The profitability improvement was largely attributable to increased housing market activity, which served as the basis for initiating a number of projects, as well as a significant contribution from the acquisition of our partner's share in Bouwfonds Veidekke AB.
Property Scandinavia is principally involved in the development of housing for Veidekke’s own account and, to some extent, non-residential buildings in Norway, Sweden and Denmark. The business consists of the companies Veidekke Eiendom AS (residential and commercial development in Norway) and Veidekke Bostad AB (housing development in Sweden). Operations in Denmark are limited. Property Scandinavia has 100 employees in total.
Significant earnings improvement
After several years of poor results, 2011 was a year of significant improvement for property operations. 2011 earnings ended with a profit of 281.0 MNOK compared with 14.2 MNOK in 2010. The improvement can be attributed to increased activity levels and thus good contributions from operations, especially in Norway. In addition, the acquisition of our partner's share in Bouwfonds Veidekke AB provided a significant profit contribution. In the second quarter, Veidekke acquired shares for 250 MNOK with a significant sales credit. The acquisition resulted in Veidekke’s original stake being reduced to market value for accounting purposes, i.e. about 250 MNOK (see IFRS 3), and thus the transaction had a positive financial impact of 134 MNOK in 2011.
As a result of the recession, few new projects were initiated in 2008, and by the end of 2009, the number of units under production was as low as 311. As a result of increased sales and housing starts, the number of housing units under production increased to 901 (Veidekke’s share) by the end of 2010. Through the initiation of over 700 homes in 2011, the production level rose to about 1100 residential units at the beginning of 2012.
Improvement in housing market in 2011
In the years from 2003 to 2007, the housing market grew strongly, and Veidekke Eiendom generated very good results during this period. The economic downturn during the two following years created considerable uncertainty and, consequently, very few units were sold. The financial crisis reinforced this trend, and banks became very reluctant to finance residential and commercial buildings. As a result, almost no new housing projects were initiated. Conversely, lower interest rates increased purchasing power for many, and during 2009 and 2010 the housing market steadily improved with sales increasing significantly. The improvement continued through the first half of 2011 in both Norway and Sweden, both in and around most major cities. While the market’s improvement in Norway continued throughout the second half, we witnessed housing sales slow down in Sweden in the third and fourth quarters due to uncertainty related to turmoil abroad. This was to some extent reinforced by banks' tightening of credit conditions. This in turn resulted in a slower production rate than expected.
