UK Construction Prospects

Presented by: Allan Wilén, Economics Director

Date: 23rd October 2012

Market Conditions

Double dip recession

Sharp falls in private sector construction in 2008 & 2009

Renewed pressure from public sector cuts in 2011 & 2012

Gradual private sector recovery

2006 2007 2008 2009 2010 2011 2012 ytd

50

60

70

80

90

100

110

120Construction Activity

New Orders Output

Underlying Project Starts New Work Output

Cur

rent

Pric

es -

Inde

x 20

06 =

100

Sources: ONS, Glenigan

Construction’s clients

Government funded work has supported output

Recession hit private sector workload hard

Private non-residential building still a third of output

Private housing stabilised

Infrastructure & Utilities growth sectors

4

Government Policy: Key Department Spending

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

-60%

-45%

-30%

-15%

0%

15%

30%

45%

Education

NHS (Health)

Transport

CLG Communities

% C

han

ge

on

pre

vio

us

year

Source: HM Treasury

Government Policy

Looking to private sector investment to lead recovery

Government prioritising investment in infrastructure

Value of publicly funded new builds to fall over coming years

Focus on refurbishment and improvements

Return of PFI to bridge the gap

Social Housing

Education

Brighter Consumer Prospects?■ Consumers hard hit since 2007

■ Households hit by:■ Weak earnings growth■ Tax rises■ Higher inflation■ Debt levels remain high■ Uncertain employment

prospects

■ Restricted bank lending

■ Improved consumer confidence from late 2012?

■ Lower inflation

■ Moving out of recession

Housebuilders revisit sites

Private Housing■ Sharp fall in project

starts during 2008 & 2009

■ Hesitant recovery in 2010 faded last year

■ Positive start to 2012

■ Further recovery anticipated

■ Gradual rise in household incomes and confidence

■ Improved mortgage finance availability

■ Government initiatives to lift market 2008 2009 2010 2011 2012f 2013f 2014f

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

0

2,000

4,000

6,000

8,000

10,000

12,000

Project Starts

Unit Starts

Unit Completions

Val

ue

of

Pro

ject

Sta

rts

£m

Th

ou

san

ds

of

Un

its

Sources: DCLG, CPA, Glenigan

Office Construction

Industry Prospects

Public sector squeeze as capital funding cut Slow private recovery

– Offices, retail and industrial upturn– Increase in private housing starts

Private sector recovery hampered by access to capital

Improved consumer confidence Refurbishment & retro-fit Regional divide

Customer Satisfaction

2003 2004 2005 2006 2007 2008 2009 2010 2011 201250%

55%

60%

65%

70%

75%

80%

85%

90%Client Satisfaction

Product Service Defects

Pro

po

rtio

n o

f sc

ori

gn

8/1

0 o

r m

ore

On time & to budget

2005 2006 2007 2008 2009 2010 2011 20120%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Cost Predictability

Project

Design

Construction

Prop

ortio

n on

tim

e or

bett

er

2005 2006 2007 2008 2009 2010 2011 20120%

10%

20%

30%

40%

50%

60%

70%

80%

Time PredictabilityProject

Design

Construction

Prop

ortio

n on

tim

e or

bett

er

Any Questions?