AF Gruppen ASA

Hello, and a warm welcome to the presentation of the second quarter of 2024 for the AF Group. In today's theme, we will give a brief insight into the development of building costs, and this will be presented by our board member, Tormod Solberg. After the presentation, there will be opportunities for questions for those who have met up. Main points in this quarter was a turnover of 7.6 billion. We have a weak positive result before the tax on 21 million. We have a cash flow from drift on 661 million and an order reserve of 38 billion. And we have a net interest rate per 36 on 979 million. We start with safety first in the AF group. In this quarter, we have had two incidents that have either led to injury or personal injury without injury. We include all subcontractors and those who work for us. And when we divide that by the million performed hours that are performed, we get a H1 value of 0.4 in this quarter, and so far this year at 0.6. After 12 months of rolling back and forth, we have a H1 value of 0.5, and we have never been on such a low level in the history of the AF group. Let's move on and look at the events that have to do with a number of damage to medical treatment and damage that has led to alternative work. Then we get the H2 value, which is at 6.1 in this quarter, and we think it is happy that it follows the summer trend. Many have probably been involved in the debate related to health care that is going on in society these days. For the AF group, health care is 3.6% in this quarter. It is the lowest outbreak of COVID-19 this year, and so far it is 4.1%. We are pleased that the development is going in that direction. If we go back to the talks, we have had a weak decline of 7.6 billion in revenue in the quarter. The result before the tax is influenced by a decline linked to one offshore project that affects this quarter for us. When the bond line follows along, it has a big impact on this parameter. In the last 12 months, we have an excess of 700 million in results before tax. So we have an average invested capital on an excess of 4.8 billion. And that gives a discount on invested capital of 14.5%, which is well below our target of 20%. If we look at the cash flow, it is strong at 661 million in this quarter, and 789 million so far in the first half of the year. And we took with us liquid funds at 411 million. If we look at the interest rates, it has gone down by over 0.5 billion, over 3.2 billion, and we mean that we are in a solid financial position. If we look at the balance, there are few changes in it. We have an equity capital of 2.8 and a total equity capital of 14.8, which gives an equity capital share of 19.2%. On the XIFRS 6, it is 20.3% per 36%. Alle har et ansvar for det fotavtrykket vi gjør på både klima og miljø rundt oss. Vi rapporterer på de her parametrene. Før det her kvartalet har vi hatt en sorteringsgrad på henholdsvis 780, 780 og 95% på de snaut 100 000 tonner som vi har sortert. We have also recycled and sorted metal in excess of 8,000 tons, and our environmental parks have recycled close to 150,000 tons, which together has saved about 20,000 tons of CO2 equivalents in this quarter. Before we move on and look at the business areas, we can take a look at this project that has had a preview in this week. It is the new Tøyenbadet, which will open later this year. We start with the business area Anlegg, which continues with strong growth of nearly 60%, which gives a turnover of 2.4 billion kroner, and technically a operating result of 140 million kroner, which gives a operating margin of 5.8%. AF Anlegg has a quarter with a record high turnover and good profitability. They have several large and solid projects, including cable tunnel Sogn-Ulven, where we build tunnels to pull cables under Oslo, as you can see in the picture here, and a number of other large projects in production with evenly high activity and good operation in the projects. Målsøl Maskin og Transport, Stensit RS og VSP Porteføljen leverer svært gode resultater i det her kvartalet, mens Eikon har låg aktivitet og svagt resultat i kvartalet. Årdreserven er på 15 milliarder. If we go to construction, we have 2.2 billion in revenue, 95 million in operating results, which gives a operating margin of 4.2%, corresponding to last year. Bygg Østfold, Haga Berg, Strøm Gunnarsen and Strøm Gunnarsen Vestfold, who deliver extremely good results in the quarter, and Bygg Fornyelse, who, among other things, run the Viking Times Museum out on Bygdøy, as you can see in the picture here, together with OBF, deliver good results. Bygg Oslo, Lab Entreprenør and HTB have results enough under expectation, while Handverk and Fas have weak results in this quarter. Vi har vært heldige å fått børsmeldt fire nye kontrakter i kvartalet på en samla verdi på 776 millioner, og ordereserven helsestabil på rett i overkant til 10 milliarder. If we look at the concrete mass, we have had 979 million in turnover, with a operating margin of 1%. The concrete mass Drøsand, which delivers Campus Kristiansund, which is the project we see in the picture here, together with Østfold and Inlandet, delivers good results in the quarter. Then we have Buskerud-Vestfold and Romerike, which deliver something below expectations, while Asker and Bærum deliver below expectations. Boligbygg og Oslo og Trøndelag leverer svagt. Vi har børsmeldt to kontrakter i betongmast i dette kvartalet på i overkant 600 million, og årdreserven er opp fra 4,9 til 5,3 milliarder. We still have a demanding income market with high interest rates and an uncertain market segment, which continues to contribute to the fact that we have low sales figures, and which affects the profitability in this business area for us. We have sold 21 and delivered 132 homes in this quarter, and we have three housing projects with a total of 589 units under production. The sales rate is at 68%. If we move on to Sweden, we have a turnover of 1.4 billion and a zero result in this quarter. It is still the same trend as the previous quarter. On one side we have Prefab Mellerdal, which delivers very good results. Kanonaden and AF Førnesand deliver good results, and HMB. under expectation, and Bygg Syd delivers poorly in this quarter. The previous concrete mass units deliver negative results in this quarter, and in this quarter we have devolved AF Anleggning Vest, and there are now only two operating units of the original concrete mass units left in Sweden. We have a Ordering on 1.1 billion kvartal, and the order reserve is now at 4.4 billion. When it comes to energy and the environment, the growth continues in this quarter. At 388 million, we have a operating profit of 22 million, which gives a operating margin of 5.7%. AF Energi, for example, provides an energy center for Rikshospitalet, as you can see in this picture. They have continued to deliver good results in the quarter. They have also completed the purchase of ETA Norway, 70% of them, which is an entrepreneur in bioenergy, and which will give us a strong investment in a new segment for us. FDKOM delivers a good result in this quarter, and the annual reserve for energy and the environment is 1.2 billion. If we look at offshore, it has been a demanding quarter, both for offshore and for the AF Group in this quarter, with one project that we have mentioned before the presentation. We have started to remove 10 platforms in the Dutch sector. We have had challenges both operational and related to weather from the start. Even though this year's season went according to plan, there is a lot of uncertainty about the availability of vehicles and equipment, which is the reason why we are further downgrading this quarter. On the second company in offshore, Aeron, they have significantly increased activity from the summer quarter last year, and they have good profitability. They have also sold a record-big contract in this quarter of over 500 million, linked to the offshore wind project. The reserve in offshore is 1.8 billion kroner. If we look at the total order reserve, it is 38.2 billion. It is divided into 15 on construction, 10 on construction, 5 on concrete masonry, 4 on Sweden and 1.8 on offshore, which are the largest contributions to it. We believe that 38 billion is a solid order reserve that we have with us for the second quarter. Then we have come to the theme part, where we are going to look a little closer at the cost development within Bygg, especially connected to Norway. And it is then, as I said initially, Tormod Solberg, our board of directors for Bygg Norway, who will present that.

My name is Tormod Solberg, as Amund said. I will give a brief insight into the development of costs in building Norway. Increased building costs are often pointed out as one of the most important reasons why Norway is no longer building today. We experience expectations from customers and others that the building costs must go down after a period of explosive growth. I would like to go a little closer to cost development on some of our most important factors, what drives cost development in our industry and what we think about the future. Here you can see the cost distribution for a typical construction project. Technical subjects, plaster and concrete work, are the most important subjects. If you look at the effort factors in a construction project, the workforce accounts for a total of 55%, and the material is the next largest with 33%, and here it is plaster and concrete that are the most important effort factors. As we showed in the previous picture, the price of labour is the biggest driver for the cost of enterprise. There has been a strong wage growth in recent years, and there are expectations and signals about real wage growth in the coming years. You can see that in this orange graph. We experienced labour force migration in the past. We experience income restrictions and pressure on access to employment. We believe that when the market comes back, we will experience that this lack of employment will further increase costs for us to be able to attract qualified workers in the future. We have left behind a period in 2021 and 2022 with explosive growth in construction costs. And this is illustrated here with the SSB building cost index. Even though many had expected that the 12-month period that we have now put behind us would give a drop in building costs, the graph shows a growth of 4.3% on materials and 5.2% on labor only in recent years. It is worth noting that even if there has been a single month with a falling index since the index was established back in 1979, it has never happened that there has been a negative growth in a 12-month period. The cost of emptying concrete and labor costs more than 70% in a typical enterprise project. These have increased by 25% on concrete, 8.5% on concrete, and 5.2% on labor, as shown in the previous picture. Price increases from suppliers have already increased, among other things, by 3% this autumn. Fortunately, there are also some material prices that have fallen, as has the price increase in our industry in the last 12 months. This is similar to the general inflation in Norway. We also have increased climate demands and demands for increased quality, which also drives up project costs. There are also some expensive factors that make the material production and the operation of our projects cost-effective. These are typical factors that we can see develop further as the economy grows. Here are a few examples of this. If we start at the top here, which is the electricity price, we see that the electricity price has historically fallen by 20 to 40 euros, while expecting to stabilize at 80 euros according to NVE in the coming years. And electricity is an important factor for both the production of materials, the operation of construction sites and for electric machines. CO2 emissions, which for us particularly affect the price of concrete, have increased dramatically in 2024. The government has set as a goal that it will increase significantly in the coming years, also towards 2030. In recent years, we have seen a significant increase in environmental and climate demands. And many of these are absolutely met by us. But they are also cost-saving. Requirements for reduction of climate gas emissions, transition to a circular economy, new standards for indoor climate, increased documentation requirements, requirements for upgrading of machine parks and emissions-free use places, are requirements that are well handled in our projects today. In addition, the government recently sent a proposal that gives municipalities the opportunity to set climate requirements for limiting climate gas emissions. from construction sites. And that will be up to the municipalities to determine and know the local climate requirements within the framework that is given in the home. But the hearing letter calculates a cost with the new climate requirements of up to 7% higher construction costs if it is implemented. If we look at a housing project with a good standard, which we implemented 20 years ago, compared to the corresponding project today, the cost per apartment in 2024, as shown in the table below, has increased from 1.7 million per apartment to 4 million per apartment. This is due to a significant increase in housing standards, and quality in combination with increased demands. We see again in all parts of our projects, that material choice in parcels and kitchens, waste materials, architectural design, more extensive outdoor work, demand for sprinkler facilities, technical solutions, increased energy demands linked to balanced ventilation, insulation and windows. Radiators have gold standard and technical and regulatory requirements. We also build in Sweden, and here the housing is built with a slightly lower standard. And in this way, we also see that the price-to-price ratio on that side of the border is significantly lower. So we have, over many years, taken advice and had advice on all these improvements. But we also see that the sum of good intentions over 20 years has become cost-effective. There are several fundamental conditions that point to the fact that the construction costs should not go further down. There is still high uncertainty related to the interest rate with the presence of high price growth, a strong labor market and weak krona. Fortunately, we are experiencing a decline in inflation, but inflation is still above the goal for Norway's banks, and strong economic growth means that it will take time before we get there. There is a view to increased protectionism, and there is a macro uncertainty that affects all of this, and that is the geopolitical unrest, risk and conflict level we experience in many places in the world. So far I have talked mostly about what drives the costs up. And that is absolutely what we are doing today, and that can be done in the future to keep the cost level down. Lower costs depend on productivity growth and good choice of solutions. We can achieve further productivity growth through high professional competence and good project management of our projects. By using new technology, being open to changes and innovation, and continuing to industrialize production in the areas where we see that it gives an effect. We must continue to take advantage of cost-effective and sustainable solutions and materials, and get early involvement from us as entrepreneurs, our sub-entrepreneurs and advisors, so that we can, for example, build efficient buildings that maximize the number of light areas and saleable areas. Finally, some thoughts on future development. There is little to say that the cost of construction should be significantly reduced in the short term. We are now building with higher quality than before, and not least more energy efficient construction, which also contains increased technical and regulatory requirements. And in order to maintain high activity and lower costs, the industry must be a sherry on new technology, we must increase productivity and strengthen cooperation throughout the value chain. Thank you.

Thank you very much, Tormod. If we sum up the quarter, we had a turnover of 7.6 billion. We had a weak, positive result, which affected a decline in an offshore project, which means that we collected and delivered weakly in the quarter. We have a strong financial position, and we have an order reserve of 38 billion. And before I thank those who have met before us, On the web, I would like to conclude by saying that what still matters, and what we see working, is that we will choose the right projects that we have the competence to carry out. We will be organized robustly. We will be good at operations. We will have good risk management. And we will take care of the money, but most importantly, take care of the people who are with us, so that everyone comes home safe and sound for the next day. With that, I would like to thank you for following us on the web, and have a nice day.