CONSTRUCTION - SWEDEN

Turnover in 2009 was MNOK 2 355, (MNOK 2 801 last year). Profitability fell to 1.5% from 1.9% the year before. The recession, which began in 2008, is the reason. In this situation, we sharpened our focus on profitable projects rather than volume. Of our three geographic markets, Stockholm, Malmö-Helsingborg and Gothenburg, two showed higher profitability in 2009. The Gothenburg market stands negatively out with its industrial nature.

The number of employees was reduced during the year to 917 people from 999. Reducing the workforce was a necessary measure to deal with the market downturn. We continue our recruiting efforts however to strengthen organisational competence.

The order backlog grew to MNOK 2 867 compared with MNOK 2 479 the year before. In the year's last quarter, order intake in all geographic markets was very good. Especially positive was the Väst Region which more than doubled its order backlog in the last quarter showing that that we have laid a good foundation for 2010.

A challenging market

The market and general economic conditions in Sweden remained pessimistic in the first half of the year. Certain signs of stabilisation, however, could be marked in the year's latter part. Financial turbulence and the subsequent lack of capital stopped many new projects. During the autumn, however, there was an increased willingness to invest in properties. We anticipate therefore an increase in residential construction in 2010.

Building operations was adversely affected, so to say, by the fact that almost no new housing projects were started-up. This combined with lower demand for new non-residential space and the short supply of capital, had a very negative impact on the prices of the projects that, after all, were initiated.

The heavy construction market was very good, especially for infrastructure projects in the Stockholm area and western Sweden.

Lower results

Veidekke Entreprenad had a turnover of MNOK 2 355 in 2009. Profit before tax was MNOK 36.4, which is 31% below the result for 2008 was MNOK 52.7. All of the decline can be attributed to the West Region. The region has been very hard hit an investment stop in industry. In our other regions profitability increased, which is very positive. It confirms that the Veidekke Entreprenad organisation is so stable that it can manage the recession.

The order backlog increased from MNOK 2 479 to MNOK 2 867 and it is positive in all our regions. Infrastructure projects are of course a large part of the order backlog, but building also accounts for a significant share.

Large variations between regions

Stable in Skåne

For Skåne construction activities, 2009 was a stable year. After a troubled start the market gradually returned to an acceptable level. That meant good order intake and a higher order backlog at year's end than the previous year. Although turnover declined in 2009, earnings increased both in kroner and in percentage. The challenge in coming years is to increase profitability further through continuing increased efficiency and employee involvement. During the year, the division won, among others, contracts for Jernhusen old town, Jernhusen AB, MNOK 75, Kv Sockertoppen in Lund, HSB, MNOK 59 and Kv Skeppsgossen 1 Malmö, Stadsfastigheter, MNOK 54.

Better order backlog in the West Region

After a turbulent end to 2008 and an uneasy start to 2009, the Väst region workedduring the summer and fall to systematically build up a basic portfolio of projects which strengthen future opportunities. This is reflected clearly in the weak results achieved during the year.

Väst's order backlog was well replenishment in the final quarter of the year. Construction activities look good, and building operations also have an order backlog to build further on. There are many potential infrastructure projects, which is positive, but which also places greater demands on strengthening personnel resources with appropriate qualifications and experience. Among the new projects signed in 2009 are Agnes Berg-Marie Holm E13, Banverket, NOK 210, SU Låghus Stage 3, Västfastigheter, MNOK 117 and Rimnershallen, Uddevalla Municipality, MNOK 51.

Growth in the Stockholm region

Construction activities in Stockholm continued their positive development. The organisation was strengthened and efforts focused on establishing activities within non-residential buildings were successful. The majority of projects are now executed as "partnering contracts" with less financial risk, but with significant efficiency and cost benefits for customers. 2009 earnings were strong and profit margin increased to 7.4% from 6.1% last year. The order backlog is good but needs to be enhanced further. Contracts won during the year included, among others: Pelarbacken, AMF Pension, MNOK 230, Kulla Gulla, Annedal Sundbyberg, Svenska Bostäder, MNOK 190, Konsthall Sundbyberg, Foundation Park, MNOK 39 and Kv Rökpipan, Sigillet Fastighets AB, MNOK 39. Construction activities in Stockholm grew again in 2009 and confirmed that improvement efforts and production efficiency focus had effect. Revenues rose by 8% compared with 2008 and profits increased by 1.2 percentage points. New contracts include Tvärbanan Stockholm, SL, MNOK 360, Kista 210 MNOK 262 and Hede-Älvängen tunnel, PEAB, MNOK 196.

Industry in the starting gate

Industry, our new business in Sweden, commenced operations in 2009. Initially, we have chosen Stockholm as a base and launching point for expansion, but we see opportunities in both Malmö and Gothenburg. During the year we acquired the remaining 50% of Skåab. Activities consists of crushed stone and gravel and recycling in the Stockholm area.

HSE heading in the right direction

HSE work is still our highest priority. Our employees and our suppliers should enjoy themselves at work and feel safe on our worksites. Although had an increase in the number of injuries in the fourth quarter (injury rate 7.62), development is still going in the right direction. We still have too many injuries and accidents and will therefore further increase the focus on health and safety in 2010. This commitment should include everyone involved in our projects, i.e. our employees as well as our customers and suppliers.

Development difficult to predict

The market is expected to remain stable although we see that the hesitation which still prevails in financial markets, is resulting in more projects being put off.

Several of the business entities have a good order backlog at the beginning of 2010, but there is still a great need to acquire contracts within construction activities. The heavy construction market will partly compensate for the decline in the building. We will probably see some stabilisation of the construction market. Veidekke Entreprenad, which is a small operation compared to our competitors, should have the opportunity to take market share and thus compensate for some of the decline. At the same time, however, the price level will make it challenging to grow with good profitability in this area.

The efficiency work in progress with employee involvement and improvement of management systems should contribute to increase our competitiveness. We see a clear risk of a new downturn in the housing market towards the end of 2010 due to higher costs and higher interest rates combined with high unemployment. The loss on dwellings in the three metropolitan regions is still pending. For us this means we need to focus hard on improving the efficiency of residential buildings. Climate and energy are important focus areas in 2010.

2010 will be a challenging year. The uncertainty is large as the financial turmoil has made it difficult to see the real causes of the downturn, making it difficult in turn to predict how the market will be affected and when it will turn positive again. At the same time, our starting point is now better than a year ago with a strengthened organisation and strengthened order reserves. Among our people, enthusiasm to see that we can profitably develop our company even in tough times, is high.