cece-cema economic forum - chris sleight - european construction markets

FIRST FOR GLOBAL CONSTRUCTION INFORMATION www.khl.com


EUROPEAN CONSTRUCTION

MARKETS

Chris Sleight

Editor

International Construction


CONTENTS

Europe in a global context

Economic forecasts for European construction markets

European contractors

Other indicators

Construction equipment market


EUROPE IN A GLOBAL CONTEXT

Growth trends and relative size compared to other markets


GLOBAL ECONOMIC GROWTH IN 2013

EU 0%

US 1.9%

LAm 3.4%

MENA 3.1%

S Af 5.6%

CIS 3.4%

JP 1.6%

RoA 7.1%

WORLD 3.3%

SOURCE: IMF


CONSTRUCTION GROWTH IN 2013

-2.5% +4.5%

+5.0%

+5.5%

+6.0%

+6.0%

+4.0%

+7.5%

WORLD +4.5%

+5.0%

Various sources


RELATIVE MARKET SIZE

24% 18%

8%

3%

1%

4%

7%

33%

WORLD ~ US$ 7,500 billion

EUROPE ~ US$ 1,800 billion

2%

Various sources


EUROPE IN A GLOBAL CONTEXT

Only regional global construction market still in recession

Still a very large market


EUROPEAN MARKETS IN DEPTH

Many sources & forecasts (FIEC, Euroconstruct, IHS Global Insight++)

Exact numbers may differ

Some specific differences of opinion

Trends & outlook similar


MAJOR MARKETS IN 2013

UK -2.8%

IT -3.8%

FR -3.3%

ES -10%

Big 5 (Big 4.5)

~ 70% of European construction output

~ -3% growth in 2013

DE +1.9%


THE GOOD

DE +1.9%

Little growth within EU Germany is biggest & best

Most promising regional markets are EU neighbours

NO +5.8%

AT +0.6%

TK +12% (?)

RUS +6%

BE +0.1%

CH +0.2%


THE BAD

UK -2.8%

IT -3.8%

FR -3.3%

0% to -5% trend in

countries

representing

~55% of

European

construction

output

SE -0.2%

FI -2.1%

PO -4.0%

CZ -1.9%

NL -4.8%

DK -0.5%


THE UGLY

IRE -8%

ES -10%

Peripheral markets still deeply distressed

6-7 years of recession

Spanish market 40% of pre-crash size

CY -20%

PT -15%

GR -30%

RO -18%

BU -9%

SL -9%


LONG TERM CONSTRUCTION GROWTH

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* 2014* 2015*


CONSTRUCTION OUTPUT ( BILLION)

900

950

1000

1050

1100

1150

1200

1250

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* 2014* 2015*


LONG TERM GROWTH TRENDS

2011 recovery stalled now in second dip Triggered by threat of Greek default

Recession flattening out in 2014/15? Market value has fallen back to late-1990s levels When it returns, growth will be weak in global terms

The boom year of 2006 saw +4.5% growth

European policy focussed on austerity, not growth No quick solution to Euro Zone debt crisis

Long-term construction market weakness

Europe is still a big market ~24% of global output


EUROPEAN CONTRACTORS

Revenue & profitability trends

Strategies in the face of weak home markets


EUROPEAN CONTRACTORS THE CE-100

246 265

297

334

384 407

378 379 406

439

5,28%

5,66%

5,75%

6,92%

7,19%

5,97%

5,02% 5,01%

4,40%

4,18%

0%

1%

2%

3%

4%

5%

6%

7%

8%

0

50

100

150

200

250

300

350

400

450

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Revenues ( billion) Operating margin (%)

SOURCE: Construction Europe


EUROPEAN CONTRACTORS

Revenues climbing

Profitability at all-time low of 4.18% operating margin

(Global average 4.3%)

Increased competition over work

Large contractors chasing smaller contracts


EUROPEAN INTERNATIONAL REVENUES

0

20

40

60

80

100

120

140

160

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Developed world Emerging markets

SOURCE: EIC/International Construction


EMERGING MARKET FOCUS

Large European contractors generate ~25% of their revenues outside their home (national)

market

International revenues by European contractors have doubled in 10 years

Total revenues up ~70% in same period

~40% of international revenues from emerging markets

~25% 10 years ago


OTHER INDICATORS

Market sentiment

Share prices


CE BAROMETER - MARKET SENTIMENT

2007 2012 2011 2010 2009 2008 2013 H1

+

-



MARKET SENTIMENT

No clear month-on-month trend in 2013

Indicates flat market/turning point

Results in Q3 have been better

Survey positive on future sentiment

Expect return to growth within 12 months

But historically over-optimistic


SHARE PRICES

80%

90%

100%

110%

120%

130%

140%

150%

160%

Dow CET

2010 2011 2012 2013 TD



SHARE PRICES

Construction shares are cyclical Greatest growth among aggregates/cement

producers

Weak profitability remains for contractors & equipment

Construction shares have missed-out on 2013 rally Does construction reflect the true economic

picture?

Is the Dow the new safe haven? Gold declining, low bond yields


EUROPEAN CONSTRUCTION EQUIPMENT

MARKETS


CE MARKET WESTERN EUROPE

0

50.000

100.000

150.000

200.000

250.000

1990199119921993199419951996199719981999200020012002200320042005200620072008200920102011201220132014

SOURCE: Off-Highway Research


WEAK RECOVERY

Rebound of 2010/2011 stalled

Euro crisis damaged confidence again

Banks lending less than in pre-crisis years

Many young machines on market

Lower construction output = less demand for equipment

But volumes still feel unnaturally low


CE MARKET SPLIT Q1 2013

DE; 21%

RUS; 15%

TK; 13% UK; 12%

FR; 12%

IT; 3%

Others; 24%

SOURCE: CECE

Total volume ~ 32,500 units


CE MARKET IN 2013

Historically low volumes (similar to mid 1990s levels)

Market will fall -5% to -15% in 2013

~ 28% of European sales in lesser regulated markets

Recovery in 2014/15?

Growth could be high, but volumes historically low

Will take time to get back to full health

Pent-up demand in Europe (?), especially as fleets age


OVERVIEW

Most indicators point to recovery in 2014/15 Growth in EU likely to be weak in the long-term Europe remains a major construction market

~24% of global output Increasing opportunities in lesser regulated

European markets (CE manufacturers and contractors)

Emergence/maturation of new players? Chinese manufacturers seeking European

markets

Handful of Turkish & Russian manufacturers


THANK YOU

Questions, comments, feedback, more information

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[email protected]

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