AF Gruppen ASA

Hello! Welcome to the quarterly presentation for the AF Group for Q2 2021. We are only digital today as well, but hopefully this will be the last time we will be able to run fully digital. Today's theme will be our construction business in Norway. Both Eirik Bråhl and Tormod Solberg are I have the responsibility here, but today it is Tormod Solberg who will present. Finally, we will try to answer the questions that you can send in along the way. But first we will look at the performance of the quarter. Highlights for the second quarter are solid growth and increased profitability. The turnover in the quarter was 7 billion 189 million, with a result before the tax of 356 million, which gave a result margin of 5%. In the first half of the year, the turnover was 13.4 billion, with a result before the tax of 602 million. The cash flow from the drift was 529 million, We have a record high order reserve of 37.8 billion. And we have in the quarter paid out an exchange rate of 6.5 kroner per share, corresponding to 689 million. We have a interest rate of 333 million and are in a good financial position. The performance in the AF creates us and our people, and that is why we start with the most important thing, and that is the safety and health of this. In the AF, we have a goal that everyone should come and stay at home from work every day, and be able to meet at work the following day. And important indicators for that you can see here. The goal for the H1 value is zero, and for the H1 value we measure the number of casualty injuries and serious personal injuries without casualty per million working hours. And in AFS we include our UEA in the numbers, since here everyone is worth as much. In the second quarter we had five events that gave us a H1 value in the quarter at 0.9, and accumulated for the year we have a H1 value at 1.2. Målet for H2-verdien er under 5, og i H2-verdien legger vi til hendelser som har ført til skader med medisinsk behandling, plus de hendelser som har ført til alternativt arbeid. Verdien i kvartalet er 8,3. Målet er som sagt 0 og under 5, så vi er ikke der, men trenden er i riktig retning for øyeblikket. Another important indicator is the spread of the disease. Last quarter, we had a record high of 5.2 percent. This quarter, it is now 4.3 percent, which gives an accumulated value of 4.7 percent for the year. We estimate that COVID-19 will be around 10 percent. Locked health care is important both for health and efficiency, and not least for health care, so we aim for a health care percentage of about 3%. If we go back to the quarter, we see that the turnover is up by a little over 9% to 7.1 billion. The result before tax is up by 38% to 1%. 356 million, and this gives an increase in the margin of return of 1.1% to 5%. The invested capital in the AF is over 4.4 billion, and the result before the tax, 12 months in the average, so if we put the interest rates back, is 1635 million. This is again a drop in invested capital of 37%, which is well above our target of 20%. If we look at the cash flow, it is happy to see that it is at 529 million for the quarter and at 734 million for the first half year. We have good cash flow and we have 205 million in liquid funds. De 205 million likvide midler finner vi i figuren til høyre, og legger vi til netto fordringer, leieforpliktelser på hus og martiner som vi har, og får vi en netto rentebærende gjeld på 333 millioner. Vi har en trekkfacilitet på 3 milliarder, og i sum giver det oss en tilgjengelig likviditet på 3,2 milliarder. Så vi opplever at vi har en god finansiell posisjon. If we look at the balance, it is pretty much the same as the previous quarter. Even with this exchange rate of 689 million in the quarter, we have a capital of 3.1 billion, and with the sum of capital and yield of 12.5 billion, it gives a capital percentage of 24.8%. Climate and the environment are important for society, and absolutely apply to the business of the AF group. Vi har et ansvar, og vi regjorde det for oss som vi tenker rundt det i strategien vår mot 2024 i første kvartalpresentasjonen. For de som er nysgjerrige til å lære mer om det, kan dere se det der. I det kvartalet her kan vi melde om at vi har kildesortert 176 000 tonn, opp fra 159 000 på tilsvarende 10 i fjor. And we have a sorting rate of 89, 88 and 97 percent for construction, rehabilitation and demolition. One ton of recycled metal, Spår og Samfundet, for about one ton equivalent CO2. And if we look at this year, we have recycled about 23,000 tons of metal. Our environmental park has up to 141,000 tons of mass, which is slightly lower than last year, but as we mentioned in the first quarter, this is due to a slower start to the year, among other things due to frost and cold winter. Then we move on and look closer at the different business areas. And the first facility. On the picture, you can see the Vålrenga tunnel, finished, uphused and fine, and our traffic was set up after AF Anlegg was finished here this summer. And that comes from those who drove in and out of Oslo for good. There are one or more good projects in the Anleggsport, which have contributed to the solid turnover growth and significant result improvements in this quarter. Anlegg har økt omsetningen fra underkant 1,2 milliard til underkant 1,6 milliard. Driftsresultatet har gått fra 34 til 100 millioner i kvartalet, og det gir en driftsmargin på 6,4%. Vekst og stabilt i AF Anlegg, mens Morshav Maskinen fortsatt å levere svært gode marginer, og de leverer sitt beste fyrstehalvår noensinne. Eikon and Consolvo have also strengthened their profitability in this quarter. At the same time, we have increased the scope of existing contracts in this quarter, and the order reserve is 7.2 billion. Bygg has strengthened its profitability and has good order entry in the quarter. The turnover is 2.1 billion, and the operating result is up to 132 million. That gives a operating margin of 6.1%, up from 5.2% last year. Several units are delivering very well in this quarter. I would especially like to mention AF Byggfornyelse, which has won the new Tøyenbadet for culture and sports building, as you can see in this picture. An exciting project that is in progress in the co-op phase. Further, AF Bygg Oslo, Haga Berg, Strøm Gunnarsen, AF Fondverk and Bygg Østfold have performed well in this quarter, but there have been more and more demands for new buildings. Most have noticed that there has been a strong increase in the price of raw materials lately. In general, we can say that the increased prices have created a scope for challenges and uncertainty for most of our business departments, but perhaps most for Bygg, Betongmast and Sverige. This is what Tormod will get a little more into in the theme part. Our reserve for construction is up from 10 to 13 billion, and after the end of the quarter we have announced that we have entered the date with the construction of Construction City, where the contract value is over 2.6 billion. Betomas has a good development in its security work, but on the economic side, there is still weak profitability, and this is due to weak performance in several units, and there is a large variation. At about 1.8 billion in turnover, there is a operating result of 21 million, which gives a operating margin of 1.2%, down from 3% on the 10th of last year. There are units such as Betongmast Oslo, Østfold and Romerike that deliver well, while Boligbygg delivers weak and heavy results in this quarter, as well as that Betongmast's Swedish business delivers low profitability and below expectations. Our reserve in Betongmast is over 10.4 billion kroner. Eiendom opplever godt salg i kvartalet. Det ble solgt 148 boliger i andre kvartal, hvor AF sin andel utgjør 70. Vi har nå fem boligprosjekter med alt 589 enheter under produksjon, og salgsgraden i de gangsatte prosjektene er på 83%. The development portfolio for housing is at 2,912 units. It is important to note that we have allocated our property business in Bergen to Lab Eiendom this year. In this quarter, they show black numbers. Primarily, Lab Eiendom has housing projects, but in the picture you can see highway 16 in Bergen, which is also a road and business building in Bergen center. If we look further at the development portfolio for Eindholm samlet, we have 143,380 square meters under development, where our share is at just under 42,000 square meters. After the end of the quarter, we have a stock market agreement on sales to our share in Construction City to Oboz. Energy and the environment deliver significant growth and good profitability. The turnover has increased to 323 million in the second quarter, and the operating results of 22 million give a margin of 6.8%. AFDKOM is the largest contributor, and they deliver very good results within both Rive and the environmental park business. In the picture you can see One of them is a special project where they clean up a mine in Svalbard. Miljøparkandømmet is also doing well, and is a good example of the entrepreneurial spirit and creativity that is in the unit. They are gradually stretching further and are now developed together with Betong Øst, environmentally friendly spray concrete that is launched these days. A good example of how climate and the environment can create new business opportunities. AF Energi Gjerde Bæren Tidlegre has lifted the results margin towards the summer period last year. And the annual reserve for the business area collected is up from 600 million to 715 million. The Swedish portfolio delivers stable revenue and improved profitability in this quarter. With 47 million in operating income, it gives a margin of 4.3%. Vår svenske anleggsvirksomhet, Kanonaden, og rivevirksomheten, vår AF Hørnesand Byggreturer, leverer sterke prestasjoner i kvartalet. HNB og AF Bygg Syd leverer lønnsomhet under det vi forventer i kvartalet. På bildet ser dere Mælarparkskolen i Vesterås, som HNB stod ferdig med i vår. Flott prosjekt, og når den blir ferdig med et prosjekt, så må den fylle på. AF Bygg Syd og HNB har vunnet flere kontrakter i kvartalet. The annual reserve in Sweden is a record high with 4.4 billion, up from 3.6 billion each year on the corresponding 10 in last year. Offshore has put a good quarter behind. There is a significant increase in activity and in profitability. The turnover growth is 250 million, and a turnover result of 17 million gives a turnover margin of 6.7% in this quarter. and for the first half of the year at 6%. Offshore Decom is the main driver behind that, with a very good offshore campaign and good drift in watts, and that's a lot of tonnes in watts. Aero Molière has some low activity, but has managed to raise the black number. The oil reserves for offshore are at 1.6 billion, and After the end of the quarter, we noted that we have entered an intention agreement with Aker Solutions, that we would like to introduce our offshore decomm activity in a joint company that we own 50-50. This is to be able to get an even more powerful and competitive unit in the hard international competition that this business operates in. and to expand out to the North Sea and invest globally. The summary of this provides approval from the competition authorities and Due Diligence. To sum up the order reserve, it is on the record 37.8 billion, and it is divided by 13 billion in construction. 10.4 billion in concrete, and 7.2 billion in facilities, and 4.4 in Sweden, if we take the largest business areas. And we experience the order reserve as solid. That's what I was going to say, and then the time has come for the theme part, which this time is construction. And then I will give the floor to the board of directors for construction, Tormod Solberg.

My name is Tormod Solberg, and I am the CEO of the business area Bygg. As Amund mentioned, I will give you a brief overview of this business area. Bygg is represented by a broad range of companies around the largest markets in Norway, namely Oslo and Bergen. Simply put, we have a strong position within two areas. Firstly, we are a total entrepreneur for large new and rehabilitation projects within housing, business ownership and public building. Secondly, we are, in addition to being a total entrepreneur, also a significant niche actor who provides a number of specialist services within rehabilitation and reconstruction. This requires a high degree of expertise, but it also allows us to take out a larger part of the potential in the market. As illustrated on these two sides, we have a number of companies under the AF umbrella. Our business model and success are based on having a decentralized structure with a high degree of decision-making where value creation takes place. In addition to our construction business within the construction area, we have a significant construction business in Betomast and in Sweden. So together we make construction absolutely the largest part of AF's activity. We have a broad project portfolio within a wide range of construction, and a small part of it is total entrepreneurship, as shown on this slide. Furuset Hageby is a future-built, all-green project with high environmental ambitions that will be a good and different nursing home for people with cognitive disabilities. Collaborative projects like this, which challenge us on the environment, innovation and user experiences, are part of Løfters, so that we are also ready to meet the challenges of tomorrow. Construction City is our largest construction project ever. It will also be our new headquarters, and it will be a national innovation hub for the construction, construction and property industry. We are motivated by working with projects that solve important social issues. We contribute to building a new hospital in Drammen, and the Viking Museum for State Buildings will be a fantastic building that will show Norway's culture to new generations. So this is some of the examples of the width of our projects and the customers we work for. Safety comes first with us, and we have a goal of zero serious personal damage and work-related damage. We work hard every day to maintain the safety of our construction sites and challenge ourselves to gradually get better. We have been dealing with source sorting for many years. In addition to ensuring that it is on a high level, it has become more important, both from an environmental perspective and from a profitability perspective, to minimize the amount of waste. We will halve the amount of waste that does not go to material recycling or reuse before 2030. The turnover of buildings has been stable, but with a small decline in recent years. For us, it has been more important to choose the right projects through the corona pandemic than to grow. But the growth is coming now, and we see a strong increase in the order reserve of over 13 billion at the beginning of the quarter. Construction City is in addition contracted after the start of the quarter and is not part of the order reserve. The quarterly result for Bygg was 6.1%. And the profitability in Bygg has been stable and strong for many years. And I will tell you a little about how we ensure that we have a solid profitability and growth over time. AF has been actively working with risk management for many years. We believe that this has set itself in the back of our employees. So our ability to take on and handle risks that we can affect, grasp opportunities, has given us a solid profitability. We have put in a system of how we choose the right projects, where we use our competitive advantage, and not least, perhaps the most difficult, and choose projects and customers that do not make us good. through our commitment to net-and-price good management, is that we have a decentralized decision-making community, that we promote creativity and entrepreneurship among our employees. This has developed a commercial legacy, which I think is crucial to success. But we do not succeed without good operation in our projects. It is essential to get hold of and develop the best people, to build up and have good competence both in the implementation of projects and in our subjects. We think we will succeed in having a large share of our own production. For construction, this is especially true for the two main streams, timber and concrete. Good, independent craftsmen in this field take the whole production train and ensure that we have good operation in our projects. Project management is the most important success criterion, and therefore it takes a lot of time to ensure that the project is properly organised and that we do not take on projects that we cannot load in a good way. We have a diversified portfolio where we try to take out the competitive traits that each of the companies in the business area of building represent. To succeed, we see that it is very important to have long-term and valuable relationships with our customers, but also with our suppliers, which are a very large part of our production. The way we work and negotiate, both internally and with customers and suppliers, has changed a lot in recent years. And digitalization has been an important driver through that process. We have grasped the possibilities, so that gives us. But it has also been important for us to have an operational approach to this. And that means that for us, the acid test in the form of digitization gives us something that this gives us either better operation and thus better profitability, or a safer operation. One challenge that we have discussed and that the industry is in the middle of is an escalating price increase in materials. As shown in this illustration, this is especially true for empties. We expect an outflow before the end of the year, but we do not expect prices to go down to where they were. The entire value chain is affected by this, and no one takes the entire end of the bill. For our part, we have sought to handle this risk in several ways. We have good corporate statements that shield us against the biggest swings, Several of our largest companies have price regulation mechanisms in their contracts, and in some cases we are secure contract-wise against builders and entrepreneurs. However, we have great uncertainty in several projects regarding the value and effect of price increases. Digitalization and technology development are one important driver in our industry. We also expect an accelerating development within the climate and environment and stricter demands from both customers and authorities. This is one of the reasons why we expect growth in the so-called root market driven by environmental demands and demands for reuse and reuse. With our position as a total entrepreneur within rehabilitation and a niche actor in this market, we are well positioned to meet this growth. To sum up, we think we are well equipped to take on the opportunities we have today, and that we are positioned for a leading position in the future. We have a culture for handling risks and choosing the right projects. We have the right employees to meet tomorrow's challenges within climate and environment. We have a solid order reserve that spans the entire spectrum of small and large projects, new buildings and rehabilitation. And for a broad customer segment in the largest markets in Norway, Storoslo and Storbergen. Our people are important and we have a robust organization and a good financial position. So I give the word back to you, Amund, so that you can summarize the quarter.

Thank you very much, Tormod. The summary for the quarter is that we have had a solid turnover growth of over 9% and a strong profitability of 100 million from last year in operating results and a margin of 5% in the quarter. We have a strong financial position, good cash flow from operations with 734 million for the first half of the year, Vi har betalt ut et utbytte i kvartalet på 689 millioner, eller 6,5 kroner per aksje, og vi har en årdreserve som er rekordhøg på underkant på 38 milliarder. Alt i alt viser kvartalet at grundighet og hardt arbeid over tid i prosjektvirksomheten, og med god drift, gjør at vi leverer god omsetningsvekst og et godt resultat i andre kvartal, og i første halvår fra F-gruppen. There are several of our business areas that contribute to good profitability in the quarter, with high activity and good margins. Combined with the fact that the security trend is going in the right direction, we are thus satisfied with the quarter we have put behind us. Thank you very much. The time has come for us to answer questions. If there are any questions,

yes there has been a single question the first question is from marius heyerdahl musda industries and it goes as follows the development in concrete masonry is worrying how do you want to design the quality of the order book is there a risk that concrete masonry will lose a period due to inflation on building materials and the question is then best answered by amund

Yes, thank you for the question. We like the development in Betongmast. At the same time, we know that there are several measures on the way, and they take into account our risk management methodology. So we have faith that the projects in the future will be profitable. At the same time, we can never give any guarantees that we will not continue to lose that there will be major variations in that portfolio.

Another question from Simon Mortensen in DNB Markets. How do you see the situation around cement in Sweden? What can and should be the outcome, as you see it?

We see that it is a challenge and can be a big challenge for the Swedish market and of course our business. We think this is It's a national challenge that must be solved politically, and apart from that, we have no comment.

Next question, and it's related to construction, so it's Tormod who is best suited to answer this question. It's also from Simen Mortensen. How do you see the construction goods prices affecting sales rounds today? And do you see any pressure on wages, and how is the access to workers, especially from abroad?

To take the last question first, we do not see any special and worrying development related to wages for workers. When it comes to material prices, we notice that in the supply rounds we are in now, that there is growth in prices and we get a slightly higher and more expensive offer on services that we buy from our entrepreneurs. And then we seek to reflect that in the offers that we make to our customers.

Thank you. A question that goes to Sverre Harem, and that is about Sweden. No, it comes from Sweden. It comes from Ole Asbøen. How will the revenue from Construction City in total, 2.6 billion kroner, be distributed over the coming years?

We are starting to build the foundation work now in autumn, but most of it will be divided over the next four years, i.e. 2021-2025, where you expect the building to be finished by the end of 2025. So it will be re-divided over 2022-2025.

Thank you. Enough questions, unfortunately. This is from Simen Mortensen from DMM Markets. How much value, turnover or EBIT is there to talk about in the agreement or the fusion with Aker Solutions?

Yes, you can say that. Those who have worked with our offshore market, the prices are going up and down, depending on how much is taken. Right now, we see that we have good margins on our offshore business. There is high activity both this year and next year. So how big the turnover will be is difficult to say. AF's share will be about 600 million alone this year. And we noted in the budget statement that together these two companies have 2.5 billion in annual reserves, which will be distributed over the next periods.

Thank you. And then we have a question from Bengt Jonasen. There are actually several questions. It goes on a comment that there is an extremely strong order in progress, and some comments on how we experience the market. When it comes to offshore, do we still see high activity in watts for the rest of the year, and how does 2022 look for watts? Sverre? Yes. Excuse me, Amund.

We have had a good entry of orders and tons of cash in VATS, so we have good business and good to share in both the rest of the year this year and in 2022.

Thank you. That was the income we have received, Per. Amen, would you like to sum up today's presentation?

No, I summarized it last, so I would like to thank you for the digital meeting, and that you wanted to follow us a little bit on a Friday morning. We appreciate that. Next quarter, we are aiming to have a physical location, which means that you can meet up there, those who want to, in addition to digitally. So, thank you very much for the meeting, and have a good weekend when that time comes.