Veidekke ASA: Veidekke ASA: Write-downs result in weak earnings

"Veidekke presents a mixed picture for the second quarter: We have increased our revenues in segments with good profitability, and our order backlog is the highest ever. However, at the same time, the write-down of four civil engineering projects has resulted in weak earnings for the quarter," says President and CEO Arne Giske. "The write-downs are attributed to the fact that major changes in the projects have made the revenue base for these projects uncertain. We have not adequately managed to foresee the consequences of delays and disturbances, and we have found it to be necessary to reduce the risk in these projects. Based on our experiences from these projects, Veidekke is developing a better concept for uncertainty management and project execution than we have used up to now."

Veidekke reported revenue of NOK 9.1 billion for the second quarter of 2018, compared with NOK 8.3 billion for the second quarter of 2017. The growth is mainly attributed to the construction operations, while revenue declined in property development. The result before tax was a loss of 199 million, compared with a profit of NOK 385 million for the same period last year, after the NOK 550 million write-down of the final forecasts for four civil engineering projects. The underlying result, excluding the write-downs, was a profit of NOK 351 million. The order intake was NOK 10.2 billion for the quarter, while the order backlog was NOK 34.3 billion at the end of the quarter, the highest order backlog ever reported by Veidekke. Earnings per share were NOK -1.4 (2.3) according to the segment accounts.

Revenue in Veidekke's construction operations totalled NOK 7.5 (6.5) billion, and the result before tax was a loss of NOK 335 (profit of 157) million for the second quarter. Revenue increased in all three countries, with the greatest increase in Norway, and the underlying result, excluding the write-down, was NOK 215 million for the quarter, compared with NOK 157 million one year ago.

"The construction operations are doing well in all three countries, with significant growth in non-residential buildings in Norway and Denmark and in civil engineering in Sweden. In addition, the acquisition of the company BRA AB in Gothenburg contributed to revenue growth in the Swedish building construction operations. In Norway, there are still challenges with regional variations. While Eastern Norway shows strong growth and earnings improvement, the results from Southern and Western Norway are weak. In Sweden, a lower level of residential activity will result in fewer residential projects in the portfolio in future," says Arne Giske.

Revenue from the property development operations fell to NOK 782 million from NOK 1.2 billion in the second quarter of last year. Profit before tax amounted to NOK 88 (159) million for the quarter. The decline in profit is attributed primarily to the Swedish operations. A total of 163 (355) residential units were sold in the second quarter, including jointly owned projects. The combined sales ratio for residential units under construction was 80%.

"The impact of weak sales in the new residential market over the last year is evident in declining production numbers, but there is movement in the market again now. In Norway, the sales are currently on par with last year, and sales in Sweden have also increased somewhat from the previous quarters," says Giske.

Revenue increased by 7% to NOK 1.3 (1.2) billion in the Industrial business area. Profit before tax amounted to NOK 66 (85) million. The decline in profit is attributed to the long winter, which resulted in a late start for the asphalt season.

Veidekke's LTI rate (number of lost time injuries per million hours worked for its own employees) for the last 12 months was 5.3 at the end of the second quarter, which is up from 4.6 for the previous quarter and 4.2 for the same period last year. Sickness absence declined in all three countries and was 3.4% (3.7%) in the second quarter.