Destia's Year 2014
ChANGES IN THE OPERATING ENVIRONMENT AS DRIVERS FOR GROWTH
Megatrends influence Destia’s operations and the whole of the infrastructure construction sector. At Destia, megatrends and their impact are taken into account in both the strategic and operational planning of business.
The general development of the economy in Finland and Europe is the greatest long-term challenge for Destia over which it has no influence. Finland’s continuing urbanisation is, however, forcing society to develop infrastructure to meet the requirements of a changing urban structure. New construction is increasingly focused on the growth centres. Of the infrastructure market, 56 per cent is in the regional municipalities of the six largest urban areas.
Climate change is also requiring both society and private property owners to develop their systems to cope with new conditions such as heavy rain. Environmental and ethical questions are being strongly highlighted in the operating environment, as a result of which, together with the rising price of energy and multinational environmental agreements, the development of business responsibility is in an increasingly central position. In its operations, Destia especially looks after areas of corporate responsibility concerning the environment and safety. Requirements of business in these areas are clearly tightening and, if poorly taken care of, might even form an obstacle to operating in the market.
Urbanisation, climate change and questions of responsibility affect the development of the living environment, which offers opportunities for growth in the infrastructure market. Solutions are being sought for lack of available land resulting from urbanisation by such means as increasing subterranean construction, the energy networks are being renewed and put underground on account of their age and service reliability requirements. In traffic solutions, a more sustainable solution from an environmental perspective is increasing the volume of rail traffic.
The general weak development of the economy has caused a funding shortfall for the public sector. Also demand for private sector services has been contracted. The opening up of the municipal market is progressing, both through an increasing amount of purchased services and through outsourcing. In infrastructure construction, services are increasingly being provided as co-operative projects between the public and private sectors or with new kinds of financing structures. Innovative financing solutions are also playing a greater role in tendering for major investment projects.
Finland has moved to a stage in which the ‘baby boomer’ generation is retiring and leaving the labour market. The younger age groups are considerably smaller than before, so competition for labour is intensifying. Development is also a challenge in terms of inducing the economy to grow. The volume of infrastructure construction and of construction in general is directly related to economic development. In recent years, investments in roads have been about 1.5 per cent of GDP and infrastructure investments as a whole about 3 per cent. To a certain extent, the contracting work force is being remedied by the internal labour market of the EU, which enables the work force to move within the EU relatively easily, either as employees or subcontractors. In order to be able to preserve the foundation of the economy, it must be possible to increase the number of working hours completed. As a domestic company, Destia is aiming to succeed in utilising the experience it has gained, and thus be able to demonstrate its social responsibility in promoting the lengthening of working careers and the welfare at work of ageing employees.
dEMAND IN THE INFRASTUCTURE SECTOR REMAINED MODERATE
The infrastructure market consists of about €8 billion euros worth of road and urban construction and work done on plots of land and in mines. Of the market, about half is ordered by the private sector, one-third by municipalities and one-fifth by the state. Changes in the market are quite small and the market chiefly lives according to gross domestic product. The cost level per task has risen considerably faster than inflation on account of being strongly tied to the price of oil and the relatively weak development of productivity.
The operating environment of the infrastructure field declined as economic uncertainty continued in 2014. During the first half of the year, signs of recovery were evident in the global and eurozone economy, but these signs faded in the eurozone during the summer. During the year, the infrastructure market was weakened by the decreases in house-building construction and private investments, in particular. The decisions by the Finnish government taken in June to promote significant traffic projects, such as the Helsinki City Rail Loop, the Western Metro line, and the Tampere light rail system, created a faint positive note on the market in the second quarter.
Demand in the infrastructure sector remained moderate, but the slowing down of the entire construction market is evident as a low amount of work in infrastructure design, among other things. Competition for projects was fierce throughout the entire year. Despite the decline in the total market, basic demand in the infrastructure field is created by the large projects planned for the next few years in the public-sector project programme.
The Confederation of Finnish Construction Industries RT (CFCI) estimates that construction contracted some 3 per cent in 2014. According to the estimate, civil engineering declined by about one per cent. RT forecasts that construction as well as civil engineering will contract by one per cent in 2015.
According to the construction confidence indicators published by the Confederation of Finnish Industries EK, construction business confidence at the end of the year recovered slightly from the level of the autumn but remained rather weak, however. The Finnish construction confidence indicators were below the average of the EU countries.
COMPETITION FOR PROJECTS WILL CONTINUE TO BE FIERCE
In small and technically simple jobs, Destia’s field of competitors is quite local, but grows to include larger players as the size and level of technical difficulty of projects increase. There are some nationally-operating companies providing a wider range of services. Last year, one strongly growing operator emerged alongside other major construction companies. Major infrastructure builder competitors have been aiming for regional markets, and medium-sized companies have in recent years expanded their operations geographically and have got involved in major contracts in the role of main contractor.
As a result of the increase in the use of foreign labour, the number of international operators has also increased from year to year. Mostly they are still operating as subcontractors, but their role is changing as they become more familiar with the market.
Economic uncertainty continues both in Finland and throughout the eurozone. It is likely that the Finnish economy is catching up with budding economic growth in the global economy and eurozone more slowly than elsewhere in Europe. The contraction of the infrastructure market is likely to stop in 2015. Competition for projects will continue to be fierce due to the number of large projects and the amount of private sector investments being small.
When preparing the description of the operating environment, the following sources have been used: Euroconstruct, the Finnish Transport Agency, the Confederation of Finnish Construction Industries RT, the Confederation of Finnish Industries EK, Statistics Finland, the VTT Technical Research Centre of Finland, the Finnish Ministry of Finance.