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Monday, 1 December 2014

Problems for the large Dutch building companies remain considerable, as the overall performance is still poor; even when some parts of the Dutch construction market show signs of a cautious recovery. I think that the shakeout in the Dutch construction industry is far from over yet.

If one had to name one industry in The Netherlands, which has been hit extraordinarily hard by the credit crisis, it would be the building and construction industry. This industry went through something that you could describe as a perfect storm.

There was the emergence of the credit crisis in its full, terrifying grandeur in The Netherlands, in combination with the collapse of the Dutch housing bubble – after years and years of outrageous price increases – and the collapse of the commercial real estate bubble, as a consequence of a mindless building frenzy, which yielded much more commercial real estate (CRE) than The Netherlands would ever need in many years to come. 

Eventually, this accident-waiting-to-happen was topped off by the ubiquitous austerity measures of the central and local governments in The Netherlands. And suddenly, the whole house-of-cards fell down within the building and construction industry.

Combined, these events were of an unprecedented magnitude, which cost numerous construction companies their lives and put numerous others in deep financial trouble, of which very few construction companies yet recovered. 

However, not all building companies perform poorly, as you will see in the remainder of this article.

Last week, the Dutch Central Bureau of Statistics presented the quarterly data for the construction industry. Although there were some small greenshoots, the overall picture was still bleak:

In 2014Q3, the sales in the construction industry dropped by 1.5% Y-o-Y. This is the second quarter in a row that the construction industry retreats, after a good first quarter in 2014.

The deterioration of sales results in the building and construction industry is mainly caused by the poor achievements of ‘civil and utility building’, which is the largest part of the industry. In Q2 and Q3 sales dropped by 4% among the builders of houses and commercial real estate (CRE). The ground, roads and waterways part of the industry, on the other hand, is keeping its sales up to par in comparison with last year.

Sales in the building industry (% of change year on year)
Chart courtesy of Central Bureau of Statistics (
Click to enlarge

In spite of these drops in sales in Q2 and Q3, the confidence of the construction industry has improved strongly in Q4. Although this confidence is still negative, it is yet at the highest level since 2009. 

Next to an order portfolio that shows an ascending trend, since the beginning of this year, the entrepreneurs see signals which point in the direction of future improvements. The perspectives for future production of buildings are especially favourable for the house building industry. In 2014, year-to-date, the total value of the granted building permits for houses has risen by 35% to €4 billion.

The mood on the housing market improved too: the prices of existing housing have risen since April 2014 and the numbers of sold houses have risen for already five consecutive quarters.

Regular readers of this blog know that I’m moderately positive about especially the house building industry: after five years of poor sales and dropping housing prices, there seems to be a slight return to better times. 

According to Wienke Bodewes, CEO  of project developer Amvest whom I spoke a few months ago, this was a logical development:

“It figures: in average the Dutch housing prices have dropped by no less than 20% - 30% during the crisis years and the interest is almost at an all-time low.

Although the maximum obtainable mortgage amount has definitely decreased under pressure of the Dutch banks and the new regulation of the AFM, the current reduced sales prices and historically low interest rates offer you so much ‘bang for your buck’ that it is worth your while to not wait any longer, with buying your dream house.

Besides that, it almost costs you money to save it at the bank, with the current minimal interest rates on savings' accounts. Especially when you have saved money during the crisis years, which you now use for partially buying your new house, you can get a very good deal at this moment.

Yet, the situation on especially the commercial real estate market is still utterly poor, due to the massive overproduction in CRE during the decade before and the first years of the crisis: an overproduction, which is yet far from being wiped out of the market.

And when it comes to the sales in the ground, roads and waterways industry and the other parts of the building industry; these are not so high and do not grow so considerably, that these can lift the performance for the industry as a whole.

This is the reason that eight out of the ten largest construction companies showed quite poor sales and profits (or even losses) in 2013 and only two showed really satisfactory sales results and profits: Boskalis and Van Oord. 

On top of that, little improvement can yet be expected for 2014. The following table, containing the sales and profits for 2013, has been printed courtesy of the ‘special interest organization’ for the building industry Cobouw:

The top ten of largest construction
companies in The Netherlands
Data courtesy of: Cobouw
Click to enlarge
Of the ten companies in that table, five companies have a quotation at the stock exchanges, while the others are privately funded. The following charts show the stock ratings of the five quoted construction companies:

BAM building company
Stock rates at the Amsterdam Exchanges
Data courtesy:
Click to enlarge

Boskalis Westminster
Stock rates at the Amsterdam Exchanges
Data courtesy:
Click to enlarge

Heijmans building company
Stock rates at the Amsterdam Exchanges
Data courtesy:
Click to enlarge

Oranjewoud (owner of Strukton building company)
Stock rates at the Amsterdam Exchanges
Data courtesy:
Click to enlarge

Ballast Nedam building company
Stock rates at the Amsterdam Exchanges
Data courtesy:
Click to enlarge

Except for the shares of Oranjewoud (fairly stable) and Boskalis (considerably up) –   which is mostly an offshore company, that earns a lot of its sales with atypical dredging-work – 2014 has been a terrible year for the construction companies with a quotation at the Amsterdam stock exchange. That is for a reason. 

The greenshoots in the CBS press release might look promising for the uninformed reader and especially the achievements of Boskalis and Van Oord seem to point towards better times for the building industry.

Still, unless the European Union decides at short notice to invest heavily in European infrastructure (i.e. Keynesian stimulus) and the Dutch housing market gets really up-to-speed fairly quickly, there is yet too much pain in the Dutch and European building and construction market to expect very dramatic improvements shortly.

Personally, I feel that the shakeout in the building and construction industry is far from over yet, so please hold your horses and be very careful in which construction companies you invest your hard-earnt money. In my opinion, the chance that a few of these companies go down further is bigger than the chance they go up again.

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