Veidekke — Investor Presentation 2016

Sep 14, 2016

ECONOMIC ACTIVITY REPORT SEPTEMBER 2016

14 September 2016 Kristoffer Eide Hoen Director of Analysis

WHAT IS DRIVING THE PRIVATE SECTOR IN NORWAY?

Facsimile from Dagbladet 25 August 2016

"Investments in housing take over as the main driver in the Norwegian economy"

INVESTMENTS 2007-2016

WHAT IS DRIVING THE PRIVATE SECTOR IN NORWAY?

NET JOB CREATION LAST 12 MONTHS*

* Change in number of people employed in the last 12 months at end of Q2 2016

CONTENTS

• Macroeconomic trends
• Forecasts for investments in construction 2016 and 2017
• Key markets

HOW WE MAKE OUR FORECASTS:

• Macroeconomic forecasts based on consensus among recognized economic analysis institutions, such as:
• IMF, Konjunkturinstitutet, SSB, the Danish Economic council, central banks etc.
• Forecasts for construction are prepared by Veidekke on the basis of:
• Our experience about correlations between the economy and the construction market
• Internal "look-out points" across Scandinavia
• Industrial reports

GEOPOLITICS HAS A GREATER IMPACT ...

THE REFUGEE CRISIS TENSIONS TO THE EAST

Drama in Bornholm: Russian fighter plane chases Swedish military aircraft

BREXIT – NOT QUITE AS EXPECTED

GEOPOLITICS HAS A GREATER IMPACT...

«From a macroeconomic perspective, the Brexit vote implies a substantial increase in economic, political and institutional uncertainty…»

IMF, July 2016

INTERNATIONAL GDP FORECASTS ARE DOWNGRADED

GDP growth (%)	2013–2015	2016	2017
Eurozone	0.7	1.8 (0)---	1.4 (-0.6)
Germany	1.2	1.8 (-0.1)	1.4 (-0.6)
UK	2.4	1.8 (-0.6)	0.8 (-1.4)
USA	2.2	1.5 (-1.1)	2.2 (-0.4)
China	7.3	6.5 (+0.1)	6.0 (0)---
Global	3.3	3.1 (-0.4)	3.4 (-0.3)

Change from the March 2016 Economic Activity Report in brackets

Sources: GDP-growth: Konjunkturinstitutet Exports: Statistics Denmark, Statistics Norway and Statistics Sweden

ECONOMIC GROWTH: SWEDEN LEADING THE WAY

Norway: weak growth in GDP

• Have we reached rock bottom?
• GDP-forecast at 1.5% in 2017

Sweden: booming economy

• …Though declining GDP-growth ahead

Denmark: disappointing GDP figures

• Declining growth rate
• …but does not provide a complete picture

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

Legend:

Red dashed line shows forecast from our March 2016 Economic Activity Report

LABOUR MARKET: STABILISING IN NORWAY, STRONG IN SWEDEN AND DENMARK

Norway: stabilising after decline

• Employment growth is weak
• …but the growth in workforce has also declined, stabilising unemployment

Sweden: strong growth

• Unemployment declining

• Increased challenges in recruiting

Denmark: strong growth

• Significant employment growth
• Unemployment declining

Legend:

Red dashed line shows forecast from our March 2016 Economic Activity Report

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

LABOUR MARKET: STABILISING IN NORWAY, STRONG IN SWEDEN AND DENMARK

Norway: stabilising after decline

• Employment growth is weak
• …but the growth in workforce has also declined, stabilising unemployment

Sweden: strong growth

• Increased challenges in recruiting
• Unemployment declining

Denmark: strong growth

• Significant employment growth
• Unemployment declining

Legend:

Red dashed line shows forecast from our March 2016 Economic Activity Report

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

UNEMPLOYMENT MODERATE IN ALL COUNTIES UNEMPLOYED AND PEOPLE ON LABOUR MEASURES, JULY 2016 AND 2015

Source: the Norwegian Labour and Welfare Administration (NAV)

CLOSE TO 0% INTEREST – AND NO IMMEDIATE PROSPECT OF CHANGE ...

• Historically low interest rates during the forecast period
• Households' interest rate expectations are even lower
• Limited possibilities for further stimulus

CONTENTS

• Macroeconomic trends
• Forecasts for investments in construction 2016 and 2017
• Key markets

OUR FORECASTS – LOGIC AND TIME FRAME:

Bilde av skandinavia OUR FORECASTS FOR INVESTMENTS IN CONSTRUCTION

kommer INVESTMENTS* IN CONSTRUCTION. FORECASTED GROWTH IN VOLUMES FOR 2016 AND 2017

MARCH 2016
	2015 NOK bill.**	2016 growth	2017 growth	2015 NOK bill.**	2016 growth	2017 growth	2015 NOK bill.**	2016 growth	2017 growth
Residential	130	0 %	-1 %	150	5 %	2 %	61	5 %	10 %
Commercial buildings	55	-2 %	-2 %	102	4 %	4 %	21	3 %	7 %
Public buildings	35	3 %	3 %	42	5 %	5 %	27	5 %	5 %
Civil engineering	80	12 %	7 %	78	2 %	6 %	49	-2 %	-2 %
Construction totals	299	3 %	1 %	372	4 %	4 %	158	3 %	5 %

* Numbers of investments includes new buildings, upgrades and reconstruction. They do not include maintenance, eg. roads.

** Conversion to NOK uses exchange rates from H1 2016 New and updated figures for 2015 have been published since the last Economic Activity Report. We also converted the figures from 2013 to 2016 prices, drawing the level figures for 2015 up.

Source: Veidekke

OUR FORECASTS FOR INVESTMENTS IN CONSTRUCTION

INVESTMENTS* IN CONSTRUCTION. FORECASTED GROWTH IN VOLUMES FOR 2016 AND 2017

SEPT. 2016
	2015 NOK bill.**	2016 growth	2017 growth	2015 NOK bill.**	2016 growth	2017 growth	2015 NOK bill.**	2016 growth	2017 growth
Residential	130	5%	5%	150	15%	2%	61	5%	10%
Commercial buildings	55	-2%	-2%	102	4%	1%	21	3%	7%
Public buildings	35	3%	3%	42	7%	5%	27	-2%	-2%
Civil engineering	80	7%	7%	78	3%	6%	49	3%	-2%
Construction totals	299	4%	4%	372	9%	3%	158	3%	4%

* Numbers of investments includes new buildings, upgrades and reconstruction. They do not include maintenance, eg. roads.

** Conversion to NOK uses exchange rates from H1 2016 New and updated figures for 2015 have been published since the last Economic Activity Report. We also converted the figures from 2013 to 2016 prices, drawing the level figures for 2015 up.

Source: Veidekke

CONTENTS

Macroeconomic trends

Forecasts for investments in construction 2016 and 2017

Key markets:

• Strong demand for housing
• Commercial buildings weak recovery
• Civil engineering expanding markets

INVESTMENTS IN CONSTRUCTION, NOK BILLION

Share of transport infrastructure

1. STRONG DEMAND FOR HOUSING

SWEDEN: STRONG DEMAND IN 2017 AS WELL

* Annual growth increase per July 2016

Legend:

• Red dashed line shows forecast from our March 2016 Economic Activity Report
• Source: Statistics Sweden, Konjunkturinstitutet and Veidekke

** Measures the purchasing power of households after buying a home. A score of 100 indicates a healthy domestic economy. Lower scores indicate dangerously low purchasing power after buying a home.

• Autumn residental markets off to a good start
• Positive sales starts in the industry
• Price recovery in Aug./Sept.***
• Price levels testing upper boundaries?
• Boindex close to 100 indicates an upper bound for households purchasing power
• Strong increase in houseprices and new regulation of amortization explains decline in index from autumn 2015

*** Source is "real-time" price and sales statistics from Booli

SWEDEN: GROWTH IN NEW HOMES CONTINUES

Legend: Red dashed line shows forecast from our March 2016 Economic Activity Report

Source: Statistics Sweden and Veidekke

• The annual rate for housing starts is close to 60,000 units
• Recent figures show 17% growth in investments in the first half of 2016
• Investment growth of 15% in 2016
• Forecast for 2017 shows high level of activity but declining growth

NORWAY: STRONG GROWTH IN PRICES

Completed new homes per Q2 2016

• Strong demand due to low interest rates and the stabilizing economy
• Unemployment levels out

Residential

• Household psychology
• Share of investor-related demand slightly increased, albeit at a low level
• Imbalance last 12-24 months
• Supply is lagging
• Reinforcing effects
• Improvements next 12 months

Source: Veidekke, Statistics Norway and the Norwegian Real Estate Association (EFF)

NORWAY: STRONG GROWTH IN PRICES

Legend: Red dashed line shows forecast from our March 2016 Economic Activity Report

Source: Veidekke, Statistics Norway and the Norwegian Real Estate Association (EFF)

Strong demand due to low interest rates and the stabilising economy

Residential

• Unemployment leves out
• Household phsycology
• Share of investor-related demand slightly increased, albeit at a low level
• Imbalance last 12-24 months
• Supply is lagging
• Reinforcing effects
• Improvements next 12 months

NOWRAY: STRONG GROWTH IN START UPS

Growth in flats and terraced houses

• Strong growth in activity past 12 months
• Annual rate for new build housing is almost at 34,000 units

Residential

• 22% growth in flats and terraced housing
• Growth sentered to central the Oslo-region
• Westcoast: Stabilising after period of decline
• Forecasts show 5% growth in investments in 2016 og 2017

Source: Veidekke, Statistics Norway and the Norwegian Real Estate Association (EFF)

2. COMMERCIAL BUILDINGS – SLOW RECOVERY

2. COMMERCIAL BUILDINGS – SLOW RECOVERY

INVESTMENTS IN COMMERCIAL BUILDINGS. NOK BILLION, 2016 PRICES

The highest recorded level and Veidekke's forecast for 2017

SWEDEN: LEVELLING OFF AFTER TWO YEARS OF GROWTH?

INVESTMENT FORECASTS FOR SELECTED INDUSTRIES:

As of February in the respective years:	For 2015	For 2016	Change
Manufacturing	5.9 bill.	7.7 bill.	+30%
Retail	3.7 bill.	4.1 bill.	+12%
Transport and storage	9.1 bill.	8.7 bill.	-5%
Commercial property – development companies	40 bill.	42 bill.	+5%

• Underlying drivers have been positive in recent years
• Positive forecasts for 2016 with 4% investment growth
• Levelling off at a high level in 2017
• Household demand remains positive
• Slowdown in export growth and manufacturing production
• Banks expect more moderate growth in corporate lending

SWEDEN: LEVELLING OFF AFTER TWO YEARS OF GROWTH?

Underlying drivers have been positive in recent years

• Positive forecasts for 2016 with 4% investment growth

• Levelling off at a high level in 2017
• Household demand remains positive
• Slowdown in export growth and manufacturing production
• Banks expect more moderate growth in corporate lending

NORWAY: STRUCTURAL FACTORS?

• Weak forecasts:
• Forecasts of 2% decline remains for 2016 and 2017
• Structural changes in the demand for new buildings?
• Growth in logistics
• Warehouses remains at low levels
  • Weak growth in retail trade
• Offices new decline in 2016:
  • …low supply for several years should curb growth in vacancy

COMMERCIAL BUILDINGS START UPS

Offices Warehouses Logistics and manufacturing

Source: Statistics Norway * Annual growth (%) at end of Q2 2016

DENMARK: ON THE RIGHT TRACK, BUT STILL HIGH VACANCY RATE

• Growth from a very low level
• Forecasts of 3% investment growth in 2016 and 7% in 2017
• Positive development in underlying driving forces:
• Employment growth
• Household consumption
• Manufacturing production
• … but capacity utilization in existing buildings is still too low

3. CIVIL ENGINEERING – EXPANDING MARKETS

TRANSPORT INVESTMENTS:

• Several large projects are due for tendering in 2016/17
• The projects amount to more than NOK 120 billion for Norway and Sweden combined*

Source: Statistics Norway

INCREASING VOLUMES IN WATER SUPPLY AND SEWERAGE MUNICIPAL INVESTMENTS IN WATER AND SEWERAGE

VEIDEKKE PROJECT OHARA*, OS MUNICIPALY, HORDALAND

NOK billion (current prices)

CAGR +10%

Source: Statistics Norway

INCREASING VOLUMES IN WATER SUPPLY AND SEWERAGE

Holmen, Akershus August 6 2016

MUNICIPAL INVESTMENTS IN WATER AND SEWERAGE

NOK billion (current prices)

TIGHTER PRIORITIES OR…?

Net surplus National budget

Source: National Budget for 2016

14.09.2016

PLANNING BASIS ON NATIONAL TRANSPORTATION PLAN 2018-2029: «BETTER AT MAINTENANCE…» - NEW POLITICAL RETORICS?

"We must look after what we already have"

• Operation and maintenance safeguard society's investments
• Priority before investment
• Catch up on backlog and prevent new one
• More traffic and new infrastructure will mean greater needs
• Climate change will pose new challenges

«No cuts in the use of petroleum revenues» Hans Olav Syversen (KRF), Chair of the Finance Committee

39 14.09.2016 Facsimile from Dagens Næringsliv 10.9.2016 2017 investment financing secured?

NORWAY: HEADING FOR HIGHER ACTIVITY LEVELS

• Continued growth in Roads
• Although some projects are postponed
• High levels in railway
• But new projects will not provide growth until after 2017
• Growth continues in Energy
• Upgrading lines is the primary driver of growth
• Positive development in water and sewerage

SWEDEN – BOOM IN PUBLIC DEMAND

• Roads growing after years of stagnation
• Railway sector «taking a break» in 2016 and 2017
• Positive development in water and sewerage
• New requirements climate and water quality
• Infrastructure for residental development
• Energy levelling off

SUMMARY

ACTIVITY GROWTH CONTINUES

INVESTMENTS IN CONSTRUCTION. NOK* BILLIONS 2016-PRICES

• Mainly positive outlooks for the Economies
• High level of activity in the forecasting period
• Residental and public infrastructure are the main drivers of growth

Source: Veidekke, Statistics Sweden, Statistics Denmark and Statistics Norway * Exchange rates for H1 2016

** Compound annual growth rate (CAGR)

APPENDIX – FORECASTS

FORECASTS – LOCAL CURRENCY

	Level 2015 NOK bill.	2015 growth	2016 growth	2017 growth	CAGR 2015-17
Residental	130	2%	5%	5%	5%
Commercial buil.	55	-2%	-2%	-2%	-2%
Public buil.	35	3%	3%	3%	3%
Civil engineering	80	7%	7%	7%	7%
Total	299	3%	4%	4%	4%
Housing starts, units		31.000	34.000	35.000
Forecast unchanged Forecast downgraded / revised Legend: from March 2016 EA upwards from March 2016 EA Report Report

FORECASTS – LOCAL CURRENCY

	Level 2015 SEK bill.	2015 growth	2016 growth	2017 growth	CAGR 2015-17
Residental	149	17%	15%	2%	8%
Commercial buil.	102	4%	4%	1%	2%
Public buil.	42	1%	7%	5%	6%
Civil engineering	78	0%	3%	6%	4%
Total	370	8%	9%	3%	6%
Housing starts, units		46.000	58.000	60.000
Forecast unchanged Forecast downgraded / revised Legend: from March 2016 EA upwards from March 2016 EA Report Report

Source: Veidekke and SCB

FORECASTS – LOCAL CURRENCY

	Level 2015 DKK bill.	2015 growth	2016 growth	2017 growth	CAGR 2015-17
Residental	48	0%	5%	10%	7%
Commercial buil.	17	-1%	3%	7%	5%
Public buil.	21	6%	-2%	-2%	-2%
Civil engineering	39	0%	3%	-2%	0%
Total	125	1%	3%	4%	3%
Housing starts, units		14,500*	17,000	19,500
Forecast unchanged Forecast downgraded / revised Legend: from March 2016 EA upwards from March 2016 EA Report Report

Source: Veidekke and DST

* Estimates from the Danish Construction Association as at February 2016