FIVE-YEAR REVIEW 1998 1997 1996 1995 1994 Profit Turnover * 5,645 4,961 4,129 4,029 3,255 Operating profit * 287.8 248.6 113.6 77.5 6.0 Profit before taxation * 282.3 270.4 123.0 79.5 6.2 Gross profit margin (%) 5.0 5.5 3.0 2.0 0.2 Orders-on-hand Building and Heavy Construction * 2,682 2,710 2,261 1,944 1,731 Financial figures Cash flow from operating activities * 362.7 271.1 107.5 309.1 35.7 Gross investments * 875 475 368 235 182 Equity ratio (%) 29.3 31.9 30.9 28.5 27.5 Profitability Return on working capital (%) 25.6 28.9 15.7 12.6 5.1 Return on equity (%) 23.1 26.5 13.7 10.0 -0.1 Shares and shareholders Earnings per share (NOK) 16.52 16.13 6.92 4.57 -0.63 Dividend per share (NOK) 5.00 4.75 2.75 1.50 1.00 Market price 31 December (NOK) 90.00 129.00 100.50 63.13 58.25 Market value at 31 December * 1,026 1,470 1,145 719 655 Employees Number of employees at 31 December 3,794 3,176 3,111 2,888 2,785 Absence rate (%) 4.9 4.6 4.3 4.3 3.6 Absence hourly-paid employees (%) 6.1 6.0 5.4 5.4 4.6 Lost-time injuries per million working hours 11.9 12.5 16.3 19.9 18.7 * NOK million Key figures and definitions, see page 30 Turnover Profit before taxation Earnings per share NOK mill. NOK mill. NOK 6,000 300 18 16 5,000 250 14 12 4,000 200 10 3,000 150 8 6 2,000 100 4 2 1,000 50 0 0 0 -2 1994 1995 1996 1997 1998 1994 1995 1996 1997 1998 1994 1995 1996 1997 1998 1 OPERATIONS Description Key figures Building The Building Division is divided into 1998 1997 1996 four geographical regions covering Turnover * 2,345.0 2,230.3 1,823.2 most of Norway. Its operations include Operating profit * 94.0 74.7 28.3 41.5% 38% new building and renovation of resi- Profit before tax * 109.6 98.3 53.6 Number of employees 1,567 1,530 1,467 dential and non-residential buildings. * NOK mill. Many of the Division's contracts are planned in partnership with customers Turnover Profit and suppliers. See also page 34-37 Heavy Construction The Heavy Construction Division ope- 1998 1997 1996 rates all over Norway. Its contracts Turnover * 2,223.9 1,716.7 1,389.4 Operating profit * 82.9 34.1 21.4 39% 31% include infrastructure projects, such as roads, bridges and railway lines, major Profit before tax * 88.1 46.3 28.3 Number of employees 1,451 962 931 excavation work, power plants, * NOK mill. industrial facilities, etc. The Division also has Turnover Profit international operations in Sweden, Italy and East Africa. See also page 38-41 Industry The Industry Division is responsible for 1998 1997 1996 the production and laying of asphalt Turnover * 1,031.7 910.5 868.6 and the production of gravel, crushed Operating profit * 68.7 45.1 47.6 18% 18% stone and ready-mix concrete. In 1998, Profit before tax * 52.0 37.0 36.1 Recycling was introduced as a separa- Number of employees 679 620 645 * NOK mill. te business sector under this Division and includes everything from the Turnover Profit demolition and transport of industrial waste to the recycling, sale and distri- See also page 42-45 bution of finished goods based on wood, concrete and other building waste. Property The Property Division is responsible 1998 1997 1996 for the development of residential and Turnover * 84.7 126.2 62.6 Operating profit * 51.0 96.1 20.4 1.5% 13% non-residential properties for Veidekke's own account. The Division's Profit before tax * 37.3 90.5 6.3 * NOK mill. activities also include the manage- ment, operation and maintenance of Veidekke's property and property Turnover Profit belonging to other owners. See also page 46-49 2 Priority areas in 1998 Achieved in 1998 Priority areas in 1999 Building • Strengthen our market oriented • 70% of contracts developed in • Increase productivity by focusing on corporate culture partnership with customers development of technical skills • Develop specialised technical expertise • Acquired 50% of technical • Develop a concept for management consultancy firm, Itech development in Veidekke and set up • Strategic recruitment separate company • Set up a company to look after electronic communication in • Give greater priority to the public projects, Prosjektnett sector • Recruited 58 chartered engineers, engineers and technical personnel Hea • Continued market selectivity and • Good production on two major • Increase volume in East Norway choice of projects based on profitabili- projects for the offshore industry through interaction with Building vy Construction ty, capacity and available skills Division • All projects completed with generally • Focus on feasibility profitable results • Focus on transport and communi- cations projects in West and South • Skills development and recruitment to • More attention given to project Sweden reinforce the most crucial aspects of management the Division's value creation • Develop new forms of interaction and alliances with customers • Environment and recycling • Establishment of Veidekke Gjenvinning • Consolidate affiliated companies and (Recycling) expand the recycling activities Industr • Rationalisation and improvement in • Took over shares in Dokken & Østdal • Strengthen our market position in our cost-efficiency and took over Wilhelmsen & Sønner basic operations: asphalt, gravel and • Strengthen our position in production • Asphalt carried out an extensive crushed stone of ready-mix concrete programme which significantly reduced y winter costs • Work actively to strengthen our market • Service contracts to improve utilisation position in ready-mix concrete of resources outside normal asphalt- • Increase in activity, new ventures, skills • Work actively to increase interaction laying season development and interaction with Heavy Construction Division have reinforced between Industry and Veidekke's other our position in the market for ready-mix divisions concrete • Successful start to two three-year con- tracts for the Municipality of Oslo • Increase the attractiveness of the • Increased capacity at Veidekke's • Utilise know-how and contacts in inter- Pr company as a partner in the property regional and district offices action with the Building Division development sector oper • Acquired several properties with great • Continue to focus on building site • Participate in major property develop- development potential planning and preparation. ment projects ty • Better access to housing projects • Increase capacity in selected • Increase focus on the residential market through acquisitions and options geografical areas • Improve climate for skills development • Involved in several projects in the care • Offer to rent out buildings in health and exchange of experience sector and care sector, schools, etc • Develop own organisation 3 THE BOARD OF DIRECTORS’ REPORT General situation Veidekke has once again honoured its commitment to a 5% profit margin and a 20% return on equity. In 1998, its profit margin was 5.0% and the return on equity was 23.1%. Turnover rose by 14% to NOK 5,645 million and profit before taxation was NOK 282.3 million. With the exception of Property, which had a higher profit in 1997 due to sales gains from the Skøyen project, the divisions all showed an improvement in profit. The positive developments in recent years are the result of the company's strategy of focusing on further expansion of its core operations, strict requi- rements regarding earnings and greater capacity and skills in project realisation. The company is also concentrating its efforts on strengthening its relati- ons with customers and suppliers. The injury rate or number of lost-time injuries per million working hours fell to 11.9 in 1998 from 12.5 the year before. This is encouraging, but Veidekke has set a target of 8 by the end of the year 2000. As regards absence among hourly-paid employees, the company's target is 5%. The absence rate rose to 6.1% in 1998 from 6.0% a year earlier. The level of activity in the building and heavy construction market remained high in 1998, but showed a falling tendency in the second half of the year. A certain decline was anticipated, in particular for non-residential building, but this trend was intensified by the steep increase in interest rates. There are considerable differences between the regi- ons, and the downswing was most noticeable in the Oslo area. course of six months, Vecon built up an order portfolio of NOK 200 million. The market pro- Strategic investments spects for heavy construction contracts in the south The divisions continued to concentrate on their stra- and west of Sweden are judged to be good. Vecon tegic priorities during the year under review. will work closely with the Heavy Construction Division in The Property Division added to its portfolio of resi- Norway on major construction projects. dential and non-residential development properties, particularly in the Oslo area. Most of the new deve- In the Industry Division, the focus on new areas of lopment properties are partially developed and activity was maintained. In just over a year generate a continuous cash flow which covers inte- Veidekke has built up a position for itself as one of rest charges. Most of the completed development the key players in the market for ready-mix concre- properties were sold during the year. te. The founding of Veidekke Gjenvinning (Recycling) has given Veidekke an interesting positi- The Heavy Construction Division extended its mar- on in a growth market.