Prof Dominic Swords Prof Dominic Swords Prospects for the global construction economy

From recession to recovery? the timing? the place? the pace? 2011 : tactical plans 1 – 3 years: sustain competitiveness 5 Years + : Megatrends

Stabilise – confidence and sentiment – investment and consumption From recession to recovery? Fix – asset, credit and stock markets Grow – momentum - expansion phase

Source: Source: Progress out of recessions Months from start of recession % 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% -9.0%

Sentiment improving in the EU

Baltic Dry Goods Index... realisic long term level but highly volatile … The Great Crash Over-capacity driving volatility

Main economic and financial indicators confirm that that the world has emerged from recession. But the severity of the crisis points to a very different post-crisis world. Over the foreseeable future, the resulting economic landscape is likely to be characterized by the combination of problems in a damaged financial system together with a weak recovery in the global economy held back by fiscal restraint. A German CEO ‘The crisis is over… ‘

Construction - the worst collapse … … in decades

Risk and volatility will be continuing themes in our economies & markets 7 EU Forecasts European Commission Autumn 2010 Improving though gradual return to growth Improving though gradual return to growth At lower level in mid term At lower level in mid term And continued significant risks And continued significant risks What does this tell us? Euro area forecast to grow 1.5% in 2011 US by 2.1 and Japan by 1.3% this year

Risk and volatility will be continuing themes in our economies & markets 7 EU Forecasts European Commission Autumn 2010 Improving though gradual return to growth Improving though gradual return to growth At lower level in mid term At lower level in mid term And continued significant risks And continued significant risks What does this tell us? Euro area forecast to grow 1.5% in 2011 US by 2.1 and Japan by 1.3% this year

China and India still at low relative level … 11 But are still much below the West in per capita income … but moving fast

China is setting a new course - Long term ambitions for moderately prosperous society - xiaokang - Spread benefits of growth, re-energise agricultural productivity and output, redress urban drift to the East - Expand domestic market, reduce export dependency, allow yuan to appreciate in due course - Invest in infrastructure and buildin - Long term ambitions for moderately prosperous society - xiaokang - Spread benefits of growth, re-energise agricultural productivity and output, redress urban drift to the East - Expand domestic market, reduce export dependency, allow yuan to appreciate in due course - Invest in infrastructure and buildin

The world top 30 in 2050

Based on Total Shareholder Returns (TSR): includes change in share price and dividends based on calendar year data in local currency Source(s): Thomson Financial Datastream; Morgan Stanley Capital International; BCG analysis BCG – Global Value Creators

… in construction and machinery sector

Forecast growth … … and re-ordering of main markets

What’s staring us in the face? -A shifting global landscape -China - Domestic development & international presence -US - Search for external markets -EU - Multi speed economies -How do we capitalise on these developments? -A shifting global landscape -China - Domestic development & international presence -US - Search for external markets -EU - Multi speed economies -How do we capitalise on these developments? … the decade will be mixture of these trends

So, what? Imperative 1 -Financial efficiency -From operational efficiency to commercial effectiveness -Streamlined decision making -Supply chain power -Margin growth Imperative 1 -Financial efficiency -From operational efficiency to commercial effectiveness -Streamlined decision making -Supply chain power -Margin growth

So, what? Imperative 2 -Market distinctiveness -Market leadership in reputation if not in absolute size -Re-define segments -Innovation Imperative 2 -Market distinctiveness -Market leadership in reputation if not in absolute size -Re-define segments -Innovation

So, what? Imperative 3 -Selective investment and capacity expansion -Market entry and investments in new markets (product, service and/or geographies) -Lay foundations to enable sustained organic value creation Imperative 3 -Selective investment and capacity expansion -Market entry and investments in new markets (product, service and/or geographies) -Lay foundations to enable sustained organic value creation

Questions

Trade winds blow US and EU consolidate domestic markets – companies build on local strengths Exports more balanced – Western businesses find opportunities in high growth geographies China 1 st and India 2 nd largest economies – with buoyant domestic markets Far and Middle Eastern business invest in Western markets – offering local competition o established players

Troubled waters Credit markets slow to gather momentum Business and consumer confidence slumps China over-whelmed by internal social and economic stresses Political instability drives protectionism ….

Becalmed Fiscal deficits decline while slow uptake by private sector in EU – distracted by worries over internal euro difficulties USA divided with negative impact on investment and growth Western businesses slow to identify and react to opportunities and threats Emerging markets focus on local regions

Three global scenarios – to 2020 Becalmed Trade winds blow Troubled waters