Main findings of Finpro 09 Pulse Survey

Executive Summery in Construction sector

Finpro CSE

January-February, 2009

© Finpro ry / 2009

1. Background & investigated areas

Background

• Finpro CSE has contacted the relevant associations and major companies in

• Construction,

• Logistics &

• Machinery sector

• The geographical coverage was Central and Southeast Europe, as in following countries

• Austria

• Czech Republic,

• Slovakia

• Hungary

• Slovenia

• Croatia

• Serbia

• Romania

• Bulgaria

• Turkey

• Around 100 managers were interviewed

• The phone-based survey was conducted in February 2009.

• Special note: the Survey is not based on representative primary research, it just gave some “feelings” & summarize some subjective thoughts from market players` point of views.

© Finpro ry / 2009

2. Main findings from Finpro Pulse 09 survey

Notes:

• Scaling at sector performance from 1 (deep recession) to 7 (healthy growth)

• Scaling at sector openness from 1 (no opportunities to launch new technologies & business model) to 7 (lucrative business to come up with new technologies & business models)

0,0

1,0

2,0

3,0

4,0

5,0

6,0

Pulse 09: Construction

Performance Openness

© Finpro ry / 2009

3. Major comments from the region

Country Sector performance Major problem in the

sector

Major opportunity in your

sector

Austria

There was a slight fall in October 2008, which

settled on in November. Currently the forecast

is positive. The invoicing in the industry

remains. Amount of projects might fall very little,

but only reason is that sold projects are larger.

Very difficult to forecast, there is a need that

extreme fall in the end of the year and very hard

make any forecasts. The bigger companies will

survive but for those having a lower financial

status have difficulties

Industry is dependent on

financing. If the financing of

housing projects will kept at 0-

level, it could have an negative

impact

No new projects and all the

existing larger projects are on

hold status. This means that

no new investments will be

made

Even if a lot of bad credits were

issued and a lot of people lost

money, there are those who kept

their investments in a very

conservative funds. This means

that there is a lot of money to be

invested in good solid products.

Very hard to say, most like none.

Czech

Republic

It is expected that for construction the growth

will be in between 0 and 0.5%, no big crisis is

expected in the CZ

The first half of the year will experience

decrease of 2-3%, but it will start getting better

in the second half, it might not reach the level of

2008, but should not be too far below it.

Most of the projects have stopped, banks not

giving almost any credits, developers are

unwilling to go down with price, buyers waiting

for the prices to go down. Dead market

Restricted funding

Funds are not distributed

among the projects. They

exist, but still are not released

Banks holding back the money

Public tenders, but foreign

company must cooperate with

domestic players (some kind of

joint venture) in order to be eligible.

Otherwise, no real opportunities

Public tenders, cooperating with

CZ company, for example: Gemo

Olomouc (healthy company, can

go on for 4 years with losses

without having have to downsize),

a lot of CZ construction companies

are in very good shape

Public tenders, but construction is

generally moving towards the east

(Russia, Ukraine, Belarus)

© Finpro ry / 2009

3. Major comments from the region

Country Sector performance Major problem in the sector Major opportunity in your

sector

Slovakia

Last year construction grew by 10%,

small decrease expected this year,

down to 8%, but construction should

remain in good shape.

Sector had unnaturally high growth

up to this point, hopefully decrease

will adjust it to the appropriate pace.

However, projects are only planned

till the end of the second quarter and

no indication as to what will happen

after that. Volume will go down, but

don't expect it to be more then 10%.

Inactivity, everyone waiting to see what

happens

No plans nor projects for the second

half of the year. Market seems to be

dead. No funds available. However,

market will have to act, but everybody

is holding back and waiting to see what

direction it will take.

Euro zone, cheap labor compared

to the neighboring countries and

rest of the EU, stable political

environment: all this should

diminish the impact of the crisis

Civil engineering & infrastructure:

airports, highways

Hungary

Small decline (2-5%) due to the

expected EU finance big projects

(Pecs Cultural City projects, last

year +6% growth at transport

concrete.

-40 – 50% drop forecasted

No EU-financed projects & still keeping

low-prices at big players to control the

market,

Banks do not want to finance even

signed contacts, Major market,

Germany is in recession and major

neighboring countries (RO & Ukraine)

as well.

Prosperous projects in Ex-Yugoslavia

still on-hold

Non-paid invoices, financial problems

(no bank loans for developers)

Financial issues (late payments & cash

flow problems)

New highway projects (M6 and

M35), Rail-line constructions, Pecs

2010 Cultural City, industrial sector

in eastern part of Hungary

Survive 2009 & force banks to end

their current business practice (no

loans to companies)

If banks will change their current

attitude, EU funds will open -->

consolidation will start

Consolidation as cleaning the

market & cooperation among

players to share/utilize better

resources (even machineries)

© Finpro ry / 2009

3. Major comments from the region

Country Sector performance Major problem in the

sector

Major opportunity in

your sector

Slovenia

Drops regarding to new investments with payments

problems at customers; New markets, maybe focusing on

more private investors (now more public)

Payments from the customers, liquidity

of the investors

New markets, maybe focusing on

more private investors (now more

public)

Developments at Koper Port

Croatia

Significant slowdown in economic growth, also in State

financed infrastructural and private investments.

Reduced cement demand and an increasing general

insolvency in Croatian Economy will affect Cement Sector

considerably.

Possibly the loss of jobs.

The market will decrease up to 50%

The biggest investor in Croatia is the

Croatian state. State cuts the budget

mostly on the investment side

No bank loans for investors

need to cut costs and find new

markets

Ability to fight the reduced

production & market through

appropriate pricing and selling

strategy

European union projects and

standards that must be

implemented.

Serbia

Major infrastructure project are to be financed by foreign

funds, and most of the funds are already accounted for,

but some funding is still needed, such as part of Belgrade

subway system: Prokop station.

Low chance of getting new FDI, not enough domestic

funds

The most dynamic sector with 3-4% higher growth then

the average, 2008 performance is expected to have

dropped by 2% to 9%. Further decrease expected in 2009,

3-4%

Everything depends on the political situation: if there

would be new elections, everything starts from the scratch

again. But construction is one of the biggest drivers of the

economy, and especially with all EU requirements, it

should sustain the growth

Difficult to say, a lot depends on the

FDI and how much it'll decrease.

Rumors about US Steel Smederevo

closing down, if it happens, it'll hit all

industries.

General depreciation of dinar: from 72

to 93 (for 1 euro) in 2008, 2009

expected to be worse, bad financial

situation

Political instability, no domestic funds,

only FDI

A lot of areas for investment:

railroad "Corridor 10", 7-8 years

project amounting to expected

EURO 4.6 bn, Belgrade Subway

system,

Business centres are being built

all over the place, especially in

Belgrade

A lot of companies to be

privatized, tourism is booming, so

a lot of hotels and tourist resorts

are being built

© Finpro ry / 2009

3. Major comments from the region

Country Sector performance Major problem in the

sector

Major opportunity in your

sector

Romania

The sector of Romanian construction industry will

be in 2009 on a lower level against 2008. We think

that a growth of 1-2 % against 2008 will be the most

happy level. This appreciation is based on all the

aspects of the now a day crisis.

Deeper recession on the residential market; bigger

industrial construction projects from last year are

ongoing; recovery is expected from the middle of

2010

Inevitable will take place a consolidation of the

construction market. due to the exaggerated panic

and perplexity more developers, then it would have

been necessary, stopped the new projects and the

ongoing ones were left on hold; market culture will

change positively;

No more financial availability of

developers and of buyers. Lower

bank activity.

major big clients are cutting the

orders; lack of finances

increasing lack of financial

resources both on the developers

and buyers' side

Intervention of the state for great

infrastructure orders based on own,

EU and private funds. Romania needs

a lot of infrastructure works.

Absorbing EU funds for introducing

new technologies in the agricultural and

industrial fields;

Decreasing labor costs; land prices &

construction material prices

Availability of cheap

lands/properties/medium sized

companies and cheap workforce;

Bulgaria

Some slowdown in construction of buildings is

expected, which will lead to bankruptcy of some

small companies, but this will not have tremendous

effect on the sector.

Some foreign investors have postponed or even

cancelled their investment plans in Bulgaria - mainly

shopping malls, office buildings and holiday

developments.

Slowdown in construction will continue for about 2

years. In 2010 the market will start growing again

but not as rapidly as 3-5 years ago. Decrease in

demand for office and retail spaces in Bulgaria

leading to change in investment plans.

Limited financing from banks, both

for investors and for end

customers, with strict conditions

for providing bank loans.

Withdraw of foreign investors due

to difficulties on Western markets.

Financial issues - more

requirements for developers

Uncertainty in future demand.

Slow administrative procedures in

Bulgaria.

The effect of the economic crisis on

construction sector can be diminished

by more investments in large

infrastructure projects.

Development of large infrastructure

projects - highways, railways - as well

as energy projects in nuclear and hydro

power.

Renovation of old buildings and shift to

infra projects.

Shift from construction of shopping

malls and office developments to

industrial projects.

© Finpro ry / 2009

3. Major comments from the region

Country Sector performance Major problem in the

sector

Major opportunity in your

sector

Turkey

Sharp decline in local market -

financial cries - 2009 is lost - private

sector stopped - public investment

are waiting

In spite of the growing internal and

external market opportunities, exports

will be again important for cement

sector because of increasing costs

and low domestic prices.

It is estimated that, sector will shrink

between 5-10% in 2009

30-40 % decrease in new projects-

two digit decline in whole sector-we

will see real damage in first 4months

Postponement of most of new

project - huge housing stock -

unbalance supply and

demand

The global recession

dominating national

economies, has also seriously

affected the Turkish economy,

consequently facing with slow

growing rates in the coming

years.

Finance needed …no new

investment -all major project

postponed

Energy related projects-railways -

road construction more opportunity

for public investments

The prevailing economic difficulty is

expected to continue in 2009 to

cause a further slowdown in national

demand. Producers will continue

their efforts to grow in export markets

if the current potential does not

deteriorate. In the course of 2009, it

is envisaged that Middle-East and

African markets will continue to be

the most important potential for the

exporters.

Decrease in energy and raw material

price - decrease in real estate price-

opportunity for mergers ands

acquisition M&A