Buildings

Activities in this business line relate to buildings in which people live, work, shop, relax or otherwise spend time. We are involved in a broad range of project work that includes inner city (re)developments, office buildings, industrial sites, data centers, hotels, resorts and other leisure facilities, shopping centers, hospitals, schools, museums, public buildings or a mixed use of these functions. Contribution to 2011 revenues was 18% (2010: 19%).

Present position and strategy

Focus on services higher up the value chain

The buildings market is largely driven by investments by private investors and developers (commercial real estate); institutions (health, cultural, education); end-users (all types of buildings); and governments (public buildings). In recent years, we have transitioned to services with higher added value that improve profitability. We now focus on management, consultancy and specialized engineering services, while we offer world-class architectural design and planning capabilities through RTKL. With Rise, added in 2010, we strengthened our program management capabilities. The merger with EC Harris in 2011 added a full spectrum of built asset consultancy services, allowing us to expand our leadership position in the buildings market and benefit from property investments worldwide.

SWOT analysis

Ambition and targets 2011 – 2013

Our ambition is to be the global partner of choice, leading in all our market sectors by attaining a top 5 position in buildings design and program/project management services. Our organic growth target is 5 – 7% per year with margins of 10 – 11%.

Buildings strategy 2011 – 2013

The recent merger with EC Harris is a major step in achieving our strategic ambitions, which will also have an impact on our strategy going forward.

Up till now the focus is on:

• Growing Healthcare and Workplace. These sectors are expected to show good growth opportunities. In Healthcare, we have a unique combination of skills, including high level design, installations expertise, equipment planning and project management. In Workplace, we use our multinational client program to develop and leverage relationships with clients who benefit from our seamless global service delivery.
• Expanding front-end capabilities and Program Management. This allows us to be more involved at an earlier phase of projects and win larger assignments. The merger with EC Harris has considerably expanded our front end consultancy and project/program management capabilities.
• Expanding into Asia, Middle East and Brazil. These geographies offer strong growth potential. EC Harris has strengthened our footprint in Asia and the Middle East. In Asia, we will grow our business organically and through further acquisitions. In other markets, the focus is on expansion from our present positions.

Developments in 2011

Organic growth improving, margins still under pressure

The acquisition of Rise in the United States at the end of 2010, the merger with EC Harris per November, 2011 and the divestment of our 50% stake in the facility management business AAFM (deconsolidated by the end of 2010), had a strong impact on revenues. The strategic rationale for the EC Harris merger and the AAFM divestment is explained on page 19 of this report. The difference between gross and net revenue development mainly comes from the divestment of AAFM with a high amount of subcontracting. Organically, activities declined only slightly, which is an improvement compared to 2010 when revenues declined organically by 5 – 6%. This improvement resulted from mixed market developments. In Europe and the United States, commercial property markets stabilized at low levels, private sector investments picked up and government austerity programs had a negative impact. RTKL returned to organic growth, based on successful expansion in Asia and the Middle East. Mostly in Europe, measures were taken to adjust our business to market conditions. Restructuring charges amounted to €3.9 million (2010: €1.3 million). Excluding these charges, the operational margin declined to 7.0% due to price pressure and losses in the United Kingdom. EC Harris performed in line with expectations.

Public and private investment cycles cause mixed picture in Europe

In Europe, government austerity, limited resources for project finance and increasing corporate investments led to a mixed performance. In the Netherlands, activities declined due to reduced public sector spending, partly offset by a number of interesting private sector assignments, including the design of an ultra-high-pace expansion project for chip producer ASML. In the United Kingdom, we suffered from a weak commercial market. We worked for the Olympic Stadium project in London, which was completed ahead of schedule and within budget. Corporate investments drove strong growth in Belgium, while activities also increased in Germany and France, mostly fueled by private sector spending. We were also able to acquire several international framework contracts from major corporations.

RTKL returns to growth based on success in Asia and the Middle East

RTKL returned to a modest organic growth of 2% in 2011, with good margins. In the United States, the real estate market was still weak, although gradually gaining strength, while uncertainty over new healthcare legislation continued to delay new projects. This was more than offset by successful expansion into international markets. Nearly 50% of revenues and over 60% of order intake came from outside the United States, particularly China and the Middle East. While growth in Asia is mainly coming from commercial markets, in the Middle East, RTKL has carved out a strong position in healthcare. An example of this is the King Faisal Specialist Hospital project in Jeddah, Saudi Arabia, for which RTKL designed a major expansion.

Program management to position for larger opportunities

With the addition of Rise, we have substantially strengthened our capabilities in program management. We have launched a special program to roll this out as a global service, targeting large and complex investment programs. The merger with EC Harris is a further catalyst for this development, as it brings additional built asset consultancy services and strongholds in the Middle East and Asia, where large program management assignments come to market regularly.