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Bucharest, May 15th 2012

Market Drivers in the European Construction Industry

2 © Interconnection

Interconnection Provides Data for Companies Decisions Interconnection is the leading Institution for

market data in the construction segment.

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Our analysts support company also with the implementation of data into deeds.

Introduction


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Market Entry

Market Forecast

Pricing Strategies

Price Monitoring

Distribution Analysis

Brand / Image Analysis

Brand Equity

Geomarketing

Product Tests

Advertising Impact

Focus Group Interviews

Exclusive Ad-hoc Research

Introduction


Content

2. National Economy

1. International Economy

3. Demography

4. Construction Environment


Influencing Factors in the Construction Industry

Construction Industry

Economic Situation Economic growth has direct impact on non-

residential sector & influences residential sector indirectly

Long-term interest rate Low interest rate stimulate the economic

participants to take out a loan and invest in buildings or infrastructure

Dem

ogra

phic

Dev

elop

men

t In

crea

sing

Num

ber o

f hou

seho

lds

resu

lts in

ris

ing

dem

and

of fl

ats

and

dwel

lings

Econom

ic policies G

overnmental subsidies stim

ulate residential and non-residential sector


The Perils after the Crisis

The first wave of economic crisis is over

Now follows the second period

• With a high degree of national debts throughout Europe (GRE, POR, etc.), but also in the US and Japan

• Austerity packages

• Currency Problems

• Non performing loans

• Inflation

• Other Risks

International Economy

National Economy Demography

Construction Environment


Europe's Business Engine Not Among the Top 3

4,4%3,8%

3,0% 3,0% 3,0%2,5%

2,0% 2,0% 1,7% 1,6% 1,6% 1,5% 1,2% 0,9% 0,8% 0,7%

SWE POL SVK GER SLO FIN CZE AUT SUI FRA NOR HUN ITA GBR DEN ESP

GDP-Growth: Comparison of Growth 2011, in %

Source: EIU Country Data, 01/2012

Ø EU 27: 1,6%





Eastern Europe Proves to be More Dynamic


6,4

4,3 4,1

5,86,7

5,7

7,5 7,5

4,63,4 3,8

2,43,3 3,7 3,8

4,1

1,92,5 2,1

3,32,2 1,7

-0,30,8 1,3 1,8

-5,7

0,01,31,4

3,1

-4,2

-8

-6

-4

-2

0

2

4

6

8

10

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

CEE

WEU

GDP-Growth in %; Comparison between Western & Eastern Europe 2000 – 2015





Greece Ranks 1st When it Comes to Public Debts Europe: Public Debt in % of GDP, Budgetdefizit 2010 in %


Public Debt 2012 Budget Deficit 2012




10 © Interconnection *Rated by Fitch-Scale; 03/2012

North-South Division in Europe

• Country Ratings in Europe





More than 40% of Non-Performing Loans Lost in the Ukraine

41,6%

19,2% 17,9% 17,5%

10,4% 9,5% 9,0% 8,8% 7,8% 7,8% 5,8% 5,6% 5,5% 4,9% 3,3% 2,5%

UKR LIT LAT ROU IRE RUS GRE CRO BUL HUN SLK EST ESP CZE POR SLO

Non-Performing Loans: Share of non-performing Loans 2010, in %

Source: World Bank 2011





0%

5%

10%

15%

20%

25%

0% 1% 2% 3% 4% 5%

Inflation-Unemployment Portfolio 2011 (EU-27 + Norway & Switzerland)

Spain with Highest Unemployment Rate

Euro Area Ø: 3,0%

Euro Area Ø: 9,6%


Une

mpl

oym

ent r

ate

2011

in %

Inflation rate 2011 in %





4,3

-9,3

-28,8

-4,6

1,4

-4,2

-17,5

-22,8

-12,8

-14,2

0,9

-15,8

-36,0

-29,9

-26,6

-40

-30

-20

-10

0

2007 2008 2009 2010 2011

Industry Consumers Construction

0,0 0,6

4,4 5,05,2

3,52,9

0,1

-2,4

-5,7-6,8 -7,6 -7,3

-11,5

-11,0

-12,6

-12,8

-13,9

-10,7 -10,9-12,4

-16,8

-20,2-20,9 -20,8

-27,6

-28,3 -28,1

-28,0

-25,6

-27,4-26,2

-25,9 -26,1

-25,0-26,0

-28,5

-27,5-28,5

-31,9

-30,7

10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1

Industry Consumers Construction

EU: Indicators of Confidence

Consumers Confidence Still Low

2011 2010

Source: EU-Commission 02/2012

2012





5,6

-20,9

-14,2

-20,7

-26,9

-17,4

Germany EU France Spain Italy UK

-26,6-31,2

-40,6

-12,0

-33,9

-8,6

Germany France Spain EU Italy UK

Source: EU Commission 02/2012

Consumers

Construction

Indicators of Confidence in Europe Top 5: 2012

Consumers Are More Confident than Construction Industry





It‘s the Economy, stupid...

Lessons learned from the crisis:

Economic growth should be based upon export industry, not upon consumption or credit

Risks of banks should be in relation to size of national state

Corruption undermines development of middle class and leads to political risks

High national debt steals politcal scope

Debts are quick to make, but need decades to be reduced





Content

2. National Economy


3. Demography


17 © Interconnection Source: EIU Country Data, 02/2012

The Economic Powerhouse in Europe Germany: Annual Change of GDP in %; Unemployment in %

2011 turned out to prove Germany as a strong and resilient economy especially against the background of the weak Southern Euro-economies

Due to Germany’s strong competitive edge creating undesirable current account imbalances, measures to boost German domestic demand and consequently reducing exports are most likely.

Against the backdrop of a persisting extremely low interest rate level this may benefit domestic demand with a strong impact on housing and construction activities.




GDP-Growth (yoy in %)

Unemployment in %

18 © Interconnection Quelle: EIU Country Data, 02/2011

UK Sliding Into Recession Again

After a short period of growth in 2011 the UK is sliding into recession again

An undesirable inflation exceeding 3% is putting pressure on the Bank of England against the background of the high sovereign debt

Persisting high joblessness rate with political reforms under way to tackle this problem

UK: Annual Change of GDP in %; Unemployment in %


Unemployment in %





2,1-0,40,9

0,91,8

-1,1

-4,4

1,9

1,60,8-0,6-4,1

1,70,4 1,4

1,6

'08 '09 '10 '11 12e 13f 14f 15f

UK Eurozone

7,8 8,68,0 8,38,65,6

7,6

8,0

9,810,210,610,410,010,1

9,67,5

'08 '09 '10 '11 12e 13f 14f 15f


Account Deficit, Competitive Losses, High Joblessness Rate

Economic recovery still weak with GDP growth rate below 1%. Weak investments and account deficit.

Inflated public sector and a labor market structured to hinder job creation

State dominance in the economy accounting for a share exceeding 50% of the economy

Prerequisites for a sustainable recovery still lacking

France: Annual Change of GDP in %; Unemployment in %


Unemployment in %






Still Mired in Deep Recession

Despite initial bold fiscal reform steps undertaken by government of technicians for reducing the deficit, growth oriented reform commitment has meanwhile stalled, especially on the labor market. This has lead Italy into a still deeper recession.

Still persisting high youth joblessness rate of reaching almost the level of 30%; two-tier labor market; companies reluctant to hire because of a unique workplace protection for the incumbents

Significant contraction of domestic demand

Italy: Annual Change of GDP in %; Unemployment in %


Unemployment in %





http://www.nationalflaggen.de/media/flags/flagge-italien.gif




Dramatic situation on the labor market, significant economic contraction. Joblessness rate of more than 20%, the highest in Europe

Further economic contraction due to

recession-inducing expenditure reductions in view of taming the deficit and bringing it in line with EU-guidelines

Construction sector, previously the main

economic driver still in the doldrums with housing prices in free fall

Weak banking sector in need of huge

amounts of capital for facing possible non-performing house loans

Quelle: EIU Country Data, 02/2011

Dramatic Situation on the Iberian Peninsula Spain: Annual Change of GDP in %; Unemployment in %

Unemployment in %






Income: Net Income by Households in EUR

32.91327.541

26.396

20.614

20.347

18.522

18.133

17.409

17.072

16.987

16.606

15.119

14.51811.831

19.377

18.865

17.508

19.86415.433

20.973

19.415

20.343

22.866

20.255

23.256

32.188

38.01342.696LUX

SUI

NOR

FRA

DEN

AUT

NED

GER

FIN

BEL

SWE

UK

ITA

ESP

37.50033.950

31.178

27.414

23.349

22.984

22.251

22.136

21.542

21.124

21.106

19.142

16.66714.255

23.395

24.795

22.193

20.40316.126

23.020

27.107

26.216

26.817

26.234

29.415

39.002

42.14842.013NOR

LUX

SUI

DEN

FIN

SWE

NED

FRA

GER

BEL

AUT

UK

ITA

ESP

With Kids Without Kids

Families (2+)…

With Kids Without Kids Singles…

Spanish Households with Lowest Income

Source: EUROSTAT 2011

Ø EU 27: 14.786 Ø EU 27: 18.113 Ø EU 27: 15.775 Ø EU 27: 18.982




23 © Interconnection Source: EIU Country Data, 02/2012

Italy Faces Dramatic Slump Private Consumption in Europe Top 5: Annual Change in %

Private Consumption Private Consumption

Private Consumption

Private Consumption

Private Consumption




0,8

1,2

-0,6

-0,70,7

1,5

-1,5 -3,5

1,7

1,2

1,00,3

-0,60,4-1,2

0,3

'08 '09 '10 '11 12e 13f 14f 15f



Content

2. National Economy


3. Demography



82,0

64,4

61,6

60,0

45,8

16,5

10,8

9,3

8,4

7,7

5,5

5,3

4,8

0,5


2010

81,8

64,7

62,0

60,3

46,0

16,6

10,8

9,3

8,4

7,8

5,5

5,4

4,9

0,5

GER

FRA

UK

ITA

ESP

NED

BEL

SWE

AUT

SWI

DEN

FIN

NOR

LUX

2009

European Population in Mio. 2009 & 2010; Annual Change 2009 – 2010 in %

Change in %

-0,2%

0,5%

0,7%

0,5%

0,4%

0,5%

0,8%

0,9%

0,2%

0,4%

0,5%

1,2%

1,7%

1,1%

Germany the Only Country with Decrease





1990-2010

EU-27: Population Pyramid 1990-2010 und 2010-2060

Men Women

Age 2010-2060

% %

Men Women


The Urn is Coming





Content

2. National Economy


3. Demography



Recovery in 2012 Expected Western Europe: Building Completions 2006 - 2014f, Quantity in Dwellings, Value in Mio. Euro

Quantity

Value

Annual Change

in %


National Economy

Construction Environment Demography

350.923362.423

338.290 275.716234.539 218.845 232.861 248.835 269.712

2.165.697 2.260.4182.142.455

1.725.928

1.426.6371.263.544

1.305.012 1.369.412 1.460.456

2006 2007 2008 2009 2010 2011e 2012f 2013 2014f

3,3%

-6,7% -18,5% -14,9% -6,7% 6,4%

6,9% 8,4%4,4%

-5,2% -19,4% -17,3% -11,4%

3,3% 4,9% 6,6% Value

Quantity

5,4%

3,7%

CAGR11-14f

Forecast


CEE 5 Takes More Time to Recover Building Competitions Residential Sector Eastern vs. Western Europe 2007-2014f in Mio. EUR

362.423 338.290

275.716234.539 218.845 232.861 248.835 269.712

6.879 7.775 7.318 6.562 5.124 5.015 5.640 6.293

369.302 346.065283.034

241.101 223.969 237.876276.005

254.475

2007 2008 2009 2010 2011e 2012f 2013f 2014f

WEU

CEE 5

EU

-14,9% -6,7%

6,4% 6,9%

-10,3% -2,1%

8,4%

-18,5%-6,7%

11,6%12,5%

-21,9%-5,9%

13,0%


National Economy



Increasing Number of Building Permits Western Europe: Building Permits vs. Building Completions 2006 - 2014f


National Economy


2.677.159

2.445.148

1.744.461

1.384.927 1.367.648

1.371.8471.518.259

1.621.6571.730.6882.165.697

2.260.418

2.142.455

1.725.928

1.426.637

1.263.5441.305.012 1.369.412

1.460.456

2006 2007 2008 2009 2010 2011e 2012f 2013 2014f

Building Permits

Building Completions

-8,7%-28,7% -20,6%

-1,2%

0,3% 10,7% 6,8% 6,7%4,4%

-5,2%-19,4% -17,3% -11,4%

3,3% 4,9% 6,6%Building Permits

Building Completions

Forecast


Dwellings with Better Outlook… Western Europe: Building Completions 2006 - 2014f, Flats & Dwellings

Flats

Dwellings

Annual Change

in %


National Economy


874.520 888.099 782.219 676.478 601.774 588.139 627.031 661.416 694.367

1.291.157 1.372.3201.360.576

1.046.720824.863

675.406 677.981 707.996 766.089

2006 2007 2008 2009 2010 2011e 2012f 2013 2014f

1,6%

-11,9% -13,5% -11,0% -2,3%

6,6% 5,5% 5,0%6,3% -0,9%

-23,1% -21,2% -18,1%

0,4% 4,4% 8,2% 1+2 FD

Flats

4,2%

3,2%

CAGR11-14f

Forecast


…and Gaining Market Share Western Europe: Building Completions 2006 - 2014f, Quantity in %

Flats

Dwellings


National Economy


40,4% 39,3% 36,5% 39,2% 42,2% 46,5% 48,0% 48,3% 47,5% 47,6%

59,6% 60,7% 63,5% 60,6% 57,8% 53,5% 52,0% 51,7% 52,5% 52,4%

2006 2007 2008 2009 2010 2011e 2012f 2013 2014fAverage

Share 11-14f

Forecast


Picture

1,59:2,1 Contact

Interconnection Consulting I Vienna • Oberstdorf www.interconnectionconsulting.com

For further questions please do not hesitate to contact us!

Interconnection Consulting

Getreidemarkt 1, A-1060 Wien

Dennis Rauen – Market Analyst

Tel: +43 1 5854623 - 39 Fax: +43 1 5854623 - 30

[email protected]

Dr. Frederick Lehner – Managing Director Tel: +43 1 5854623 -11

Fax: +43 1 5854623 - 30 [email protected] I

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