Deloitte Economics' Coronavirus Impact Monitor

Deloitte Economics’ Coronavirus Impact Monitor Lockdown restrictions are being eased but 2020 will be a year of contraction

5th edition, 17 April 2020 Corona virus outbreak Global confirmed COVID-19 cases have reached ~2 million, while the number of daily deaths resulting from the virus appears to be slowing in Denmark

• Between 20 January 2020 and 15 April 2020, the Confirmed COVID-19 cases: World and Denmark number of global confirmed COVID-19 cases has risen 1.95 2.00 8,000 Denmark incasesconfirmed # from seven to about 1.95 million. As of 15 April 2020 7,000 • The pandemic’s epicentre is now focused on the United 1.50 6,681 6,000 States, while in Europe there are signs that the growth 5,000 in new cases is slowing. As of 1.00 16 April 2020 4,000

• In Denmark, the increase in the number of confirmed (millions) 3,000 cases seems to be slowing, with the latest tally at 0.50 2,000

6,681 as of 16 April 2020. # # confirmed cases globally 1,000 • As COVID-19 testing in Denmark has been sharply 0.00 0 reduced, the actual number of cases is almost certainly 30 Dec 19 13 Jan 20 27 Jan 20 10 Feb 20 24 Feb 20 09 Mar 20 23 Mar 20 06 Apr 20 20 Apr 20 underestimated. Denmark (RHS) World (LHS)

• The bottom chart shows the daily number of deaths in Confirmed daily COVID-19 deaths: World, US and Denmark the world, the United States and Denmark. There are currently around 6,000 daily deaths in the world, up World USA Denmark 2,400 22 from ~2,000 on 23 March 2020. 8,000 2,200 20 7,000 • In Denmark, it appears that the number of daily 2,000 18 deaths is slowing somewhat, but there continues to be 6,000 1,800 16 1,600 significant daily variation. 5,000 14 1,400 12 4,000 1,200 • We have removed the chart displaying Danish COVID- 10 1,000 19 patients in respirator, as respirator capacity is 3,000 8

800 # Daily # deathsDaily 6 currently far from being exhausted. In Denmark, as of 2,000 600 15 April 2020, there were 89 patients in intensive care 400 4 1,000 and 75 additional patients who were also on 200 2 respirators. The Danish Health Authority has ~925 0 0 0 23 Mar 06 Apr 20 Apr 23 Mar 06 Apr 20 Apr 23 Mar 06 Apr 20 Apr respirators available for COVID-19 patients.

Source: World Health Organisation (WHO), The Danish Health Authority (Sundhedsstyrelsen) Coronavirus impact monitor – 17 April 2020 Page 2 Deloitte Economics © 2020 Impact on financial markets European equity markets have recovered some of the initial losses from COVID-19

Equity markets: Sectoral indices in Europe1 • The outlook for increased public expenditure and central bank interventions to ease liquidity strains have Major outbreak in Europe supported markets in recent weeks. 110 • European equity indices suffered material losses 100 following the COVID-19 outbreak in Europe, but have recovered from the bottom reached around mid-March 90 2020. 80

• Especially the Transport industry, including airlines, was 70 Sectoral indices Sectoral indices

severely affected by the spread of the virus and related (2 Jan 2020 = 100) 60

travel bans. The EURO STOXX Transport index is down 50 by some 34% since the end of January 2020, driven by 40 a material decline in volumes. 30 Dec 13 Jan 27 Jan 10 Feb 24 Feb 9 Mar 23 Mar 6 Apr 20 Apr

• The European energy sector, including oil and gas Transport Energy Pharmaceuticals Financial Technology companies, has lost more than 30% since the end of Interest rates: 10Y Interest rate (swap) January 2020. Declining energy prices have applied and 6M interest rates (CIBOR) downward pressure on energy equities. 0.4

• Financials, including banks, have also experienced value 0.3 destruction. Market concerns about increased credit 0.2 losses and funding squeezes are likely drivers, but aid 0.1 packages and initiatives appear to have supported this 0.0

sector in recent weeks. % % rates (0.1)-0.1 • Interest rates have risen from the bottom reached (0.2)-0.2 around 9-12 March 2020 on the outlook for increased (0.3)-0.3 public expenditure and central bank interventions. (0.4)-0.4 30 Dec 19 13 Jan 27 Jan 10 Feb 24 Feb 9 Mar 23 Mar 6 Apr 20 Apr

10Y DKK Swap rates 6M CIBOR

Note: 1) European sector indices: EURO STOXX Transport, Energy, Pharmaceutical, Financials, and Technology index Source: Thomson Reuters Eikon Coronavirus impact monitor – 17 April 2020 Page 3 Deloitte Economics © 2020 Economic Outlook: IMF and Deloitte survey IMF warns of worst economic downturn since the Great Depression

• The “sudden stop” in the global economy, caused by the COVID-19 pandemic, has translated into significant Economic growth projections downward revisions of economic growth projections worldwide. According to IMF’s latest predictions: 5.8% 6.0% 4.7% − The global economy is expected to contract by 3.0% in 2020 instead of the initially estimated 3.4% 3.4% 1.9% growth. This 3.0% contraction in global GDP is much worse than the 0.1% contraction experienced during 1.4% the 2009 financial crisis. IMF’s growth forecasts for 2020 are extreme in a historical context, ref. page 8 in the appendix.

− In the Euro area, GDP is expected to fall by 7.5% in 2020 compared to the pre-COVID-19 growth estimate (3.0% ) of 1.4%. Euro area GDP contracted by 4.5% in 2009. (6.5% ) − Danish GDP is projected to contract by 6.5% in 2020 in compared to pre-COVID-19 growth estimate of (7.5% ) 1.9%. GDP in Denmark shrank by 4.9% in 2009. The median forecast of Danish 2020 GDP growth is World Eurozone Denmark -4.7%, according to our survey of professional forecasters, ref. page 9 in the Appendix. 2020 forecast pre COVID-19 • Deloitte’s latest survey among 2,000 colleagues and clients from all over the world on 16 April 2020 reveals Revised 2020 forecast post COVID-19 that views are evenly split between a short-lived and a protracted, a more optimistic distribution of views Revised 2021 forecast post COVID-19 compared with a week ago when 80% foresaw a protracted slowdown. The survey also shows that the majority believes that the economy will recover at the beginning of 2021 and beyond.

Results of Deloitte surveys1

What will be the ultimate impact on When do you think activity will rebound in economic growth of COVID-19? your economy?

80% 47% 78% 75% 58% 54% 53% 47% 46% 42% 20% 20% 25% 20% 23% 13%

Possibly severe but short-lived slowdown Protracted and severe downturn Q3 2020 Q4 2020 Q1 2021 Q2 2021 and beyond

12 March 19 March 26 March 2 April 9 April 16 Apr 16 Apr

Note: 1) Deloitte surveys conducted on 12, 19 and 26 March 2020, and on 2, 9 and 16 April 2020, involving about 2,000 colleagues and clients. Source: Deloitte surveys, IMF World Economic outlook (October 2019) for pre COVID-19 figures; IMF World Economic Outlook (April 2020) for revised forecasts Coronavirus impact monitor – 17 April 2020 Page 4 Deloitte Economics © 2020 Coronavirus heatmap Deloitte Economics’ view on the short-term outlook across selected sectors in Denmark

Transport • High short-term impact due to limitations on travel/supply chain Denmark disruptions. Sector Consumer • COVID-19 increases online retailing, forcing retailers to ramp up Short-term Outlook investments in e-commerce. This trend may displace jobs from retail to other sectors (e.g., warehousing).

Financial Services Transport High impact Slow recovery • As a results of the GFC, capital levels and controls are more robust reducing the impact of the impending recession. However, regulation will result in an increase in provisions for macroeconomic assumptions, loan forbearance and default payments. Consumer High impact Moderate recovery Energy & Resources • The corona virus lockdown has negatively impacted the demand of both public institutions, private individuals and corporations. Financial Services High impact Moderate recovery Technology, Media & Telco (TMT) • TMT is perceived as a defensive sector which has less to lose from COVID-19. Energy & Resources High impact Moderate recovery Real Estate • Long-term impact on retail from accelerating shift to online trade Technology, Moderate impact Moderate recovery implies rethinking of RE strategy. Media & Telco Life Science & Health Care (LSHC) • Companies must adapt to new demand curves and minimise potential supply chain disruptions. Real Estate High impact Moderate recovery Industrials • The COVDID-19 shock exacerbates an existing downshift in global Life Science & Neutral/Low impact Growth opportunities demand due to consumer confidence and postponed CAPEX-heavy Health Care investment.

We refer to pages 13-20 in the Appendix for in-depth coverage Industry High impact Moderate recovery of developments in the sectors above

Sources: Deloitte analysis, Dansk Erhverv

• The number of confirmed COVID-19 cases has risen rapidly since the beginning of March, from only eight on 4 March 2020 to 6,681 on 16 April 2020. However, as COVID-19 testing in Denmark has been sharply reduced, the actual number of cases may be underestimated. The number of daily deaths from COVID-19 in Denmark appears to be declining even if there continues to be significant daily variation.

• The COVID-19 crisis has entered a new phase as lockdown restrictions are being lifted in some Western countries. Restrictions on the Danish economy are gradually being lifted as schools and certain liberal professions are re-opening. Evidence from other countries, e.g. Singapore, suggests that managing this easing of restrictions can be challenging. Singapore experienced a new wave of COVID-19 cases as restrictions were initially eased.

• COVID-19 has caused severe damage on the world economy. Equity markets have suffered major losses, and equity market volatility has spiked to levels experienced during the global financial crisis. Supply chain disruptions and negative demand shocks have spread from China to the rest of the world.

• In the United States, the crisis has hit hard, as 22 million Americans have lost their jobs in the last four weeks, pointing to an unemployment rate of more than 15%. This would be, by far, the highest rate since the early 1930s.

• Economic activity in Denmark is set to contract by some ~ 5% in 2020 according to our survey of economic growth forecasts, similar to the contraction experienced during the financial crisis in 2009. For the global economy, IMF warns that the current ‘Great Lockdown’ represents the worst recession since the Great Depression in the 30’es.

• Governments all over the world, including Denmark, are introducing major aid packages to help companies and employees through the health crisis. This will ease the severe and long-lasting impact of COVID-19 on the world economy. However, this is raising questions around the sustainability of the associated huge increases in government spending.

• Deloitte Economics will continue monitoring the impact of the Coronavirus in Denmark and globally. Find our updates here

For questions on the contents of this report, please contact:

Majbritt Skov Tinus Bang Christensen Peter Lildholdt Director, Head of Deloitte Economics Partner Assistant Director

Mobile: +45 30 93 54 71 Mobile: +45 30 93 44 63 Mobile: +45 40 35 25 36 [email protected] [email protected] [email protected]

Disclaimer: The information in this document is intended for knowledge sharing only.

• IMF is projecting the global economy to contract by Denmark: GDP growth 10% 6 .0 % 3% in 2020, far worse than the -0.1% growth 5% experienced during the 2009 financial crisis. The economic growth forecasts from the IMF assume that - the COVID-19 pandemic fades in the second half of (5%) (4 .9 % ) 2020 and containment efforts can be unwound. The (10%) (6 .5 % ) 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 disruptions are assumed to be concentrated mostly in Historical Forecast the second quarter of 2020 for almost all countries, with a gradual recovery thereafter, as it takes some time for production to ramp up after the shock. Eurozone: GDP growth 10% 4 .7 % • The global economy is projected to rebound in 2021, 5% growing at 5.8% as economic activity normalises, -

helped by policy support. In comparison, global growth (5%) (4 .5 % ) rebounded to 5.4% in 2010 from -0.1% in 2009. (10%) (7 .5 % ) 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 • It is stressed that the 2021 rebound depends critically Historical Forecast on the pandemic fading in the second half of 2020, allowing containment efforts to be gradually scaled World: GDP growth back and restoring consumer and investor confidence. 10% 5 .8 % 5%

- (0 .1 % ) (5%) (3 .0 % ) (10%) 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

Historical Forecast

Source: IMF, World Economic Outlook (April 2020) Coronavirus impact monitor – 17 April 2020 Page 8 Deloitte Economics © 2020 Danish GDP expectations Danish GDP projected to contract by 4.7% according to our survey of forecasters

• The Danish Central Bank forecasts three scenarios for the Danish economy in 2020. The three scenarios differ by the speed with which containment efforts are unwound. In the mild scenario, where GDP is contracting by 3% in 2020, restrictions are gradually eased from Easter to a full lifting of restrictions by October 2020.

• The Confederation of Danish Industry has based its projection of a 7% decline in 2020 GDP on a survey of its member firms.

• Nordea has published an economic forecast for the Danish economy based on three scenarios for global developments: a V-shaped recovery, a slower U-shaped scenario, and a pessimistic L scenario. The positive V-shaped recovery is associated with a steep decline in GDP in the first half of 2020, but the recovery is taking sharp during the summer, and GDP declines by a relatively modest 0.5% in 2020.

• The Economic Councils project two scenarios for the Danish economy. In the optimistic scenario, the economy rebounds relatively quickly, and GDP declines by 3.5% in 2020. In the pessimistic scenario, a second wave of COVID-19 emerges during the fall and new containment efforts and restrictions are activated; new aid packages are introduced. In this scenario, GDP contracts by 5.5% in 2020.

Denmark: GDP growth and 2020 market expectations 8% 6% 3 .9 % 3 .2 % 2 .3 % 2 .3 % 2 .4 % 2 .4 % 4% 1 .9 % 1 .6 % 2 .0 % 0 .9 % 1 .3 % 0 .9 % 2% 0 .2 % (0 .5 % ) - (2%) (4 .9 % ) (4%) M edian; (4 .7 % ) (6%) (8%) (10%) (12%) (14%) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Historical (IMF) Danish Central Bank Ministry of Finance The Economic Councils IMF Confederation of Danish Industry Danske Bank Nordea Median

Source: IMF, Danish Central Bank, Danish Ministry of Finance, DØRS, Confederation of Danish Industry, Danske Bank, Nordea Coronavirus impact monitor – 17 April 2020 Page 9 Deloitte Economics © 2020 Deloitte Government Response Portal Database of fiscal, tax, business, and social measures announced by governments globally

• To aid our clients in navigating the complex landscape of COVID-19 assistance programmes, Deloitte has developed a free digital portal that captures the latest tax, financial, business and social measures enacted by country.

Access the portal!

Coronavirus impact monitor – 17 April 2020 Page 10 Deloitte Economics © 2020 Impact on financial markets Equity market volatility remains elevated and comparable to the levels observed during the global financial crisis

VSTOXX Index1 • The VSTOXX Index measures 30-day implied volatility 100 of the EURO STOXX 50 equity index and reflects 90 investors' uncertainty about future equity market moves. 80 70 • As shown, the Coronavirus induced an increase in 60 volatility to a level comparable to that experienced 50 during the global financial crisis in 2008. Since then,

volatility has declined, but it still remains elevated and Volatility index 40 comparable to the levels observed during the global 30 financial crisis. 20 10

0 1-Jan-06 1-Jan-08 1-Jan-10 1-Jan-12 1-Jan-14 1-Jan-16 1-Jan-18 1-Jan-20 1-Jan-22

iTraxx Europe Crossover index: Default probability2 • The chart opposite shows the development in the % implied default probabilities based on the 5Y iTraxx 70 European Crossover spread of Credit Default Swaps and 61.7% an assumed recovery rate of 40%. It measures default 60

probabilities on a portfolio of sub-investment grade 50 corporate debt in Europe. 40 • With a current default probability of about 34%, we are 33.5% at the highest level since the European debt crisis, but 30 still below peak financial crisis levels. 20

• As the index reflects cost of debt, any refinancing will Default probability % in 10 be costly for leveraged companies, even though interest rates are close to being record low. 0 Jan 2006 Jan 2008 Jan 2010 Jan 2012 Jan 2014 Jan 2016 Jan 2018 Jan 2020 Jan 2022

Note: 1) VSTOXX as volatility index of EURO STOXX; 2) Default probability calculated based on 5Y iTraxx European Crossover CDS and a recovery rate of 40%. Source: Thomson Reuters Eikon Coronavirus impact monitor – 17 April 2020 Page 11 Deloitte Economics © 2020 Impact on corporate sector The coronavirus outbreak has taken its toll on business sentiment and M&A activity

Eurozone PMI Composite Index: Business sentiment • Due to the coronavirus outbreak, the Eurozone economy suffered an unprecedented collapse in 70 business activity in March 2020, as the coronavirus 65

outbreak intensified. 60

• There is usually a relatively good link between economic 55

growth and this measure of business sentiment: the 50

reading is indicative of GDP slumping at a quarterly rate PMI index

(50=neutral) 45 of around 2%. 40

25 Jan 2008 Jan 2010 Jan 2012 Jan 2014 Jan 2016 Jan 2018 Jan 2020

Danish M&A activity by quarter and rolling one-year volume • M&A activity in Denmark declined in 2019. 150 350 303 • Activity in Q4-2019 and Q1-2020 was at a level last 293 298 277 281 275 279 300 seen in 2014/15. 125 264 254 262 259 229 232 250 100 215 92 95 213

75 78 76 78 76 75 200 71 71 75 65 60 57 57 58 58 59 57 57 150 56 53 50 41 43 41 44

100

# # of deals in Denmark Total Total deal annual volume 25 50

0 0 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Annual deal volume Deal volume Denmark

Source: Markit Economics, Thomson Reuters Eikon, Mergermarket Coronavirus impact monitor – 17 April 2020 Page 12 Deloitte Economics © 2020 Energy & Financial Life Science Consumer Public TMT Industrials Real Estate Resources Services & Healthcare Industry outlook: Consumer The Retail and Hospitality sectors are heavily affected by COVID-19 initiatives

Highlights from the industry (as of 15 April 2020)

110,0 Based on top COVID-19 presses retail employment 105,0 10 companies − COVID-19 increases online retailing, especially in developed countries, 100,0 forcing retailers to ramp up their investments in e-commerce. 95,0 94.1 − This trend may displace jobs from the Retail sector to other sectors 90,0 89.8 (e.g., warehousing and distribution) in 2020-2024. 85,0 83.1 80,0 77.8 − The global work hour reduction will lead to a loss of 195m jobs in Q2 75,0 20204, particularly in the Retail, Hospitality and Food services sectors. 70,0 65,0 Tourism and travel suffer from lockdowns and travel bans 60,0 25 Dec 19 22 Jan 20 19 Feb 20 18 Mar 20 15 Apr 20 − Tour operators, hotels and restaurants are heavily affected, as they 1 2 3 Retail Hospitality Consumer MSCI World face cancellations from consumers and corporate events. Majority of consumer indices have recovered in recent weeks. − Tourist agencies and hotels may receive more support than online and Especially the Hospitality sector has been significantly affected, whereas the Retail booking operators to avoid mass lay-offs. and Consumer sectors have taken a relatively lower hit. − Large hotel chains offering professional cleaning services may recover The Consumer index at ~94 indicates that it is recovering previous weeks’ losses. faster than home stays (e.g., Airbnb).

Trading multiples and economic outlook (as of 15 April 2020)

Index: MSCI World Retailing Index (top 10 companies) As of March 2020, the consumer confidence index5 was 99.93, indicating a Historical averages Coronavirus impact (EV/FY0 EBITDA) (EV/FY0 EBITDA) slightly doubtful attitude towards the future economic development, possibly -3.9x resulting in higher savings and less consumption among consumers.

13.1x 13.5x 17.0x 101 9 9 .9 3 11.5x 13.1x 99 97 10y avg. 5y avg. 3y avg. Jan 1, 2020 Current Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18 Mar-20 Consumer confidence index

Notes: 1) MSCI World Retailing Index; 2) MSCI World Consumer Services Index; 3) MSCI Consumer Staples Index; 4) Estimated by International Labour Organisation; 5) Based on OECD – Europe region | Sources: Capital IQ; MSCI Coronavirus impact monitor – 17 April 2020 Page 13 Deloitte Economics © 2020 Energy & Financial Life Science Consumer Public TMT Industrials Real Estate Resources Services & Healthcare Industry outlook: Energy & Resources Coronavirus impacts short-term prices but prices are expected to rebound in 2021

Highlights from the industry (as of 16 April 2020)

110 Hydropower generation 100 − Prior to Corona, electricity prices were already pressured in the 90 Nordics due to a warm winter, which increased the generation capacity 80 of Norwegian hydropower plants 70 60 − Further, the mild winter decreased demand for electricity 50 40 Lockdown affects demand 30 20 − The corona virus lockdown has negatively impacted the demand of 30 dec 19 13 jan 20 27 jan 20 10 feb 20 24 feb 20 9 mar 20 23 mar 20 6 apr 20 20 apr 20 both public institutions, private individuals and corporations

Coal API2, spot Natural gas TFF, spot Nordic electricity future, Q3-20 Carbon market prices Mild winter puts pressure on Nordic electricity prices prior to Corona crisis − Lower emissions of CO2 and other greenhouse gasses has led to a Electricity demand has decreased marginally due to Coronavirus lockdown decrease in carbon prices Significant drop in carbon emissions resulting in lower prices − Coal becomes cheaper, thereby lowering overall prices, as coal is marginally price setting. This creates a self-enforcing effect which drives down prices even further Economic outlook

Selected futures As the effects described above are temporary, and are the result of the -40.9% -31.3% -61.7% -21.8% current lockdowns and restrictions on travel, we expect an increase in 35 33 prices once the restrictions are lifted. 26 21 22 25 19 10 Although the short-term impact on electricity producers are significant we expect prices to rebound in 2021. This is supported by significantly larger Nordic power, Q3-20 Nordic power, Q4-20 Nordic power, FY-21 EUA, Jun-20 price drops in electricity futures prices in the short-term compared to the long-term Jan 1, 2020 Apr 15, 2020

Coronavirus impact monitor – 17 April 2020 Page 14 Deloitte Economics © 2020 Energy & Financial Life Science Consumer Public TMT Industrials Real Estate Resources Services & Healthcare Industry outlook: Financial Services The anticipated recession related to the coronavirus will have a large impact on the sector

Highlights from the industry (as of 16 April 2020)

110 Banks and consumer finance − As a result of the GFC, capital levels and controls are more robust, reducing 100 the impact of the impending recession. However, IFRS 9 will result in an increase in provisions for macroeconomic assumptions, loan forbearance 90 and default payments. [83.1] 80 − Levels of available funding may be challenging to both borrowers and lenders and at a higher cost. 70 [64.4] 60 Insurance

50 − Higher claims and claims handling expenses may affect profitability for both 1 Dec 19 1 Jan 20 1 Feb 20 1 Mar 20 1 Apr 20 1 May 20 life and general insurers. − Non-life insurers may benefit in the short term from some products (e.g., STOXX Europe 600 Financial Services S&P 500 motor), which sees decreases in claims under social distancing.

The impact of decreasing bank base rates, a fear of an increase in customer Asset managers defaults, and turmoil in the equity markets will affect profitability in the Financial − AuM has declined, especially for funds with a high equity to fixed income sector. asset ratio, which will negatively affect profitability. Risk exists around any guaranteed pension schemes. News of fiscal stimulus packages on national levels in March has been received with − Opportunities may exist for those who can successfully deploy a non- modest optimism in the market. contact distribution network. Trading multiples and economic outlook

Index: S&P Capital IQ Some of the economic issues will play out over the coming months. In Market capitalization (1 Jan = index 100) Coronavirus impact (P/BV) 2 particular, the recovery of forborne loans following the re-commencement of trading and the implications of claims experience for insurers. Nordic Insurers 79 -0.6x There is a likelihood of some market consolidation certainly in the Banking Nordic Banks 70 1.7x sector where small lenders with a high cost: income ratios suffer from Danish Savings 77 1.1x increases in provisions. In addition, asset managers who have suffered from Banks Nordic Consumer lower revenue, fall as a result of the decrease in AuM. A measured response 56 Banks to trading conditions is important for each FS sub-sector Nordic DCAs1 45 Jan 1, 2020 Current 15-04-2020

Note: 1) DCA: Debt Collection Agencies; 2) P/BV is measured as average of Nordic Insurers, banks, and DCA

Coronavirus impact monitor – 17 April 2020 Page 15 Deloitte Economics © 2020 Energy & Financial Life Science Consumer Public TMT Industrials Real Estate Resources Services & Healthcare Industry outlook: Life Science and Healthcare (LSHC) The LSHC industry is investing heavily in getting a COVID-19 vaccine to the market

Highlights from the industry (as of 15 April 2020)

Emergence of new demand profiles 105 100 − Companies must adapt to new demand curves and minimise potential 98.5 supply chain disruptions. 95 95.7 90 − We see three distinct demand curves during this crisis: 85 85.0 − High demand for COVID-19 related therapies and medical 80 equipment 75 − Short-term demand for some drugs due to patients stocking up

70 − Reduced demand for non-essential medications and equipment 65 2 6 Dec 19 2 3 Jan 20 2 0 Feb 20 1 9 Mar 20 15 A pr 20 Race for COVID-19 vaccine or other treatment H ealthcare1 Life Sciences2 M SC I World − The nearest solution on the horizon for treatment is antivirals, with Significant recovery in both Healthcare and Life Sciences in recent weeks. the earliest available likely to be in three to four months. Better performance among Life Science and Healthcare companies compared to the − The vaccine horizon is more likely 12-18 months. general market. − According to Milken Institute, 86 candidate vaccines and 127 different treatment variations are being developed as of 15 April 2020.

Trading multiples and economic outlook

Index: MSCI World Healthcare Index Historical averages (EV/EBITDA FY1) Coronavirus impact (EV/EBITDA FY1) The player(s) that succeed in bringing a COVID-19 vaccine or other treatment to the market will benefit financially. -2.3x

13.0x 13.5x 15.5x Postponing of surgeries and other healthcare treatments may reduce 11.1x 13.2x short-term demand for selected medical equipment and drugs.

Rapid recovery expected for several LSHC companies, as healthcare systems gradually increase focus on other illnesses and treatments. 10y avg. 5y avg. 3y avg. Jan 1, 2020 Current

Note: 1) MSCI World Healthcare Index (top 10 constituents); 2) MSCI World Pharmaceuticals, Biotechnology and Life Sciences Index (top 10 constituents) Sources: Milken Institute, Deloitte Health Forward Blog, Capital IQ Coronavirus impact monitor – 17 April 2020 Page 16 Deloitte Economics © 2020 Energy & Financial Life Science Consumer Public TMT Industrials Real Estate Resources Services & Healthcare Industry outlook: Public After a resolute respond to COVID-19, focus has turned to the reopening of society

Highlights from the industry (as of 16 April 2020)

A timeline for COVID-19 government response Dealing with an immediate crisis − The government is moving fast and bypassing many typical procedures: extreme measures have been taken to limit the human cost and economic disruption. − The health care system is challenged, but a meltdown has been avoided as seen in other countries.

Back to normal − The government has slowly begun the reopening of society. Day care institutions and schools reopened this week, and many private sector employees had their first day back at the office after several weeks of working from home. − The health care system has slowly begun to reduce the hump of deferred operations.

Implementation of aid packages − Provision of emergency financial support for individuals and Source: Deloitte Insights, Governments response to COVID-19. From pandemic crisis businesses is a new and large assignments in the economic ministries. to a better future, April 2020 Economic outlook

Aid packages and focus on supporting the private sector through earlier start-up of planned investment and prepayment of suppliers are expected to ease the negative impact on the economy.

The severe and long-lasting financial and economic impacts of the pandemic depend on the effects of the aid packages and the strategy for reopening the society.

Aid packages might challenge government spending in the long run.

Digitalisation in the public sector might be boosted, as the crisis has reinforced virtual ways of working.

Coronavirus impact monitor – 17 April 2020 Page 17 Deloitte Economics © 2020 Energy & Financial Life Science Consumer Public TMT Industrials Real Estate Resources Services & Healthcare Industry outlook: TMT The TMT sector has shown relative resilient to COVID-19, as the world has gone digital

Highlights from the industry (as of 16 April 2020)

120 TMT perceived as a defensive sector, which has less to lose from COVID-19

110 Telecom: Spend among consumers is often within a contract; demand is 102 100 100 up; need is not discretionary (new cars) or constrained (leisure). 95 90 83 Media & Entertainment: Financial impact varies across sub-sectors. 80 Media consumption up (e.g., Netflix, Disney+), but willingness/ability to 70 pay may be constrained, as the economic outlook exacerbates. Events

60 (consumer, business) mostly heavily restricted; cinemas, theatres, 13 Jan 20 27 Jan 20 10 Feb 20 24 Feb 20 9 Mar 20 23 Mar 20 6 Apr 20 20 Apr 20 museums mostly closed. TV and movie production mostly halted. Theme parks mostly closed. Information Technology1 Communication Services Media and Entertainment MSCI World

TMT companies are trading above the overall equity market. Technology: Some segments (e.g., robotics, communication software) seeing record demand; digital transformation being accelerated; Media and Entertainment quickly recovered after the shockwave on the stock companies catering to SMEs may suffer from customer liquidity. market, as people stay home. The entertainment market is making records2.

Trading multiples and economic outlook

Index: MSCI World Information Technology Historical averages (EV/EBITDA) Coronavirus impact (EV/EBITDA) Forrester has revised its IT spending forecast downward, with a best case scenario where the global tech market growth is slowing to ~2% in 2020. -3.6x

23.9x 28.0x If a full-fledged recession hits, there is a 50% probability that global tech 21.0x 24.4x 16.0x markets will decline by 2% or more in 2020.

Software spending is the subsector is expected to show highest growth, while computer equipment and IT consulting and systems integration 10y avg. 5y avg. 3y avg. Jan 1, 2020 Current services spending is expected to show weaker growth.

Note: 1) MSCI World industry indices used, 01-01-2020 = index 100; 2) In EMEA and selected Asian countries, physical games sales are up by 63% according to GamesIndustry.biz Source: S&P Capital IQ (April 2020), Forrester Research (March 2020) Coronavirus impact monitor – 17 April 2020 Page 18 Deloitte Economics © 2020 Energy & Financial Life Science Consumer Public TMT Industrials Real Estate Resources Services & Healthcare Industry outlook: Industrials China leads the COVID-19 recovery with a V-shaped bounce back

Highlights from the industry (as of 16 April 2020)

120 China’s Industrial sector rebounds with PMI back above 501

110 − China proved that a V-shaped bounce back is possible, with PMI numbers end of march of 521 and enterprise resumption rate of 100 96.6%2. 91.0 90 83.7 − Hence, global supply chain issues seem mitigated. 80 83.1 72.5 70 The Materials industry suffers from lockdown

60 − As production plants worldwide are facing lockdowns, material 13 Jan 20 27 Jan 20 10 Feb 20 24 Feb 20 9 Mar 20 23 Mar 20 6 Apr 20 20 Apr 20 suppliers will be under pressure due to decreasing demand.

Industrials Materials Automotive MSCI World Loss of consumer confidence significantly harms the auto industry The MSCI World Index has been heavily affected in 2020 due to COVID-19. − Auto companies may be forced to divert capital to shore up continuing Especially industrial companies have taken a hit in share price, which may be operations, starving R&D funding for technology initiatives. 1 1 explained by deteriorating PMI numbers – significantly below 50 . − Suppliers facing liquidity issues may succumb to deteriorating market The market has rebounded during the last weeks, as outlook eases up. conditions, causing consequences across the entire global automotive manufacturing ecosystem. Trading multiples and economic outlook

Index: MSCI World Industrials Index (top 10 constituents)

Historical averages (EV/EBITDA) Coronavirus impact (EV/EBITDA) The exogenous shock of the pandemic exacerbates an existing downshift -3.1x in global demand due to consumer confidence and postponed capex-heavy investment. 13.0x 14.2x 14.6x 11.5x 11.5x The pandemic may lead to increased M&A activity, as opportunities for sector consolidation emerge for in particular private equity players with excess capital 10y avg. 5y avg. 3y avg. Jan 1, 2020 Current

Note: 1) A PMI value (Purchasing Manager’s Index) above 50 state expansion in the industry, while a value below 50 means contraction of the industry; 2) Based on medium- and large enterprises Source: Capital IQ; MSCI World Indices; Trading Economics: IHS Markit Coronavirus impact monitor – 17 April 2020 Page 19 Deloitte Economics © 2020 Energy & Financial Life Science Consumer Public TMT Industrials Real Estate Resources Services & Healthcare Industry outlook: Real Estate Significant uncertainty about the outlooks, as the impact of COVID-19 is yet to be seen

Highlights from the industry (as of 16 April 2020)

110 2.0% Retail

100 1.8% − Long-term impact on retail from accelerating shift to online trade

implies rethinking of RE strategy. I nterest rate nterest I 90 1.5% − Media attention on the “lease renegotiation war” between landlords 80 1.3% and tenants (who should pay the bill?).

70 1.0% Commercial Stockpriceindex (2Jan20 10 2 = 0 0 ) 60 0.8% − COVID-19 implies rethinking and redesign of workspace models. − Financial restructuring anticipated and intake of non-performing loan 50 0.5% transactions. 01 Jan 15 Jan 29 Jan 12 Feb 26 Feb 11 Mar 25 Mar 08 Apr 22 Apr − Expectations of writedown on property values in Q1 reporting. STOXX 600 Real Estate Index Danish long-term mortgage rates (RHS)

Further recovery of real estate share prices. Residential Also, interest rates are continuing the recovery back to pre-COVID-19 levels. − March 2020 data from Finans Danmark reveals no major changes to supply or asking prices re. apartments in Greater Copenhagen. Even though share prices are recovering, we believe the sector is still in the − Same picture re. house for sale nationally. No major changes in the response phase, and the full impact of COVID-19 is yet to be seen. March 2020 data.

Trading multiples and economic outlook

Index: Custom weighted average index1 We expect a significant reduction in M&A activity for all asset classes, except Historical averages (EV/EBITDA) Coronavirus impact (EV/EBITDA) logistics (positive effect). For liquidity reasons, some stressed transactions -1.7x will take place, attracting opportunistic investors.

29.7x 30.6x 27.6x 25.4x 28.9x Especially the Retail sector, but also the Commercial sector, will face new requirements from tenants, leading to revised strategies.

With increased interest rates, uncertainty about vacancy rates, and increased 10y avg. 5y avg. 3y avg. Jan 1, 2020 Current unemployment rates, we expect depressed share prices and multiples to continue at least through 2020 and perhaps also part of 2021.

Note: 1) Based on Collier International, Patrizia AG, Agate Ejendomme, Jeudan A/S, and Park Street Nordicom Sources: Finans Danmark, Thomson Reuters Eikon, Capital IQ Coronavirus impact monitor – 17 April 2020 Page 20 Deloitte Economics © 2020 Industry groups How Deloitte can help you

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