VEIDEKKE'S ECONOMIC ACTIVITY REPORT
12 March 2018
WELCOME TO TOUGHER TIMES
A few headlines from the past five years:
So far, accurate
AGENDA
1230: Welcome and introduction
- 1235: The world around us – positive surprises? Nejra Macic, macroeconomist at Prognosesenteret
- 1250: Tougher times ahead? – Veidekke's market assessments for 2018 and 2019 Kristoffer Eide Hoen, Director of Analysis at Veidekke
- 1315: Transport market – big plans, what is the reality? Anders Wettre, Junior Analyst at Veidekke
- 1330: The green transition – what does it mean to the contractor market? Thomas Bjørnerud, Senior Consultant, DNV GL
- 1345: Concluding remarks Arne Giske, President and CEO of Veidekke
Sønderborg Multicultural Centre
THE WORLD AROUND US – POSITIVE SURPRISES?
Nejra Macic
Higher interest rates 5 interest rate increases since
2015, and further increases ahead
decline Higher commodity prices and stronger demand from the USA → Mexico and Brazil adjusted upwards
Surprisingly positive development in the EU, particularly in Germany
Tax reform Oil prices increased 20%, expected to gradually
Accounts for more than half of the growth in the global economy
Only 5 countries in the world with a negative GDP growth outlook in 2018–19
-
- Positive GDP growth is expected in all European countries in 2018 –19
-
- The forecast has been adjusted upwards for most countries, especially Germany, which will be in strong economic expansion throughout the period
-
- Spain is the only country that has been adjusted downwards
-
- Strong economic expansion in all of northern Europe except Norway and Finland in 2017 –18, and from 2019 also including these two countries
-
- Poland: after strong GDP growth of 4% last year, growth is expected to decline, but the economy will still be expanding
-
- The ECB has started to reduce the printing of money from January 2018. First interest rate increase in the spring of 2019
-
- Higher growth this year, but no strong economic expansion until 2019
-
- First interest rate increase towards the end of 2018 or early 2019
-
- Residential housing investments are declining, while the oil investments are starting to recover
-
- Fiscal policy is being tightened
-
- Improvement in South-West Norway: minor regional differences
-
- Economic upturn among our trading partners and higher oil prices will result in stronger export growth
-
- Employment shows signs of improvement and unemployment continues to decline
-
- The strong economic expansion will continue throughout the forecast period, despite declining growth
-
- Improvement internationally and a continuing weak krone gives stronger export growth
-
- Residential housing prices down 6% during last autumn, but prices have still more than doubled in 10 years
-
- Declining residential prices and investments
-
- Continued decline in unemployment
-
- First interest rate increase this autumn, reduction in the printing of money
-
- Strong economic expansion last year will continue throughout the period despite declining growth
-
- Gradual tightening of fiscal policy and declining productivity growth
-
- GDP growth will not reach old heights, but it may last longer
-
- Continued decline in unemployment. Lack of the right expertise
-
- First interest rate increase in the summer of 2019
-
- Residential housing prices have increased for the last 5 years, but did not really take off until 2017
AGENDA
1230: Welcome and introduction
- 1235: The world around us – positive surprises? Nejra Macic, macroeconomist at Prognosesenteret
- 1250: Tougher times ahead? – Veidekke's market assessments for 2018 and 2019 Kristoffer Eide Hoen, Director of Analysis at Veidekke
- 1315: Transport market – big plans, what is the reality? Anders Wettre, Junior Analyst at Veidekke
- 1330: The green transition – what does it mean to the contractor market? Thomas Bjørnerud, Senior Consultant, DNV GL
- 1345: Concluding remarks Arne Giske, President and CEO of Veidekke
Sønderborg Multicultural Centre
CONSTRUCTION AND CIVIL ENGINEERING MARKET FORECASTS 2018–2019
Kristoffer Eide Hoen
VEIDEKKE'S ECONOMIC ACTIVITY REPORT
Provide forecasts for investments/revenue in construction and civil engineering through to the end of 2019
• Thoughts concerning driving forces and uncertainties
Consensus economic forecasts based on data from recognised economic analysis institutions:
• The IMF, the Swedish National Institute of Economic Research (KI), Statistics Norway, the Danish Economic Councils, central banks, etc.
The forecasts for construction and civil engineering are prepared by Veidekke on the basis of:
- Our experience of the correlation between economic factors and construction and civil engineering
- Internal observation points across Scandinavia
- Industry reports
- Detailed market data at the county level in Norway and Sweden*
- Machine learning to quantify forecasts
- Enhanced monitoring of the major project market in transport and construction
*Denmark is currently under development
DIFFERENT PHASES IN A MARKET CYCLE
FROM GROWTH TO DECLINE IN 2019
Scandinavian construction and civil engineering market*, NOK billion
*Veidekke's forecasts for 2018 og 2019
- Residential sector dominates, but will make a negative contribution from 2019
- Downward adjustment of forecasts for 2018 and 2019
CONSTRUCTION & CIVIL ENGINEERING
FROM GROWTH TO DECLINE IN 2019
Scandinavian construction and civil engineering market*, NOK billion
*Veidekke's forecasts for 2018 og 2019
- Residential sector dominates, but will make a negative contribution from 2019
- Downward adjustment of forecasts for 2018 and 2019
Source: Statistics Norway, DST, Statistics Sweden and Veidekke
MARKET SIZES, NORWAY AND SWEDEN
Construction market in Norway and Sweden by segment,% of production value in 2017 (NOK 415 billion)
Small houses & apartments
38% |
Detached
houses etc.
22% |
Industrial
&
warehouses
9% |
Schools
5%
5% |
Health
and care
services |
Office
buildings
4% |
|
|
Recreational
homes
7% |
Retail and
commercial
buildings
3%
Bldgs
for
primary
industy
2% |
Culture
and
sports
2%
Hotels
1% |
Other
bldgs
2% |
Source: Veidekke's market data
SCANDINAVIAN RESIDENTIAL HOUSING MARKET HAS PEAKED
Residential production*, NOK billion
- Common denominators:
- Good macroeconomy
- High production level in Sweden and Norway
- Measures regarding credit to households
- Improvement in resale market, worsening for new residential housing
- Wide variation within the segments
*Veidekke's forecasts for 2018 og 2019
SCANDINAVIAN RESIDENTIAL HOUSING MARKET HAS PEAKED
Production in various residential segments in Norway, NOK billion per quarter
Common denominators:
- Good macroeconomy
- High production level in Sweden and Norway
- Measures regarding credit to households
- Improvement in resale market, worsening for new residential housing
- Wide variation within the segments
Source: Veidekke's market data
RESIDENTIAL MARKET IN NORWAY – RECENT OBSERVATIONS
Resale prices, per square metre
- Improvement in residential resale prices, as expected
- Volume of unsold residential units has declined somewhat
- Sale of new residential units has declined a lot, but the prices have not softened
RESIDENTIAL MARKET IN NORWAY – RECENT OBSERVATIONS
- Improvement in residential resale prices, as expected
- Volume of unsold residential units has declined somewhat
- Sale of new residential units has declined a lot, but the prices have not softened
RESIDENTIAL MARKET IN NORWAY – EXPECTATIONS FOR 2018 AND 2019
Apartment and small house starts, on a revolving 12-month basis, total number of units
- Adjusted downwards from the previous Economic Activity Report
- 30–40% decline in starts in 2018
- Decline in production from the second half of 2018
Source: Statistics Norway and Veidekke
*Red dotted line indicates Veidekke's forecast for 2018 and 2019. Black line indicates previous forecast.
RESIDENTIAL MARKET IN NORWAY – GEOGRAPHICAL DIFFERENCES
Production of apartments and small houses, NOK billion
Forecast for 2018 and 2019
- Forecast based on the current sales situation
- Strongest correction in the Oslo region, but from an abnormally high level
Source: Veidekke's market data
RESIDENTIAL
RESIDENTIAL MARKET IN SWEDEN – RECENT OBSERVATIONS
Prices for multi-family residential units, per square meter
Source: HOX Valueguard and Veidekke
*Red dotted line indicates Veidekke's forecast for 2018 and 2019. Black line indicates previous forecast.
- Stabilisation in the residential resale market, but too early to make a conclusion
- Volume of new and used residential units is still high
- Sale of new residential units significantly down
- Increase in percentage of units relaunched at lower prices
RESIDENTIAL
RESIDENTIAL MARKET IN SWEDEN – EXPECTATIONS FOR 2018 AND 2019
Start and production of apartments and small houses, number of units
Source: Statistics Sweden and Veidekke
*Red dotted line indicates Veidekke's forecast for 2018 and 2019. Black line indicates previous forecast.
- Strong downward adjustment of forecasts for starts
- 30% decline in starts during 2018
- Broader geographical decline than previously estimated
SOLVING STRONG CAPACITY CHALLENGES
Contract costs for multi-family residential units*,
* Figures for the industry
- Strong increase in construction contract costs
- In Stockholm and Gothenburg, both the construction contract costs and land costs have increased significantly in recent years
- Increasing capacity challenges in the Oslo region as well
- Situation will improve from the second half of this year
Source: Statistics Sweden
NON-RESIDENTIAL BUILDINGS
NON-RESIDENTIAL BUILDINGS – TOTAL SHOWS STEADY PROGRESS
Production of non-residential buildings*, NOK billion +6% +1% +7%
- Common denominators:
- Growth in employment and economy
- Low interest rates and high demand for commercial property
- The totals conceal strong fluctuations for the segments and geography
Source: Statistics Norway, DST, Statistics Sweden and Veidekke
*Veidekke's forecast for 2018 og 2019
NON-RESIDENTIAL BUILDINGS, NORWAY MAIN FEATURES: GEOGRAPHIC OPPOSITES
Production of office and commercial buildings, NOK million
- Oslo market was up sharply last year after a low new construction volume over several years
- Oil-heavy in Western Norway
- growth potential
- Steady state in the Trondheim region
Source: Veidekke's market data
NON-RESIDENTIAL BUILDINGS
NON-RESIDENTIAL BUILDINGS, SWEDEN MAIN FEATURES: EFFECTS OF AN INDUSTRIAL UPSWING
Production of new buildings* in Stockholm, Uppsala, Gothenburg, and Skåne, SEK billion per year
*The data do not currently include renovation, which is a comprehensive, but less cyclical market
Source: Veidekke's market data
- Good export markets provide a boost for industrial and warehouses
- Growth in employment and consumption will eventually have a positive impact on office and retail space
- Growth higher than expected in 2017, high expectations for 2018 as well
NON-RESIDENTIAL BUILDINGS
Investment estimates for 2018 versus 2017
- Good export markets provide a boost for industrial and warehouses
- Growth in employment and consumption will eventually have a positive impact on offices and retail space
- Growth higher than expected in 2017, high expectations for 2018 as well
Source: Statistics Sweden
NON-RESIDENTIAL BUILDINGS, DENMARK MAIN FEATURES: VACANCY RATE REMAINS DOWN IN COPENHAGEN
Vacancy rate for offices, selected Danish urban regions
* Due to major problems for Denmark's statistics in the second half of 2017, it is difficult to estimate the development of the construction area precisely
- Good economic conditions support a positive development for private non-residential buildings
- Vacancy rate for private non-residential buildings continues to fall
- Still only moderate growth for new construction*
Source: Sadolin & Albæk
THE SCANDINAVIAN CIVIL ENGINEERING MARKET
Production of civil engineering*, NOK billion
*Veidekke's forecast for 2018 and 2019
Strong growth in Norway and Sweden
- Very high levels per capita in Norway
- Investment peak is approaching
- Steady in Denmark, potential growth from 2019 and beyond
TRANSPORT: BIG PLANS, WHAT IS THE REALITY?
Anders Wettre
BIG PLANS, WHAT IS THE REALITY?
BIG PLANS, WHAT IS THE REALITY?
NORWAY: HISTORICALLY GOOD FOLLOW-UP
Plan periods for the National Transport plan 2017 kroner, NOK billion
- Historically, the follow-up ratio has been good
- Less leeway in public budgets will limit the follow-up rate going forward
- Impacts our forecasts from 2019
Source: NTP
ROADS NORWAY: NEW MARKET STRUCTURE
Road production by customer, NOK billion
2017 "Year of rest"
- Road production is increasing further:
- Investment peak will probably be reached in 2018
- Increased percentage managed by Nye Veier
- High level throughout the forecast period
Source: Veidekke, Statistics Norway, NPRA, NTP, SB
ROADS NORWAY: MORE TURNKEY CONTRACTS
Percentage of turnkey construction contracts in the road market*, NOK billion
*Incl. PPP
Nye Veier
- Parts of the Norwegian Public Roads Administration
- PPP contracts managed by the Norwegian Public Roads Administration
Source: Veidekke, Statistics Norway, NPRA, NTP, SB
RAILWAY NORWAY: REALISTIC AMBITIONS?
Investments in the railway market, NOK billion
High, but stable market in 2017 and 2018
- But slower progress than assumed
- Comprehensive projects provide strong growth towards the end of the forecast period
- InterCity
- Bergen Light Rail
O&M IN NORWAY: HIGH FOR ROADS, BEHIND ON RAIL
Source: Veidekke, Statistics Norway, NPRA, NTP, SB
TRANSPORT
ROADS IN SWEDEN: TOWARDS A PEAK IN 2019
Road production by customer, SEK billion
- High public demand drives the growth to a historically high level
- Municipal road investments account for a greater proportion of the investment activity
- High level of activity around Stockholm (Förbifarten) and Gothenburg (E45 Lilla Blommen)
Veidekke's Economic Activity Report March 2018
47
TRANSPORT
RAIL IN SWEDEN: NEW GROWTH AHEAD?
Rail investments, SEK billions
- High level of production in ongoing projects
- Many new and big projects will start up during the forecast period
- Västlänken in Gothenburg
- New underground railway in Stockholm
- Ambitious development plans for the future, full speed ahead from 2020?
Veidekke's Economic Activity Report March 2018
48
SUMMARY
Economic cycle for construction and civil engineering: Expected production growth 2018-2019
- Decline in the Scandinavian construction and civil engineering market from 2019, led by the apartment segment
- Steady progress in non-residential buildings, but considerable variation between different geographies and segments
- Strong civil engineering market to the end of 2019
AGENDA
1230: Welcome and introduction
- 1235: The world around us – positive surprises? Nejra Macic, macroeconomist at Prognosesenteret
- 1250: Tougher times ahead? – Veidekke's market assessments for 2018 and 2019 Kristoffer Eide Hoen, Director of Analysis at Veidekke
- 1315: Transport market – big plans, what is the reality? Anders Wettre Junior Analyst at Veidekke
- 1330: The green transition – what does it mean to the contractor market? Thomas Bjørnerud, Senior Consultant, DNV GL
- 1345: Concluding remarks Arne Giske, President and CEO of Veidekke
Sønderborg Multicultural Centre
THE GREEN TRANSITION WHAT DOES IT MEAN TO THE CONTRACTOR INDUSTRY?
Climate change and the UN goal of a maximum two-degree temperature increase on Earth will lead to major changes in policies, technology and the markets...
DNV GL – ENERGY TRANSITION OUTLOOK 2017
Source: DNV GL Energy Transition Outlook 2017
STRONG GROWTH IN RENEWABLE ENERGY IN THE NORDIC COUNTRIES AS WELL
NORDIC RENEWABLE MARKET
Source: Entso-E and DNV GL
NORDIC RENEWABLE MARKET
AGENDA
1230: Welcome and introduction
- 1235: The world around us – positive surprises? Nejra Macic, macroeconomist at Prognosesenteret
- 1250: Tougher times ahead? – Veidekke's market assessments for 2018 and 2019 Kristoffer Eide Hoen, Director of Analysis at Veidekke
- 1315: Transport market – big plans, what is the reality? Anders Wettre, Junior Analyst at Veidekke
- 1330: The green transition – what does it mean to the contractor market? Thomas Bjørnerud, Senior Consultant, DNV GL
- 1345: Concluding remarks Arne Giske, President and CEO of Veidekke
Sønderborg Multicultural Centre
VEIDEKKE'S POSITION
Arne Giske, CEO
Selected figures turnover 2017:
Hydropower: NOK 135 million Wind power: NOK 370 million Environmentally certified buildings: NOK 4.6 billion
OUR FOCUS
VEIDEKKE IS WELL POSITIONED
OMSETNING OG MARGIN*
SOLID ORDER BACKLOG BALANCED ORDER BACKLOG BY SECTOR
ADJUSTING TO A SOFTER REAL ESTATE MARKET
- Lower residential sales – fewer construction starts
- Opportunities and flexibility from good project portfolio and land bank
- Our focus: manage the business in a demanding housing market
UNITS UNDER CONSTRUCTION
*Veidekke's share, sum Norway and Sweden
STRONGER MARKET POSITIONS
- The land bank provides flexibility
- A total of 14,050 residential units
- Stated at cost
- 40% option-based
- Selective commercial building development
- A robust portfolio
- High sales ratio
- Minimum 50% pre-sale ahead of construction start
ECONOMIC ACTIVITY REPORT: MAIN FEATURES
Macroeconomic outlook: Positive forecast, first interest rate increase is approaching
Construction and civil engineering: Tighter market, mainly driven by the apartment segment
Green transition: Increasing commercial opportunities in renewable energy
APPENDIX
MARKET DATA NORWAY
Current prices,
change (%) |
Level |
2017
2018
2019 |
|
|
2018-2019 |
|
|
NOK bill. |
Growth |
Growth |
Growth |
Growth |
|
| Residential |
157 |
14 % |
-2 % |
-12 % |
-7 % |
|
| Commercial buildings |
69 |
9 % |
6 % |
-4 % |
1 % |
|
| Public buildings |
36 |
-1 % |
-4 % |
6 % |
1 % |
|
| Civil engineering |
79 |
5 % |
9 % |
4 % |
6 % |
|
Constructuon and civil
engineering total |
340 |
9 % |
2 % |
-5 % |
-1 % |
|
No. of apartments and
small houses started |
|
22 500 |
15 000 |
16 000 |
|
|
|
|
|
|
|
|
|
Explanation: Forecast unchanged from EA Report September 2017
Forecast revised downwards/upwards from EA Report September 2017
MARKET DATA SWEDEN
Current prices,
change (%) |
Level |
2017 |
2018 |
2019 |
2018-2019 |
|
SEK bill. |
Growth |
Growth |
Growth |
Growth |
| Residential |
201 |
17 % |
3 % |
-12 % |
-5 % |
| Commercial buildings |
87 |
5 % |
9 % |
3 % |
6 % |
| Public buildings |
51 |
16 % |
9 % |
5 % |
7 % |
| Civil engineering |
86 |
4 % |
6 % |
4 % |
5 % |
Constructuon and civil
engineering total |
425 |
12 % |
5 % |
-3 % |
1 % |
No. of apartments and
small houses started |
|
50 800 |
35 560 |
35 560 |
|
|
|
|
|
|
|
Explanation: Forecast unchanged from EA Report September 2017
Forecast revised downwards/upwards from EA Report September 2017
MARKET DATA DENMARK
Current prices,
change (%) |
Level |
2017 |
2018 |
2019 |
2018-2019 |
|
DKK bill. |
Growth |
Growth |
Growth |
Growth |
| Residential |
77 |
17 % |
13 % |
8 % |
10 % |
| Commercial buildings |
24 |
8 % |
10 % |
10 % |
10 % |
| Public buildings |
22 |
-1 % |
-1 % |
7 % |
3 % |
| Civil engineering |
39 |
-5 % |
0 % |
3 % |
1 % |
Constructuon and civil
engineering total |
162 |
7 % |
7 % |
7 % |
7 % |
No. of apartments and
small houses started |
|
14 500 |
16 000 |
17 000 |
|
|
|
|
|
|
|
Explanation: Forecast unchanged from EA Report September 2017
Forecast revised downwards/upwards from EA Report September 2017