Q: What was the year 2009 like for Strabag?
A: It was very good. The Infrastructure Building Division for the first time generated more than PLN2.5 billion in sales. Last year we carried out contracts signed in previous years and new ones. In this respect, it was also a very good year.
The greatest success was that we became involved in the construction of the A2 motorway section from the Polish-German border in Świecko to Nowy Tomyśl. It is the largest single order the company has ever received. Strabag is the general subcontractor on the whole 105-kilometre stretch of the motorway with a concrete surface. Let me remind you that in 2001-2004 Strabag built the first stretch of this motorway – from Konin to Nowy Tomyśl. The contract for the construction of the second stretch also provides for the modernisation of the existing section of 170 kilometres. The investment outlays with financing amount to EUR1.6 billion. The project includes the construction of 81 bridges, two motorway maintenance centres, six junctions and a closed toll system.
In 2009 we completed the construction of the Kielce Północ junction, the largest road project carried out in Świętokrzyskie province in recent years. The junction connects the S7 expressway from Warsaw via Kielce to Kraków with the national road no 73 from Wiśniówka via Kielce to Tarnów. We also started to build the S7 section from Skarżysko Kamienna to Występa.
Among other contracts we carried out it is worth mentioning the construction of the motorway ring road around Wrocław, the road from Konotopa to Prymasa Tysiąclecia Avenue in Warsaw linking the A2 motorway with the S8 expressway (built in a consortium), the Bełk-Świerklany stretch of the A1 motorway, the Słupsk ring road and the modernisation of the national road no 16 in the lake district of Mazuria.
In February a consortium of Strabag Sp. z o.o and Hermann Kirchner Sp. z o.o., a member of Strabag SE Group, signed a contract with the General Directorate for National Roads and Motorways (GDDKiA) for the construction of a 36.5-kilometre section of the S7 expressway from Kalsk to Miłomłyn at a distance of around 100 kilometres to the north-west of Warsaw. The gross value of the contract is PLN1.06 billion (EUR260 million). Construction works will start in March 2010 and will be completed by July 2012.
Q: Which means you did not feel the crisis?
A: We did not feel it in terms of expansion and sales growth because there was no shortage of money for infrastructure projects, but we were affected in other respects. One of them was unwillingness on the part of financial institutions to provide loans for the construction industry. As a large company, we did not suffer as much as other businesses but borrowing costs, including bank guarantee costs, increased. The latter is very important in construction activity because guarantees are required by organisations which invite tenders.
Another aspect was the appearance of new players as some development companies decided to start operations on the infrastructure market. At the same time, many subcontractors encountered problems with acquiring new orders. The result was stronger competition and lower prices.
Q: Strabag has several brands. Which of them are the most important in your activity?
A: A brand connected with us inseparably is Polski Asfalt Sp. z o.o., Poland’s largest asphalt producer, which has its roots in the NCC company, a Swedish asphalt producer acquired by Strabag in 2007. Polski Asfalt Sp. z o.o. holds all asphalt plants operating within Strabag Group. And Heilit + Woerner is responsible for the implementation of projects for the construction of roads with a concrete surface.
Q: What other technological innovations does Strabag introduce onto the Polish market?
A: The Technical Research Institute TPA is our central laboratory. It is responsible for quality assurance and the transfer of modern technologies among the group’s companies in individual countries.
The Strabasphalt heavy-duty road surfacing developed by Strabag is one of such innovations. It can be used for roundabouts, bus lay-bys or crossings with heavy traffic. This year we have built a test stretch with this surface. We are now presenting this technology to investors.
Q: Let us get back to tenders. Those held recently by the GDDKiA cover both road design and construction.
A: In 2009 we signed two contracts for the implementation of projects in this way: the modernisation of the Jeżewo-Białystok section of the S8 road and a 17.6-kilometre section, called D section, of the A2 motorway stretch from Stryków to Konotopa. The designs for the two projects will be made this year.
Q: Can you comment on the company’s statement: “By taking target-oriented measures we recognise opportunities and risks early and take them responsibly into account in our plans.”
A: Each contract is different and there are some opportunities and risks involved in each of them. In Poland, we have a structure which enables us to grade risks. It is made up of regional branches in each province. They tender for small and medium contracts and when carrying them out use services provided by Polski Asfalt plants and other resources of the group. There is a separate structure responsible for large contracts for expressways and motorways, where the level of risk is much higher. We take park in virtually all tenders. There is a bridge division operating within the group. The bridges are built as part of our road contracts. Last year the value of its output reached PLN500 million. This is why, by exploiting to a maximum the opportunities offered by local markets and our international potential, we are able to be competitive both on the smallest and largest contracts.
Significant business risks are involved in contract implementation. Our contracts, even those which are carried out over several years, do not include price indexation clauses. This means we take on ourselves the risk of a change in the cost of contract implementation due to inflation, a rise in prices of building materials, like for example reinforcement steel and bitumen, wages and exchange rate fluctuations. In the past two years the Polish currency has been very unstable. And one should remember that several months usually pass between the time when prices are calculated and the time when the contract is signed. In road building this risk is now less significant because contracts are in Polish zlotys. But in railway construction large contracts are in euros. In 2007-2009 Strabag modernised the 25-kilometre railway stretch from Łuków to Międzyrzec Podlaski on the E-20 line from Siedlce to Terespol. The net value of the contract was EUR67 million. We are now trying to get more railway contracts.
I think that in the coming two years there will be significant risk to the completion of contracts according to schedule. The deadlines for most of the existing contracts for the construction of motorways and expressways are in May 2012. This will create logistics problems associated with the availability of building materials and transport.
Q: What are your plans for this year after a successful 2009?
A: In 2010 we want to increase sales by 60% and there are plans for the Infrastructure Building division to achieve sales of PLN4 billion, of which the Nowy Tomyśl-Świecko motorway contract represents a large part. We are working on developing our own network of concrete plants, both stationary and mobile ones, but in our decisions we take into consideration the availability of concrete on local markets. We have completed the development of asphalt plants. In coming years we are going to keep our structure of regional branches and branches for large contracts because we hope that after 2012 local governments and the GDDKiA will still be building new roads and modernising existing ones.
We have to invest heavily in machines and equipment – we made some investments of this kind in 2009 – and have to take care of our workforce. We have to make efforts to retain each of our 1,200 white-collar workers and around 2,000 manual workers, who are very attractive for the competition because they are highly skilled. And we have to recruit new workers. Our care for the workforce earned us 6th place in the nationwide Perfect Employer 2009 According to Professionals league table in the Engineering category. The league table is prepared by the Universum Polska firm.
Q: What is the position of Strabag Sp. z o.o. in Strabag SE Group?
A: In 2009 the sales revenue of Strabag, which is one of the largest construction groups in Europe, reached EUR13.5 billion. Its revenue from operations in Poland accounted for 7% of the total amount.
Strabag has been present on the construction market for over 170 years now and operates almost throughout the world. Its strategy is to be in the Top 3 on each market. Strabag is the largest construction company in Germany and Austria and one of the three largest in the Czech Republic, Poland, Slovakia, Hungary and Croatia. The group generates more than 50% of its sales outside Germany and Austria. Poland is Strabag’s third largest market.