Veidekke

Earnings Release • Mar 30, 2023

Veidekke: downturn expected in the Scandinavian construction markets

Veidekke: downturn expected in the Scandinavian construction markets

Veidekke anticipates a reversal of last year's growth in the Scandinavian

construction markets. Lower demand resulting from higher interest rates and

inflation is expected to hit the apartments segment hardest, with the most

severe impact being felt in Sweden. However, a continuing positive trend can be

observed in parts of the commercial buildings segment.

"Our forecasts indicate a 6% decline in the Scandinavian construction markets

this year, i.e. a reversal of last year's growth. The greatest drop is expected

in Sweden, which also recorded the highest growth figures last year," says

Veidekke Head of Analysis Kristoffer Eide Hoen.

While the forecasts for 2023 are in line with last autumn's market update,

Veidekke has cut its expectations for 2024.

The most important factor behind the decline is the construction of fewer

apartments than in preceding years. Reduced demand for residential units is

linked to higher interest expenses and the negative impact of inflation on

household purchasing power. Last autumn's weaker housing market may be

attributable to temporary effects, including record sales in the preceding

period, falling secondhand residential prices throughout most of 2022 and

general economic uncertainty among households. At the end of Q1 2023, there are

signs that secondhand residential prices are stabilising. In addition, the

labour market appears stable and domestic migration to urban centres is

increasing.

"It is therefore reasonable to expect somewhat greater stability in the market

for new residential units following last autumn's severe drop. However, the

market is vulnerable to unforeseen developments and interest rate rises above

current expectations," says Hoen.

In contrast to the residential sector, growth in demand for commercial buildings

exceeded expectations throughout 2022, with particularly positive trends being

observed in the industrial and logistics segments.

"Rising interest rates and a generally weaker economic outlook indicate that the

most likely scenario is a decline from last year's record levels. However, two

potential wild cards are depreciation of the Norwegian and Swedish currencies -

which strengthens the competitiveness of many businesses - and high capacity

utilisation in many industries. Like last year, business investment levels may

well surprise us positively," says Kristoffer Eide Hoen.

As regards public-sector demand, there are differences between central

government and municipalities. Just like businesses, municipalities are exposed

to the effects of higher interest rates and financing costs. An additional

factor in Norway is controversy about the merger of municipalities, which has

impacted investment levels over the past three to four years. In the absence of

increased central government allocations, the municipal sector is not expected

to grow significantly in the next few years, despite its responsibility for key

buidling segments like schools and care homes. However, the civil engineering

market - in which central government and energy companies account for the

majority of projects and financing - remains strong in all of the Scandinavian

countries. Activity levels are expected to remain high in the transport

infrastructure sector, and the energy, water supply and sewerage segments are

growing and will account for an increasing proportion of civil engineering

projects going forward.

For more information, please contact:

Kristoffer Eide Hoen, Head of Business Development and Analysis, Veidekke ASA,

+47 976 75 434, Kristoffer.Eide.Hoen@veidekke.no.

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Veidekke is one of Scandinavia's largest contractors. In addition to undertaking

all types of building and civil engineering assignments, the group also

maintains roads and produces asphalt and aggregates. Veidekke emphasises

stakeholder involvement and local experience. Its annual turnover is

approximately NOK 39 billion, and half of its 8,000 employees own shares in the

company. Veidekke is listed on the Oslo Stock Exchange, and has posted a profit

every year since its inception in 1936.