In autumn 2007 and into 2008, we saw signs of a decline in sales of new houses. During 2008, we took vital steps in the form of major staff cuts and a reduction in the rate of production, while also cutting costs throughout the organisation. This proved to be of crucial importance to our operations in 2009. In early 2009, the Group’s loan covenants were renegotiated and financing for the next three years was secured. At the same time, existing and new shareholders gave a vote of confidence to the company and management when participating in two share issues aimed at further strengthening the Company’s financial position. The share issues enabled us to proceed through 2009 with the financial security required to focus on efficient operation based on a considerably lower cost base.

Expected correction

A correction in the Norwegian housing market, with its main impact in the “urban tower block” segment, was expected. Price growth and easy access to financing over a number of years had resulted in over-investment and a considerable incidence of financially motivated buyers and speculation. Both in the “urban tower block” and leisure home segments, this group of buyers absorbed a volume over and above normal demand, resulting in over-establishment of new projects. The correction resulted in the cancellation of a number of “urban tower block” projects, and the sector’s level of new housing starts fell dramatically.

In Sweden, the financial crisis brought major problems to the export industry, with spill-over effects on other industries, banks and public services. As a direct consequence of this, unemployment levels soared. As was the case in Norway, new housing projects in city centres were cancelled.

Towards the end of 2008, our main market – detached/semi-detached houses and family homes outside urban centres - was also hit by an escalating financial crisis and banks which, for a time, stopped lending to house buyers.

Cautious optimism

Even though we experienced an improvement in demand in spring 2009, there was still a large element of uncertainty in the air. Had the situation bottomed out, and when would the market situation normalise and take a more positive turn? It should be said our customers’ – purchasers of family homes – desire and ability to buy gradually returned during the year. Housing requirements of the “ordinary people”-segment are needs-driven based on family situation, increase in population and migration patterns. With lower interest rates, normalised access to financing, a well-functioning resale market and stabilised unemployment, pessimism was replaced by cautious optimism.

A key priority area for 2009 was to secure a solid foundation for our operations. Management maintained a clear focus on operating efficiency, resource consumption, product development and sales. We ensured the Group had sufficient financial flexibility. We were able to welcome new shareholders – both private and institutional. Interest in investing in BWG Homes has increased among foreign investors, who also showed confidence in the Company’s restructuring and growth opportunities.

Key framework conditions

Interest rates, access to financing and unemployment levels are key framework conditions for house buyers and house manufacturers. In recent years, new housing starts have fallen in Norway and in Sweden, while population levels are rising and large numbers of young people wanting to buy their first home are entering the market. We are getting to the stage where there is low supply in the market, and all the theory about supply and demand indicates increasing price pressure. History tells us that an imbalance between supply and demand eventually results in increased prices – for resale homes, new homes and homes to let. It is our perception that the issue of too few new homes being built is not addressed enough in the debate on housing bubbles and price pressure.

So far, the authorities’ tools for countering housing bubbles have been warnings about interest rate rises and the introduction of tighter conditions for mortgage loans, with stricter requirements regarding equity and the ability to pay. This will make it difficult for first-time buyers in particular to get a foot in the market. It is difficult to see these tools as anything other than “temporary pain relief”. Only to a minor extent do they address the underlying challenge, which is to ensure a sufficient supply of new homes.

If there is to be increased supply of new homes, the authorities must have more understanding of the underlying key drivers. Factors which are critical to house manufacturers include access to property defined as for residential building and in the right location, and municipal capacity for dealing with local regulations and authorisations. It is equally important for house manufacturers to have sufficient financing for increased activity. This means authorities and banks will play a key role in ensuring increased supply of houses. It is our opinion that this will be far more important in reducing housing bubbles than tightening the conditions for home financing for people with a real need for new homes.

Positioned for profitable growth

BWG Homes enters 2010 on a solid footing. In 2009, the Group achieved strong sales and a considerable increase in the order backlog. The Group has a good land bank and attractive projects – both in progress and ready for sale. In Norway, employment is at a stable low level and interest rates continue to remain low, which should form a sound basis as we upscale our operations in 2010 and 2011.

It is our opinion that Sweden is a year behind Norway. However, we increased the order backlog significantly in 2009 and are gradually increasing production in 2010. It appears that unemployment is bottoming out and might fall from 2011 onwards. Falling unemployment and low interest levels should provide a good springboard for further growth in 2011.

BWG Homes shall hold firm to the core business and continue to do what we do best – namely building and selling quality houses at an affordable price and developing attractive well-located residential areas close to cities and populated areas where “ordinary people” want to live. We prioritise profitability and quality in our deliveries and carry out continuous improvement initiatives regarding products and work processes. Our long-term goal remains unchanged: to create value for shareholders through profitable growth.

Lars Nilsen

CEO