Veidekke Asa · OSL:VEI
Veidekke Asa — Investor Presentation (September 2018)
58 slides from Veidekke Asa's investor presentation, Sep 27, 2018
Slide 1: Economic Activity Report September 2018
ECONOMIC ACTIVITY REPORT SEPTEMBER 2018 27 September 2018 Kristoffer Eide Hoen Anders Wettre
Slide 2: End of an era of strong growth
END OF AN ERA OF STRONG GROWTH Selected contracting markets CAGR* 2014–2017 Greater Gothenburg 23% Greater Malmö 17% Greater Copenhagen 15% Eastern Norway excl. Greater Oslo 13% Greater Stockholm 12% Greater Oslo 9% Civil engineering Norway 7% Trøndelag 5% Civil engineering Sweden 4% Western Norway
Slide 3: Increased competition for labour?
INCREASED COMPETITION FOR LABOUR? Scandinavia Number of people per age group, relative change (%) Growth in young jobseekers is declining New growth in workers reaching retirement age Decrease in labour immigration Source: Statistics Norway, Statistics Sweden and Statistics Denmark 3 Veidekke's Econ
Slide 4: Strong growth in our region
STRONG GROWTH IN OUR REGION GDP growth around the Baltic Sea (%) Economic upturn around the Baltic Sea Affects access to resources: • Labour • Suppliers • Subcontractors Source: IMF 4 Veidekke's Economic Activity Report September 2018
Slide 5: Veidekke's Economic Activity Report
VEIDEKKE’S ECONOMIC ACTIVITY REPORT Provides forecasts for production/revenue in construction and civil engineering through to the end of 2020 • Thoughts concerning driving forces and uncertainties Consensus economic forecasts based on data from recognised economic analysis institutions: • The IMF,
Slide 6: About Veidekke's Economic Activity Report
ABOUT VEIDEKKE’S ECONOMIC ACTIVITY REPORT The report outlines expected developments in the Scandinavian contracting markets for the period through to the end of 2020 but does not reflect Veidekke’s expectations for the Group’s own development during the period. The macroeconomic forecasts are based
Slide 7: Forecasts for contracting markets 2018–2020
FORECASTS FOR CONTRACTING MARKETS 2018–2020 Macroeconomic drivers Investment decisions Const. & civ. eng. market 7 Veidekke’s Economic Activity Report September 2018
Slide 8: Forecasts for contracting markets 2018–2020
FORECASTS FOR CONTRACTING MARKETS 2018–2020 Indicators: GDP, interest rates, Construction starts, Production/revenue labour market sales, orders 8 Veidekke’s Economic Activity Report September 2018
Slide 9: Forecasts for contracting markets 2018–2020
FORECASTS FOR CONTRACTING MARKETS 2018–2020 Indicators: GDP, interest rates, Construction starts, 2018 2019 2020 labour market sales, orders Visibility/predictability as per September 2018 9 Veidekke’s Economic Activity Report September 2018
Slide 10: Highlights
HIGHLIGHTS Better market outlook now than in March Residential production is decreasing, but from record levels We expect an attractive contracting market over the next two years 10 Veidekke’s Economic Activity Report September 2018
Slide 11: Agenda
AGENDA Market drivers Forecasts for the Scandinavian market Sector review 11 Veidekke’s Economic Activity Report September 2018
Slide 12: The global economy is looking healthy
THE GLOBAL ECONOMY IS LOOKING HEALTHY GDP growth Figures in % 2016 2017 2018 2019 2020 Continued stable, positive forecasts for the international economy Euro zone 1.8 2.4 (2.1) 2.2 (1.9) 1.9 (1.7) 1.8 Rising interest rates in USA, Canada Germany 1.9 2.5 (2.1) 2.2 (1.8) 2.1 (1.5) 1.5 and UK UK 1.8 1
Slide 13: The economic upswing continues
ECONOMIC GROWTH: THE ECONOMIC UPSWING CONTINUES GDP growth Norway (%) GDP growth Sweden (%) GDP growth Denmark (%) Forecast Economic Activity Report March 2018 Forecast Economic Activity Report September 2018 Source: Statistics Norway, Statistics Sweden, the Swedish National Institute of Economic Re
Slide 14: The economic upswing continues
ECONOMIC GROWTH: THE ECONOMIC UPSWING CONTINUES Production growth past 3 months* GDP growth Sweden (%) GDP growth Denmark (%) *Recalculated annual growth Forecast Economic Activity Report March 2018 Forecast Economic Activity Report September 2018 Source: Statistics Norway, Norges Bank, Statistics S
Slide 15: Continued good employment figures
LABOUR MARKET: CONTINUED GOOD EMPLOYMENT FIGURES Employment growth Norway (%) Employment growth Sweden (%) Employment growth Denmark (%) Forecast Economic Activity Report March 2018 Forecast Economic Activity Report September 2018 Source: Statistics Norway, Statistics Sweden, the Swedish National In
Slide 16: Interest rates are rising – uncertainty about the effect
INTEREST RATES: INTEREST RATES ARE RISING – UNCERTAINTY ABOUT THE EFFECT Interest rates Norway Interest rates Sweden Interest rates Denmark Forecast Economic Activity Report March 2018 Forecast Economic Activity Report September 2018 Source: Macrobond and Handelsbanken 16 Veidekke’s Economic Activit
Slide 17: Agenda
AGENDA Market drivers Forecasts for the Scandinavian market Sector review 17 Veidekke’s Economic Activity Report September 2018
Slide 18: Market overview Scandinavia
CONSTRUCTION AND CIVIL ENGINEERING MARKET OVERVIEW SCANDINAVIA Contracting market 2017 Offices 4% Commercial buildings NOK 126 billion Total Scandinavian market 2017: ~ NOK 600 billion Cultural buildin gs 2% Apartments and Civil engineering small houses Public buildings Hotels NOK 210 billion NOK 18
Slide 19: Slight downturn ahead
CONSTRUCTION AND CIVIL ENGINEERING SLIGHT DOWNTURN AHEAD Contracting market, production per year NOK billion Stable growth in civil engineering +5%* and public buildings Correction in production of apartments -5%* and small houses +2%* +6%* * Annual growth rate 2019 and 2020 Source: Veidekke 19 Veid
Slide 20: Slight downturn ahead
CONSTRUCTION AND CIVIL ENGINEERING SLIGHT DOWNTURN AHEAD Contracting market, production per year Change in NOK billion per sector and total (%) Stable growth in civil engineering and public buildings Correction in production of apartments and small houses Source: Veidekke 20 Veidekke’s Economic Acti
Slide 21: Agenda
AGENDA Market drivers Forecasts for the Scandinavian market Sector review 21 Veidekke’s Economic Activity Report September 2018
Slide 22: Apartments and small houses – lower production level
APARTMENTS AND SMALL HOUSES APARTMENTS AND SMALL HOUSES – LOWER PRODUCTION LEVEL Contracting market for apartments and small houses NOK billions, current prices (2018 exchange rate) Production will follow the decline in sales +8% -11% Abnormally high production in the past few years -17% Positive ef
Slide 23: Sweden: more stable development in residential market
APARTMENTS AND SMALL HOUSES SWEDEN: MORE STABLE DEVELOPMENT IN RESIDENTIAL MARKET Price per square metre, apartments in selected cities, SEK *Growth December–December Good price development +3%* +3%* • Even regional distribution +6%* High but stable supply side +4%* • Both resale and new +4%* Demand
Slide 24: New homes – decrease in construction starts and production
APARTMENTS AND SMALL HOUSES NEW HOMES – DECREASE IN CONSTRUCTION STARTS AND PRODUCTION Construction starts – apartments and small houses No. of units, 12 months rolling -27%* Decrease in construction starts, with positive effect on the market • Positive signals from sales • Supply side remains high
Slide 25: New homes – decrease in construction starts and production
APARTMENTS AND SMALL HOUSES NEW HOMES – DECREASE IN CONSTRUCTION STARTS AND PRODUCTION Production of apartments and small houses (no. of units) SEK billions, 12 months rolling Forecast Decrease in construction starts, with positive effect on the market • Positive signals from sales • Supply side rem
Slide 26: Norway: good housing market in first half of the year
APARTMENTS AND SMALL HOUSES NORWAY: GOOD HOUSING MARKET IN FIRST HALF OF THE YEAR Price (NOK) per square metre, all residential *Growth December–December Price growth and high transaction activity Calming effects: +4%* +1%* • Growing supply of new houses in the market • Rising interest rates • Lower
Slide 27: Construction starts and production will reflect sales
APARTMENTS AND SMALL HOUSES NO. OF CONSTRUCTION STARTS AND PRODUCTION WILL REFLECT SALES Construction starts – apartments and small houses No. of units, 12 months rolling -29%* Number of construction starts will follow sales down Upward adjustment from March based on: • The resale housing market • R
Slide 28: Construction starts and production will reflect sales
APARTMENTS AND SMALL HOUSES NO. OF CONSTRUCTION STARTS AND PRODUCTION WILL REFLECT SALES Production of apartments and small houses (no. of units) NOK billions, 12 months rolling Forecast Number of construction starts will follow sales down Upward adjustment from March based on: • The resale housing
Slide 29: Non-residential buildings
NON-RESIDENTIAL BUILDINGS Commercial buildings: Offices, wholesale and retail trade, industry and warehouses Public buildings: Schools, cultural and recreational buildings, nursing homes and hospitals 29 Veidekke’s Economic Activity Report September 2018
Slide 30: Commercial buildings
COMMERCIAL BUILDINGS COMMERCIAL BUILDINGS Contracting market commercial buildings NOK billions, current prices (2018 exchange rate) Slight decline from high level in Norway -6%* • Falling number of construction starts registered +4%* Market assessment from the organisation: +10%* • Many development
Slide 31: Largest office markets
COMMERCIAL BUILDINGS LARGEST OFFICE MARKETS Contracting market office buildings – three largest markets Value of started sites – NOK billions, current prices (2018 exchange rate) Total number of construction starts 2017 (Norway and Sweden) ~ NOK 25 billion. The 2017 office market boom will result in
Slide 32: Largest industry and warehouses markets
COMMERCIAL BUILDINGS LARGEST INDUSTRY AND WAREHOUSES MARKETS Contracting market industry and warehouses – largest markets Value of started sites – NOK billions, current prices (2018 exchange rate) Total number of construction starts 2017 (Norway and Sweden) ~ NOK 45 billion Strong upswing for indust
Slide 33: The vacancy rate continues to fall in Denmark
COMMERCIAL BUILDINGS THE VACANCY RATE CONTINUES TO FALL IN DENMARK Vacancy rate in the Copenhagen region Improvements in Copenhagen and the surrounding region • Major urban development projects The vacancy rate is slowly declining Increased vacancy in the retail segment Source: Ejendomstorvet 33 Vei
Slide 34: Commercial buildings: Denmark
COMMERCIAL BUILDINGS COMMERCIAL BUILDINGS: DENMARK Production of commercial buildings DKK billions, current prices The market is picking up again after a prolonged recession The Copenhagen region is leading the way +9%* Significant underreporting for 2017 due to technical changes in Statistics Denma
Slide 35: Public buildings
PUBLIC BUILDINGS PUBLIC BUILDINGS Production of public buildings NOK billions, current prices (2018 exchange rate) A mixed bag +0%* • High level of production in Sweden and Norway +12%* • The Danish market is more hesitant +11%* • High level of debt in the municipal sector – susceptible to interest
Slide 36: Schools have been a dominant segment
PUBLIC BUILDINGS SCHOOLS HAVE BEEN A DOMINANT SEGMENT Production of public buildings per segment NOK billions, current prices (2018 exchange rate) New growth in the care market • But different developments in the three countries There has been a boom in school building for some time – slightly decli
Slide 37: A surge of increased demand in the health sector
A SURGE OF INCREASED DEMAND IN THE HEALTH SECTOR Scandinavia Number of people in age group, relative change (%) Number of school children aged 5–9 years will fall Number of people over 80 will increase by almost 70 % over the next 10 years Greatest change in Norway and Sweden Source: Veidekke 37 Vei
Slide 38: Civil engineering market
NEW IMAGE CIVIL ENGINEERING MARKET
Slide 39: Civil engineering
CIVIL ENGINEERING CIVIL ENGINEERING Investments in civil engineering NOK billions, current prices (2018 exchange rate) Growth continues in Sweden +7%* Slowdown at a very high level in Norway +2%* No growth in Denmark +5%* * Annual growth rate 2019 and 2020 Source: Veidekke, Statistics Norway, Statis
Slide 40: Norway: levelling off towards 2020
CIVIL ENGINEERING NORWAY: LEVELLING OFF TOWARDS 2020 Production in various civil engineering segments NOK billions, current prices Progress in all segments this year Great optimism and high number of contracts among companies in the Norwegian Association of Heavy Equipment Contractors (MEF) Transpor
Slide 41: Transport in Norway: ambitious plans, but tighter budgets
CIVIL ENGINEERING TRANSPORT IN NORWAY: AMBITIOUS PLANS, BUT TIGHTER BUDGETS... Source: VG and Aftenposten 41 Veidekke’s Economic Activity Report September 2018
Slide 42: Roads in Norway: steady at a high level
CIVIL ENGINEERING ROADS IN NORWAY: STEADY AT A HIGH LEVEL Road production by customer NOK billions, current prices Upward adjustment of the market for 2017 • Municipal investments in roads The main drivers going forwards will continue to be PPP projects and growth in Nye Veier AS Levelling off at a
Slide 43: Railways in Norway: continued development at a slower pace
CIVIL ENGINEERING RAILWAYS IN NORWAY: CONTINUED DEVELOPMENT AT A SLOWER PACE Investments in railways NOK billions, current prices The InterCity triangle is being developed at a more moderate pace • Downward adjustment from March New contracts worth NOK 60 billion in the market over the next three ye
Slide 44: Road maintenance: gradual increase
CIVIL ENGINEERING ROAD MAINTENANCE: GRADUAL INCREASE Operation and maintenance of roads Operation and maintenance of railways NOK billions, current prices NOK billions, current prices Source: Veidekke, Statistics Norway, Norwegian Public Roads Administration, National Transport Plan, National Budget
Slide 45: Sweden: very positive prospects
CIVIL ENGINEERING SWEDEN: VERY POSITIVE PROSPECTS Production in several civil engineering segments SEK billions, current prices Progress across the board in the Swedish civil engineering market Positive contributions from the energy sector • Upgrade of the power grid • Other renewable sources Strong
Slide 46: Roads in Sweden: a growing market
CIVIL ENGINEERING ROADS IN SWEDEN: A GROWING MARKET Road production by customer SEK billions, current prices The municipalities continue to dominate this market More large projects, representing a greater share of investments in the future High activity expected in Stockholm and Gothenburg Source: V
Slide 47: Railways in Sweden: many signs of new growth
CIVIL ENGINEERING RAILWAYS IN SWEDEN: MANY SIGNS OF NEW GROWTH Investments in railways SEK billions, current prices High production in ongoing projects has contributed to stable development in recent years Prospects for growth in the railways market • Realisation of huge projects Source: Veidekke, S
Slide 48: In summary
NEW IMAGE IN SUMMARY
Slide 49: Market growth in metropolitan regions in 2019 and 2020
CONSTRUCTION AND CIVIL ENGINEERING MARKET GROWTH IN METROPOLITAN REGIONS IN 2019 AND 2020 TREND FOR PRODUCTION AND SALES REVENUE IN 2019 AND 2020 Source: Veidekke 49 Veidekke’s Economic Activity Report September 2018
Slide 50: Highlights
HIGHLIGHTS Better market outlook now than in March Residential production is decreasing, but from record levels We expect an attractive contracting market over the next two years 50 Veidekke’s Economic Activity Report September 2018
Slide 51: Appendix – Forecasts
APPENDIX – FORECASTS
Slide 52: New digitalised methods
NEW DIGITALISED METHODS Automate: • More efficient and more detailed data capture Better quality and control: • Identify strengths and weaknesses in the source material • Consistent forecasting and uncertainty estimates Increase operational relevance: • Details broken down by organisation • Broken d
Slide 53: New digitalised methods
NEW DIGITALISED METHODS Historical construction data, up to Q2 2018 • From Statistics Norway, Statistics Denmark and Statistics Sweden: Started/approved sites in square metres, broken down by municipality and type of building • From Veidekke: Estimate of the industry's construction contract cost per
Slide 54: Explanatory variables
EXPLANATORY VARIABLES Variable (Norway) Variable (Sweden) The sector’s historical data and co- Construction start Construction start variation with other market segments Approved Conversion Conversion Net immigration Net immigration Population statistics Income, interest Population statistics Occupa
Slide 55: Analyses – from general to specific
ANALYSES – FROM GENERAL TO SPECIFIC The construction market in Scandinavia Construction market in Bohuslän county 55 Veidekke’s Economic Activity Report September 2018
Slide 56: Market data Norway
MARKET DATA NORWAY Current prices, Level 2019– 2017 2018 2019 2020 relative change (%) (NOK 2020 Growth Growth Growth Growth billions) Growth Apartments and small 58 24% 7% -17% -9% -13% houses Commercial buildings 51 7% 1% -9% -3% -6% Public buildings 26 -4% -9% 8% 16% 12% Civil engineering 81 5% 9
Slide 57: Market data Sweden
MARKET DATA SWEDEN Current prices, Level 2019– 2017 2018 2019 2020 relative change (%) (SEK 2020 Growth Growth Growth Growth billions) Growth Apartments and small 102 23% -9% -11% 8% -2% houses Commercial buildings 49 23% -2% 0% 9% 4% Public buildings 33 11% 11% 1% -1% 0% Civil engineering 86 4% 7%
Slide 58: Market data Denmark
MARKET DATA DENMARK Current prices, Level 2019– 2017 2018 2019 2020 relative change (%) (DKK 2020 Growth Growth Growth Growth billions) Growth Apartments and small 26 22% 12% 6% 0% 3% houses Commercial buildings 23 5% 7% 10% 10% 10% Public buildings 12 -1% 3% 7% 15% 11% Civil engineering 39 -5% 0% 3