Veidekke - constructing a road to success: A strategic and financial analysis

Abstract

This thesis addresses some of the challenges many industries have faced in the aftermath of the financial crisis in 2008. The crisis had several consequences that have redefined markets and business models. We have chosen to look at one industry that is very sensitive to economic cycles; the construction industry. A large proportion of construction industry activities, particularly within infrastructure, is driven directly by government expenditure. In the postcrisis environment, many governments have had to cut back on all types of public expenditure, in order to bring deficits under control. As a result, this has had direct and negative demand effects on the construction industry in most of Europe. The purpose of this thesis is to conduct a strategic and financial analysis of Veidekke ASA, the largest Norwegian onshore construction company, and the Norwegian construction industry. The Norwegian construction industry has experienced an increase in competition, caused by new foreign competitors coming to Norway, which have been drawn by the comparatively high activity levels in the Norwegian market compared to the rest of Europe. Our aim is to determine how Veidekke ASA can optimize their business model to be competitive in this highly competitive industry, characterised by decreasing profit margins. The thesis consists of six parts. The first part presents an overview of the construction industry, Veidekke, and the competitors we have chosen to analyse. The second part is a strategic analysis in which we define the macro environment and Veidekke’s strategic position. Moreover, the third part is a financial analysis in which we analyse the development of Veidekke, and some major domestic and international competitors (NCC, Skanska, AF Gruppen, Implenia and Hochtief). The fourth part is a capital structure analysis in which we have calculated the WACC for all of the above-mentioned companies, in order to determine if Veidekke’s capital structure generates a competitive advantage. Finally, we present our recommendations to Veidekke. Our findings show that Veidekke has three main areas in need of improvement. Most importantly, as their profit margins have been decreasing continuously after the financial crisis, we recommend a more lean cost structure. In addition, we recommend a broader use of partnerships as a way of coping with new entrants in the market. Furthermore, human capital is of crucial importance to Veidekke, and we are concerned because their reputation among engineering students is poor compared to many competitors. In a situation where engineers in general are in short supply in the Norwegian market, we recommend that Veidekke should focus on new HR initiatives to secure a competitive position in the long run.