Business model

From global to local, from micro to mega, from public to private, the broad positioning of our business model has always been a source of strength and will ensure that we remain successful in the future.

Megatrends

Buildings today are built to have a long service life, to be resource-efficient throughout their operation, and to be able to be repurposed or dismantled at the end of their life cycle. This requires forward-looking and end-to-end planning, thinking and acting. It therefore seems reasonable to conclude that the industry will continue to be of interest to long-term investors in the future and that the fundamental demand for construction services is unlikely to dry up. On the contrary, the construction sector will play a key role in the transition to climate-neutral buildings and climate-neutral infrastructure. And you don’t even have to look centuries into the future here – the following megatrends are already making the construction sector an attractive option for the current decade:

Megatrend climate change

The European Green Deal aims at making Europe’s building stock climate neutral by 2050. As a first step, the plan foresees a reduction of at least 55% in greenhouse gas emissions compared to 1990 levels by 2030. Much of Europe’s building stock is old; at the same time, buildings account for 37% of global carbon emissions. This makes the construction industry an important lever for a better future. European and national regulations, combined with substantial financial resources, will result in the increased conversion of existing buildings for greater energy efficiency and lower emissions during operation. Europe will only achieve its climate targets if the rate of building renovation can be significantly increased.

Megatrend urbanisation

The United Nations (UN) estimates that 68% of the world’s population will be living in cities by the year 2050 – this represents an increase of the urban population by 2.4 billion people. Accompanying this growth is a higher demand for infrastructure and housing. At the same time, urban space is limited, and further soil sealing should be avoided. To conserve resources and space, the field of reconstruction, conversion and refurbishment is set to play an increasingly important role in the future. The growth in population will also require more efficient infrastructure to be built. In Germany alone, a total of € 270 billion is to be invested in road and rail by 2030 as part of the Federal Transport Infrastructure Plan.

Megatrend demographics

In 2040, with the retirement of baby boomer generation, we will have a shortfall of workers by more than 10% of today’s working population in our core markets. New, creative approaches will become necessary to fill this gap, especially in the construction sector. The focus will therefore be on recruiting, training, integrating and retaining international skilled labour – especially from countries with opposite demographic trends. At the same time, the demographic trend will promote and accelerate innovation in the construction industry. New methods and new ways of working will be required in order to realise future growth. Concepts such as prefabrication or modular construction – to name just two examples – will play a key role in this process.

Megatrend technology

In contrast to sectors like the automotive industry, the degree of digitalisation in the construction sector remains relatively low. Experience has shown, however, that the digitalisation and networking of data generated during the life cycle of a building holds advantages for most of the parties involved in a project – be it during the design, build or operate phases of the building. The systematic development and use of data can, for example, support risk management by using algorithms to minimise the financial risk of a construction project. Other examples include generative design, which can be used to generate countless design proposals at the touch of a button; drones, which can provide support during surveying; and weather data, as the basis for crane deployment planning. Standardisation, digital processes and automation all promise significant productivity gains for the construction industry.

Clients

While price is usually the decisive criterion for public-sector clients, private clients often look for the best offer – and this need not always be the lowest bid. The costs over the entire life cycle are considered, including the building’s operating costs. Additional criteria play a role as well: As every building is unique, clients must be able to trust the abilities of the construction company. During tender processes, we are often asked about comparable projects that we have successfully completed in the past. Just as important are the experience and expertise of the construction company’s staff and the innovative solutions which may save the client money and time across the entire building life cycle.

In some parts of the public sector, the best bidder principle is beginning to gain a foothold. This principle entails public-sector contracts not being automatically awarded to the company with the lowest monetary bid, but also taking social, environmental and sustainability criteria into account. From an overall perspective, the best bidder principle is better for the population and for the national economy than choosing what at first glance appears to be the most favourable bid.

Every building is unique. Unlike in industries with standardised products, therefore, it is not possible in the construction sector to perform sensitivity analyses showing the influence of changes to a dominant production factor on a company’s key performance indicator. Our business is not determined by just one driving factor; rather, the margins are influenced by several factors. These include certain business realities, such as the risk management system or the know-how of our employees, as well as external influences, such as economic growth (GDP) and demographic trends or the level of public infrastructure spending. An euro invested in construction leads to demand in other sectors, with the result that the positive impact is multiplied in production and employment.

Our client structure

Key aspects of the business model

The STRABAG Group has a strong track record of sustained earnings growth over the past decade. Even when faced with a challenging economic environment, we have been able to steadily expand our earnings base – all thanks to our business model, which is characterised by the following six pillars:

Critical size and market position

Diversification and resilience

Flexibility and vertical integration

Financial strength and risk management

Sustainability and climate neutrality

Digitalisation and innovation

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Critical size and market position

STRABAG SE is the largest construction company in Central and Eastern Europe. We are the market leader or one of the largest construction companies in each of our eight core markets of Germany, Austria, Poland, the Czech Republic, Slovakia, Hungary, Croatia and Romania. A strong market position is of crucial importance, as construction companies need a critical mass and sufficient financial resources, especially in more mature markets, in order to successfully bid for and prefinance 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 among our clients.

Market positions in core markets

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Diversification and resilience

The Group’s broad positioning has proven to be one of our key success factors over the years, contributing significantly to STRABAG’s resilient development. We began to focus on diversification at an early stage – by country and by construction segment. Today, STRABAG is active in over 50 countries and offers services along the entire construction value chain. This allows us to spread our risk and enables us to balance out cyclical and seasonal effects, as each construction segment follows its own cycle: 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.

Output volume by segment 2023

Output volume by region 2023

DEEP DIVE

Public-private partnerships:
part of a diversified service portfolios

konzessionsprojekten

We have been working successfully with operator models for more than three decades. In the areas of building construction and infrastructure, the portfolio comprises 40 public-private partnership (PPP) projects with a total project volume of € 10.31 billion (2022: € 10.28 billion). Of these, 23 projects with a total project volume of € 644.8 million are in building construction and 17 with a total project volume of € 9.66 billion are infrastructure projects.

Across all concession projects, we had a proportionate share of equity in the amount of € 547.0 million in 2023 and had committed a further € 69.7 million for a total of € 616.7 million.

Number of PPP projects in the Group

Current developments

The following developments in the reporting year deserve special mention:

Partial refinancing was concluded in the summer of 2023 for the completed and operational Mar 1 road construction project in Colombia.
The exit of a partner in the two concession companies for the A2 motorway project in Poland resulted in an increase in the share of equity and the shareholder loan.
Construction on the 31 km new section of the A49 motorway project in Germany is proceeding on schedule.
The two City of Vienna school campuses (in the 10th and 11th districts) opened on time for the start of the 2023/2024 school year.
Two school projects with a total contract value of around € 62 million were acquired in Bremen: the extension of the school and sports centre at Kaisen Campus and the Ronzelenstraße sports facility. The structural works of the sports facility have already been accepted. The Kaisen Campus project has also already entered the construction phase.
In the greater Bremen area, the Schneverdingen cooperative comprehensive school project with a contract volume of around € 17 million was acquired at the beginning of 2023. The structural works are proceeding on schedule.

Competitive advantage of STRABAG

Due to the regular cash flows in later project phases, institutional investors in particular, such as insurance companies or pension funds, have an interest in making capital available for PPP projects in the long term. Moreover, a competitive advantage gives STRABAG good chances in the PPP business: Our strong financial position allows us to act as equity provider for concession companies more easily than other companies. In addition, in-house developments in the fields of renewable energy heat generation and in storage are being accelerated to help in the long-term achievement of the climate targets laid out in the corporate strategy.

Thanks to the inclusion of specialist providers from within the Group, such as STRABAG Property & Facility Services, A-WAY, EFKON, STRABAG Infrastructure & Safety Solutions or STRABAG Environmental Technology, we are in a position to efficiently and completely cover all specifications from structuring to financing and planning all the way to construction and operation. This gives both the client as well as the capital providers a high degree of security regarding contract fulfilment.

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Flexibility and vertical integration

We are pursuing a flexible business model as a way to react quickly to changes in the market environment. We consider this principle to be a key competitive advantage. Our flexibility is supported in part by our diversified portfolio, which extends far beyond traditional construction activities to include areas such as building materials or property and facility services. STRABAG began to focus on vertical integration at an early stage – a strategy that has shown its worth: In times of stressed supply chains, for example, our dense network of building materials operations ensures the availability of the materials we need while balancing out the dynamic price developments. We also outsource certain trades – more so in building construction and civil engineering than in transportation infrastructures – to subcontractors, which allows us to adapt our capacities to the prevailing market environment.

Subcontracting
building construction and civil engineering

Subcontracting
transportation infrastructures

DEEP DIVE

Own construction materials network:
increased flexibility through vertical integration

baustoffnetzwerk

Our construction materials network secures our supply of resources from within the Group while reducing our dependence on external suppliers. Additionally, approval for new production facilities is granted only to a limited extent, which creates higher hurdles to market entry for newcomers.

We already possess an extensive construction material network that is especially dense in our core markets. With 276 (2022: 277) active asphalt mixing plants (own facilities and investments), we covered 85% (2022: 86%) of our asphalt needs in 2023 ourselves. Here we have for several years already enjoyed an optimal degree of self-sufficiency. With concrete, our 126 (2022: 127) active concrete mixing plants provided a proprietary coverage of 22% (2022: 19%). Our investments in five (2022: five) cement plants in 2023 covered 32% (2022: 39%) of our cement needs. In the field of stone/gravel, coverage stood at 16% (2022: 15%), with an increase of the number of active production sites from 139 to 144. Since the 2016 financial year, Section 267b of the Austrian Commercial Code (UGB) requires STRABAG SE to publish a consolidated report on behalf of its subsidiaries in the extractive industries concerning payments to governments. This report is available at the website of STRABAG SE.

Construction material needs covered using own resources

With the exception of asphalt, where our coverage is already very high, our aim is to continuously cover more of our construction material needs with own resources. Our primary goal here is to increase our independence from construction materials suppliers; construction materials sales to third parties is not an objective per se. Nevertheless, income from this item in the past financial year totalled approx. € 880 million (2022: approx. € 800 million).

Asphalt

We produced 15.8 million tonnes of asphalt in the year under report (2022: 15.7 million tonnes). Most of this amount was produced in Germany, Austria, Poland, the Czech Republic and Hungary. Of the asphalt produced, 56% (2022: 58%) was sold within the Group at the usual market rate, with the remainder sold to third parties.

Concrete

The production of concrete – 92% of which takes place in Hungary, the Czech Republic, Austria, Romania and Germany – amounted to 3.1 million m³ in 2023 (2022: 3.3 million m³). Some 26% (2022: 25%) of the concrete produced was sold within the Group. The relatively high percentage of third-party sales and purchases is explained by the fact that the desired construction material type and quality were not available in the region where they were needed.

Cement

In Hungary, we jointly operate Lafarge Cement CE Holding GmbH together with construction materials manufacturer LafargeHolcim. In addition to the Hungarian plant, the joint venture, in which STRABAG holds a 30% stake, owns two production facilities in Austria (Mannersdorf and Retznei) and one in the Czech Republic (Cizkovice). We also hold a minority interest in the Slovakia-based cement firm Cemmac a.s.

Stone/Gravel

The STRABAG Group produced around 31.6 million tonnes of stone and gravel in 2023, slightly more than in the previous year (2022: 33.3 million tonnes). Some 24% (2022: 26%) of these resources were used by Group companies. Being active in the production of stone and gravel, STRABAG is considered to be part of the extractive industries.

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Financial strength and risk management

Financial strength is the basic prerequisite for having our bid considered. It also allows us to take advantage of business opportunities in a flexible manner, such as participating in concession projects or realising acquisitions. Maintaining our financial strength is a strategic priority for us, and we are committed to maintaining an equity ratio of at least 25%. Our financial strength – currently expressed by an equity ratio of 32.2% and a net cash position of € 2,643.24 million – is independently attested to and reflected by a Standard & Poor’s investment grade rating of BBB with stable outlook, last confirmed in October 2023.

At least as important for a construction company as its financial resources is its risk management. After all, the large number of projects – each of which is unique in its own right – entails an increased risk potential. Keeping this under control requires a consistently focused organisational structure with clearly defined responsibilities and effective instruments for active risk and opportunity management. A system like this can only be established over the long term and therefore represents a significant competitive advantage that is difficult for the competition to copy.

Development of the equity ratio

deep dive

Project risk management:
a factor for increasing earnings in the long term

risikomanagement

To ensure a responsible and proactive approach to risks and opportunities, we have integrated a comprehensive risk management system (RMS) with an internal control system (ICS) into our management system on the basis of the internationally recognised COSO Enterprise Risk Management Framework (COSO: Committee of Sponsoring Organizations of the Treadway Commission). Risk management is a core task of a company’s management with responsibility at the respective management level. The organisation and responsibilities for the risk management are determined according to the three lines of defence approach supported by the European Confederation of Institutes of Internal Auditing (ECIIA). This end-to-end corporate governance model applies to all disciplines of risk management and establishes clear roles and responsibilities for risk management to ensure a functioning and efficient control and monitoring framework.

OrganisationdesRisikomanagements

Organisation of risk management

Management system with associated policies and rules

Our management system is described with the associated policies in the Management Manual and is documented with superordinate and subordinate rules. The rules apply across the Group and have been translated and communicated in all relevant languages.

Organisational structure with central entities

The management of the risks and opportunities receives significant support from the Group’s organisational structure, which creates economies of scale and results in efficient controlling and reporting. Under the roof of the parent company STRABAG SE, a number of legally independent subsidiaries are active in their respective national markets. The top level of organisation are the segments North + West, South + East, International + Special Divisions and Other (central divisions and central staff divisions), each of which is headed by at least one member of the Management Board.

STRABAG SE Management Board: top management body
Division managers: manage their subdivisions and report directly to the relevant member of the Management Board
Subdivisions: manage the operating business
Central divisions: handle the Group’s internal services in areas such as accounting, financing, taxes, IT, People & Culture Development
Central staff divisions: responsible for internal audit, corporate communications and business compliance; report directly to the CEO

While important decisions at the Management Board level are made during regular board meetings, the four-eyes principle applies at the levels below. For us, this dual management structure ensures efficient risk management and foresees that responsibility is largely assumed jointly by one technical and one commercial manager.

Organigramm

Organisation chart

Project selection and internal price commissions

Project risks often have their origin long before contract signing. In order to recognise significant risks and opportunities at an early stage, we select projects before participation in a prequalification phase or before the start of bid processing on the basis of defined criteria and disclosure thresholds. Especially with large projects, the management can set framework conditions for the further bid processing and for the early inclusion of specialists from the central divisions and central staff divisions. When defined disclosure thresholds are exceeded, a bid, before it is submitted, must be closely reviewed and approved by internal price commissions composed of members from various hierarchy levels depending on the project size.

Management information system

Our management information system gives us an up-to-date overview of the financial status of all our projects with data that can be compared from country to country. To maintain the EBIT margin at the level attained, and raise it if possible, we must consistently and sustainably reduce the flop rate by continually improving the efficiency of our project risk management. We have implemented a risk management system (RMS) with an integrated internal control system (ICS) across the Group to help us in the early identification, accurate assessment, effective management, and transparent end-to-end monitoring of significant project risks and opportunities.

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Sustainability and climate neutrality

The construction and operation of buildings are commonly acknowledged as carbon-intensive activities. But this also means that changing just one thing results in many other changes elsewhere. This is precisely the progress we are working on – with over 400 sustainability projects across the Group. Our sustainability activities are based on our sustainability strategy, which is part of our long-term corporate strategy. The focus here is on activities in the four main action areas: CO₂ emissions, materials and waste, supply chain, and construction life cycle. As part of our sustainability strategy, we have set ourselves the ambitious goal of becoming climate neutral along the entire value chain by 2040, thereby clearly recognising our responsibility as one of Europe’s leading technology companies for construction services.

Our path to becoming climate neutral

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Innovation and digitalisation

Today, STRABAG is no longer just a construction company, but a leading construction technology group. In 2020, a new central division, STRABAG Innovation & Digitalisation (SID), was established in part to reflect our commitment to technology leadership. SID, which reports directly to the CEO, is driving forward STRABAG’s digital transformation while handling over 250 innovation projects with 425 experts at more than ten locations across the Group. The aim is to increase our productivity, counteract the labour shortage, reduce CO₂ emissions and ensure STRABAG’s competitiveness in the long term. Specific ways in which we are doing this include standardisation (e.g. prefabrication or modular construction), digital processes (e.g. BIM 5D^® or GIS data) and automation (e.g. construction robotics).