Slide 1: Economic activity report Spring 2019
Economic activity report Spring 2019 Kristoffer Eide Hoen and Anders Wettre Skøyen, 11 March 2019 1
Slide 2: About Veidekke's economic activity report
About Veidekke’s economic activity report: • Updated forecasts for production/revenue in construction and civil engineering through to the end of 2020 • Thoughts concerning driving forces and uncertainties • Macroeconomic forecasts from recognised economic analysis institutions • The IMF, the Swedis
Slide 3: Forecasts for contracting markets 2019–2020
Forecasts for contracting markets 2019–2020 Construction & civil Macroeconomic drivers Investment decisions engineering market 3 © Veidekke
Slide 4: Forecasts for contracting markets 2019–2020
Forecasts for contracting markets 2019–2020 Indicators: GDP, interest rates, Construction starts, Production/revenue labour market sales, orders 4 © Veidekke
Slide 5: Forecasts for contracting markets 2019–2020
Forecasts for contracting markets 2019–2020 Indicators: GDP, interest rates, Construction starts, 2019 2020 labour market sales, orders *Visibility/predictability as per March 2019 5 © Veidekke
Slide 6: Agenda
Agenda 01 Market drivers 02 Main features of the contracting markets 03 Sector review 04 Summary 6 © Veidekke
Slide 7: Global economy: increased uncertainty, steady forecasts
Global economy Increased uncertainty about the future, but steady forecasts GDP growth Comments: Figures in % 2016 2017 2018 2019 2020 • Somewhat lower growth 2019–2020 • Interest rates have fallen Euro zone 1,8 2,4 1,8 (2,2) 1,6 (1,9) 1,7 (1,8) Germany 1,9 2,5 1,5 (2,2) 1,3 (2,1) 1,6 (1,5) • Uncert
Slide 8: Global economy: economic upswing in the Baltics
Global economy Economic upswing in the Baltics Production index construction and engineering, Baltics excluding Sweden Comments: Index, 2015=100 • Economic upswing in the Baltics • Macroeconomic forecasts indicate an ongoing upturn until the end of the forecast period • Effects in Scandinavia: • Shi
Slide 9: Macro-perspective, Scandinavian countries
Macro-perspective, Scandinavian countries In brief “There are prospects that the upturn in the Norwegian economy will continue, but slower growth abroad and a flattening of petroleum investment later in the projection period will likely pull down growth further out.” Norges Bank, 12 December 2018 “T
Slide 10: Immigration to major cities
Immigration to major cities Important indicators in several construction markets Net immigration Norway Net immigration Sweden Comments: Percentage of population Percentage of population • Norway: positive trends in several urban regions in the autumn • Sweden: high growth in 2018, but buyers of new
Slide 11: Regional differences in the Norwegian economy
Regional differences in the Norwegian economy Smaller differences than a few years ago Production growth by region Access to labour Comments: Last three months, converted into annual growth Businesses facing a labour shortage* 5 Husk å endre til utklipp • More even economic situation 4,1 across the
Slide 12: Agenda
Agenda 01 Market drivers 02 Main features of the contracting markets 03 Sector review 04 Summary 12 © Veidekke
Slide 13: Scandinavian contracting markets: civil engineering and apartment blocks
Scandinavian contracting markets Dominated by civil engineering and apartment blocks Contracting market 2018 Production of buildings* and infrastructure in NOK billion Total Scandinavian market 2018: ~ NOK 660 billion Commercial buildings NOK 144 billion Apartments and Civil engineering small houses
Slide 14: Scandinavian contracting markets: mild downturn from a high level
Scandinavian contracting markets Mild downturn from a high level Contracting markets, annual production Comments: NOK billion • Strong historical growth +4 % with capacity challenges in several contracting sectors -8 % • The contracting market as a whole is well-positioned +0 % for a moderate downtu
Slide 15: Apartments are the key swing factor
Scandinavian contracting markets Apartments are the key swing factor Contracting markets*, annual production Comments: Contribution to change in NOK billion, by sector and total in percent • Reduced apartment construction in 2019 and 2020 will have a dampening effect • Adjustment of forecasts • Revi
Slide 16: Geographical differences in building construction
Geographical differences in building construction Varying short-term prospects The biggest players have peaked… …mixed results for the second tier Comments: Quarterly production, building construction, NOK billion Quarterly production, building construction, NOK billion 20 7 +108 % • Stockholm start
Slide 17: Significantly higher production in Norway
Geographical differences in building construction Significantly higher production in Norway Per capita production in 2018 Comments: NOK 1000 • Far greater construction activity in Norwegian cities in relative terms • Economic situation powered by the petroleum sector probably a material causative fa
Slide 18: Agenda
Agenda 01 Market drivers 02 Main features of the contracting markets 03 Sector review 04 Summary 18 © Veidekke
Slide 19: Civil engineering
Civil engineering 19 © Veidekke
Slide 20: Civil engineering in Norway
Civil engineering in Norway Lower pace of growth going forward Production in different civil engineering segments Comments: NOK billion, current prices • High activity in all segments throughout last year • Strong contribution from wind farm developments • Increased industrial sales and exports • St
Slide 21: Transport infrastructure in Norway: national transport plan delayed
Transport infrastructure in Norway National transport plan delayed Planning periods, national transport plan (NTP) Comments: NOK billion, current prices • Project execution rate of 90 percent 2018-2021 NOK 290 billion to date 44% project execution rate after 2 of 4 years NOK 16 billion behind plan a
Slide 22: Transport infrastructure in Norway: plans vs reality
Transport infrastructure in Norway Plans vs reality Sources: NRK, Aftenposten, Byggeindustrien 22 © Veidekke
Slide 23: Roads in Norway
Roads in Norway High and flat until the end of the forecast period Road production by customer Comments: NOK billion, current prices • Forecasts somewhat adjusted since September 2018 • Updated project information from Nye Veier AS • PPP project delayed • Drop in main road investments under the Norw
Slide 24: Railways in Norway
Railways in Norway Rising central government allocations Railway production Comments: NOK billion, current prices • Unchanged forecasts • This year, priority is being given to continuation of ongoing major projects • Far behind NTP schedule Sources: Statistics Norway, Norwegian Government, national
Slide 25: Road maintenance in Norway
Road maintenance in Norway High priority generates new growth Operation and maintenance of roads Operation and maintenance of railways NOK billion, current prices NOK billion, current prices Sources: Statistics Norway, Norwegian Government, national transport plan, Norwegian Public Roads Administrat
Slide 26: Civil engineering in Sweden
Civil engineering in Sweden Outlook remains strong Production in different civil engineering segments Comments: SEK billion, current prices • High production in the first two quarters of last year • Rising civil engineering activity in the transport infrastructure market • Visibly positive effects i
Slide 27: Municipal facilities sector
Municipal facilities sector Strong growth in the water supply and sewage market Water supply and sewage investments Comments: SEK billion, current prices • Refurbishment of older facilities • New residential areas are boosting demand Sources: Statistics Sweden and Veidekke 27 © Veidekke
Slide 28: Industrial projects: mining industry prospects
Industrial projects Positive prospects in the mining industry Iron ore Veidekke’s civil engineering projects in Swedish mines Price per tonne, SEK Malmberget, 2017 Source: Macrobond Source: Byggeindustrien 28 © Veidekke
Slide 29: Transportation infrastructure in Sweden
Transportation infrastructure in Sweden Central government allocations will result in future growth Road production Railway production SEK billion, current prices SEK billion, current prices Sources: Statistics Sweden, Swedish Government, NPT, Swedish Transport Administration and Veidekke 29 © Veide
Slide 30: Apartments and small houses
Apartments and small houses 30 © Veidekke
Slide 31: Scandinavian residential market: excess supply of new units
Scandinavian residential market Sellers of new residential units face excess supply situation Unsold new build apartments in the largest cities Comments: Number of units • Stockholm leads the way, followed by other major cities • Dynamic: rapid growth may be followed by rapid decline Sources: Booli
Slide 32: Scandinavian residential market: secondhand housing
Scandinavian residential market Many positive developments in secondhand housing market House prices in the largest cities Comments: Price per square metre, NOK Price increase December–December • Developments called for a few years ago: -3 % • Stable price and debt trends • Large number of transacti
Slide 33: Swedish residential market: stable secondhand trend
Swedish residential market Stable trend in the secondhand housing market Housing prices in the largest markets Comments: Price per square metre, SEK Price increase December–December • Generally stable, flat price growth +3 % • However, a slight fall in recent months has stirred media coverage +6 % •
Slide 34: Swedish residential market: pricing of new units
Swedish residential market Pricing of new residential units remains challenging Price per square metre of new build apartments at beginning of year 2014–2019 Comments: Selected Swedish counties +58% • Prices of new residential units -6% somewhat down following strong +24% growth in 2016 and 2017 -7%
Slide 35: Swedish residential market: sales and new build market
Swedish residential market Somewhat improved sales; challenging new build market New residential unit sales in Sweden, eight listed companies Comments: Number of units sold per quarter • New residential unit sales stable and moderately improved in the autumn of 2018, but far lower than in 2016 and 2
Slide 36: Swedish residential market: decline in building starts
Swedish residential market Decline in sales reflected in building starts Building starts, apartments and small houses Comments: 12-month rolling quarterly total, number of units • Declining number of building starts • Rental proportion has increased to 60% • Improved contractor capacity in the resid
Slide 37: Norwegian residential market: strong secondhand market
Norwegian residential market An unusually strong secondhand housing market Housing prices in the largest markets Comments: Price per square metre, NOK Price increase December–December • General market forces are -3 % stable and supportive • An exception is somewhat weaker migration compared to previ
Slide 38: Norwegian residential market: completions and transactions
Norwegian residential market Growth in completions neutralised by high transaction rate Completed apartments and small houses Comments: Number of units • High transaction rate is compensating for increased supply of completed units • Marked growth in eastern Norway; more even development in other me
Slide 39: Norwegian housing market: building starts track sales
Norwegian housing market New residential building starts track sales Building starts, apartments and small houses Comments: 12-month rolling quarterly total, number of units Skal oppjusteres • Stable, “normal” sales in 2018, but far behind peak years 2016–2017 • Current sales indicate continued decl
Slide 40: Non-residential
Non-residential 40 © Veidekke
Slide 41: Commercial buildings in Norway and Sweden
Commercial buildings in Norway and Sweden Generally positive outlook despite a dip… Building construction production, Building construction production, Comments: Norway Sweden 12-month rolling quarterly total, NOK billion 12-month rolling quarterly total, SEK billion 60 50 • High pressure in cyclica
Slide 42: Commercial buildings in Denmark
Commercial buildings in Denmark Positive outlook but uncertainty in the retail sector Vacancy rate in Denmark* Building construction production, Comments: Percentage of total number of buildings Denmark 12-month rolling quarterly total, DKK billion 12 45 • Market trends and household 40 finances are
Slide 43: Public buildings in Norway and Sweden
Public buildings in Norway and Sweden Strong years behind us – high activity levels to continue Building construction production, Building construction production, Comments: Norway Sweden 12-month rolling quarterly total, NOK billion 12-month rolling quarterly total, SEK billion 35 40 • Strong years
Slide 44: Public buildings: demographics suggest new priorities
Public buildings in Norway and Sweden Demographics suggest new priorities Change in age groups Building construction production Comments: 1 000 persons 12-month rolling quarterly total, NOK billion 50 25 • We are nearing the end of a period 40 of strong growth in the number 20 of schoolchildren 30 •
Slide 45: Hospital construction in Norway
Hospital construction in Norway Lacks coordination? Building construction production, hospitals Comments: 12-month rolling quarterly total, NOK billion • Large number of hospital projects in Norway in the period towards 2022 • Large, technically challenging and complex buildings • Will be challengin
Slide 46: Summary: reduced pressure in contracting markets
Summary Reduced pressure in contracting markets Veidekke’s market overview Comments: Assessment of current market situation* • Stockholm is leading the way in the economic cycle and will bottom out in the winter of 2019/2020 • More stable, but still challenging in the new residential unit sector • T
Slide 47: Summary: Is the future certain?
Summary Is the future certain? Likely building starts Q4 2018 – Q4 2019 Comments: Calculated probabilities, building construction in Norway and Sweden • Stockholm has come furthest in the Very strong (>30% increase) Very weak (>30% economic cycle and will bottom out decrease) in the winter of 2019/2
Slide 48: Thank you
= Thank you
Slide 49: Norway: production forecasts for contracting markets 2019–2020
Norway Production forecasts for contracting markets 2019–2020 Current prices, Level 2017 2018 2019 2020 2019-2020 relative change (%) NOK bill. Growth Growth Growth Growth Growth Apartments and small houses 63 24 % 8% -12 % -15 % -13 % Commercial buildings 51 6% 0% -5 % -4 % -4 % Public buildings 26
Slide 50: Sweden: production forecasts for contracting markets 2019–2020
Sweden Production forecasts for contracting markets 2019–2020 Current prices, Level 2017 2018 2019 2020 2019-2020 relative change (%) SEK bill. Growth Growth Growth Growth Growth Apartments and small houses 104 22 % 1% -17 % 0% -9 % Commercial buildings 51 21 % 3% -7 % 4% -1 % Public buildings 36 12
Slide 51: Denmark: production forecasts for contracting markets 2019–2020
Denmark Production forecasts for contracting markets 2019–2020 Current prices, Level 2017 2018 2019 2020 2019-2020 relative change (%) DKK bill. Growth Growth Growth Growth Growth Apartments and small houses 28 22 % 5% 3% 0% 1% Commercial buildings 34 18 % 7% 7% 7% 7% Public buildings 15 12 % 3% 5%
Slide 52: Veidekke's market data
Veidekke’s market data Historical construction data, up to Q4 2018 Forecasts**: • From Statistics Norway, Statistics Denmark and Statistics Sweden: • Forecasts are prepared for building starts by sector, county and housing started/approved sites in square metres, broken down by municipality prices u
Slide 53: Explanatory variables in the model for building starts
Explanatory variables in the model for building starts • The construction sector’s own historical data • Local and national cyclical indicators • Employment market • Exchange rates • Residential market, prices and transactions • Interest rates • Demographic factors • Public finances • Borrowing rest