2011 was a year of satisfactory results for the Group. A strong market in Norway with good sales and effective production has been significant for the annual profits. Operating conditions and the market situation in Sweden have been demanding and this will continue in 2012. The Group is therefore focusing on adapting the Swedish operation to the prevailing market conditions.
Demanding market situation in Sweden
The aftermath of the financial crisis of 2008 and the uncertain global economy throughout 2011, combined with restrictive and more expensive home financing, have led to customers delaying buying homes. Parallel with this, there is a growing under-supply of homes in Sweden. An increasing population, centralisation, the phasing out of older housing and housing starts at a record low level for several years have all led to about 60 per cent of local authorities in Sweden reporting that not enough homes are available.
We have pointed out the negative side of this development to the politicians on several occasions. When sales of both new and used homes fall, too few will be produced in relation to need. We have seen the consequences of this in 2011. The single-family house market has been greatly affected. In previous years, these accounted for half of the homes built, but have dropped to under a third. Many of the companies involved have had to reduce capacity or, in the worst cases, close down and more than 1,000 employees in Swedish housing industry were made redundant in 2011. Reversing this trend will take time, especially for the house builders that will have to build up production capacity and manning levels again.
Renewed growth in the Swedish economy will take time, but it now appears that demand and sales have stabilised and are starting to show signs of recovery.
Internal improvement projects are working
Weak sales and a reduced order backlog have made it necessary to adjust the Group's production capacity in Sweden to a lower volume. The organisation has been downsized by more than 90 employees in 2011. A number of improvement programs have also been commenced, especially in Myresjöhus production. The entire value chain has been reviewed and measures have been implemented to streamline production processes, reduce cost levels and improve quality. Corresponding improvement programs were implemented for SmålandsVillan production in 2010.
Work is also going on in product development, to arrive at more production-efficient and affordable products. Competence in project development is being strengthened in collaboration with the Norwegian operation and new multi-unit products based on prefabricated modules will be tested. We could see the first positive results of the improvement programs at the start of 2012.
Positive development in the Norwegian market
In 2011, housing starts increased by more than 30 per cent compared with 2010. There is still a considerable lag however, after several years with starts at a lower level. The population has increased rapidly, as a result of both the birth rate and work immigration, and movement to more central areas and the need for housing renewal are increasing the need for new homes.
Low interest rates, access to finance, rising employment and a great need for new homes have given rise to a positive trend in sales and order backlog for Block Watne in 2011. Good sales, efficient operations and a strong focus on profitability at all stages have led to good earnings and record results that we are very satisfied with. It is also a pleasure to note that Hetlandhus has consolidated its position and can point to 130 sales contracts since the start up in 2009. The Norwegian operation has entered 2012 in a strong market position.
House prices have risen considerably in recent years, especially in central districts. This is a logical consequence of a limited supply and an increasing demand. Since home buying is normally financed by mortgages, average household debt has increased. In autumn 2011, the Financial Supervisory Authority of Norway increased the requirement for deposits for house buyers and changes in tax rules, local development plans etc. are being discussed as possible measures. Based on experience in Sweden, we can see a risk that these regulations will not work as intended, but instead create new problems for the producers of housing and especially for first time buyers, who are being excluded from the market. It is too early to say whether the requirement for larger deposits will reduce demand from house buyers. The Norwegian regulations are less categoric than the Swedish ones, and Norwegian households have a more robust buying power and the assets to be able to buy the homes they want based on their real housing needs. Local authority starter loans also make it easier for first time buyers to get on the housing ladder.
A more predictable housing policy
Along with many others in the industry, we have been addressing the issue of a low level of new housing starts for several years. This is a regular topic of newspaper columns and public debate, and everyone is agreed that too few homes are being built in relation to needs. We maintain our view that a more long-term and predictable housing policy is needed in order to motivate an increase in housing starts.
A key reason for low housing production is that too few sites have been zoned for residential purposes in areas that people are moving into, and the local authority procedures take time. It usually takes three to five years from the start of the municipal planning process before building can actually start. The authorities' technical and design requirements - which are not always well coordinated - also tend to increase house prices. The local authorities should increasingly take the lead, not just in zoning areas for residential use, but also in developing the necessary infrastructure such as public transport, kindergartens, schools and other local services. The local authorities have a key role when it comes to increasing house building and achieving a healthy price trend in the housing market.
Our long term strategic direction remains unchanged
Our core activity is to produce family homes outside city centres and our main market is ordinary people with a genuine need for a new home. We shall grow the company in line with sales and the order backlog and we shall develop new cost-effective products based on our competence and production facilities. The main emphasis will always be on what we know best - producing affordable, quality homes and developing attractive residential areas. Continuous improvement work throughout the value chain from purchase of land, through product development to sales and production is business as usual for us. In this way, we ensure learning and synergy effects in the organisation, we ensure profitability and quality in our deliveries and we ensure satisfied customers. This will contribute to the creation of long term value for our shareholders.
Renewed confidence from the shareholders
A successful share issue was carried out during the first quarter of 2012. Both the largest existing shareholders and several new investors have demonstrated their confidence in the company by participating in the private placement, which was fully subscribed in a matter of hours. In the subsequent follow-on offering, many of the smaller shareholders also subscribed for more than their respective subscription rights. Coinciding with the share issue, capital was also raised through a bond issue. Altogether, this gives the company a strengthened financial flexibility. We now have a broad shareholder base of serious major shareholders and a financial situation that forms a good foundation for further development and profitable growth.