Strategic principles
With these strategic principles, we try to keep the risks inherent in the construction business within a reasonable range and remain open to opportunities when they arise:
#1 – Staying diversified
The various forces driving the construction industry and its subsectors advise a corporate strategy that is built on diversity. This diversity can be seen in our employees but also in the regions and construction segments in which we operate. We therefore see ourselves as a European group that offers a broad range of construction services internationally. Selective diversification brings a number of advantages. For one, it allows us to respond quickly to opportunities in different markets. Also, the existing country network helps us in our expansion, allowing us to deploy large equipment to different regions and to pass on know-how and technologies to the local management so they are of benefit there. Moreover, we spread our risk by not concentrating our business on just a few countries (see graph “Total construction output by country”).
Firmly established in our home markets of Austria and Germany – which account for 64% of our output –, we generate an additional 23% of our business in Central and Eastern Europe and another 7% in other European countries. We are also active outside of Europe in projects requiring a high degree of technological know- how, currently in places such as Colombia or the Middle East. We handle these international markets – they account for 6% of our output volume – mostly as part of the direct export business.
1 Only countries with a minimum annual output volume as well as a minimum order backlog of € 1 million are considered.
In addition to this broad level of diversification, we also believe it is important for us to achieve a strong market position in the markets in which we operate. Construction companies need a critical mass and sufficient capital resources, especially in the more mature markets, in order to successfully bid for and pre-finance large projects. This also makes it possible to take advantage of economies of scale. Size is further associated with qualities such as reliability and stability – and this, together with our references, creates trust.
In addition to diversifying geographically, we also try to offer services along the entire construction value chain and in different construction segments. After all, the construction industry does not follow just one cycle; each segment – differentiated in part by the type of client – follows its own. In economically difficult times, for example, the public sector invests more in infrastructure as a way of stimulating the economy, and the transportation infrastructures segment booms. Lower interest rates, on the other hand, are of benefit especially in building construction. The diversification in different construction segments thus reduces risk, and the extension of the value chain balances out cyclical and seasonal effects by trend.
This is why we keep our range of services deliberately broad, so that today around 87% of our business comes from construction, 5% from services, 7% from the construction materials sector and 1% from real estate project development and concessions. The output volume from the latter segment is low by nature, however, as it refers only to the management of a project without including its actual construction.
This strategy has proven its worth in the current crisis. The order backlog as at 31 December 2022 is 6% above the previous year’s level. High construction prices and higher interest rates are affecting demand, especially in the private sector, but these effects are being cushioned by the Group’s broad positioning. Orders from the public sector in particular are having a stabilising effect, and the management continues to expect a steady order situation from the public sector.
Especially in economically difficult times, it is important not to depend on just a few specific markets. We therefore began to focus on diversification at an early stage – and this strategy has paid off. Germany, for example, has proved to be a growth driver in recent years. Investors have sought refuge in real estate, as other investment options involve high risk without being very lucrative. Additionally, the noticeably increased public-sector infrastructure investments in Germany will remain stable, so that the activity in transportation infrastructures is expected to continue at a high level in the coming years.
But we aren’t the only ones who benefit from our broad geographic presence and diversification in different construction segments; our clients profit as well, as they can expect the same quality from STRABAG-executed works at all of their sites. Partnership arrangements such as our TEAMCONCEPT and the single-source execution of all works (design-build-operate) reduce redundancies and simplify the process so that projects are completed quickly and smoothly.
#2 – Maintaining financial strength
Despite all differences between private and public clients, financial strength is the basic prerequisite for having our bid considered – it represents a decisive advantage in competition. We therefore see financial strength as being both the foundation as well as the framework for our business activity. Moreover, only financially strong construction companies are capable of participating in concession projects, as these must be partly co-financed with company equity. Additionally, meaningful acquisitions can be transacted more easily and quickly when there is an available budget.
This is why maintaining our financial strength is a strategic priority. We see the equity ratio as a suitable figure with which to measure STRABAG’s financial stability and strength. We are satisfied with an equity ratio (Group equity/total equity) above 25%. As at 31 December 2022, this figure stood at 31.7%.
The financial strength of our company is also evaluated independently. In June 2015, the ratings agency Standard & Poor’s (S&P) raised the investment grade rating for STRABAG SE by one level from BBB- to BBB. This rating was last confirmed in August 2022. S&P left the out- look at “stable”. The group’s financial strength – expressed in form of a high equity ratio, a net cash position of € 1,927.70 million with a balance sheet total of € 12.7 billion, and the S&P investment grade rating – allows us to ensure the long-term existence of the group and to finance at favourable conditions.
An attractive and reliable dividend is one of the cornerstones of our equity story. Since the IPO in October 2007, STRABAG has attached great value to a continuous dividend policy. The Management Board is sticking to its goal of distributing 30 % to 50 % of the net income after minorities to the shareholders in the form of an annual dividend. The exact rate depends on the general business development on the one hand and on the group’s growth opportunities on the other hand. In line with the long-term dividend policy of STRABAG SE, the Management Board proposes a dividend of € 2.00 per share for the 2022 financial year to the Annual General Meeting.
#3 – Showing flexibility
Our flexibility, which helps us to respond quickly to changes on the market, is another important competitive advantage. This flexibility is nourished by our financial strength as well as by the possibility of serving markets outside of Europe and – depending on the market environment – of being able to pass on specific works to subcontractors. As one way of ensuring this flexibility, we are working on maintaining our geographic presence in non-European countries to become less dependent on individual markets.
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#4 – Driving innovation and digitalisation
An important step in 2021 was the definition of the digital strategy and the systematic roll-out, monitoring and evaluation of digital transformation projects by the central division STRABAG Innovation & Digitalisation (SID). Combining knowledge, data, technologies and innovations across the group enables SID to
- drive forward the digital transformation with strategically important flagship projects (e.g. SPS – Strategic Procurement Solution),
- utilise potential efficiency gains and cost savings (e.g. through further process standardisation and networking of IT systems),
- implement a structured innovation process,
- foster internal collaboration through the identification and application of best practice approaches,
- carry out data-based risk analyses, and
- ensure sustainable supply chains.
As part of the ongoing digitalisation initiatives, SID is also focusing on topics such as robotics and automation to continuously enhance productivity and reduce CO2 emissions.
STRABAG sees data as a strategic resource. At the same time, it is fully aware of the risks of cyberattacks, unauthorised data access and data leaks, regulatory intervention and not least the environmental impact of large IT and server capacities. In 2022, the company-wide information security management system was recertified to the ISO/IEC 27001 standard. In addition to the organisational measures surrounding the annual recertification, STRABAG further expanded the existing IT security infrastructure and carried out regular awareness-raising activities throughout the Group to enhance digital skills and establish a security-focused data culture. As an example, IT security was a key topic at the STRABAG Innovation Day 2022.
#5 – Rebalancing sustainability and risk management
Against the backdrop of increasingly more frequent and increasingly severe climate change related natural events (e.g. wildfires, heat, floods, storms) and the demands placed on the group by customers and employees, STRABAG adopted a new sustainability strategy in the first half of 2021. The sustainability strategy was integrated into the existing long-term group strategy and individually aligned to each of the business units.
Having set the target of climate neutrality along the entire value chain by 2040, STRABAG recognises its responsibility as one of Europe’s leading technology companies for construction services. In the design and build phases of its construction projects, STRABAG places a particular focus on environmentally compatible and sustainable construction methods and on the efficient use of resources and their recyclability in order to limit as much as possible any negative impact on the environment.
The new STRABAG sustainability strategy is founded on the three pillars of economy, environment and social welfare, with a special focus on activities in the four major fields of action: CO2 emissions, materials and waste, supply chain and construction life cycle. As the driving force behind the necessary transformation, technology is an indispensable tool for leveraging the potential in all three pillars.
Published on website: 08.05.2023 – Last Update: 06.08.2024 12:10:39