Engineering and construction: Building a stronger global industry

Industry volatility is diminishing as higher rated participants more actively manage their project portfolios, avoiding geographic and end-user market segment concentrations that intensify risk. E/C companies are going beyond simply broadening the business base by widening the range of design and construction services offered. They are taking on responsibilities for project operation and management following completion, thus providing additional buffers from traditional industry cyclicity. However, the increasing tendency of E/C companies to take partial equity stakes in certain projects has increased the capital intensity of the business. Diversification strategies of higher rated companies are usually funded primarily by ample internal free cash flow generating abilities and generally build on existing core strengths rather than adding riskier new business legs. Thus, Standard and Poor's believes that the continuation of these trends could lead to enhanced ratings stability or gradual improvement depending on individual company performance.; Standard and Poor's is an international credit-rating agency and publisher of financial information on the U.S. and foreign corporate and municipal debt obligations. The agency maintains public ratings on 12 firms that are either pure engineering/construction (F/C) companies or rely on the E/C sector for a significant portion of total revenues. Evaluation of these firms enabled the agency to identify certain keys to success specific to the industry.