Segment report

Overview of the four segments within the group

The business of STRABAG SE was divided into four segments in 2023, of which there are three operating segments, North + West, South + East and International + Special Divisions, and the segment Other, which encompasses the Group’s central divisions and central staff divisions. In 2023, the segments were comprised as follows:

Construction projects are assigned to one of the segments (see chart below). Of course, projects may also be assigned to more than one segment. This is the case, for example, with PPP projects in which the construction part is assigned to its respective geographic segment, but the concession part is assigned to the concessions unit of International + Special Divisions. In projects which span more than one segment, the commercial and technical responsibility is generally assigned to that segment which has the higher share of the overall project value.

Segments are primarily categorised according to geographical aspects. Specialities in particular – e.g. tunnelling – are naturally in demand worldwide. Such business fields are shown in the International + Special Divisions segment. At the same time, the North + West and South + East segments sometimes include international business fields such as environmental technology.

Certain services may be performed in more than one segment. The activities below have been assigned to those segments in which the most significant portion of the services was provided. Details are available in the table.

With only a few exceptions, STRABAG offers its services in all areas of the construction industry in the individual European markets in which it operates and covers the entire construction value chain.

Range of services offered

segment-n-w

Segment North + West

The North + West segment delivers construction services of nearly any kind and size with a focus on Germany, Switzerland, the Benelux countries and Scandinavia. Ground engineering can also be found in this segment.

With effect from 1 January 2023, Switzerland was added to the North + West segment, Poland to the South + East segment. The previous year’s figures have been adjusted accordingly.

Output volume – North + West segment

Output, revenue and EBIT

Revenue grew by 2% to € 7,280.19 million. The EBIT increased sharply by 41% to € 644.82 million, resulting in a very high EBIT margin of 8.9%. This development is due on the one hand to the absence of negative earnings effects from large-scale projects in Denmark and the Netherlands. On the other hand, cost inflation in Germany weakened and follow-up negotiations for large infrastructure projects were successfully concluded. The latter, however, does not represent a regularly recurring earnings component.

Order backlog

Employees

The number of employees in the North + West segment in 2023 was up by 2% to 22,136 FTEs. In line with the strong output growth, the largest staff increase was recorded in the home market of Germany. Declines were registered on a smaller scale in Denmark, the Benelux countries and Sweden.

Outlook

Predatory pricing remains a serious concern in the Benelux countries. Here the Group will continue to pursue its chosen path of consolidation and stabilisation together with a highly selective bidding strategy. In the Netherlands and Belgium, opportunities are likely to arise in industrial construction, particularly in projects relating to the energy transition.

The consolidation and stabilisation that was initiated in Scandinavia will be continued here as well. The focus will be on medium-sized projects, primarily in commercial and industrial construction.

The demand for construction services in Switzerland remains stable. Following a period of successful consolidation, we are continuing on our growth path. The necessary investments have already been made.

Selected projects – North + West segment

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Segment South + East

The geographic focus of the South + East segment is on Austria, Poland, the Czech Republic, Slovakia, Hungary and South-East Europe. The environmental technology and construction materials activities are also handled within this segment.

With effect from 1 January 2023, Switzerland was added to the North + West segment, Poland to the South + East segment. The construction materials business, previously reported as part of International + Special Divisions, was integrated into the South + East segment with retroactive effect from 1 January 2023. The previous year’s figures have been adjusted accordingly.

Output volume – South + East segment

Output, revenue and EBIT

Order backlog

Employees

The number of employees fell by 2% to 27,057 FTEs in 2023. Declining figures were recorded in Croatia, Hungary and Bulgaria, among others. In line with the higher output, staff numbers grew in Romania.

Outlook

In Poland, tenders for transportation infrastructure projects recently fell off due to the change of government and the upcoming local elections. EU structural funding means that new investments are expected, particularly in railway construction and relating to the energy transition. Residential construction is also developing more favourably again. In other building construction, a positive trend is emerging with industrial projects.

The situation in Hungary remains challenging. The significant decline in the construction volume is due in particular to the withholding of EU funds. On the positive side, however, there are increasing orders from the automotive industry and from automotive suppliers manufacturing in the country.

The Czech transportation infrastructures sector remains dominated by predatory pricing for large-scale projects. The high demand for special infrastructure in tunnelling, ground engineering and hydraulic engineering is being met through internal collaboration within the Group. In railway construction, a new large-scale project was acquired at the beginning of the year with the modernisation of the Masaryk railway station in Prague. Private investors remain inhibited in building construction by the high interest rates. Industrial and office construction recorded a sharp decline, and the residential construction market is also at a lower level than in the same period of the previous year.

In Slovakia, the number of projects put out to tender in transportation infrastructures is expected to increase again after the parliamentary elections in 2023. In building construction, private investors are being adversely affected by the interest rate situation. In contrast, positive trends are emerging in public building construction.

The development of demand in the markets of South-East Europe is mixed. In Croatia and Slovenia, the focus is on transportation infrastructures and the construction of industrial facilities. In Romania, contract awards may be delayed in general due to upcoming local elections. Romania’s public building construction sector is showing positive trends, despite the increasing competition from outside of Europe.

The building materials and environmental technology activities that are bundled in the South + East segment are showing a satisfactory trend overall. These activities are of key importance for the action areas of circularity and expertise in the energy sector in our Strategy 2030.

Selected projects – South + East segment

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Segment International + Special Divisions

The International + Special Divisions segment comprises the majority of STRABAG SE's non-European business in addition to its global tunnelling activities. The segment also encompasses infrastructure development, real estate development, and property and facility services, irrespective of where these are performed.

The construction materials business, previously reported as part of the International + Special Divisions segment, was integrated into the South + East segment with retroactive effect from 1 January 2023. The previous year’s figures have been adjusted accordingly.

Output volume – International + Special Divisions segment

Output, revenue and EBIT

In contrast to output, revenue fell by 3% to € 2,984.48 million, reflecting the change in the revenue-to-output ratio from 116% to 101%. The segment is subject to regular fluctuations due to the presence of large-scale and mega-sized projects. Higher earnings contributions were achieved in property and facility services and in infrastructure development, among others. The real estate development business also performed robustly despite the challenging environment, making a positive contribution to earnings. These developments were more than offset by provisions for two major international projects, however, resulting in a negative EBIT of € -132.10 million (2022: € 44.81 million).

Order backlog

Employees

Given the relative size of the individual projects within the International + Special Divisions segment, the number of employees in the various countries varies greatly. Overall, the headcount increased by 16% to 20,360 FTEs. In line with the output trend, staff numbers were up year-on-year, particularly in Germany and the Americas, but also in Asia.

Outlook

The international business, with its focus on established markets in the Middle East, is developing at an above-average rate. Internationally, STRABAG is a successful provider of specialised construction services, for example in test track construction and asphalt hydraulic engineering. New orders for intelligent transport systems in India are having a positive impact on output. In Chile, opportunities in the renewable energy sector continue to present themselves following the successful realisation of several projects in this field.

Stable development, combined with opportunities for organic growth, is expected in the property and facility services business in 2024. Following the successful integration of facility management service provider Bockholdt GmbH & Co. KG in Germany, the focus will be on services for the decarbonisation of properties. At the same time, the expansion of MEP and energy management services is to be further accelerated, organically as well as through acquisitions.

In infrastructure development, the situation remains challenging for large-scale projects in the European core markets, although a few tenders are expected in road construction. In South America, an increase in new tenders is expected in the infrastructure sector. In line with the Group Strategy 2030, STRABAG is focussing increasingly on the development of renewable energy projects in its core markets.

Real estate development is being adversely affected in particular by the interest rate turnaround and the bleak economic environment. At the same time, there are signs of a supply gap, particularly for sustainable properties. With expectations of interest rate cuts, the environment for property developers should gradually stabilise starting in the second half of the year. STRABAG Real Estate’s prudent acquisition policy and conservative project valuation have so far proved robust, however. The strong development and implementation competence with regard to sophisticated sustainability and new work concepts could give STRABAG a competitive edge in the future.

Selected projects – International + Special Divisions segment

Segment Other