Updated strategy for 2016-2020
The Executive Board launched the Back in Shape programme in late 2014 to unlock the Group’s potential and turn around its performance. This programme was delivered successfully in 2015, creating a base for the updated Group strategy for 2016-2020: ‘Building the present, creating the future’. This strategy will improve the performance of today’s business and prepare for tomorrow’s challenges and opportunities. The Executive Board engaged with the top 150 management and Young BAM representatives as ambassadors for the operating companies.
Three external forces are shaping prospects for the construction industry. Economic growth, currently vulnerable, will have a low to modest impact on construction volumes. Sustainability and mega trends such as urbanisation and energy efficiency are creating areas of higher growth. Digitalisation is increasingly transforming the construction industry and the built environment. Against this background, the main focus of strategy for 2016-2020 is to continue to restore profitability and improve capital efficiency. This underlines BAM’s principle that margin is more important than volume. The strategy has three objectives: to focus the project portfolio, shape the business portfolio and create the future portfolio. These are supported by two foundations - culture and capabilities.
BAM is focusing the project portfolio (‘Doing Things Better’) after a rigorous analysis of the project folio. Using either scale or differentiation to win projects will be the main drivers of performance improvement at the operating companies. In market segments characterised by price-led competition, BAM can achieve cost leadership through project bundling and industrialisation. For projects where requirements are more demanding, BAM will use its knowledge leadership, innovation and quality assurance as key differentiating factors. This greater focus will also lead to better planning and management of the fixed cost base.
Examples of project focus areas include near-shore marine works, energy-neutral home refurbishment, stadiums and tunnel-based infrastructure. In Property, BAM will focus on equity-light developments in the main urban areas and further integration of activities with construction to unlock synergies. PPP will continue to target contracts in home markets where payments are based on availability.
BAM is shaping the business portfolio (‘Doing Better Things’) by supporting the operating companies in developing new propositions in the home markets as extensions of projects along the lifecycle, and leveraging specialisms in international markets. These initiatives will be driven by investments in people and systems and developing partnerships. At the same time, BAM will continue to de-emphasise or exit operational activities which do not offer sufficient opportunities to use scale or differentiation as critical success factors. BAM will continue to optimise its portfolio of Property assets.
BAM is creating the future portfolio (‘Doing New Things’) by delivering construction services using a digital construction platform. BAM intends to be at the forefront of digitisation by using cutting edge design and visualisation tools and keeping close to customers evolving requirements. BAM will facilitate this transition by investing in innovation to create an attractive environment for partnerships and rapid prototyping to shorten time to market.
The Group’s culture will be strengthened further by scalable learning from tenders and projects, more predictable performance, working together in open collaboration and taking ownership of challenges and opportunities. BAM’s people are fundamental to its success, project and business career will be aligned and a stronger culture will make the Group more attractive as an employer and partner of choice.
BAM’s aim is to continuously improve health and safety, and have a net positive impact on the environment so it can deliver more value for clients. By collaborating with the supply chain, encouraging innovative thinking through its products, and realising the benefits of circular economic business models, BAM will have a net positive impact on climate, resources and local communities.
BAM’s differentiating capabilities and operating model are being sharpened, with a focus on employee training and development. The operating companies are improving their systems, knowledge and expertise for data-driven project selection, tendering and execution. Group synergies are being leveraged in areas such as business controls, information management, digital construction, strategic sourcing and partnerships, enhancing local entrepreneurship to serve clients.
Based on the updated strategy, BAM is setting the following targets:
- Grow Return on Capital Employed1 to > 10% by 2020 (2015: 0.2%)
- Raise the adjusted pre-tax margin2 to between 2% and 4% by 2020 (2015: 1.2%)
- Improve trade working capital efficiency3 to at least -10% (2015: -8.1%)
- Reduce the property portfolio to under €500 million (end 2015: € 740 million)
- Improve capital ratio4 towards 25% by 2020 (2015: 21.2%)
- Unchanged dividend policy to pay out 30-50% of the net result for the year
- Continuous improvement health and safety; net positive impact on the environment
Seamless implementation is key for the success of the strategy for 2016-2020. The strategy is being communicated across the Group and action plans are being developed by the operating companies and Group functions. The process is being led by a dedicated team which reports directly to the Executive Board, and delivery of the programme is being included in management assessment and remuneration. ‘Building the present, creating the future’ will build on the base created by Back in Shape, deliver improving performance in the next five years, and position BAM as a leader in digital construction for these years and beyond.
1 Rolling year EBIT divided by the average capital employed.
2 Result before tax excluding restructuring costs and other exceptional costs, impairment charges and pension one-off as percentage off revenue.
3 The average four quarters’ trade working capital divided by rolling year revenue.
4 Capital base divided by total assets.