ANNUAL REPORT

The Group's total turnover for 2009 was MNOK 15 558, compared with MNOK 19 395 in 2008. Earnings before tax were MNOK 523.1 as against MNOK 815.6 in 2008. Earnings after tax and minority interests amounted to MNOK 402.4 (MNOK 611.3 in 2008). Earnings per share were NOK 3.0 (NOK 4.5). Orders-on-hand for construction operations totalled MNOK 12 323 at 31 December 2009, compared with MNOK 10 356 at the beginning of the year.

Highlights

The economic situation in Scandinavia evolved in 2009 from financial crisis and great uncertainty to recession, creating a very demanding building and construction market. The results at year-end, however, show that Veidekke came through the financial crisis relatively well. The group has a solid financial position. Competence and capacity have been maintained in the organisation, housing sales increased, and orders-on-hand trended upwards towards the end of the year.

Construction operations achieved a good profit margin in 2009 as a result of efficient operations and favourable cost developments in the supplier market. Orders-on-hand increased during 2009. Veidekke’s challenge ahead is to maintain focus on margin requirements on new-signed contracts and efficient implementation of projects already signed in an increasingly tighter and more competitive market. A competent organisation and many years of improvement initiatives at Veidekke form a good foundation to achieve these.

After a prolonged period of very weak housing sales and very few new housing project starts, the market in both Norway and Sweden showed positive development in 2009. Housing sales, in the second half in particular, accelerated with total sales for the year reaching 430 dwellings, as against 130 in 2008. The level of activity is still far from what it was a few years ago, but the trend is positive. In both Sweden and Norway there is a great need for housing in central areas. This given, coupled with moderate interest rate increases, cautious costs increases and a stable employment situation, should provide improved opportunities ahead.

2009 was a challenging year for Industry operations as a result of negative results in Operation and Maintenance activities; lower demand from private customers in Crushed Stone and Gravel (aggregates), and Recycling; and project write-downs within one region of Asphalt. Even with these challenges, 2009 ended satisfactorily. Much improvement was made during the year and combined with extended asphalt production owed to good weather conditions, volume grew and earnings improved in some parts of the operations. The measures implemented to strengthen management and operation are expected to positively affect earnings in the coming years.

Market and competitive conditions

Strong liquidity, low interest rates, tax cuts and major public investments resulted in what appears to be a recovery in the global economy. In Norway, the economy developed roughly as expected in 2009. Low interest rates, an expansionary fiscal policy and relatively extensive use of financial reserves helped to counteract the effects of the global crisis. In Sweden, which was deeply affected by the financial crisis, economic development showed a more positive trend in the second half than in the first half.

The Danish economy is on its way out of its worst recession in recent times. The economy showed signs of developing positively towards the end of the year. Although most indicators showed a negative trend during 2009, low interest rates contributed to stalling the housing market downturn.

In 2009, investments in the building and construction industry in Norway fell by about 12 percent. Non-residential buildings for private investors fell by about 37 percent, making it the segment with the largest decline. Housing investment fell by just over 14 percent. Much of this decrease came in the first half, while housing investment in the second half demonstrated a tendency to level-off. Significant investment in public infrastructure contributed to growth of approximately 8 percent in construction.

Swedish building and construction industry investment fell by a good 10 percent in 2009, with drops in housing investment and private non-residential buildings contributing to the decline. Activity within heavy construction is high although there has been no growth of significance the last year. Municipalities' investments in building, however, contributed to sustaining activity throughout the year.

Investment in the Danish building and construction sector, a market which has been in decline for years, fell by 9 percent in 2009. The level of activity was thus markedly lower than its peak year of 2006. The largest decline was in residential investment, which fell by about 20 percent compared with the previous year.

Although Scandinavia showed a marked decline in the overall building and construction market, we have recognised that the housing market downturn in all the countries has stalled. Low interest rates and growth in household incomes contributed significantly to increasing housing prices in Norway and Sweden during the year. Declining prices in Denmark came to a halt as well, with some growth being demonstrated towards the end of the year.