downward adjustment now?
• Counties that have been in the "shadow" of the oil industry since the financial crisis are experiencing better times:
• Cause: Weak exchange rate, trading partners experiencing moderate recovery
• Effect: Increased investments in traditional industries, tourism, etc.

RESALE HOUSING MARKET AS AN INDICATOR – CONTROLLED SLOWDOWN SO FAR

February 2016

Growth (%)	Last 3 months	Last 12 months	Last 5 years
Oslo	3.5	8.1	40.5
Bergen	1.6	3.6	32.4
Trondheim:	2.3	2.8	35.2
Stavanger	-0.4	-7.4	7.7
Kristiansand	1.4	1.6	6.2
Norway	2.8	4.4	29.5

PROGNOSES FOR CONSTRUCTION AND CIVIL ENGINEERING IN 2016–2017

INVESTMENTS IN CONSTRUCTION 2015 NOK BILLIONS

Share of transport infrastructure

CONSTRUCTION INVESTMENTS IN SCANDINAVIA 2000–2017

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

NOK billion* per year (2013 prices)

* Exchange rates for Q4 2015 ** Compound annual growth rate (CAGR)

NORWAY: – PUBLIC SECTOR DRIVING THE GROWTH

Investments in the construction and civil engineering market Fixed prices, NOK billion (2013)

Weak growth in residential buildings, decline in private non-residential buildings

Public sector will drive growth

Total investment growth:

• 3% in 2016

• 1% in 2017

SWEDEN: – CONTINUING GROWTH

Investments in the construction and civil engineering market Fixed prices, NOK billion (2013)

The residential market is limited on the supply side

Expansive public investment budgets

Total investment growth: - 4% in 2016 and in 2017

DENMARK:

– 2015 WAS DISAPPOINTING, SLIGHT IMPROVEMENT IN 2016 AND 2017?

Moderate growth in private segments

State and local authorities are cutting back

– Although growth in hospitals and universities

Total investment growth:

• 3% in 2016
• 5% in 2017

FORECASTS FOR THE CONSTRUCTION SECTOR INVESTMENTS

	2015 NOK bill.	2016 growth	2017 growth	2015 NOK billion*	2016 growth	2017 growth	2015 NOK bill. *	2016 growth	2017 growth
Residential	120	0%	-1%	137	5%	2%	60	5%	10%
Non-residential buildings private	51	-2%	-2%	100	4%	4%	19	3%	7%
Non-residential buildings public	33	3%	3%	41	5%	5%	18	5%	5%
Civil engineering	67	9%	5%	77	2%	6%	40	-2%	-2%
Total	271	3%	1%	355	4%	4%	137	3%	5%

CENTRAL MARKET CONDITIONS

2307.03.2016

1. STRONG DEMAND FOR HOMES IN THE CENTRAL REGIONS

1. STRONG DEMAND FOR HOMES IN THE CENTRAL REGIONS – DEMAND

Demand has remained good Double-digit growth in price (and activity levels)

Prices back to 2007-levels (nom.)

* Last observed 12 months.

** Average per year in 2016 and 2017

Source: Veidekke, the Norwegian Real Estate Association (EFF), Mäklarforbundet (Swedish Real Estate Association) and the Association of Danish Mortgage Banks

Legend:

Red dashed line shows forecast for 2016 and 2017

Blue dashed line shows forecast from March 2015

1. STRONG DEMAND FOR HOMES IN THE CENTRAL REGIONS – ACTIVITY

Legend:

Controlled slowdown? Levelling off after strong growth? Prospects of a moderate upturn

Red dashed line shows forecast for 2016 and 2017 Blue dashed line shows forecast from March 2015

1. STRONG DEMAND FOR HOMES IN THE CENTRAL REGIONS – GROUNDS FOR CONCERN?

Market psychology Buying power in Gothenburg and Stockholm

* Swedbank's "Boindex" is an index where 100 indicates that households have balanced buying power in connection with buying a home. A higher index signals positive effect on buying power and vica versa.

				Kontakt - Whistleblower - Nyhe
			FINANSTILSYNET
Regler & Praksis	Indberetning	Tal & Fakta	Temaer	Om os
i vækstområder mv.	Forside > Nyhedscenter > Pressemeddelelser > 2016 > Vejledning om kreditvurdering ved belåning af boliger

Pressemeddeleiser
Arkiv	Vejledning om kreditvurderi
Advarsler mod ulovlig virksomhed	ved belåning af boliger i
Sektornyt	vækstområder mv.
nternationale nyheder	Finanstilsynet har udstedt den endelige vejled
Fotogalleri	om forsigtighed i kreditvurderingen ved belåni
Pressepolitik	boliger i vækstområder. Veiledningen skal sikr penge- og realkreditinstitutters kreditbeslutnin
Pressekontakt	om belåning af privatkunders ejerboliger og
	andelsboliger i områder med større prisstignin baseres på robustheden af kunders økonomis forhold. Herunder skal der tages høide for, at r

Access to credit being tightened

Facsimile from the Danish Financial Supervisory Authority, 2 February 2016

2. PRIVATE NON-RESIDENTIAL BUILDINGS – MIXED OUTLOOK

2. PRIVATE NON-RESIDENTIAL BUILDINGS – MIXED OUTLOOK

• Continuing decline
• Offices:
  • Increased vacancy
  • Low employment growth
• Shops:
  • Declining trend for several years
  • Uncertain consumption forecasts

• Industrial buildings:

  • Decline in production, but major regional and industry differences

• Continued broad growth

• Offices:
  • Employment increasing, interest rates low
• Shops:
  • Good growth in consumption

• Industrial buildings:

  • Growth in production, but challenged by low capacity utilisation

• Many vacant premises slowing the trend

• Offices:
  • Positive forces, but ...
  • ... vacancy rate stable at > 10%
• Shops:
  • Declining vacancy rates, consumption forecasts positive
• Industrial buildings:
  • Production increasing, but vacancy rates must continue to fall

TIGHTER CREDIT CONDITIONS FOR BUSINESSES

Explaniation:

Index from -100 to +100. A value of -100 signals that all banks i strongly thightening credits constraints and vica versa. A index of 0 signals no changes in credit constraints.

3. EXPANSIVE PUBLIC SECTOR

TRANSPORT:

• Many major projects out for tender in 2016–17
• The projects comprise more than NOK 120 billion for Norway and Sweden combined*

*Projects over NOK 700 million.

Facsimile from Veidekke's investor presentation for Q4 2015

3. EXPANSIVE PUBLIC SECTOR – NORWAY

- 5 10 15 20 25 30 35 40 45 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Roads Railway Other public Power Other private +13%* +25%* +1%* -10%* +3%* Investments in the civil engineering market Fixed prices NOK (2013 rate) The Government Petroleum

Fund, worth NOK 7,000 billion, provides a buffer - In the forecast period

Investments in public infrastructure will continue

Continued growth in public non-residential buildings

• Schools

* CAGR 2016–2017

• Health and care facilities

Source: Statistics Norway and Veidekke

3. EXPANSIVE PUBLIC SECTOR – OPERATION AND MAINTENANCE OF ROADS AND RAILWAYS

Budgets for operation and maintenance* in NOK billion	2014	2015	2016 B	Fulfilment of National Transport Plan** after 3 out of 4 years
Roads	10.1	10.5	11.0	78.1%
Rail	6.5	6.8	8.0	78.9%

... a likely candidate for counter-cyclical measures?

* Broader range of activity than Veidekke's business area Road Maintenance

Source: Ministry of Transport and Communications and Ministry of Finance

3. EXPANSIVE PUBLIC SECTOR – SWEDEN

– Mainly due to increased tax revenues and inflow of refugees

Road projects under way in Stockholm and Gothenburg

Growth will also continue in non-residential buildings

TO ROUND UP

3607.03.2016

MAIN ASSUMPTION – POSITIVE GLOBAL OUTLOOK IN 2016 AND 2017

GDP growth (%)	2013–2015*	2016	2017
Euro zone	0.7	1.8	2.0
Germany	1.2	1.9	2.0
United Kingdom	2.5	2.4	2.2
USA	2.1	2.6	2.6
China	7.3	6.4	6.0
Globally	3.3	3.5	3.7

Source: Swedish National Institute of Economic Research (KI)

SUMMARY

Scandinavia:

• The Scandinavian construction and civil engineering market will grow by about 3% in 2016 and 2017, down slightly from 2015

Norway:

• General slowdown in the economy with regional differences, also in the construction market
• Public sector demand will be a driving force in the forecast period

Sweden:

• Economic upturn and record low interest rates, also in 2016 and 2017
• Broad upswing in the construction and civil engineering market

Denmark:

• Moderate recovery in the economy with expectations of higher demand from households and business
• Residential market picking up

APPENDIX – FORECASTS

FORECASTS

	Level 2015 NOK Billion	2015 Growth	2016 Growth	2017 Growth	Growth rate 2016– 17
Residential	120	3%	0%	-1%	0%
Private non residential buildings	51	-2%	-2%	-2%	-2%
Public non residential buildings	33	3%	3%	3%	3%
Civil engineering	67	3%	12%	7%	9%
Total	271	2%	3%	1%	2%
Housing starts No. of units		31 000	30 000	28 500
Source: Statistics Norway and Veidekke	Legend:	Unchanged forecast from EA Report September 2015	Downgraded / revised upwards the forecast from EA Report September 2015

FORECASTS

	Level 2015 SEK billion	2015 Growth	2016 Growth	2017 Growth	Growth rate 2016– 17
Residential	143	18%	5%	2%	3%
Private non residential buildings	104	9%	4%	4%	4%
Public non residential buildings	42	6%	5%	5%	5%
Civil engineering	80	6%	2%	6%	4%
Total	369	11%	4%	4%	4%
Housing starts No. of units		46 000	50 000	50 000
Sweden and Veidekke	Legend:	Unchanged forecast from EA Report September 2015	Downgraded / revised upwards the forecast from EA Report September 2015

FORECASTS

	Level 2015 DKK billion	2015 Growth	2016 Growth	2017 Growth	Growth rate 2016– 17
Residential	50	0%	5%	10%	7%
Private non residential buildings	16	-2%	3%	7%	5%
Public non residential buildings	17	-3%	5%	5%	5%
Civil engineering	38	5%	-2%	-2%	-2%
Total	119	1%	3%	5%	4%
Housing starts No. of units		14 500*	16 500	19 500
Denmark and Veidekke	Legend:	Unchanged forecast from EA Report September 2015	Downgraded / revised upwards the forecast from EA Report September 2015