The high degree of uncertainty and the recession we experienced in 2009 has been supplanted with a more stable and normal economic development. This is also true of the building and heavy construction market. In general, the development of our market has been as expected.

In Norway, prices of existing apartments increased by more than 5% in the first half. For the next half, a flatter development is expected. The demand for new dwellings has not developed as positively as the market for existing dwellings as a result of the uncertainty in the market. Residential building and construction is a bit weaker than expected so far this year, but an improvement is expected during the course of the autumn. 6% more non-residential buildings have been initiated this year than last year, but development is expected to flatten out for the rest of the year. The construction market has been characterised by a large supply of projects and price pressure as a result of strong competition for jobs.

In Sweden, market developments have been as expected in the first half. We had previously expected an increase of half of one percent for the year, but growth will likely be somewhat higher. Heavy construction continues to be the main driver. The housing market in our regions has also improved during the first half, while private non-residential buildings show a weak trend with a growth of 1% this year.

There is a low level of activity in the Danish building and heavy construction market, but there are signs of some improvement in the housing market. The prospects for 2010 are also better than previously thought.

The building and heavy construction market in Scandinavia is expected to improve during the autumn. We will probably see a better market development in 2010 than previously thought, particularly in the markets for housing and non-residential buildings.

Risk and uncertainty factors

Veidekke’s activities are related to the execution of individual projects. There is considerable variation in orders with respect to project complexity, size and risk. It is crucial to Veidekke’s results that project risk be handled in a systematic manner. This also means that projects must be staffed with the right people.

Over the past year, the proportion of contracts for public builders in our project portfolio has increased, although the number of private market contracts has increased as well. The new projects have been acquired under challenging market conditions.

In the past year, our suppliers have reduced their prices in terms of both materials and services. The risks relate to market developments and our assessment of when we should enter into lock-in agreements relating to signed agreements and tendered offers. This risk is partly managed by entering into long-term cooperation agreements with strategic suppliers.

There are still many companies in the building and heavy construction industry which are struggling financially. We will therefore continue to focus highly on following-up our subcontractor’s ability to deliver in both ongoing and new projects. A possible sub-contractor bankruptcy may result in the risk of overuse and delay progress plans.

The Industry division was awarded a high share of NPRA asphalting contracts for 2010. For the remainder of the asphalt season, uncertainty is tied primarily to private customer demand.

Credit risk associated with customers’ ability to pay is important. This risk relates primarily to activities within the Industry division.

Veidekke follows developments closely in order to manage risk situations and take any necessary measures.