1 Dialogue with the market A N N U A L R E V I E W
2 In addition to this Annual Review, Strukton has published an Annual Report for The 2006 Annual Report includes the Supervisory Board and Group Reports, information on corporate governance and other information. The Annual Review and Annual Report are available in both the Dutch and English languages. In the event of textual inconsistencies between the English and Dutch versions, the latter shall prevail. The Annual Review and 2006 Annual Report are also available via the Internet: We would be happy to send you a Dutch version of the 2006 Annual Review on request. An open Dialogue with the market characterises Strukton s positioning and has been adopted as the theme of this Annual Review. Five dialogue illustrations have been chosen in this context: a social voice with an appropriate response from Strukton. Strukton Groep N.V. Westkanaaldijk 2, 3542 DA Utrecht PO Box 1025, 3600 BA Maarssen T +31(0) F +31(0) E Registered at the Utrecht Chamber of Commerce under number
3 Contents Profile 2 Key figures 3 The world of Strukton 4 Report of the Group 6 Strategic framework 11 Knowledge and technology 16 Corporate social responsibility 19 Business operations Rail Infrastructure & Information Systems 26 Civil Engineering 30 Construction & Property Development 38 Technical and equipment management services 46 Property & Facility management services 52 Integrated Projects 54 Financial performance 60 Consolidated balance sheet 63 Consolidated income statement 64 Consolidated statement of cash flows Governance and risk profile 66 Group management members 67 Names and addresses 68 The Annual Report is available as a separate document.
4 Strukton is a group of companies that operate as full-service providers of infrastructure and accommodation solutions. With market demand becoming increasingly complex and multidisciplinary, they recognise that mono-disciplinary solutions do not offer customers the value they seek. The market is demanding integrated solutions with high service levels. Providers must have a deeper understanding of a customer s true needs before they can create tailor-made solutions that help the customer and/or society achieve its goals. In the industries Strukton serves, answering questions that have not yet been asked is the culmination of a customer and market-driven approach. 06 The companies within Strukton share their specific know-how and experience, particularly in Total Cost of Ownership, Research & Development and Development. For many years, Strukton has been the leader in concession-related projects and in the further development of Public Private Partnerships (PPPs) in the Netherlands. Profile The common challenge facing the Strukton companies is to go further than just executing and handing over projects and to assume responsibility for infrastructure and accommodation projects. This demands a new approach at both Strukton and its customers, one that takes account of a project s total lifecycle from the very beginning. Corporate social responsibility (CSR) is an integral part of Strukton s business operations. All companies in the group comply with Strukton s strict policies and codes of conduct on working conditions, health, safety and the environment. A whistle blower scheme is in place for staff. In 2006, management took the initiative of carrying out a CSR study. In 2007, the findings will be worked out into a policy plan, including indicators to measure results. Strukton supports the sustainable construction initiative, applies its insights and actively raises them with its customers. In 2006, the year of its 85th anniversary, Strukton achieved a revenue of EUR 955 million, employing an average workforce of 4,500. Strukton s distinctive and innovative strength and synergy are driven by its specific knowledge and experience. This is illustrated by the companies, knowledge and experience in chain extension, lifecycle management and systems that make their work more transparent. Accumulating, combining and further developing that know-how and making it available and accessible has high priority throughout Strukton. The human factor is critical to all processes and is a key management tool in the companies marketing strategy. Strukton has clear ambitions and has identified the competences it needs to achieve them and will continue to invest in them. Strukton s ambitions create a working environment that offers excellent opportunities for the professional and personal development of its staff. Revenue Railinfrastructure and information systems Civil infrastructure Construction & Property Development Technical & Building Services Other
5 Amounts in millions of euros IFRS Dutch GAAP Revenue Operational result (EBITDA) Operating result (EBIT) Result for the period Operating activities Investing activities Financing activities Total cash flow 24.3 (123.4) 77.3 (21.8) 12.7 (12.6) (7.2) (7.1) 58.1 (17.1) (26.0) (17.2) (24.3) 11.9 Acquisitions of property, plant and equipment Depreciation / impairment of property, plant and equipment Balance sheet total Total equity Capital employed Net cash (debt) (58.2) 36.8 (7.5) Keyfigures (16.5) (31.4) 06 Return on capital employed * Net result as a % of average total equity Net result as a % of revenue Solvency Order book at year-end 1, , Non-financial indicators Average number of employees (FTEs) Absenteeism Accident frequency (IF index) ** Average duration of absenteeism *** Expenditure on management development and training**** Strukton whistle blower scheme registrations % of staff reviewed 4, % ,0 88.5% 3,641,0 7.2% , ,0 88.8% 3,636,0 6.9% , ,0 88.3% 3,522,0 6.5% , ,0 86.7% 3,353,0 6.8% , ,0 90.5% * corrected in 2005 and 2006 for amortisation on intangible fixed assets ** 1,000 x absenteeism accidents / number of accidents *** number of days absent as a result of accidents / number of accidents **** in millions of euros
6 The world of Strukton CORE ACTIVITIES PPP CONCESSION PROJECTS Full-service concepts such as DBFMO; (Design, Build, Finance, Maintain and Operate) New-style building Further development of PPS and unsolicited proposals Acquisition, development and investment in PPP concession contracts RAIL INFRASTRUCTURE & INFORMATION SYSTEMS European full-service provider of rail systems (maintenance, construction) Construction and maintenance of rail infrastructure (systems) Information systems (travellers) Data acquisition and data management Development and integration rolling-stock systems Energy systems 06 CIVIL engineering Development, design, realisation and maintenance of civil infrastructure projects Underwater and above-ground infrastructure (in place, drilled and immersed tunnels, bridges, stations, road and road maintenance) Construction operations in complex locations Industrial construction Water management and processing Specialisations: emersion technology, compacting, shearing and jacking technology, car parks, foundations, pre-stressing and noise barriers construction & property development Development, realisation and maintenance of property Project development Urban renewal Utility and residential housing construction Renovation, reconstruction and (systematic) maintenance Technical management Parking solutions TECHNICAL, MANAGEMENT AND building services Full-service provider of building-related technical installations and hard services Technical service, management and maintenance Construction of technical installations Acquisition, design, construction and concession/ performance-based management and outsourcing technical services PROPERTY MANAGEMENT AND FACILITY MANAGEMENT Full-service provider of property management services Housing management: integral facility services and property management Main contracting Advice and interim management Development and supervision of construction and renovation projects, housing plans, rental and leasing plans
7 CUSTOMERS MARKET CHARACTERISTICS STRUKTON COMPETENCES National governments Provincial governments and municipalities Educational institutions Healthcare institutions Infrastructure operators mainly in Western Europe Department of public works ProRail Mainports, airports Major cities, provinces Governments and government bodies Industrial consumers (transhipment, utility and waste processing companies and water processing companies) Transport companies End users / tenants Commercial and financial service providers Housing associations Project developers Healthcare institutions Educational institutions National governments and municipalities Commercial and financial service providers Educational institutions Healthcare institutions Entertainment industry Industry Tunnels and car parks Developing and expanding rapidly Highly complex process and project management Quality driven (sustainability / corporate social responsibility) Space for private initiatives Niche market European market with differences depending on country High entry threshold due to knowledge and capital intensity Still a limited number of players Focus on quality and safety at a good price Competitive Cyclical Fragmented market with limited top-end segment and numerous regional/local players Changing role of principals, shift towards new contract/tendering forms Focus on quality and added value Shift towards new contract/tendering forms Fragmented market with limited top-end segment and numerous regional/local players Cyclical Developing and expanding High degree of complexity and risk Focus on service provision attitude; challenging clients Innovative/lifecycle approach Facilitator, integrator and stimulator of cooperation in integrated concepts Numerous opportunities to generate synergies through alliances with internal and external parties Knowledge advantage, also through participating in international alliances Dedicated and driven organisation In-house software product development, including equipment for maintenance and data acquisition and data management High level of quality performance through focus on transparency and prevention Dedicated train business Familiar with all aspects of rail business Project management Great deal of technological knowledge (in-house engineering & specialist skills) Knowledge-innovative contract forms Specialist in underground construction Strong in construction while management/use must continue uninterrupted Optimisation of costs versus yields with strong customer focus Integral and object-oriented approach to the construction process from planning/project to management phase High-rise construction Lifecycle/Total Cost of Ownership approach Offer operational safety in relation to primary processes (supporting core business) of principals. Create working and living environments in which people can excel 06 Governments Transport sector Educational institutions Healthcare institutions Commercial and financial service provision Focus on value retention Knowledge intensive Increasing level of outsourcing Increasing complexity and risk Approach taking account of both common interests and (apparently) conflicting interests of real estate owners and users Lifecycle/Total Cost of Ownership approach Customer oriented Powerful acquisition position for facilities services Professional methods and means
8 For Strukton, 2006 was a dynamic year. We again achieved growth in all markets and entered the operational phase of the first PPP accommodation project in the Netherlands. A series of key acquisitions strengthened the group as a whole. In 2006 we achieved an revenue of EUR 955 million, an increase of 15% on 2005 (EUR 827 million). Several years ago we set a strategic course to gain leadership in markets known for their return on sales and capital employed. In combination with optimising the balance between management and maintenance activities on one hand and project-based activities on the other, we continue to strive for structural improvements in the quality of our profits. As a result of a sharp increase in the proportion of non-project income, we continued to make good progress during the year under review. The operational 06 result for 2006 amounted to EUR 58.3 million and was therefore lower than that achieved in Report of the Group (EUR 74.8 million). Nevertheless, the overall picture is encouraging because the result for 2005 had benefited significantly from a number of non-recurring income items. The result for the period totalled EUR 31 million. With a return on sales of 3.2%, this was again better than the industry average. This is evidenced by the indicators our customers in the rail infrastructure market use to measure our performance, such as availability and service restoration times.
9 06 Gerrit A. Witzel (b. 1951) Raymond T.A. Steenvoorden RA (b. 1964) to shareholders, customers, partners and staff Healthy prospects We achieved satisfactory financial results in We succeeded in broadening and strengthening our base and possess sufficient financial clout to achieve our growth strategy. We further reduced our dependency on the volatile construction project market, and have made good progress in shifting our focus more towards service-related activities. At the end of 2006, our order book represented an amount of more than EUR 1 billion (2005: EUR 825 million). Armed with the knowledge that our order book potential is of a superior quality, we are confident that we will achieve healthy growth in the future.
10 Strong partner in a seamless rail operation Rail infrastructure managers (such as ProRail in the Netherlands) are evolving into sophisticated professional customers driven by performance. They demand that we, as a specialist, act as dedicated co-makers, willing to share responsibility for a seamless rail operation. The integrated package offered by Strukton Railinfra runs from concept to construction and maintenance, with the principal aim of offering a reliable and safe rail system. The company boasts many decades experience in the most heavily used rail network in Europe. This makes Strukton Railinfra a strong partner, both in the Netherlands and internationally. The company s motto is both simple and revealing: We are railways. 06 Railinfra s European growth strategy Strukton Railinfra s targeted investments in exportable know-how and concepts have given the company a clear edge for it to continue its strong growth of the past five years. Railinfra is a major player in the Netherlands but there is little room for further growth in the Dutch market. Railinfra is therefore concentrating on strengthening its position by introducing new products and services. The company is also seeking expansion through European acquisitions and by entering the niche market for measurement and data management. In 2006 Railinfra strengthened its position in Scandinavia. In the first quarter it took a 65% interest in Norway s Jernbaneservice AS and reached agreement with Sweden s Svensk Banproduktion AB on increasing its current 60% interest to 100% in Railinfra also made system integration in rolling stock a core activity in view of its enormous international potential. Ready for challenging customers Ideas about building are changing. Demand for more complete and therefore more complex products is increasing. Customers are calling for multidisciplinary solutions that make more demands on our innovative and problem-solving abilities. The focus is shifting from product delivery to the total lifecycle of a property or even of a complete area. To meet this changing demand, we apply the combined know-how and skills of our companies and seek partnerships both inside and outside the group. We work as a strong, pro-active partner, understanding the total chain from concept to operation and able to provide the required, more active management input at every stage in the process. This combined strength also creates demonstrable cost savings for the customer, often as much as 10% to 15%. Moreover, there is nearly always an improvement in quality when suppliers share responsibility for long-term solutions. This new approach to construction projects is illustrated by the strong growth of Public Private Partnerships (PPPs). Strukton recognised their potential at an early stage and for the past eight years has targeted its investments at this market. We are now well positioned to work with customers that challenge us to put the new approach into practice.
11 We are already working on three of the six PPP concessions awarded in the Netherlands and are involved in all the PPP projects still at the tendering stage. We have also gained experience on projects in the United Kingdom. We intend to strengthen our position further in this market. To step up the pace at which PPP concessions are awarded in the Netherlands, a cultural change is needed both at Strukton and in government, politics and the civil service. Regulations and the method of financing public works in the Netherlands are sometimes a hindrance to innovative solutions. In other European countries, PPPs are more commonplace. In the United Kingdom, for example, 750 projects have been completed in the past ten years and a further 200 are planned for the next five. Other countries, such as Spain, Portugal, Ireland, Italy, France and Germany, also have substantial programmes and are reporting strong growth. More synergy and security through PPP concessions Strukton wants to be a leader in concession-related projects. We are participating in three of the six PPP concessions awarded in the Netherlands. PPP and other concession-related projects have significant benefits for both customers and Strukton. They enable us to create many synergy gains by capitalising on the know-how and skills available in partnerships both inside and outside the group. Furthermore, the customers pursuit of greater integration in product quality encourages the development of innovative techniques. PPP concessions are also less cyclical because contracts are signed for twenty to thirty years. This shift towards non-project income, i.e. towards a long-term stable income stream, offers our group more security Extending and widening the chain Strukton aims to be one of the top three players in selected parts of the Dutch construction industry. As well as offering standard concepts and products, we want to develop new concepts specifically for end users. To achieve these policy aims, we must obtain, maintain and develop more know-how than we currently have. We must have the right people and the necessary financial strength to extend and widen our position in the chain. To achieve critical mass, we will acquire companies with strong market positions that can add know-how and skills to our existing activities. Stronger position in value chain During the year we made a number of acquisitions to strengthen our position in key areas. The acquisition of WorkSphere in mid-2006 increased the group s know-how and skills in plant design, construction and maintenance. The focus here lies on achieving synergies with PPP projects, the Total Cost of Ownership (TCO) concept and the integral provision of technical and engineering maintenance. In civil infrastructure, we strengthened our position through the acquisition of Reef, making it possible to independently offer integral infrastructure projects.
12 Attitude determines distinctiveness In addition to the decision to strengthen our position in the value chain through acquisitions, we took another important strategic choice during the year. We analysed the most distinctive and typical features in the areas in which we want to become a top three player. The analysis found that Strukton s distinctive position stands or falls on its staff s attitude. We have therefore included attitude in our positioning. This choice emphasises the role our people play when entering into relationships: they must understand customers, help seek solutions and keep asking questions, and they must understand society, partnerships and co-creatorship. The choice is also a guide to our staff s conduct. The attitude we have selected is summed up in the term Challenging Clients. You will regularly come across the term Challenging Clients in the years ahead. The theme of this Annual Review, Dialogue with the market, also underlines in words and images the position Strukton is seeking Every opportunity for talent We have set ourselves ambitious targets, but we and our staff are ready to rise to them. The tight labour market for technical staff is a matter of concern. However, the route we have set out upon will help us attract the talent we need. The challenges we face, the innovative approach we constantly seek and the creativity we call for bring development opportunities and career openings with them. Together, we again achieved a result to be proud of in We would like to thank our staff for the dedication, know-how, experience and professionalism that made it all possible. And we would like to thank our shareholder, customers and partners for their support and confidence. Utrecht, 8 March 2007 The Group Gerrit Witzel, chairman Raymond Steenvoorden
13 Policy principles Profitability above revenue growth. Concentration on activities that standout favourably for their margins on income and return on capital employed Distinctive position of the different activities Know-how and skills shared internally and mobilised externally (combined use of activities) Efficient organisation with inspiring working environment and attractive development opportunities for staff Corporate social responsibility as an integral part of our activities Strategic framework Key points of strategy Organic growth International growth of Railinfra through selective acquisitions and partnerships Increase in scale through selective acquisitions in construction, concrete engineering, property and related services Business excellence by investing in quality systems, innovation, knowledge development, education and training Optimal combination of service, maintenance and project-based activities Goals European leadership in rail infrastructure Top three in selected segments Leader in concession-related projects Preferred employer
14 Every child in the Netherlands has a right to a good education. But many school buildings are not suitable for today s teaching methods. The problem is particularly pressing in primary schools. Many of the buildings are very old and were built for traditional classroom teaching. Some teachers cannot introduce certain teaching methods Chairperson, Marleen Barth CNV Christian Teachers Union simply because the physical space won t let them needs a Betuwe route for education The government has made municipalities responsible for primary school buildings and is now saying it can t do anything. Children and teachers are dependent on municipal politics and municipal budgets. If there s no money or enthusiastic councillors who look further than their own terms of office, it s just bad luck. Why can t education have what the Betuwe route s got: a combination of vision, political will, political priority and money to get it right from the outset? There are 2.5 million children at school and 350,000 adults working in education. The buildings have a great influence on the quality of the education. Every politician should be concerned about this, if only because the poor climate in schools literally makes 2,000 teachers and 20,000 pupils sick every year. That doesn t happen with a good school building. And I haven t even mentioned the impending shortage of teachers! The government is responsible for finding an integrated solution to the problem but it would be great if the private sector could help get the discussion going. There are 2.5 million children at school and 350,000 adults working in education
17 We have an unbelievable wealth of expertise in-house. By integrating it at the very start, for example on a PPP concession, we can take some of the burden off the education sector. For less money, the end users can have continuous access to everything they need for the finest education. Managing Director Frans van der Nat Strukton Bouw Special Projects Making sure that teachers, children and, of course, non-teaching staff can perform to the best of their ability Our goal is no longer to build a school that meets just today s demands at the lowest possible cost. We have to provide future-proof solutions, buildings that can evolve in step with changes in education and society. This means that the initial costs are higher and that s a difficult point when it comes to schools because they are funded by a public authority or a board of governors but the end users are the teachers and the children, and the non-teaching staff of course. On the other hand, for everyone in favour of sustainability it is only logical to look further than the initial costs and to work out the building s total lifecycle costs. We are constantly learning about the end users world. To come up with a really good solution we have to get to the root of what they really want. The government and politicians can encourage this integrated approach to school buildings. If they give us the opportunity, we can prove that we can add value in practice. That s why we are pleased that former finance minister Gerrit Zalm has chosen an integrated solution for the renovation of the Ministry of Finance. That will definitely have a knock-on effect. We are constantly learning about the end users world
18 Strukton wants to stand out in the market by providing solutions based on total lifecycles. They will be executed under contracts that expose it to risk. Successfully achieving this position requires more than just technical know-how. It calls for creativity, innovation and a high level of expertise in many other areas Shared ambitions in engineering, knowledge development and quality Strukton s operating companies boast a wealth of know-how and skills that they actively develop and embed in the organisation. Each part of Strukton complements the others. The common goal is to have Strukton be known for its improved products and winning concepts. The companies share know-how and best practices through regular multilateral consultation. The Strukton Innovation Forum has been set up to encourage innovation throughout the group. Knowledge and technology PPP, DBFM, DBFMM and other contract forms are feasible only if the supplier can guarantee that an asset will be available as agreed throughout the entire term of the contract. It is mainly a question of providing the required functionality at the agreed price. Building services and energy management are therefore growing in importance in the design, build and operation phases. The know-how and skills that have been gained through the acquisition of WorkSphere are of vital importance for this. The same is true of the specialised know-how that Servica contributes in property management. Strukton has two engineering consultancies that are accredited by ProRail: Technologie & Engineering Consult (T&E Consult) and Strukton Railinfra Development & Technology (SRDT). They are certified for steel bridges and rail work respectively. In 2006, certification for overhead lines and energy transmission was requested. Both consultancies support all design and engineering activities on infrastructure projects and non-residential projects, not only in the tendering phase but also in the build and management phases. PPP, DBFM AND DBFMM new contract forms that integrate the design, build, finance and often management and maintenance phases. Strukton wants to be known as an innovative company
19 This way of working encourages the integration of expertise Integrated vision, concept and realisation To strengthen both the width and the depth of Strukton s innovative capacity, the Strukton companies work closely with each other on research projects and product and knowledge development. They also take initiatives to encourage the operating companies to look and to listen to each other. This way of working encourages the integration of expertise and the creation of concepts, advice, products and services that have distinctive added value on account of their quality, effectiveness, efficiency, practicability and feasibility. Innovative cross-fertilisation Some examples show how the shared know-how and techniques were strengthened during As intended, they were usually the product of cross-fertilisation within companies or between companies and business units. Railinfra further developed POSS, Strukton s preventive maintenance and fault diagnosis system, and a variety of partnerships worked on digital inspection and video inspection techniques. T&E Consult took innovative steps to develop quality and process control systems. A Project Model developed in-house based on the tried and tested Prince2 method will support the development of a common professional standard. The System Engineering model was applied to help the companies devise and build very detailed concepts based on the customers required specifications. It also offers a means to test whether the design meets the required specifications. Construction & Property Development and Civil Infra successfully carried out 3D modelling pilots. This is a first step towards the Building Information Model (BIM), which will be a powerful tool to control quality and reduce failure costs State-of-the-art expertise management In the field of building services, the Strukton Automated Maintenance (SAM) application developed by WorkSphere plays a key role in the accumulation and exchange of knowledge. SAM is a unique learning system for the technical, logistical and administrative control of building services. It is perfectly suited for the accumulation and development of expertise on building service management, energy management and Total Cost of Ownership that can subsequently be used in building designs. In day-to-day operations, SAM manages all the relevant historical and current data on the services. This allows risk-free changes to be made to the management and maintenance of each individual service in response to specific user conditions. This is critical to optimise building service management.
20 06 18 Struktonwijs, the self-developed knowledge infrastructure, was taken to its next phase in In the first phase, an expert system was set up to put questioners into contact with experts with the knowledge they sought. The second phase will institutionalise the knowledge so that it is no longer located only in the heads of the experts. In various areas, specialists have been appointed to keep the knowledge up to date. Only if the information is constantly updated will the system be of value for the future. One of the companies has set up an expert system so that specialists can be found by subject area and by name. The system will be further rolled out in the organisation in a SharePoint 2007 environment in the course of In dialogue with the environment All group companies participate in consultative and public bodies in their respective areas of expertise, such as working groups for the development of European infrastructure standards. Staff from various levels are also in contact with universities and actively participate in working groups, committees and international exchange projects. Strukton participates in, for example, Integrail, the Underground Building Centre (COB), the Virtual Building Platform, in which leading construction companies exchange practical experiences, and INCOSE, Strukton is also seeking to increase its personal involvement in training and education centres, in part by sitting on advisory boards, in order to make a positive contribution to the industry in general and to improve its own image as an employer in particular. A favourable reputation should preferably begin at primary school level. Integrail a European organisation engaged in the development of the future electronic rail system. INCOSE the International Council on Systems Engineering. Strukton is also seeking to increase its personal involvement in training and education centres