ANNUAL REPORT NCC 2006 CONTENTS This is NCC 1 FINANCIAL REPORT Review by the President 2 Report of the Board of Directors, including risk analysis 40 Group overview 6 Consolidated income statement 50 Strategic orientation 10 Consolidated balance sheet 52 Financial objectives and dividend policy 13 Parent Company income statement 54 Market and competitors 16 Parent Company balance sheet 55 Employees 22 Changes in shareholders’ equity 56 The environment and society 25 Cash flow statement 58 Business areas Notes 60 – NCC Construction Sweden 30 Auditors’ Report 95 – NCC Construction Denmark 32 – NCC Construction Finland 33 Multi-year review 96 – NCC Construction Norway 34 Quarterly data 98 – NCC Construction Germany 35 Definitions / Glossary 99 – NCC Property Development 36 – NCC Roads 38 SHAREHOLDER INFORMATION Corporate governance 100 Board of Directors and Auditors 106 Management 108 The NCC share 110 This is a translation of the original Swedish Annual Report. In Financial information 112 the event of differences between the English translation and the Swedish original, the Swedish Annual Report shall prevail. Index of key words 113 Kanalhusen, Kristianstad, Sweden. Kollegie, Viborg, Denmark. NCC 2006 FINANCIAL OVERVIEW OF 2006 Stångåstrand, Linköping, Sweden. Key figures Net sales by business area, percent SEK M 2006 2005 Orders received 57,213 52,413 NCC Roads, 18 (18)% NCC Construction Sweden, 39 (39)% Net sales 55,876 49,506 Operating profit 2,392 1,748 Profit after financial items 2,263 1,580 NCC Property Net profit for the year 1,708 1,187 Development, 6 (3)% Earnings per share after dilution, SEK 15.74 10.86 Ordinary dividend per share, SEK 8.001) 5.50 NCC Construction NCC Construction Germany, 3 (3)% Denmark, 11 (14)% Extraordinary dividend per share, SEK 10.001) 10.00 Cash flow before financing 1,657 2,115 NCC Construction NCC Construction Finland, 12 (12)% Cash flow per share after dilution, SEK 15.29 19.52 Norway, 11 (10)% Return on shareholders’ equity, % 27 18 Equity/assets ratio, % 22 25 Net indebtedness 430 496 Average number of employees during the year 21,784 21,001 1) Proposed dividend. Cover: NCC’s Construction units accounted for 76 percent (78) of net sales in LKAB’s pelletizing plant in Kiruna, Sweden, is 2006, and NCC Construction Sweden was the largest business area. NCC’s largest ongoing partnering project. THE YEAR IN BRIEF • 2006 was a highly successful year for NCC, when all of • NCC Roads capitalized on the strong construction the financial objectives were achieved. The return on climate and a mild autumn, and NCC Property Develop- equity after tax was 27 percent, the cash flow was posi- ment utilized the robust real estate market and keen tive and net indebtedness amounted to SEK 0.4 billion investor interest to complete a large number of favorable at year-end. transactions. Expansion in Germany, where NCC is building housing in several major growth regions, yielded • Profit after financial items amounted to SEK 2,263 M results. Similarly, the growth achieved in the Baltic (1,580), the highest level in NCC’s history. countries generated surplus. • NCC’s Construction units in Sweden and Finland re- • Around the end of 2006, an agreement was reached ported record earnings in 2006, due to a healthy hous- concerning the sale of NCC Roads’ Polish operations to ing market and to improved margins in construction Strabag of Austria. operations. In Norway, profitability was also favorable, while Denmark failed in significant aspects of its • NCC’s Board of Directors proposes an ordinary divi- project control. dend of SEK 8.00 (5.50) per share, plus an extraordi- nary dividend of SEK 10.00 (10.00) per share, making a total of SEK 18.00 (15.50) per share. Net sales, SEK billion Profit/loss after financial items, SEK billion Cash flow before financing, SEK billion 60 2.5 6 50 2.0 5 40 1.5 4 30 1.0 3 20 0.5 2 10 0.0 1 0 –0.5 0 02 03 04 05 06 02 03 04 05 06 02 03 04 05 06 NCC’s sales have increased gradually during recent Profit for 2006 was the highest in NCC’s history, Cash flow in 2006 benefited from the healthy profita- years, because of the robust construction climate amounting to SEK 2,263 M (1,580). The loss reported bility of NCC’s Construction units and NCC Roads. in the Nordic region. NCC’s Construction units in 2003 was due mainly to impairment losses and Investments in properties classed as current assets accounted for most of the increase. During 2006, restructuring measures. increased in NCC’s Construction units and in NCC NCC Roads increased its sales due to favorable Property Development. During 2004, cash flow weather and NCC Property Development sold included payments from major sales of managed prop- several development properties. erties and property projects within NCC Property Development. Sales of property projects also occurred in 2005 and 2006, although the related payment will not be received until subsequent years. Figures for 2002-2003 are not adapted to IFRS. THIS IS NCC FUTURE ENVIRONMENTS FOR WORKING, buildings, roads, civil-engineering structures and LIVING AND COMMUNICATION other types of infrastructure. NCC also offers input NCC is one of the leading construction and property- materials used in construction, such as aggregates and development companies in the Nordic region. The asphalt, and conducts paving, operation and mainte- Group had sales of SEK 56 billion in 2006, with nance operations in the roads sector. 22,000 employees. NCC mainly conducts operations in the Nordic region. In the Baltic region, NCC builds housing on NORDIC REGION AS THE DOMESTIC MARKET a proprietary basis and in Germany NCC mainly en- NCC is active throughout the value chain in its efforts gages in the construction of single-family housing. to create environments for working, living and com- NCC’s vision is to be the leading company in the munication. NCC develops and builds residential and development of tomorrow’s environments for work- commercial properties, industrial facilities and public ing, living and communication. PROPERTY CONSTRUCTION DEVELOPMENT ROADS Housing, building and civil engineering Development of commercial properties Asphalt, aggregates, paving and road services The Gurkörten property block, Sörbyängen, Västra Hamnen, Malmö, Sweden. E4, Markaryd, Sweden. Örebro, Sweden NCC’s Construction units construct NCC Property Development devel- NCC Roads’ core business is the pro- residential and office properties, other ops and sells commercial properties duction of aggregates and asphalt, com- buildings, industrial facilities, roads, in defined Nordic growth markets. bined with paving operations and road civil-engineering structures and other Its target groups are users seeking in- services. NCC Roads is the leading types of infrastructure, with a focus on spirational environments and inves- player in the Nordic market. NCC the Nordic market. In several Nordic tors seeking properties that offer sta- Roads’ main markets in 2006 were the markets, the Group is a leading play- bility and a secure return over time. Nordic countries, as well as Poland and er in the development of housing St. Petersburg. Around the end of projects. In recent years, considerable 2006, an agreement was reached con- effort has been devoted to increasing cerning the sale of the business area’s industrial construction in order to Polish operations. improve quality and reduce costs. NCC ANNUAL REPORT 2006 | THIS IS NCC | 1 REVIEW BY THE PRESIDENT TRIMMED ORGANIZATION TOWARDS NEW GOALS Alf Göransson and Olle Ehrlén. NCC’s financial statements for 2006 are also President and HOW WOULD YOU DESCRIBE THE PERFORMANCE OF CEO Alf Göransson’s final account of his time at NCC. He THE VARIOUS GROUP UNITS? came to NCC in 2001, and during his slightly more than five NCC Construction in Sweden and Finland delivered record years as CEO, he has driven a change process that has made profits in 2006, in part due to a favorable housing market the Company leaner, sharper and more profitable. During this and in part to improved margins in construction opera- period, NCC has also grown in its priority markets and seg- tions. Profitability was also favorable in Norway, while ments. More efficient purchasing, new forms of cooperation Denmark failed in significant aspects of its project control. and industrial construction have been key issues. On Febru- NCC Roads also noted its best year since the unit was es- ary 12, 2007, Olle Ehrlén, previously Deputy CEO of NCC AB tablished and improved both profits and returns, while and President of NCC Construction Sweden, took over as NCC Property Development took advantage of the favor- new President and CEO. able property market and investor interest to execute a large number of sales. ALF GÖRANSSON, HOW DO YOU VIEW THE 2006 FISCAL YEAR? AFTER TURNAROUND AND STREAMLINING PROCESS, It was a successful year for NCC, in which the after-tax 2006 WAS THE YEAR WHEN NCC STARTED TO GROW, return on equity was 27 percent, which was 9 percentage ALTHOUGH IN SELECTED SEGMENTS AND IN SMALL points higher than in the preceding year and well above our STEPS. WHAT HAS HAPPENED? target of 15 percent. The total return on the share was Expansion in Germany, where we are now constructing 42 percent (78). In addition, profit exceeded SEK 2 billion, housing in nearly all major growth markets, is proceeding as reaching SEK 2,263 M (1,580). planned. In the Baltic countries, where we build housing on a proprietary basis, we built approximately 400 homes in 2006, and continue to grow. In St. Petersburg, we have 2 | REVIEW BY THE PRESIDENT | NCC ANNUAL REPORT 2006 NCC is a driving force in the change process that is taking the construction industry into a new era.