Internationalisation and Diversification Enhances the European Construction Industry’s Growth
Bratislava, 3 October 2012 – Despite the difficulties in the construction sector due to the economic recession over the recent years, the largest European construction companies managed to increase their aggregate revenues by 7.5% to EUR 300.4 billion in 2011. The identification of new business opportunities through internationalisation and diversification remains the key strategy for sustaining the European construction’s growth. These are the results of the ninth issue of Deloitte’s study entitled “European Powers of Construction” (EPoC), which analysed the development of the leading European construction groups during 2011 in terms of revenues, market capitalisation, internationalisation, diversification and indebtedness.
“French, Spanish and British companies lead the EPoC ranking by volume of sales and market capitalisation.”
— Diana Rádl Rogerová,
Partner at Deloitte responsible for the real-estate sector in CE
“French, Spanish and British companies lead the EPoC ranking by volume of sales and market capitalisation. The French group Vinci and Bouygues once again dominated the construction sector. Spain remained the country with the largest presence in the ranking with a largest effect on investments and divestments. The UK is represented by numerous medium-sized groups with above-average performance in terms of market capitalisation.” said Diana Rádl Rogerová, Partner at Deloitte who is responsible for the real-estate sector in Central Europe.
“Internationalisation and diversification will continue to play a major role in the strategies of European Powers of Construction; nevertheless, construction companies also have to focus on deleveraging. Divestures in non-core businesses have been frequent in view of the fact that geographical expansion and activities outside the traditional construction model are key to overcoming the aforementioned economic and financial recession,” says Miroslav Linhart, leader of the Construction Services Group in Deloitte, and adds: “Furthermore the international presence of major listed European construction groups have been crossing the borders of the old continent in search of new business opportunities.”
In 2011, investments in the construction sector in the EU decreased by 0.9%. In 2012, a decrease of 1.7% can be anticipated, while 2013 expects a slight growth of 0.6%.
Construction investment forecasts in the Eurozone are not aligned in 2012 and negative growth rates are expected in countries such as the Czech Republic, Portugal, Slovenia, Ireland, Spain, Greece, the Netherlands and Cyprus. Positive growth rates are being expected for Estonia, Luxembourg, Slovakia, Austria, Germany and France. Expectations for 2013 include a slight growth of activity in the EU whilst Germany and France continue to be the biggest EU construction markets, with a similar size.
Swedish and Spanish groups topped the 2011 dividend yield ranking and offered potential investors a higher return according to share price. The other groups were not as generous and achieved a dividend yield of approximately 5%.
According to different estimates, the annual average investments forecasted for the period 2005 – 2030 is EUR1.3 trillion, of which transportation infrastructures account for EUR 300 billion. The BRICs (Brazil, Russia, India and China) represent 40% of the worldwide population, 15% of the global economy and 61% of expected infrastructure investments in the coming years.
“International opportunities are therefore significant for Europe’s key players. Historically, construction activity has been considered a local business as some negative experiences arose in the past. Cultural differences, various pieces of labour and subcontractor legislation, corruption problems and different legal frameworks, in addition to local competence, were seen as the main barriers in the internationalisation process.” adds Miroslav Linhart.
The nature of the construction business, generally characterised by low investments, adjusted margins and reduced working capital needs, has traditionally financed its operations through internal resources.
Nevertheless, the diversification strategies have increased the need for external funding resources. Total EPoC 2011 net debt was reduced by 15% in 2011 at EUR 74.3 billion.
The study is available at www.deloitte.com/epoc.
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© 2012 Deloitte Slovakia