VEIDEKKE INDUSTRY

Both sales and profit declined in 2009. There was high activity in the asphalt industry for much of the year, which ended well. The total volume of asphalt ended 5% higher than last year. The weaker results can be linked primarily to lower volumes in the crushed stone and gravel, and recycling, as well as provisions for future losses in operation and maintenance.

Focus areas:

Weaker results

In 2009, turnover was MNOK 2 968 and profit before tax was MNOK 7.1. The corresponding figure for 2008 was MNOK 3 293 and MNOK 68.1. The decline in profit is mainly due to lower volumes in crushed stone and gravel, and recycling, as well as provisions for future losses in the operation and maintenance.

We have focused great attention over many years on measures to free-up capital. Cash flow in 2009 showed good progress and was positive for the year. We are continuing the work in 2010, and will implement further measures in this area.

Veidekke Industry has in the past decade more than doubled its turnover, and in order to manage this growth, the division has increased its focus on company attractiveness, recruitment and skills development. At the end of 2009, we had a total of 1 111 employees, of which 732 were craftsmen and 379 were salaried staff. 90 of the staff were women, corresponding to approximately 24%.

Activities in 2009

High activity in asphalt

Asphalt operations in 2009 amounted to approximately 70% of total revenue in Veidekke Industry. Turnover was at MNOK 2 070 million. The business consists of 28 asphalt plants in all parts of the country.

2009 was characterised for most of the year by high activity, and had a good conclusion to the year. The total volume of asphalt operations ended 5% higher than the year before. The Government's stimulus measures directed to road maintenance contributed in 2009 to an increase in total demand. Demand in other customer segments was also good.

Production volumes in the Norwegian asphalt market in 2009 ended 15% higher than in 2008. Kolo Veidekke's market share in the Norwegian asphalt market was approximately 30%, which is slightly lower than in 2008, but still the market's largest.

Activities in Sweden, through affiliated companies Sandahl Gravel & Asphalt AB and AB Sydbeläggningar, developed as expected. Investments made were in accordance with our strategy to develop Sweden's asphalt and gravel operations, while also contributing to the strengthening of Veidekke's construction activities in Sweden.

Lower volumes in crushed stone and gravel

Activities within crushed stone and gravel accounted for about 11% of total revenue in Veidekke Industry. The turnover was MNOK 332.

Crushed stone and gravel operations experienced increased volumes in the second half of 2009 after volume reductions in the first months few months. For the year as a whole, the volume within crushed stone and gravel was around 5% lower than in 2008. In addition, the market was characterised by price pressure and increased costs, which gave slightly lower margins in 2009.

The business consists of 25 quarries located throughout the country. Total production volume was approximately 6 million tons in 2009. Of the total crushed stone and gravel volume in Norway, approximately 2/3 is produced by the 10 largest companies, while the remaining volume is produced by a large number of smaller companies. Crushed stone and gravel products are essential to the development of infrastructure and general construction business. The largest consumers are asphalt and concrete producers.

In the past decade, Veidekke Industry has had a clear strategy to ensure the long-term supply of resources and growth within crushed stone and gravel operations. We have in this period made a series of acquisitions of smaller companies, which have produced positive effects on operations. Veidekke Industry has access to total reserves of approximately 160 million tons through ownership and extraction agreements.

Negative results in operation and maintenance

Activities within road operation and maintenance produced revenues in 2009 of MNOK 301, or approximately 10% of the total turnover in Veidekke Industry.

The operations showed negative results, and we have made further provisions for expected future losses on individual contracts. We have taken extensive measures to improve performance in this area, focusing on strengthening the organisation, improving calculations, and building competence within operation and contract management.

In the Public Roads Administration 2009 tender round, Veidekke Industry was awarded three new contracts, solidifying a portfolio now consisting of 13 contracts and representing approximately 6.400 kilometers of road.

Positive development in Recycling

Recycling operations include customised solutions for the collection, transport and sorting of different waste fractions as well as the production of waste and bio-based fuels. This segment accounted for MNOK 428 or approximately 14% of total 2009 Veidekke Industry turnover.

The organisation's geographic emphasis is Oslo / Akershus, Østfold, Buskerud / Vestfold, Rogaland and Mjøs region. The market is tied closely to developments in the construction sector, retail/real estate, and the continued privatisation of waste management. Through internal improvement programs, organic growth and smaller company takeovers, Recycling operations developed positively.

More injuries and increased absenteeism despite active HSE efforts

For Veidekke, 2009 was otherwise marked by continuous improvement, health and safety focus and environmentally friendly operations.

We will develop our strategy and develop our improvement processes further in 2010 with an emphasis on employee involvement and continuous improvement. Portacabin meetings are an arena and an effective tool to ensure two-way communications in the line.

Through the improvement work "On the Road" our corporate culture is developing and becoming more dynamic and educational. The processes are primarily directed at HSE, logistics and the operational efficiency.

"Klimaveien" pays off

In Veidekke Industry, we have also engaged in Klimaveien (the Climate Road), which is a joint campaign for organisations associated with road transport and environmental efforts in Norway who wish, in collaboration with the Norwegian authorities, to mobilise a community effort to reduce CO_² emissions from road traffic by 1 million tonnes or 10 per cent in the period 2007-2009. A number of measures have been implemented. Veidekke Industry, for instance, reduced CO_² emissions by 14.8%, primarily through reducing energy consumption by 8.6 kWh per ton of asphalt produced.

We are constantly developing and improving the company's HSE efforts. Despite these efforts, the injury rate (number of lost-time injuries per million hours worked) showed a negative development in 2009, increasing from 4.7 in 2008 to 6.0. Compared with Norwegian industry and the industry at large, the numbers are good. Nevertheless, measures have been implemented and improvement efforts strengthened to reverse the negative trend.

Sickness absence in Veidekke Industry was 5.3% versus 3.9% the year before. The long-term goal is a sick leave of less than 3% and an injury rate below 3.

Uncertain market outlook

Increased public funding for operation and maintenance of national highways and an acceleration of road and rail projects, had a positive effect on the operations in 2009. Stimulus packages lapse in 2010, and consequently a slight decrease in the total market is expected. There is also some uncertainty associated with private demand.

Prospects within the crushed stone and gravel business are good, but demand in the private market is expected to fall slightly in the short term.

In the short term, a slight decline in the recycling market is also expected while competition for waste volumes will be keener. In order to improve market coverage and expand clientele, we are focusing more intently on national customers.