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 63 % 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 Chile or the Middle East. We handle these international markets – they account for 7 % of our output volume – mostly as part of the direct export business.

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-scale 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 expanded our range of services a few years ago, for example, in the field of intelligent transport systems and electronic toll solutions or in the services business, so that today around 86 % of our business comes from construction, 6 % from services, 6 % from the construction materials sector and 2 % 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.

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, a market which had not been given a lot of hope ten years ago, proved to be a growth driver in recent years. Investors have sought refuge in real estate, as other in- vestment options involve high risk without being very lucrative. Additionally, public-sector infrastructure investments have picked up speed in Germany, so that the activity in transportation infrastructure is expected to continue at a high level in the coming years.

But we are not 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 2019, this figure stood at 31.5 % – despite the own shares held by the company in the amount of 6.7 % of the share capital, the value of which is deducted from the equity.

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 September 2019. 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 € 1,143.53 million with a balance sheet total of € 12.3 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.

#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.

Published on website: 14.05.2020 – Last Update: 14.05.2020 11:52:09