AF Gruppen ASA

Hello, and a warm welcome to the presentation for the third quarter of 2025 in the AF Group. Today's theme will be building cost development in construction, and will be presented to the board of directors for construction, Tormod Solberg. After the presentation, there will be a chance to ask questions. Main points in this quarter. We got a turnover of 7.8 billion. We had a result before tax that ended at 398 million, which gives a result margin of 5.1%. We have a cash flow from DRIFTA of 1 billion blank, and we have an order entry in the third quarter at a right undercut of 7.7 billion, and we have an order reserve per 30.9 billion at a right under 44.4 billion. We have a net profit margin of 524 million, and the board has VT an additional exchange rate of 4 kroner per share. In AF, we start with safety and health first. In this quarter, we have had one event that has either led to injury or serious injury without injury, and we include sub-entrepreneurs in our numbers. This gives a H1 frequency of 0.2 and a hit per year of 0.5. The trend is in a positive direction, but the goal in AF is zero, because everyone will come home safe and sound for one day. The H2 value went in the opposite direction. It ended at 9.1% in the quarter and is up to 7.8% this year. Health care is also in that direction and is up to 4.4% and 4.5% this year. At AF, we aim for a sick leave of absence of 3%, because we believe it says a lot about the working environment, productivity and, not least, the welfare. If we look at the figures, we have had a turnover growth of a little over 8% and ended at 7.8 billion in the quarter. The result for the tax increase from 289 million to 398 million in this quarter, which gives a result improvement of 1.1 percentage point, and the result margin ended at 5.1%. We have a requirement that the EBIT margin should be over 5%. We are satisfied with this. If we continue to look at the return on invested capital, the last four quarters we have had results before the tax, and we have to put back interest rates of 1,669 million. When we compare this with an average invested capital of a little over 4.9 billion, we get a return on invested capital of 33.7%. We have exceeded our target of 20%, and we are very pleased with that. Whether the project is large or small, whether it blows with or against, our only crown is equally important. It's about paying attention to the money, and when we look at the cash flow from the drift, and if you look at the figure to the right, then you see that in 2024 we had a cash flow from the drift of over 2.2 billion. This year it is a little over 1.9 billion. And if you go back to the table to the left, then you see that the cash flow from the drift in this quarter was 1 billion. We have liquid funds, starting at 1,626 million. The figure on the right shows that the interest rates are increasing in the summer, while rental obligations on machines and rental obligations on offices and warehouses are increasing in the opposite direction. The sum gives us a net profit margin of 524 million. And if you look at the figure on the left, you can see that on the corresponding 10 last year, we had a net profit margin of 780 million, and that we had a positive development of just over 1.3 billion. When we include our pulling facilities, we have an available liquidity in the company of a little over 5.1 billion, and we mean to say that we are in a solid financial position. If we look at the balance, there are not very big differences from last year. We have an equity capital that has increased with a margin of 600 million, and is at about 3.6 billion. We have a total capital of Right over the edge at 16.9 billion, which gives a capital share of 21.5%, up from 19.4% last year. The exclusive effect of IFRS 16 is 23.2%. With the background of the totality of what is happening, Styre has received an additional exchange rate of 4 kroner per share in November. ELLE has a responsibility for the footprint it affects the climate and the environment with. We measure on a number of parameters, but we take these three here in these transitions. Let's take the climate gas emissions for Scope 1 and 2 first. There we have released over 26,300 tons of CO2 per year, which is a decline of a little over 20% from the response last year. If we continue to look at the source sorting rate, it varies from 91 to 97% between the different segments, and the total for AF Hittentee this year is 96%, because we have sorted well over 220,000 tons of Hittentee. We have When we look at the amounts of pre-washed mass and metal from the mining industry that we have reclaimed to date, it is slightly over 86,700 tons. This has contributed to tracking the environment for over 120,000 tons of CO2 equivalents. At AF, we learn before taking on our projects, and we seek and strive for the highest standard for project management combined with good and high professional competence. An example of this is this project, E6, in the countryside, where those who have passed the Lillehammer region in the past will have seen that there is high activity. There and a number of other places in this business area, there have been high performance in the quarter, and have undergone a turnover growth of 21%, so we ended up with about 2.8 billion in turnover, with relevant operating results of 196 million, which gives a operating margin of 6.9%, which is up 0.5%. Målselv, Maskin & Transport, Stenset, RS and VSP deliver extremely good results in this quarter. The already taken AF Anlegg has high activity and delivers a good result in the quarter, while Eikon still has a fairly weak result in this quarter. We are happy that AvFanLegg has signed a contract to be part of the CarbonFanLegg, which will be established by Havslund Celsius in Oslo. The contract was for about 500 million, exclusive options. The order volume in the quarter is 1.7 billion, and the order reserve is up from 14.4 to 17.9 billion. If we look at construction, the activity is relatively stable and ends at about 2 billion, with a operating result of 103 million, which gives a operating margin of 5%, up 2.0 percentage points from last year. Here is AF Byggfornyelse, which also has a good project related to project management and expertise, as we see in the picture here with the Viking Times Museum on Bygdøy, together with AF Bygg Oslo, Haga Berg and ÅBF, who deliver extremely good results in the quarter. We have Bygg Østfold, Strøm Gunnarsen, Vestfold and HTB, who deliver good results. Strøm Gunnarsen and AR Fontverk have results below expectations, while LAB and FAS have weak results in this quarter. There were six contracts in total, with a collected value of a little over 3.1 billion in the third quarter. Here are four of these collaboration contracts, which are collected at about 2.6 billion. The contract with Nobos in Fornebu Sør is the largest, at about 2 billion. And when it comes to these, they will be included in the order reserve first at the beginning of phase two. The order entry for Bygg ended at 1.4 billion, while the order reserve is at 10.3 billion, up from 9.4 billion last year. Moving on to BetongMass, the activity level is stable and the turnover ended at about 1 billion, the operating results at 47 million, which gives a operating margin of 4.4%, up 0.8%. Here is BetongMass Drøsand, which has, among other things, carried out the Campus Kristiansund project, as you can see in the picture here, which delivers extremely good results in the third quarter. It is also glad that the other units have good results, and it is only Betongmast Romerike that has a weak result in the quarter. We are also paying attention to the fact that Betongmast Oslo and Boligbyg are close together from and with now in the third quarter. Betongmast Østfold has signed a contract to build a swimming pool in Moss for a little over 120 million kroner. The order volume was 660 million kroner, and we have an order reserve that is slightly lower, and 4.7 billion kroner at the bottom. When we look at ownership, there has been a sales contract for 22 homes in the quarter, and we have delivered 36 homes. The housing project Fageblom, as you can see in the picture, has started production, and we have two housing projects with 142 units under production, and the sales rate for these is 54%. If we look at energy and environment, the turnover ended at 343 million, with a turnover of 19 million, which gives a turnover margin of 5.7%. Here, AFE Dekom has increased activity and delivered a good result in the quarter, while AFE Energi has some lower activity and a result below expectations in the third quarter. On September 17, we completed the purchase of 80% of the shares in Eveny Solutions, and the company has now changed its name to AFL Kraft. It is an engineering and entrepreneurial company that deals with electrical infrastructure. We have taken in the balance and order reserve from the third quarter, while the results are calculated from the fourth quarter. It is also glad that AFEnergi continues to expand within technical subjects and has received contracts for nuclear, sanitary and water treatment at the new somatic building at Nyaker Hospital for a value of about 300 million. The order volume in this quarter reached a little over 1.5 billion, and the order reserve is at the bottom, at 2.4 billion. If we look at Sweden, the activity level is slightly lower and ended at just over 1 billion, while the operating results have increased and are at 64 million, which gives a operating margin of 6.2%. Prefab Melardalen, Hørnesand Byggreturer, Bygg Syd and HMB deliver very good results this quarter, while the construction company Kanonaden delivers good results. Bygg Øst and AF Bygg Vest have weak results this quarter. After the end of the quarter, we have signed a deal on the sale of our foundation business, AF Prefab, in Melardalen. This is completely in line with a strategy to prioritise wage growth within project businesses primarily. And the sale will not give any significant results. We have listed three contracts in the quarter, connected to Kanonaden, Melardalen, ByggVest and HMB, but collected values of just over 900 million Swedish kroner. The order volume was just below 2 billion, while the order reserve is at about 7.3 billion, up from 4.5 billion last year. When we go to offshore, the turnover ended at 387 million, with a close to zero result. Here it is Aeron that increases the activity and delivers a good result in the quarter, while Offshore Decom has also increased the activity, but has a weak result in this quarter. This quarter, a contract was signed by Offshore Dekom, together with Trisexti Energi, in a working partnership, where we have about 30% of it, on a framework contract on end-to-end services for the shutdown and removal of the Andrew field in Nordsjø. Here we only put in 250 million in the order reserve in this quarter. The order increase was 464 million, while the order reserve is 1.8 billion. Let's see. A overview of the order reserve. We have facilities with about 17.9 billion, buildings with about 10.3 billion, Sweden with 7.3 billion and concrete masonry and 4.7 billion as the most important contributions to them. To be a third quarter HTS, we have a very strong order entry at the bottom at 7.7 billion, and we get an order reserve with us at the bottom at 44.4 billion, which we consider to be a solid order reserve to have with us at this time. Now we will move on to today's theme part, which is cost development within construction. And then I would like to invite Tormod Solberg up on stage.

Thank you, Anil. My name is Tormod Solberg, I am the board of directors for Bygg i AF. Today I will look at our observations on cost development within Bygg. Housing in Norway is on a historically low level, and some of this is explained by the high building costs that I experience. As an entrepreneur, we experience a clear expectation from both customers and collaboration partners that the costs must go down after a period of strong growth in building costs. Today, I would like to give you an insight into what drives cost development, how the cost for some of our most important factors of effort develops, and what we believe about the future. Here you can see the cost distribution for a typical construction project. The cost of labor is 55% and the material is almost the largest with 33% and here it is timber and concrete that are the most important factors. As I showed in the previous picture, the price of labor is the largest driver of the enterprise cost. There has been a strong wage growth in recent years, and it is the expectations and signals about real wage growth in the coming years that are shown here with the orange graph in the picture. We have experienced input restrictions over time, and that it is less attractive to work in Norway now than it was before, and the sum of this gives a pressured access to labour. We believe that when the market comes back, we will experience a shortage of labour, and that this will further increase the costs so that we can attract qualified labour to our industry. This figure shows the development based on the SSB building cost index for materials and labour. As you can see, we have left behind a period, especially in 2021 and 2022, with very high growth in building costs. Many had expected that the last 12-month period would give a decline in costs. The graph shows means of continued growth, and labour costs have increased by 3.9% in the last year. The cost of materials has increased significantly in recent years, with an additional 4% in the last 12 months. Let's look at the underlying drivers for the increase in material costs. The waste price has doubled from less than SEK 500 per cubic meter in 2020 to around SEK 1,000 per cubic meter today. This is one of the central drivers in our industry for increased material costs. In the last year alone, the waste price has increased by over 18%. And then there are several drivers behind that price development. A weak crown increases the price of gold measured in Norwegian kroner and makes it more attractive to export Norwegian gold. In 2022, the EU introduced import bans on Russian and Belarusian gold, and that removed a large supplier to the European market. Even if some of the volume has found new export routes, the netto effect is probably an increased price in the global market. The last few years, we have had barter attacks that have hit forests in both Europe and North America, which has led to a shortage and a lower future offer. It is also worth noting that the EU is now introducing a regulation on deforestation-free products, which is in force at the beginning of this year. To meet these new requirements, it may be necessary to reduce the hog volume. For example, Swedish forest owners have indicated a lower hog volume, and the lowest since 2015 in the year ahead. Increased vacuum prices have led to higher trellis costs. In the last 12 months, the cost has increased by 17%. More Norwegian trellis producers have made extraordinary price increases this year, due to high exports. Concrete costs have increased by 1-5% in the last 12 months, while iron and steel prices have fallen by 1-2%. Looking back at the time before the pandemic, material costs have increased significantly. If we start with the Norwegian graph, the orange one, we can see the 12-month growth in the Norwegian construction cost index since the start and establishment of it back in 1978. In the last 12 months, the growth has been almost the same as the annualized growth for the entire period, i.e. 4.2%. It should be noted that even if we have had a single month in this long period where the index has fallen, there has never been a negative growth over a 12-month period. The Swedish building cost index would have had a corresponding growth with an analyzed growth of 4.5%. And then we can ask the question, is the cost growth in Norway and Sweden actually quite the same as indicated by these indexes? Both of these indexes measure price development on the input factors, such as labor, waste and concrete, but they do not catch up with the major changes in standards, quality and requirements. When this is taken into account, the difference in the real cost development between Norway and Sweden becomes much greater. Let's take a look at that. One of the questions is not the same in Norway and Sweden. We build for a number of different builders, and Oboe stands out as one of the most professional actors who have an in-depth knowledge of both the Norwegian and Swedish housing market. They understand the demand in the market and the requirements from the buyers. Here you can see two examples of projects we build for Oboz. One in Sweden and one in Norway. The picture on the left shows a project that our Swedish data company HNB has just completed in Stockholm. And on the right you can see a project in the Oslo area that is under production. Both projects are developed with a starting point in market needs, but as the illustration shows, there is a clear difference. If you look at the project in Sweden, it stands out as stylish and efficient construction with straight lines and a single balcony structure. A project that is cost-effective to implement and build. Projects in Norway, on the other hand, have a much more complex architectural design. They have large outdoor areas, blue and green roofs and other qualities that give the building special features, but which are also a driver for higher building costs and set greater requirements for implementation. Here you can see the development in cost per apartment in Sweden and Norway from 2014 to 2024. All these figures are measured in 2024 kroner and adjusted for price development on the underlying investment factors. The index-adjusted cost per apartment has increased by only 2% in Sweden, while the increase in Norway is by a total of 37%. This means that the cost of building in Sweden has kept up relatively well with the price development of the underlying investment factors, while the cost development in Norway has been significantly higher than what is explained by the cost index alone. This despite the fact that the two indexes have had a similar development in that period. If we draw up some of the factors that help explain why the cost of building has increased more in Norway than in Sweden, it is due to higher housing standards, i.e. higher cost of material choice, more architectural design, facades, outdoor areas, wetland solutions, electricity, pipes and whiteware. There are also stricter environmental and energy requirements, such as the requirement for balanced ventilation, thicker insulation levels in walls and ceilings, several technical and regulatory requirements, for example related to fire and ventilation, and universal design. We do not build the same, and the quality of the end products is significantly higher for the group of Norwegian homebuyers. Also, the formation of technical and regulatory requirements will probably have a great impact on future cost development. One example is the ongoing discussion of export-free buildings versus fossil-free buildings. It is a regulation that can be of great importance for future building costs. It is a requirement for possible emissions-free buildings before 2030. Such a measure will give significant environmental gains by reducing CO2 emissions per apartment by around 3 tonnes. So absolutely something that is in sight here. But the cost of this is very high. Approximately 340,000 per apartment. We think that a demand for a fossil-free building is a much better alternative. This gives almost the same reduction in CO2 emissions per apartment, but the cost increase is limited to about 30,000. In other words, it achieves the same climate effect at a cost of over 90% lower. After our assessment, the best alternative is to introduce a threshold value for total greenhouse gas emissions per construction project. For example, CO2 per square meter per hour, in front of an absolute requirement. We believe that this will give a greater total emissions cut, that it will be more economically responsible, and it will stimulate us and our industry to innovation where it will have the greatest climate effect. Finally, some thoughts on future development. We believe that the cost of building should be significantly reduced in the short term. We are building with higher quality and energy-efficient buildings that meet increased technical and regulatory requirements. Lower costs will depend on the success of a growth in productivity and good solutions. and that it is combined with the simplification of the authorities' requirements and regulations. To maintain high activity and lower costs, we as a industry must create better forms of cooperation in the value chain, we must be more curious about technology, and we must increase cooperation throughout our value chain. Thank you.

Thank you very much, Bormod. Let's go over to the summary of the quarter. We have had high activity, with a turnover of 7.8 billion, a operating profit of 406 million, which gives a operating margin of 5.2%, and a profit before tax of 398 million, which gives a profit margin of 5.1%. We have had an order entry of 7.7 billion kroner and an order reserve of 44.4 billion kroner. The board has received an additional exchange rate of 4 kroner per share in November. The sum of the development in the security performance combined with strong cash flow and margins above our margin requirement makes us very happy with this quarter. We will continue to work with what we have faith in and see work. We will continue to choose the right project, organize robustly, provide good project management combined with high professional competence and risk management, pay attention to the money, and last but not least, pay attention to our people. And with that, we conclude this presentation. And I ask Tormod and Anni, our financial director, to come up on stage. And then we are available for questions, as long as there are some of them.

Good morning, Bengt Jonasson, ABG. If I can start with a question about the cost of building, where you describe a real increase of 37% and 2% in Sweden, basically, due to some changes in customer needs, environmental energy requirements and other technical regulatory requirements. If you were to try to What is the most important? Is it the customer's needs or the regulatory requirements?

I think it is difficult to distinguish what has contributed the most. But we see that the requirements that have been set in TEKKEN and other such requirements is significantly different in Norway than in Sweden, because we operate in both countries. And we also see that the quality that we build in Norway, they have much higher architectural quality and standards in Norway than the slightly simpler homes that are built in Sweden. So I think it's a bit difficult, or we don't have exact numbers of what contributes the most, we don't.

A general question, if we were to describe a market now, compared to a year ago, maybe at the segment level, construction, construction and so on, do you think the market is changing? Is the image of an actor changing? Is the price pressure changing?

I would rather say that the activity level remains low in a number of segments. There may be some positive signals here and there, but we dare to talk about it in the medium term, because it is incredibly difficult to predict in the future.

If we were to play the question in another way, how do you experience the pipeline of things to count on? Is there something that stands out, or is it a little weaker now than it was, for example, when we started?

We have very high supply activity, and that is the public sector, and then there is power and defense, which are customer segments that have... which have the strength to carry out projects now. Now I'm talking very roughly and big lines.

On a segment level, we know that you have had a larger contract outside of offshore, which has loaded the account with a few hundred million over the last few years. Status on that now in relation to expected completion?

It is a project that we have informed about earlier. It was about a year before it sank, and we expect it to be completed over the next few quarters. We expect it to have a normal project risk-outfall per day, but there is still room for our projects, given the way we look at risk, which we have been talking about earlier.

So the completion in 2026 is what it says? It is over the next few quarters.

Other questions? Two digital questions.

Hi Dag Eide, shareholder. Short question to the right. What is the difference between exhaust-free and fossil-free? I understand that the difference is probably in the name, but what makes it such a big cost difference?

On fossil fuel, we can use many of the same machines, modern machines, but with bio-diesel. On the other hand, all machines must be electric. And if it's 100%, then it's from... spinning and peeling, which is very demanding to get to good operation with electric machines, to small machines that we use, which are much easier to get to. So that's the main difference, and one of the things that drives the costs is that it takes much longer to build, so it's the building time that increases, and the cost with increased building time is a big driver for that cost.

In conclusion, everything must be electrically or battery-based in practice? Yes, yes. In conclusion, can you use the existing machine park with, as you say, biodiesel? Yes, yes. Okay, thank you.

Two questions have come in digitally. They are from Simen Mortensen in DNB Carnegie. The first is probably for Anni. It's about exchange. Can you say a little more about what you should think about the exchange policy when today's additional exchange formally applies for the fiscal year 2024 and not for the first half of 2025? At the same time as you have previously signalled a half-year exchange rate.

The board knows about the exchange, but our policy on over time paying more than 50% of the results is still in place.

Thank you. One last question from Simon Mortensen. It's about minority shares and EPS. In the quarter, we see that minority shares are pulling EPS somewhat down, despite a solid EBIT level. Can you explain what drives the higher minority shares in Q3? If this is something we should expect as a more sustainable level in the future, given the project mix and ownership structure in the different units?

If I may answer that, there have not been any changes in ownership structure, but the minority share of the result will of course vary between quarter to quarter. All this depends on who contributes the most to the result.

Thank you. No more digital questions?

Good. Then we'll see... Okay, here it comes.

A question to Solberg. A little back to the cost drivers in Norway and Sweden. Do you see a possibility that there will be harmonization, that the cost drivers in Sweden will come to Norwegian standards in the coming years?

We don't really have any indication of that, no. But if it will become something that is harmonized in the next ten years, we don't have any indication or knowledge of that. But we see consistently that it is being built a bit easier, and they have a lot more rental rights, i.e. rented housing, which makes it a bit different requirements for homebuyers than a Norwegian homebuyer who buys their own home.

And the demand and sales in Sweden versus Norway, how does it look today? Are you thinking about... I'm thinking about housing.

I don't know where the Swedish market is. You know better about it, Arne. We'll take a question here.

How do sales and demand look like in Sweden compared to Norway?

We have very little property business in Sweden. And we have more property business. Our customers are entrepreneurs in Sweden. All in all, we see positive signals around the region of Stockholm. I'm speaking on behalf of our customers.

In Norway, the central strata, central parts of Oslo and central parts of Bergen, is where housing projects are set up. It's the big, solid developers who dare to set things up in the daily market.

Øyvind Haugen. I have to think that in the nearest future there will be enormous military facilities that will be built in Norway. Do you have any idea how big that can be?

No, I think I would refer to the media and the information that the defense and others indicate there. So I don't know if we are carrying the other one, but to put it in another way, we are well positioned to take contracts, since that market is going to grow. It looks like the questions have been answered. I would like to thank those who have met physically and those who have followed us digitally today. Have a nice day and have a good weekend when that time comes.