Veidekke Asa

Good morning and welcome to the presentation of Veidekke's results for the second quarter of 2024. Both to you who are sitting here in the room and to you who follow us on the web. As usual, I will go through a little about the main agenda in the quarter before Jörgen Wiese Borsmyr will go through the details of our business and the financial. Och så avslutningsvis några kommentarer kring hur vi ser på framtiden och omvärldsläget. På vanligt vis så öppnar vi också upp för spörsmål när presentationen är färdig. We start as usual by telling you about how HMS works in Vejdecke. And we do it because the industry we are in and the business we run is risky in relation to HMS. We operate many large projects and facilities with large machines. It is heavy air, it is work from a high altitude. The fuel and electric work to mention some of the risky elements that are part of our everyday life. Det betyder att det krävs skickliga processer och disciplin i genomförandet för att kunna jobba säkert. Vi står bergfast på principen att alla som jobbar på Veidekets projekt och anläggningar ska komma hela och friska hem från jobbet varje dag. Vi mäter det här speciellt i förhållande till antalet allvarliga skador. På den ena sidan så är vi nöjda med att antalet allvarliga skador är jämförbart på en mycket låg nivå. Men på den andra sidan så är ju två allvarliga skador de senaste tolv månaderna två för mycket. Vi vet att nollvisionen är uppnåelig, för det har vi ju visat tidigare. What we also measure, but which is not seen here, is the number of serious deviations, that is, events that could have been a serious injury but did not. We also have a strong reduction here, and to be able to take advantage of the learning of such events is also essential to successfully increase the safety of our construction sites. There is also a clear correlation between high safety standards and efficient production. And that is because both things require some preparations and good planning. The graph to the right shows the health care system, which is too high and where we have not managed to break the curve downwards. This is a problem that we now have high on the agenda and where it is worked on to get the numbers down, especially in the units and geographies where the health care system is highest. And shortly about the main agenda in the quarter, we see our performance and numbers in the course of the second quarter of 2024 from a concern perspective, the activity is a little lower than in the corresponding quarter last year. But we also significantly improve the result and see an improvement also in the margin of results. And despite a little demanding market, we maintain a good order reserve in the quarter. All in all, the results show that the organization and the people in Vägdäcke are able to adapt to market development and deliver good results. We have a good diversification between different customer groups and project types, which have different drivers and split over several geographical areas. And then we continue to be selective about which tasks we take on. with prioritization on the right team, balanced risk distribution and the ability to well be able to carry out the tasks we have on us. So with continued focus on successive improvements and with flexible cost structure, we continue to work towards the goals we have set ourselves. Here we see the main figures for the quarter, which shows a small decline in the turnover, but a significant improvement in the results for the tax. The decline in turnover comes from construction companies in Norway and Sweden, and is a consequence of the fact that the order reserve in these units is now at a lower level than a year ago. In infrastructure, the activity driven by the Norwegian unit increases. The result in the quarter is 484 million and the improvement of almost 100 million comes mainly from infrastructure Norway. With improvement both in facilities and in asphalt and with the main focus on asphalt where a early start to the season, higher prices and not least good drift contributes to the success of the quarter. In Bygg Sverige, the profitability level is stabilized, even if the profitability in this part of the business is not at the level we want. In general, Bygg Norway and Hoffman stably deliver high margins. The order entry in the second quarter was at 9.8 billion, which gives us a book-to-bill measured in the last 12 months at 0.93. And in the graph we see that the order reserve in the last four quarters is at a stable level, and now at the half-year shift it shows 41.1 billion. There is some increase in the order reserve in the infrastructure units in the last quarter, while the level is somewhat lower in construction, where the decline is mainly in Sweden, and where the level of the order reserve in ByggNorge remains stable. The access to new jobs in construction is experienced as more challenging than in infrastructure, which is in line with what we have shown in our market reports. And it is especially tougher for our construction companies outside the big cities. In infrastructure, there is a good demand, but even if we have won some larger jobs like Ring N, I would have liked to have seen that another larger construction project had been included in the portfolio for Q2. But the access to new projects is, as I said, good in the future. The contract of 2.1 billion SEK for the Ring N project was signed in June after a one-year co-op phase. If we look closer at the order entry we have had in the quarter, it is as the heading indicates a good spread between the different segments. In total, the main focus is on public customers, but there is also relatively good access to both private businesses and residents. The housing projects will come, as you can see, in Norway, with several larger projects in the Oslo area and in Stavanger. It is nice to be able to announce that we in August have received a call for two larger housing projects in Oslo. It is the Maria quarter for Oslo's development and the Grönvall quarter for Norden. Both of these will be included in the order reserve for Q3. In Sweden, it is still silent on new housing projects and in the short term we see no immediate changes to that. För privata yrkesbygg så har vi i kvartalet ingått kontrakt för bygging av flera kontorbygg, och det är ju ett segment som har varit tämligen stilla i perioden efter covid. Och med det här kontraktet på Ring N så utgör ju Samfärdsel det största enkeltsegmentet i orderingången i kvartalet. Utöver det så består orderingången inom infrastrukturavdrift och vidlikehållskontrakt av BEI i Norge, samt ökat omfång av vattenreningsprojekt i Stockholm. All in all, a good start to the quarter with solid projects that will contribute to Veidekkers income in the coming time. So that was it about the main projects in the quarter and then I hand over to you Jörgen to take us through the activities.

Thank you. Now it is working early and late, I do not know, so I would like to say that now it is a good morning from here. We will usually take the details per segment, but start to give a touch of overview with this. shows 10.8 billion in turnover and 484 million in results. The observation is that construction units go down 10% in turnover in the quarter. Infra units go up 10% in turnover in the quarter. And with the mix we have, it means that the total goes down 3%. What does that mean in words? Well, it means that Veidekke is a joint business, and with the portfolio we have across both project types and geography, we have a strength when something goes down, something else goes up. On the results page, we can see the clear observation that our focus and our work with magines also gives results this quarter. You can see that the same segments have result magines that are either in or over the same quarter last year. We are very pleased with that. Our other segment, i.e. undivided interest rates and finance, is at 41 million kroner per quarter, negatively, and we guarantee that it will be around 35 million kroner per quarter, so we are on the same page with that. ByggNorge has a turnover of 3.7 billion kroner per quarter. That's about 10% down from the same quarter last year. As Mimmi said, the decline is mainly around Storbynne. While our activity in Storbynne remains, or actually increases a bit. And why is it going down? Well, it is a consequence of our development in order and reserve in the last year. You can see from the figure at the bottom of order and reserve that we had a peak, a peak, at 16.3 billion at the last year's half-year shift. It has stabilized us through the following quarters at 14 billion. And it is clear that it hit the top line. It reminds us of the good old thumb rule, that it takes four to six quarters from when the order reserve turns, to when the top line turns one or the other way. I hope you have a lot of experience with that. That's what's behind the development there. If we look at the results, it was 148 million kroner per quarter, and a margin of 4%. When we maintain the margin, with a significantly lower turnover, is based on the fact that the project portfolio we have started gives very good margins, compensates for the volume effects. And that is important to emphasize, because that is the core of the business, that we manage to deliver projects with good quality and with good margins. The order reserve has already given a touch. It was 14.2 billion. It was also last quarter, so we maintain the level on it. And as we have given examples of, we experience good ordering across segments. We have announced IQ3, two housing contracts. and one in Bjørvika, both here in Oslo, which will arrive in Q3. Since the summer is over and autumn is coming, we can give an example that we are already working in this quarter. The consequence of the structure in the order reserve, as we have already commented, is that the decline we have now, we will also see in the quarters in the autumn in the same way. Again, four to six quarters from the order reserve line to the top line line, so that is the consequence of last year's order entry. And then it flattens out. If we look at infrastructure in Norway, the turnover per quarter is 2.8 billion kroner. It is clearly up. It is 16 percent up from Q2 last year. And the increase lies both on what we call facilities, i.e. large projects and activities of the same kind, and what we call geomaterials, which are asphalt and concrete. So both have had a solid turnover increase. The result, 183 million kroner, was 103 last year. It is a jackpot, to put it simply. And the jackpot comes primarily from the asphalt and geomaterial side. Early season start, good production, increased prices and coverage of asphalt is the main driver there. Those who remember well, remember that we had a first quarter, a winter, that was, I hope to say, good on the asphalt, in the sense that we improved our cost contribution in the same way as last year. So it means that, if we look back one year, we have had a fairly clear improvement on the asphalt area. As we look into the autumn, two thirds of the asphalt production that we have, will come in a number of years, historically speaking. As we look into the autumn, our job is now to improve and maintain the results that we achieved last year. So we have taken a solid step up. We have a market that we know what it is, and that is now down in volumes from last year, and we are now working to see what the results we had in the previous year will be. On the application side, there are solid results in both large projects, application and operation, and Vildkvalt is behind the improvement. Again, on the application side, from 1964 to 1986, and then there is this large Jafse from 1946 to 1997 on asphalt, which is the result element. And in the reserve, up by 18%, and that's a lot when there are such large projects as Ring 1 also does. So we are back to the annual reserve we had in the summer shift last year within this segment. Bygg Sverige, a turnover per quarter of 1.9 billion kroner. It is 12% down from the same quarter last year, measured in local values. The decline is the largest in Gothenburg, but also in the other units. The result, 42 million, was 2.2 billion kroner. 2% is enough, similar to the driving speed we had last year. And the result generation is also very similar to what has been the case in recent years. Solid, good margins from our business at Næringsbygd in Bjæra in Gothenburg, from Gothenburg. And then we have a superior business with clearly lower wages. But where the comment now applies, as in previous quarters, that there is a greater degree of predictability and stability there this year than we saw last year. And in the current situation with the falling turnover of orders, we are of course making running measures to meet capacity and costs. The reserve continues down in this segment. It is now 5.9 billion. It applies across the company. We are satisfied with the position we have in Gothenburg. We are working to get a good reason for business in other units. Inflation from Sweden, a quarterly income of 1.6 billion, the same as last quarter. If you remember the timeline, we had a fairly long period of even growth, and have now flattened out a bit on the top line. But it is stable and good, and good capacity utilization. The result is 70 million kroner, 4.4 percent, a small step up from what has been the driving speed behind. And there is good profitability in our portfolio in total, which lies behind that. The oil reserve is 7.5 billion, it was 7.8. It is a bit hard to keep up at this level, and we are very pleased with that. So this segment gets a grant in the form of purchases we now carry out in Northern Sweden. Jimmy will take the rationale of what the business there is, Euro Mining. My comment is more methodical. It will come into our calculations from and with the fourth quarter of 2024. Denmark in the end. Here it is good pressure to find margins. A little up on the top line, 3% up from last year. And a result margin of 8.8%. And we have a portfolio that generates very good results. We are still very proud of that. The order reserve has made a real turn in the previous quarters. It has of course stabilized now. So we have in a way, in a broad sense, we keep the momentum of our Danish business where we are now. In the end, it is the financial position and the balance. The structure of the balance is that we have clear seasonal swings in the second quarter, so we pay an exchange rate. That is noted. And we have a seasonal bond in labor capital, especially in the industrial sector. When that is said, the balance sheet shows 17.5 billion in balance last year, up from 16.8 billion last year. And the dip, the growth there, is so to speak just the effect of the currency on the calculation. So it is the same we have in the balance this year as we had last year. The most important figure from our side is the net income position. It is 1.0 billion now, or it was at the half-year shift. It was 1.1 billion last year, so we hold the position, to put it simply. Some may remember that in the other half-year last year, usually seasonally, we increased from 1.1 billion at the half-year shift to 2.6 billion at the year shift. We'll see if we'll have the same travel this year, but in principle, we'll increase our income. So we have a very solid position. More details. Just to give you an idea of what happened in the first half of the year. We paid the exchange in May. I have already reported that here, and our shareholders have already noticed it in a positive way. And then we gained the usual money in operating capital. So this is a story we have talked about before, so you can recognize it very clearly. That was the portal.

Thank you very much Jörgen. Let's move on to some final comments. First about the market situation and what we experience on the ground. As mentioned earlier in the presentation, there is a variation in the markets, both between segments and geographies. We also feel that there is good visibility in Väjdeke's activity based on the order we have had. On the construction side, the order shows the last year and our book to bill that the activity will fall further during the second half of 2024 and with expansion into 2025, as Jörgen has talked a lot about with a 4-6 quarter expansion. These construction markets are largely linked to private builders and the financial market. In these markets, the interest rate and the crown rate are affecting whether the projects will start or not. But we still experience an increased interest in starting projects in that market, which probably has to do with the fact that there is now control over inflation and price increases. The infrastructure market is less affected by the financial market and here we still experience high demand and good access to new projects. We are very disciplined in our selection strategy, which builds on the right project, a balanced risk profile and where we are confident that our team can create value both for the customer and for Veidekke. And we are happy to tell you that we have finally signed a final agreement on the purchase of Euromining in northern Sweden. This is an important piece of our ambition to strengthen our local position as a supplier to the Swedish base industry in northern Sweden. And it is not least for the customers around what is called the Malmfälten where we have worked for many years with projects and established good customer relations. The purchase of Euromining doubles almost our activity in the region. After a long process, we are confident that culture and values have a good match and that together with Euromining we have the best conditions to develop this further. And as we have been talking about, we are confident in our selection strategy that will ensure that we find the right projects and where we can create values for both the customers and for Veidekke. At the same time, we should be present and develop ourselves in the right markets where we believe in growth. And Nord-Sweden is such a market and there we strengthen our business through the purchase of euromarining. Vårt förbättringsarbete och vår förmåga till att välja rätt projekt har bidragit till god marginförbättring i stora delar av verksamheten och är naturligtvis en prioritet för oss också framöver. Räntenivå, kronkurs, lönsuppgör, inflation, det har effekt på kostnadsbasen till vejdäcke och därmed också på våra resultat. Därför är vi hela tiden upptatt av att riggen vi har är anpassad till aktivitetsnivån vi ser. Last but not least, we work daily to maintain the level of high-performance units, successively improve the broad midfield in Väjdecke and manage to lift units with low profitability. Summary and finally, we have stable high activity. Väjdecke has operations in many segments and geographies and in this quarter it is pleasant to see the progress in the infrastructure units. With a stable turnover, it is a pleasure to see that we deliver results and margin improvement in breadth in the quarter and with improvements that have their basis in ongoing good operation. Ordringången har varit OK i den marknad vi har. Och det finns på det hela taget fortsatt många spännande möjligheter att jobba vidare med. Så tack för att ni ville lyssna på oss denna morgon. Och då kommer Jörgen upp bredvid mig på podiet här igen. Och sen så öppnar vi upp för spörsmål. But Jørgen, as we gather the questions here, we have a market report coming up.

Yes, we have a market update on the Scandinavian construction and development market. As we usually do, two times a year, this time in October, we will have it on the 15th of October. And we will find a place, not here, but hopefully one station further out on the train track, on Lysaker, where we build and have a rig office for the parcel we build on Fornebybanen from Lysaker to Vekre. So there will be an invitation. It will require registration, because it is even possible to take a tour down the tunnel for those who like it in addition to graphs. And then it will be a nice arrangement. But we just wanted to make you aware of that. So that was the intro to the Q&A session.

Yes, so now we take questions both from the hall and from the web.

Thank you and congratulations with good numbers. A question when it comes to order entry, especially within Bygg, which has come down to 0.85. We also see that you keep the margin. Is there any connection between sales activity and an increased EBIT margin when we see that new orders are lower? And how do you see Pipeline within Bygg in relation to what you have of tenders in Pipeline?

Yes, if we start by commenting on the pipeline, then you mentioned it a little tougher in the construction industry and above all outside the big cities. But I think that when we look back at what has happened in a year, then I think we see that plus or minus three months from this point in time, we saw that it started to turn. But what you also have to be clear about is that when the market turns, it will take at least a year before it affects the activity for road tires. So we have a period, as we have said, where we see that we have continued to decline in activity during the second half of the year and the eviction in 2020. Marknaden är mindre men det finns fortfarande en marknad att jobba med och där ska vi ta de projekt vi ska ta baserat på vår strategi och så får vi passa på kostnadsbasen när aktiviteten är lägre.

If I can add a bit about the 0.85 in the booktube image you referred to, then it is 0.6 in Sweden, 0.9 in Norway and 1.2 in Denmark. So it is combined across our construction business. And the important thing is that the low we have from the Swedish side is a desired strategy in terms of building a proper platform and sizing the business properly in the future. So behind the 0580 there are three different stories, just to underline that.

And a slightly different question. Yesterday, the Environment and Climate Department came with a hearing on how municipalities can impose environmental requirements on private builders. Have you seen any potential effects of this and how it can affect construction costs? What are your thoughts on the proposals that have come out now?

Jag har inte sett eller läst höringen ännu, men principiellt så tycker vi att vår kompetens passar till att möta högre krav på väldigt många områden, till exempel inom klimamiljön. But then I also think that the builders, or both builders and all the investors around, must reflect on the fact that new requirements cost money. And it's actually an investment, because we believe that we have done something good for the future. De som ska betala för det må ju ha möjlighet att kunna göra det också här och nu. Så jag vet inte om det var riktigt svar på din fråga, Simen.

Jag vet inte om det kan påvirka recovery i byggmarkedarna, som också sliter med lav buktebild, om detta är rätt tidspunkt att komma med den typen av grejer.

I find it quite rare that they say that this type of single requirement directly affects our business in a negative way. Of course, it affects the market universe. We think that if we manage to solve and adapt the foot-pressure, which we have a good example of, then it can also be an advantage. That is why we are a bit on the back of it.

And then it is far from all environmental and climate claims that cost a lot of money. But it takes competence on both sides of the table to be able to do the right things that do not take away all of the world's investments here and now.

7% increase in facility costs, which was calculated in the offer, just for reference. Last question. Purchase in Sweden. Is it mine-based main exposure in the company you buy? And what other activities do they also do?

If we start with what Veidek does up there at LKAB and in the mines, there have been different types of projects. to do dynamic mountain reinforcements or to drive new work tunnels so that LKAB can get to Malmö as they take out themselves. What this company does is at the same place and to the same customers, but their main business is to transport Malmö to the mine customers and with a focus on LKAB. So where we previously and will continue to work, work in the project business, So this is a business that is a supplier to the core business of LKAB, namely to transport out Malmö, but also to transport around Malmö where it will be arranged in different facilities within the stack.

I would like to add some numbers to that, because in terms of turnover, we had around 800-850 million in turnover in the area before, and then add 750, so it matches up in that way. And if you think about the number of people, we had around 200 before. 229? Yes, and we got 140 new people, so it complements very well, This is an entrepreneurial business that we can run. Thank you.

Are there any questions digitally?

We have one from Bengt, three from Bengt Jonhansen in ABG. Do you experience any clear changes in the market picture now against the start of 2024? More movement from customers or more retreats?

If we notice anything, it is a small positive tendency to be a little more interested and maybe try to get your projects started.

Infrastruktur Norge comments that the facilities are better and the maintenance is weaker than last year. Any comments on the background?

I'm mumbling a bit, I think, because both are good at margins. Drift Republic had a history last year that was exceptionally good, and is now at an 8-9% result margin, which is still a star in the book. So the opportunity has dropped somewhat, but we don't look at it as a decline, we look at it as two strong performances.

Any coincidences in the content stream, or an expression for business as usual?

The last one. As usual. On this part of the year.

We have a question from Thomas Svendsen in SEB. You have previously set a margin of 5% in 2025. Is this realistic, as you see it now, and when will you possibly reach this level? Does the cycle in the building have to be slow for you to be able to reach this goal?

We will reach that goal, the question is only when. But it is an ambition, and it is an ambition that both internally and externally will show that Veidekke is a collection of high-performing units that together will give 5% to the company. But of course, too much resistance in the market does not make things easier. But our clear message is that we see improvements in Veidekke. We see continued potential for improvement in Veidekke. So that is what we work on every day to reach that goal. And we are not very concerned if we would reach it in 2025 or 2026, but we will continue to make improvements in Veidekke.

Last question. Can the increased balance of goals for Norwegian kronor in RTR affect the exchange capacity for Veidekke negatively?

It's been a year and a half since we made that decision. So we'll have to see how it develops. But in principle, we're very clear on the exchange policy. We'll pay a minimum of 70% of the EPS in exchange, and have paid up to 100%. First and foremost because of the strong content retention we've had in the last few years. And that is the reason why we are in the wrong position.

That was it. Then there were no more questions digitally. Yes, of course. Thank you very much. And we will see you again in a quarter. Thank you.