After five years of decline, the European construction sector moderately grew during 2014. The Croatian construction sector also records slight growth or at least a halt in decline. Although the results are not stellar, it is predicted that the sector will grow by 3.5 percent in the EU in 2016, so it is worth considering whether it is still worthwhile to invest in it.
After five years of continuous decline, the European construction sector achieved moderate growth in 2014. The years of recession marked the industry with instability, thus investments in this sector are still characterized by caution, and consequently, the growth is not as significant as in the years before the crisis. According to Deloitte’s research on the fifty largest companies in the European construction sector for 2014, at the top are, as in the previous year, French Vinci SA with 38.7 billion euros in revenue (a decrease of four percent compared to the previous year) and Spanish Actividades de Construccion y Servicios (ACS) with nearly 34.9 billion euros in revenue (a decrease of nine percent). Among the companies known to the broader Croatian public, two are at the top – in third place is Bouygues SA, better known in Croatia as one of the concessionaires of Zagreb Airport, and in sixth place is the Austrian Strabag, which has been present in our country for years.
Trend of Diversification
In addition to the fact that the largest seven European companies maintained their position from 2013, it is interesting to mention the movement of their revenues. Thus, the revenues of the seven largest companies compared to the previous year ranged from stagnation to a decline of nine percent, and no company from that group recorded growth. Observing the largest companies through the lens of operating profit, i.e., the ubiquitous and popular EBIT margin, an interesting fact emerges: construction companies achieve a higher margin from activities that are not directly related to construction (such as concessions, investments in the energy sector, and real estate operations). However, such a policy is not without consequences. Analysis shows that companies that decided to go this route are more indebted than those that focused exclusively on construction work. While companies primarily oriented towards building projects are mostly financed from their own cash inflow, those that are somewhat more diversified have net debt several times greater than their EBITDA margin.
After the decline during the recession, investments in the construction sector of the 28 EU member states are expected to grow by 2.1 percent during 2015, and growth is expected to accelerate in 2016 and increase to 3.5 percent. This trend is primarily the result of the gradual recovery of the European economy, which also benefits the construction sector. This could be an opportunity for our builders, especially in the Polish market. As is the case with the rest of the economy, the Croatian construction sector has shown certain signs of vitality since last year and indicates that better days may be ahead. Indeed, the recovery is currently manifested more as a halt in the decline of activity rather than growth; however, after several years of continuous decline (between 2009 and 2013, the volume of construction work, looking at the number of issued permits, was practically halved), even stopping a strong negative trend is positive news.
