Veidekke — Investor Presentation 2014

Sep 15, 2014

ECONOMIC ACTIVITY REPORT

Skøyen, 15 September Rolf Albriktsen Kristoffer Eide Hoen

HIGHLIGHTS

• Norway: residential market is recovering but uncertainty about petroleum investments
• Sweden: weaker economic growth than expected, but construction/civil engineering shows positive tempo
• Denmark: we are still awaiting an upturn

INTERNATIONAL ECONOMY POSITIVE EFFECTS

POSITIVE EFFECT OF INTERNATIONAL ECONOMY

GDP GROWTH 2013–2015
	2013	2014	2015
Eurozone	-0.4	1.1	1.5
Germany	0.5	1.9	1.7
United Kingdom	1.7	3.2	2.7
United States	1.9	1.7	3.0
China	7.7	7.4	7.1
The World	3.0	3.4	4.0

HIGHLIGHTS

• Increased global growth
• But Eurozone growth is slow
• Conflicts are getting closer
• Increased uncertainty about energy prices in Europe
• Strong construction/civil engineering growth in Poland and parts of the Baltics
• Continuing low levels in several countries

4

POSITIVE EFFECT OF INTERNATIONAL ECONOMY

CONFLICTS GETTING CLOSER? HIGHLIGHTS

• Increased global growth
• But Eurozone growth is slow
• Conflicts are getting closer
• Increased uncertainty about energy prices in Europe
• Strong construction/civil engineering growth in Poland and parts of the Baltics
• Continuing low levels in several countries

POSITIVE EFFECT OF INTERNATIONAL ECONOMY

PRODUCTION IN CONSTRUCTION/CIVIL ENGINEERING – GROWTH AND LEVEL

	First 6 months 2014*	Level as % of peak years 2007/2008
Latvia	+20%	73%
Lithuania	+14%	72%
Spain	+8%	61%
Eurozone	+2%	81%
Poland	+1%	115%
Finland **	-2%	98%
Germany	-3%	106%
Estonia	-17%	84%

HIGHLIGHTS

• Increased global growth
• But Eurozone growth is slow
• Conflicts are getting closer
• Increased uncertainty about energy prices in Europe

Strong construction/civil engineering growth in Poland and parts of the Baltics

• Continuing low levels in several countries

Source: Eurostat

NORWEGIAN ECONOMY HIGH ACTIVITY, SLOWDOWN IN GROWTH

Norge	Siste nyt. NRK Yang Fordypring Reise Boligmarkedel Klima
	GROSSIANE
	B m

FACSIMILE FROM NRK, 12 JUNE ECONOMIC GROWTH PROJECTIONS, SEPTEMBER 2014

Average annual growth, %	2011–2013	2014–2016*
Investments in extraction	14.3	-0.7
Residential investments	9.9	2.6
Public investments	3.9	6.8
GDP Mainland Norway	2.7	2.4
Employment	1.7	0.9
Unemployment (level)	3.3	3.6
Interest rate (level)	3.8	3.9

* Forecasts Source: Statistics Norway

GDP GROWTH 2010–2014 (YEAR-TO-DATE) HIGHLIGHTS

• High growth in first half of year
• Strong figures for consumption and traditional exports
• Weak investment growth in business and industry
• Industrial production surprisingly positive
• When are the investments coming?
• Strong household sector
• Stable labour market
• Population growth continues
• Higher inflation reduced purchasing power?

INDUSTRIAL PRODUCTION HIGHLIGHTS

• High growth in first half of year
• Strong figures for consumption and traditional exports
• Weak investment growth in business and industry

Industrial production surprisingly positive

• When are the investments coming?
• Strong household sector
• Stable labour market
• Population growth continues
• Higher inflation reduced purchasing power?

LABOUR MARKET HIGHLIGHTS

• High growth in first half of year
• Strong figures for consumption and traditional exports
• Weak investment growth in business and industry
• Industrial production surprisingly positive
• When are the investments coming?

Strong household sector

• Stable labour market
• Population growth continues
• Higher inflation reduced purchasing power?

finnes i eksempelpresentasjon. NORWEGIAN CONSTRUCTION/CIVIL ENGINEERING MARKET: NEW GROWTH WITH REGIONAL DIFFERENCES

STABLE ORDER DEVELOPMENT

NEW ORDERS, CONTRACTORS HIGHLIGHTS

• Slightly weaker order intake
• New orders for Q2 -4 percent down from same quarter in 2013
• Reserves increasing
• Civil engineering: Decline in new orders, high activity level
• New orders down -21 percent from Q2 2013
• Reserves increased by 11 percent
• Residental: The decline is levelling off
• Commercial buildings: Sharp rise in new orders over last 4 quarters

RESIDENTIAL MARKET: HOUSING PRICES STRONGER THAN EXPECTED

HOUSING PRICES HIGHLIGHTS

• Somewhat stronger growth in housing prices in August than our forecasts
• 2.1 percent growth from August 2013
• 4.5 percent growth from the bottom figure at year-end
• The drivers revenue growth, low interest rates and low unemployment – remain unchanged
• Our forecasts remain unchanged, meaning lower growth in the period ahead
• Lower growth in the petroleum sector is contributing to uncertainty and regional differences

RESIDENTIAL MARKET: REGIONAL DIFFERENCES

HOUSING PRICES AND TREND

Apartments	Price level August 2014 NOK/m2	Change Aug 13/Aug 14	Price trend last 3 months
Oslo	50,200	0.5%
Bergen	41,300	4.3%
Trondheim	42,100	1.3%
Stavanger	46,900	-1.3%
Norway	40,150	2.1%

HIGHLIGHTS

Trend development:

• Recovery in most urban areas
• Development in petroleum sector affecting growth in the Stavanger area?
• Good progress in Oslo in last quarter

RESIDENTIAL MARKET: HOUSING STARTS

REGISTERED RESIDENTIAL BUILDING PERMISSIONS HIGHLIGHTS

• Large number of building permissions so far this year
• Annual rate of 30,000 dwellings as of July
• Improved sales of new homes this year appears likely to drive new housing starts
• May reach 30,000 starts this year

GROWTH ALSO IN COMMERCIAL BUILDINGS

REGISTERED COMMERCIAL BUILDING PERMITS HIGHLIGHTS

Forecasts followed

• Growth in both private and public commercial buildings
• Education and health
• Trade and logistics

CIVIL ENGINEERING INVESTMENTS

CIVIL ENGINEERING INVESTMENTS (VOLUME 2011 PRICES) HIGHLIGHTS

• 6 percent growth in civil engineering market this year and next year
• Capacity challenges dampening growth
• Highest growth is in railway projects
• Proportion of foreign competition is unchanged

CIVIL ENGINEERING INVESTMENTS: EXAMPLES OF MAJOR PROJECTS

EXAMPLES OF MAJOR PROJECTS UP FOR TENDER IN NEXT 6 MONTHS. HIGHLIGHTS

Project	Client
E16 Sandvika - Wøyen	NPRA
RV 80 Hunstadmoen Thallekrysset (Bodø)	NPRA
Follobanen Oslo S	NNRA
Follobanen Ski	NNRA
E39 Svegatjørn (Hordaland)	NPRA
FV Nordøyvegen (kkk)	NPRA
Tønsnes industrial port, Tromsø	Port of Tromsø
Ørland air station	NDEA

• Many projects over NOK 1 billion
• Total sum of tenders in the civil engineering sector is approx. NOK 14 billion in the next six months.

CONSTRUCTION/CIVIL ENGINEERING MARKETS IN NORWAY

CONSTRUCTION/CIVIL ENGINEERING INVESTMENTS (VOLUME 2011 PRICES) HIGHLIGHTS

• New growth from 2015
• 2 percent decline in 2014
• 3 percent growth in both 2015 and 2016
• Residential investments will make a positive contribution from 2015
• Civil engineering and commercial buildings in a stable growth phase

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

SWEDISH ECONOMY UPTURN AT A SLOWER PACE

SWEDISH ECONOMY STABLE INDICATORS

NATIONAL INSTITUTE OF ECONOMIC RESEARCH "ECONOMIC TENDENCY SURVEY" HIGHLIGHTS

• Hovering around the historical average
• Upswing for industry in August

SWEDISH ECONOMY SLIGHT DECLINE IN UNEMPLOYMENT

LABOUR MARKET HIGHLIGHTS

• Higher growth in employment
• +60,000 in Q2 compared with same quarter in 2013 (+1.3 percent)
• Supply of labour high
• Labour force participation has recovered after the financial crisis

SWEDISH ECONOMY INFLATION LOW = CONTINUING LOW INTEREST RATES

INFLATION DEVELOPMENT HIGHLIGHTS

• Inflation is approaching zero
• Energy and food prices have pushed inflation down
• Low labour costs and low cost pressure
• Weaker krona since March last year
• What will the Riksbank do next?

SWEDISH ECONOMY GDP GROWTH PICKING UP

GDP GROWTH 2010–2014 (YEAR-TO-DATE) HIGHLIGHTS

• Growth weaker than expected so far this year
• Exports and business investments down
• Household investments and consumption up
• The assumption of GDP growth of 2.5-3 percent in 2015 remains unchanged

SWEDISH CONSTRUCTION/CIVIL ENGINEERING MARKET GOOD MOMENTUM INTO 2015

RESIDENTIAL MARKET

BUILDING PERMITS FOR NEW HOMES HIGHLIGHTS

• Sharp increase in building permissions
• Increase of 20 percent at Q2
• Underlying drivers of the residential market are positive
• Demographics and financing
• Housing prices continue to rise
• High level of new construction also in 2015 and 2016

RESIDENTIAL MARKET

POPULATION GROWTH AS A PERCENTAGE HIGHLIGHTS

• Sharp increase in building permissions
• Increase of 20 percent at Q2
• Underlying drivers of the residential market are positive
• Demographics and financing
• Housing prices continue to rise
• High level of new construction also in 2015 and 2016

RESIDENTIAL MARKET

HOUSING PRICES AND FORECASTS HIGHLIGHTS

• Sharp increase in building permissions
• Increase of 20 percent at Q2
• Underlying drivers of the residential market are positive
• Demographics and financing

Housing prices continue to rise

High level of new construction also in 2015 and 2016

COMMERCIAL BUILDINGS

COMMERCIAL BUILDING PERMITS HIGHLIGHTS

• Private commercial buildings down in the first half of the year
• Underlying drivers are positive:
  • Employment growth is increasing
  • Interest rates remain low
• Public sector increased in the first half of 2014
• Will tightening from 2015 have an effect?

CIVIL ENGINEERING MARKET

CIVIL ENGINEERING INVESTMENTS (VOLUME 2011 PRICES) HIGHLIGHTS

• Positive market in the first half of 2014
• High activity in private segments expected to continue
• Energy
• Industry
• Transport: We have used Swedish Transport Administration's plans as a basis
• Means continuing growth in roads and new growth in railways in 2016
• Clarification of Stockholm Bypass after the elections?

CONSTRUCTION/CIVIL ENGINEERING MARKETS IN SWEDEN, SUMMARY

CONSTRUCTION/CIVIL ENGINEERING INVESTMENTS (VOLUME 2011 PRICES) HIGHLIGHTS

• Strong growth in 2014 driven by homes and civil engineering
• Towards growth of 10 percent
• Prospects
• Residental: Continuing growth in 2015, high level in 2016
• Commercial buildings: Private sector becoming a stronger driver
• Civil engineering: Largely positive outlook
  • Uncertainty related to transport ambitions vs. tightening requirements in the public sector

DANISH ECONOMY GROWTH A LONG TIME COMING

GROWTH A LONG TIME COMING

GDP GROWTH 2010–2014, YEAR-TO-DATE HIGHLIGHTS

• Weak GDP figures for the first half of the year
• Consumers continue to disappoint (only +0.3 percent in the first half of the year)
• Expectation: 1 percent GDP growth this year, rising to around 2 percent next year
• Copenhagen region leads the way
• Large household optimism basis for positive expectations?

GROWTH A LONG TIME COMING

CONSUMER CONFIDENCE HIGHLIGHTS

• Weak GDP figures for the first half of the year
• Consumers continue to disappoint (+0.3 percent in the first half of the year)
• Expectation: 1 percent GDP growth this year, rising to around 2 percent next year
• Copenhagen region leads the way

Large household optimism – continuing basis for positive expectations?

DANISH CONSTRUCTION/ CIVIL ENGINEERING MARKET MODEST EXPECTATIONS IN THE SHORT TERM

CAUTIOUS DANISH CONSTRUCTION/ CIVIL ENGINEERING COMPANIES

CONFIDENCE INDICATOR NEXT 3 MONTHS, DANISH CONSTRUCTION/CIVIL ENGINEERING COMPANIES HIGHLIGHTS

• More reserved mood among construction/civil engineering companies, but trend is still positive
• Weaker economic growth than expected may be the explanation

CONSTRUCTION/CIVIL ENGINEERING MARKETS IN DENMARK, SUMMARY

CONSTRUCTION/CIVIL ENGINEERING INVESTMENTS (VOLUME 2011 PRICES) HIGHLIGHTS

• 2 percent growth in construction/civil engineering investments this year, rising to 5-6 percent in 2015 and 2016
• Level remains low
• New housing starts are becoming a stronger driver
• Private commercial building is expected to increase in 2015
• Approx. 5 percent annual growth expected in the period 2014-2016

CONSTRUCTION/CIVIL ENGINEERING MARKETS IN DENMARK, SUMMARY

CONSTRUCTION/CIVIL ENGINEERING INVESTMENTS (VOLUME 2011 PRICES) HIGHLIGHTS

• Positive growth for civil engineering major development projects contribute positively
• Road and rail projects have shown strong growth into 2014
• The public sector (state and municipal) is reducing its direct investment allowances in 2015, but policy measures are expected to boost growth from 2016

CONSTRUCTION/CIVIL ENGINEERING MARKETS IN DENMARK, SUMMARY

PUBLIC SECTOR, INVESTMENT PLANS TO 2020 HIGHLIGHTS

Source: Ministry of Finance, September 2014

• Direct public sector investments being reduced, but mostly a "technicality":
• The Fehmarnbelt fixed link, and railway and metro projects will raise the level from 2016
• Strong power sector stimulation to 2020

SUMMARY

• Norway: Positive construction and civil engineering growth in the first half of the year, but uncertainty associated with petroleum investments
• Sweden: Good construction and civil engineering progress despite lower economic growth than expected
• Denmark: Optimism only so far, when is growth coming?

SCANDINAVIAN CONSTRUCTION/CIVIL ENGINEERING MARKET TO 2016

Investments in construction/civil engineering NOK billion* 2011 prices. Percentage growth for 2014-2016

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

* Exchange rates for Q2 2014 ** Compound annual growth rate (CAGR)