Veidekke Asa · OSL:VEI
Veidekke Asa — Corporate Update (September 2020)
57 slides from Veidekke Asa's corporate update, Sep 21, 2020
Slide 1: Market update Q3 2020
Market update Q3 2020 21 September 2020 Kristoffer Eide Hoen and Anders Wettre
Slide 2: Covid-19 and falling oil prices: the market could go either way
Covid-19 and falling oil prices The market could go either way Declining activity and financial turmoil Rescue Falling interest rates packages Industry New residential Oil-related industry Civil engineering Commercial property/ and logistics units Construction New residential units non-residential c
Slide 3: Our experience in March–April
Covid-19 and falling oil prices Our experience in March–April 3 + © Veidekke
Slide 4: Our experience in the third quarter
Covid-19 and falling oil prices Our experience in the third quarter 4 + © Veidekke
Slide 5: The contracting markets in the period to 2022: Better than expected?
The contracting markets in the period to 2022: “BETTER THAN EXPECTED?” 5 © Veidekke
Slide 6: Agenda
Agenda 01 Introduction 02 Macroeconomic overview 03 Forecasts for the contracting markets 04 Construction 05 Infrastructure 06 Summary 6 © Veidekke
Slide 7: Veidekke's market data
Veidekke’s market data Forecasts for the contracting markets 2020–2022 • Macroeconomic assessments by the IMF, the National Institute of Economic Research, Statistics Norway, the Danish Economic Councils, etc. • Historical market data are calculated by Veidekke based on raw data from the Scandinavia
Slide 8: Our focus: the Scandinavian contracting markets
Our focus: the Scandinavian contracting markets Not included: + Detached houses and holiday homes: NOK 140 bill. + Primary industry: NOK 20–30 bill. The contracting markets 2019 + Residential refurbishment, “off the books work” and household DIY Construction* and infrastructure in NOK billion Commer
Slide 9: Forecasts for the contracting markets
Forecasts for the contracting markets Market drivers Investment decisions Contracting markets 9 © Veidekke
Slide 10: Macroeconomic overview
02 Macroeconomic overview 10 © Veidekke
Slide 11: The authorities' response to Covid-19: Open wallet
The authorities’ response to Covid-19 “Open wallet” Central bank stimulus Budget stimulus ECB and FED balance sheet Increased expenditure and tax cuts in response to Covid-19 8 000 14 7 000 12 6 000 10 EUR and USD billion 5 000 % of GDP 8 4 000 6 3 000 2 000 4 9 March 2020 1 000 2 0 0 ECB (EUR) FED
Slide 12: International economy: Quicker recovery than feared?
International economy Quicker recovery than feared? Economic situation, German business sector Comments • The international economy is recovering, but some way to go before “normal” conditions return. • Quicker recovery than during the financial crisis. • Uncertainty about new setbacks/lockdowns. •
Slide 13: International economy: Continued backlog in 2021
International economy Continued backlog in 2021 GDP growth Comments Percentage 2017 2018 2019 2020 2021 • Strong, widespread decline in GDP in 2020. Eurozone 2.7 1.9 1.3 -7.9 5.1 • Important trade partners have been hit hard. Germany 2.8 1.5 0.6 -5.4 4.6 • Only a partial recovery in 2021. UK 1.9 1.3
Slide 14: Strong financial starting point
Strong financial starting point Gross public debt as a percentage of GDP* 180 160 140 120 100 80 60 60% criterion 40 20 0 *Due to the Government Pension Fund (“oil fund”), the gross-debt statistics are not a relevant reflection of Norway’s financial situation. 14 © Veidekke
Slide 15: The Scandinavian economy: Weaker but manageable?
The Scandinavian economy Weaker but manageable? GDP Unemployment Comments By country, annual percentage change Unemployment rate 5,0 4,2 10,0 • GDP growth is recovering gradually. 4,0 3,6 9,0 3,4 8,7 • Labour market forecasts are better 3,0 8,0 2,3 2,3 than feared. 2,0 1,2 7,0 • Lower oil activity i
Slide 16: Falling interest rates
Falling interest rates Strong effect on the investment calculation Interest rates Comments Five-year government bonds, percentage 3,0 • The countries had differing room for manoeuvre at the onset of the crisis. 2,5 2,0 • Norway’s interest-rate cut is having a powerful effect on investment budgets, h
Slide 17: Exchange rates Norway and Sweden
Exchange rates Norway and Sweden NOK:EUR SEK:EUR Comments Norway, FX Spot Rates, Norges Bank Sweden, FX Spot Rates, Sveriges Riksbank 11,5 11,5 • Exchange rate depreciation has been a challenge, particularly in Norway 11,0 11,0 • Highlights economic vulnerability 10,5 10,5 to international financial
Slide 18: Population growth: Net moves/immigration
Population growth Net moves/immigration Net moves/immigration Norway Net moves/immigration Sweden Comments Percentage of population Percentage of population 2,0 % Covid-19 quarters 2,0 % • In Sweden, net immigration has remained high, but no data is available for 2020 yet. 1,5 % 1,5 % 1,5 % • Clear
Slide 19: The contracting markets
03 The contracting markets 19 © Veidekke
Slide 20: Basis for the forecasts
Basis for the forecasts 20 © Veidekke
Slide 21: Forecasts for the contracting markets
Forecasts for the contracting markets Indicators: GDP, interest rates, Building starts, labour market, Production/revenue sales, orders national budget, etc. 21 © Veidekke
Slide 22: Forecasts for the contracting markets 2020–2022
Forecasts for the contracting markets 2020–2022 Indicators: GDP, interest rates, Building starts, 2020 2021 2022 labour market, etc. sales, orders Observations up to and including Q2 2020 Degree of visibility/predictability as at September 2020 22 © Veidekke
Slide 23: Building starts vs. production – an example
Building starts vs. production – an example NOK 200 million apartment project in Q2 2020 Anticipated construction period eight quarters 200 180 160 140 NOK million 120 100 80 60 40 20 0 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Value building start Value production Accumulated
Slide 24: Order intake and building starts in Q2
Order intake and building starts in Q2 Little trace of Covid-19 Order intake, Nordic construction industry Comments Estimate, NOK million 60 000 • Strong order intakes for the reporting companies. 54 000 51 000 • Data on building starts fell compared to Q2 2019. 50 000 • Caution should be exercised
Slide 25: Order intake and building starts in Q2
Order intake and building starts in Q2 Little trace of Covid-19 Building starts, new projects in Scandinavia Comments Building construction market, NOK billion 140 • Strong order intakes for the reporting companies. 120 • Data on building starts fell compared to Q2 2019. • Caution should be exercise
Slide 26: Scenarios for the contracting markets: Extremes
Scenarios for the contracting markets Extremes Better “L” “V” • Strong competition in the public market • Uncertainty declines quickly, demand rises • Excess capacity and price pressure • Battle for resources and expertise Production hindrances “XL” “W” • High risk linked to cross-border deliveries
Slide 27: Focus on demand
Scenarios for the contracting markets Focus on demand (but this could change again…) Better “L” “V” Production hindrances Available contingency “XL” “W” measures Worse Worse Demand Better 27 © Veidekke
Slide 28: Swing factors in the private construction sector
Scenarios for the contracting markets Swing factors the private construction sector Building starts, new projects in Scandinavia Comments Construction market, NOK billion 140 Growth Q4 2022/Q2 2020 • Different scenarios regarding private demand for construction 120 • “V” scenario: Demand/building st
Slide 29: Forecasts for the contracting markets
Forecasts for the contracting markets Indicators: GDP, interest rates, Building starts, labour market, Production/revenue sales, orders national budget, etc. 29 © Veidekke
Slide 30: Balanced scenario
Scandinavian contracting markets “Balanced scenario” Market level Market change Comments Annual production, NOK billion Contribution to change, NOK billion 800 140 14% • Strongest effect in 2021, with a 6% drop 11% 4% 5% 10% 9% 12% 7% 2% -1% -6% 1% 700 120 12% in production value. 100 10% 600 80 8%
Slide 31: Construction
Construction 31 © Veidekke
Slide 32: Norwegian residential market: Prices and production
Norwegian residential market Prices and production Residential property prices largest markets Production, apartments and small houses Comments Price per m2, NOK NOK billion, 12-month rolling quarterly total 80 000 +4% 25 CAGR 2019-2021 -5% • “Easing rally” in the secondhand housing market? 70 000 2
Slide 33: Completed residential units in Oslo
Completed residential units in Oslo Completed residential units by segment Comments Number of units per quarter 2 500 • The number of completed residential units in the Oslo region will drop from approximately 6,000 units in 2019 to approximately Requirement given last five 4,000 units in 2022. 2 00
Slide 34: Swedish residential market: Prices and production
Swedish residential market Prices and production Residential property prices largest markets Production, apartments and small houses Comments Price per m2, SEK SEK billion, 12-month rolling quarterly total 70 000 Price growth August–August 45 CAGR 2019-2021 • No stimulus from falling interest rates
Slide 35: Right-to-rent vs. owner occupancy
Right-to-rent vs. owner occupancy Clear trend towards right-to-rent Stockholm region Västra Götaland Skåne Number of units Number of units Number of units Right-to-rent Owner occupancy Right-to-rent Owner occupancy Right-to-rent Owner occupancy 18 000 9 000 9 000 16 000 8 000 8 000 2 635 14 000 7 00
Slide 36: Commercial buildings in Norway and Sweden
Commercial buildings in Norway and Sweden Production Construction sector production, Norway Construction sector production, Sweden Comments 12-month rolling quarterly total, NOK billion 12-month rolling quarterly total, NOK billion 70 Multi-storey car parks 70 Office buildings A decline may logicall
Slide 37: Public buildings in Norway and Sweden
Public buildings in Norway and Sweden Production Construction sector production, Norway Construction sector production, Sweden Comments 12-month rolling quarterly total, NOK billion 12-month rolling quarterly total, NOK billion 45 Other buildings 45 Other buildings • Hospitals and care service build
Slide 38: Commercial buildings in Denmark
Commercial buildings in Denmark Production Vacancy rate in Denmark Construction sector production, Denmark Comments Percentage of total number of buildings 12-month rolling quarterly total, NOK billion 12 Office Retail Logistics and industry 55 Copenhagen Zealand • The vacancy rate has increased Cen
Slide 39: Civil engineering
Civil engineering 39 © Veidekke
Slide 40: Strong candidate for countercyclical policy?
Strong candidate for countercyclical policy? Norway, example Market change Rescue packages, contracting market Comments Contribution to change, NOK billion NOK billion 22 22% Differing traditions 20 20% 18 18% • Sweden and Denmark usually apply 16 16% 5,0 more neutral stimuli than Norway. 14 14% 12
Slide 41: The civil engineering market in Norway and Sweden
The civil engineering market in Norway and Sweden Strong public sector contributions Investment by civil engineering segment Investment by civil engineering segment Comments Norway, NOK billion Sweden, NOK billion • Public demand will be key to future activity. 8% 19% 11% 3% 5% 10% 6% 1% 1% 4% -3% 1
Slide 42: Not entirely untouched: industry and economic uncertainty
Not entirely untouched Industry is being affected by economic uncertainty Norway: total investment in industry and mining Comments NOK billion 40 • Investment was at a high level in 2019. 35 • The estimates for 2020 and 2021 are strongly affected by uncertainty linked to Covid-19. 30 25 Average 2006
Slide 43: Energy, water supply and sewerage
Energy, water supply and sewerage Limited Covid-19 effect Investment in energy facilities Investment in water supply and sewerage facilities NOK billion NOK billion 25 CAGR 10-19 CAGR 10-19 16 Norway: 6% Norway: 8% Sweden: 2% 14 Sweden:11% 15 15 15 22 22 14 20 22 21 21 21 13 20 20 12 19 12 19 12 12
Slide 44: Transport infrastructure in Sweden
Transport infrastructure in Sweden Major projects for the State The roads market, investment The railways market, investment Comments NOK billion NOK billion 35 -10% -3% 3% 13% 16% 12% 4% 4% 0% 0% 35 -14% 7% 17% -11% 4% 11% 18% 16% 10% 5% The roads market 30 30 • Major projects for the State imply a
Slide 45: Transport infrastructure in Sweden
Transport infrastructure in Sweden Major projects for the State The roads market, investment The railways market, investment Comments NOK billion NOK billion The roads market 6,66 • Major projects for the State imply 5,87 6,00 a high level until the end of 2022. 5,70 5,37 • Municipal road investment
Slide 46: Transport infrastructure in Norway
Transport infrastructure in Norway Major changes expected in the National Transport Plan The roads market, investment The railways market, investment Comments NOK billion NOK billion 50 10% 8% 4% 7% 14% 13% 7% 0% 3% 6% 50 30% 55% 13% -12% 3% 3% 12% 16% 12% 5% The roads market 45 45 • High pace of de
Slide 47: Transport infrastructure in Norway
Transport infrastructure in Norway Major changes expected in the National Transport Plan National road investment, NTP Railway investment, NTP Comments Annual average, NOK million, 2017-kroner Annual average, NOK million, 2017-kroner The roads market 22,25 • High pace of development under Nye Veier
Slide 48: Transport infrastructure in Norway
Transport infrastructure in Norway Major changes expected in the National Transport Plan National road investment, NTP Railway investment, NTP Comments Annual average, NOK million, 2017-kroner Annual average, NOK million, 2017-kroner The roads market 22,25 • High pace of development under Nye Veier
Slide 49: Road maintenance in Norway
Road maintenance in Norway Roads market, operation and maintenance Railways market, operation and maintenance Comments NOK billion NOK billion 30 30 -2% 21% 3% 20% -12% 10% 8% 3% 8% 5% The roads market 11% 8% 9% 4% 9% 1% 4% 0% 1% 2% 25 25 • Tapering off at a historically high level. • Growth of stat
Slide 50: Counties' financial leeway is shrinking
The Norwegian asphalt market Counties’ financial leeway is shrinking Expenditure on reasphalting of county roads, by county (2020) Comments NOK million 27% 2018 2019 2020 1 475 • Marked decline in 2020 in several 299 16% 302 1 074 regions, although many had high 270 activity in 2019. 250 249 38% Tot
Slide 51: Altered central government priorities
The Norwegian asphalt market Altered central government priorities Expenditure on national roads maintenance by sub-item Comments NOK million in the draft national budget 3 500 • Lower allocations to asphalting and surfacing of the national roads network. 3 000 2 500 • Tunnel upgrades account for a
Slide 52: Summary
04 Summary 52 © Veidekke
Slide 53: Continued high volumes, dependent on public demand
Continued high volumes But dependent on increased public demand Norway Sweden Total contracting markets by customer, NOK billion Total contracting markets by customer, NOK billion 42% 52% 34% 40% 58% 48% 66% 60% 201 194 186 158 160 108 191 133 126 108 135 160 129 115 142 112 132 109 105 116 119 89 8
Slide 54: Summary: Key points
Summary Key points 1. Is the economy recovering faster than expected? 2. Only moderate market decline; presupposes increased public demand. 3. Reorientation from private to public sector. 4. Risk of housing shortage and rampant price inflation. 5. Covid-19 will continue to cause uncertainty and pres
Slide 55: Annexes
Annexes 55 © Veidekke
Slide 56: The contracting markets Scandinavia
The contracting markets Scandinavia Norway Sweden Denmark By sector, NOK billion By sector, NOK billion By sector, NOK billion 110 110 110 CAGR 2019-2022 CAGR 2019-2022 CAGR 2019-2022 100 100 +2% 100 +2% 90 90 90 +1% 80 80 -9% 80 70 70 70 -5% 60 -9% 60 60 -9% 50 50 50 -4% +0% 40 40 40 +0% 30 +12% 30
Slide 57: The Scandinavian contracting markets: Overview of relevant markets
The Scandinavian contracting markets Overview of relevant markets Norway Building construction sector production 2019 Sweden Market by region, NOK billion Denmark Source: Veidekke’s market data *Excl. Oslo region 57 © Veidekke