Annual Report 2005

Transcription

Annual Report 2005

FIRST-CL SS
FUTURE
Annual Report 2005
Turning Vision into Value.
QU LITY
The impressive wood
and glass facade of the
Peek & Cloppenburg
“Weltstadthaus” textile
store in Cologne is
further proof positive of
how HOCHTIEF produces masterpieces with
its partners. The company differentiated itself even more from the
competition in the year
under review chiefly by
offering superior quality,
efficient processes and
innovative solutions.
HOCHTIEF stands for quality and creates value for its clients, shareholders and the company itself. Supported by the best employees,
we develop, finance, implement, operate and manage a complete range of complex projects as the world’s third largest provider of construction services. Our international HOCHTIEF network and close cooperation among our divisions enable us to offer unique, end-to-end solutions covering the entire life cycle of projects. With product and process innovations, HOCHTIEF performs pioneering work worldwide,
sets new standards and shapes markets. We always act responsibly and with a keen awareness of sustainability issues. All of this makes
HOCHTIEF a reliable partner.
The Company at a Glance
Management holding company
HOCHTIEF Aktiengesellschaft
Divisions
HOCHTIEF Airport
division
HOCHTIEF Development
division
HOCHTIEF AirPort has positioned itself as one of
the leading independent airport managers in the
continuously growing market for airport privatizations. Since HOCHTIEF AirPort was founded in
1997, it has acquired stakes in Athens, Düsseldorf,
Hamburg and Sydney airports. It also took over
operation of the airport in Tirana, capital of Albania,
in early 2005 and holds a stake in the UK consulting firm Transport & Logistics.
In HOCHTIEF AirPort Capital, the world’s first airport investment partnership was created this past
fiscal year. HOCHTIEF AirPort looks ahead to
participating in attractive airport projects with the
financial partners to the venture.
As one of the world’s leading providers, HOCHTIEF
AirPort combines proven expertise in operational
and commercial airport management with innovative
financing models. It markets its know-how as an
international transaction manager.
The Development division focuses on construction-related services covering every aspect of
properties, facilities and infrastructure projects.
HOCHTIEF PPP Solutions, founded in the year
under review, develops, finances and operates
public infrastructure projects such as toll roads
and schools on a privately financed basis. In fiscal
2005 the company also landed its first contracts
for operating schools in the UK and Ireland.
HOCHTIEF Facility Management provides end-toend technical, commercial and infrastructure services for managing properties and facilities.
HOCHTIEF Projektentwicklung, as Germany’s leading inner-urban developer, covers the entire real
estate development chain from planning to financing and marketing.
Deutsche Bau- und Siedlungs-Gesellschaft
(Debausie) specializes in asset management, i.e.
the value-driven strategic management of real
estate.
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Annual Report 2005
HOCHTIEF Construction Services
Americas division
Asia Pacific division
The Americas division coordinates the activities of
HOCHTIEF’s subsidiaries and associates in the US,
Canada and Brazil.
The Europe division combines more than 130
years of HOCHTIEF experience in core construction operations for select European countries.
Companies of the division are active in building
construction, civil and structural engineering as
well as airport construction in the German, UK,
Austrian and Eastern European markets, among
HOCHTIEF has long topped the league in general
building in the US, the world’s biggest construction
market, via its subsidiary Turner. The company is
also the market leader in other segments in the US,
including education, healthcare and commercial
properties. Turner is the only construction services
provider in the US with an established presence in
all of the country’s regional markets. Its service
business also continues to grow.
The prime focus of Canadian associate Aecon is
on the construction of buildings and industrial complexes as well as civil engineering, notably in its
home market. Aecon is among the top Canadian
providers in these segments.
Subsidiary HOCHTIEF do Brasil is active in civil
engineering and building construction. For decades,
it has ranked among the leading construction companies in the Brazilian market.
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Annual Report 2005
Europe division
others.
HOCHTIEF’s stake in the Leighton Group has also
made it the market leader in Australia’s construction services sector.
Leighton is a leading provider in the Asia-Pacific
region. The product and service spectrum ranges
from the traditional construction business to services and concessions.
With its six operational units in Australia and Southeast Asia—Leighton Contractors, Thiess, John
Holland Group, Leighton Properties, Leighton Asia
Northern and Southern—Leighton covers every
link in the construction value chain and is systematically expanding its leading position as an operator
and manager in contract mining, a field in which
the HOCHTIEF Group company extracts raw materials like ore and coal for mine owners on the basis of
long-term agreements. Iron ore mining, in particular,
continues to promise highly attractive sales and
earnings potential for the long term, especially with
the huge demand for steel in China and other fastgrowing economic regions.
Under the management of HOCHTIEF Construction,
the division concentrates on profitable market segments such as healthcare facilities, infrastructure
projects such as ports, tunnels and bridges, shopping centers, office/commercial properties as well
as refurbishment and upgrading.
The company’s established specialist knowledge
and innovative prowess in civil and structural engineering as well as airport construction also make it
a partner of choice for solutions befitting forwardthinking projects. Internationally, the division has
made quite a name for itself in the field of complex
infrastructure projects such as high-speed rail links,
power stations and dams.
Contents
To Our Shareholders .....................................................6
Letter from the CEO..........................................................6
Report of the Supervisory Board ......................................8
Executive Board ............................................................. 11
Corporate Governance ...............................................13
HOCHTIEF Stock ......................................................... 17
Value driver for HOCHTIEF stock: Our Airport and
PPP portfolio ..................................................................20
Projects in HOCHTIEF concessions business ................23
Combined Company and Group
Management Report ...................................................25
Business activities .......................................................... 25
Orders and work done in 2005 .......................................26
Markets...........................................................................28
Legal and economic factors ...........................................33
Strategy ..........................................................................35
Research and development ............................................38
Employees ...................................................................... 42
Supply management ......................................................44
Measuring return on capital: Return on net assets .........46
Value added ....................................................................49
Financial review .............................................................. 51
HOCHTIEF Aktiengesellschaft (holding company):
Financial review ..............................................................58
Post balance-sheet events .............................................59
Segment reporting.......................................................... 61
HOCHTIEF Airport division .............................................62
HOCHTIEF Development division ...................................64
HOCHTIEF Construction
Services Americas division .............................................68
Services Asia Pacific division ..........................................70
Services Europe division................................................. 72
Risk report ...................................................................... 74
Looking ahead ................................................................ 81
Boards ..........................................................................84
HOCHTIEF Group Consolidated Financial
Statements as of December 31, 2005....................... 87
Reference Information .............................................132
Business units, branches and offices ........................... 132
Index ............................................................................. 133
Glossary ....................................................................... 134
Five Year Summary ................................................... 137
Publication details and credits, financial calendar ........ 139
Annual Report 2005
5
PPP Solutions. After achieving a breakthrough in the social infrastructure segment in 2004 with contracts to plan,
finance and refurbish schools in Germany, we were able to
duplicate that success in the UK and Irish PPP markets in
2005. Our stated goal is to systematically further expand
our activities in the PPP sector.
D r. - I n g . H a n s - P e t e r Ke i t e l ,
Chairman of the Executive
Board ( CEO )
In fiscal 2005 we once again proved the success of
HOCHTIEF’s steadfast strategy, underscored by the extremely encouraging price of our stock, which consistently
outperformed the DAX and MDAX in 2005. We are pleased
by this reaffirmation of the capital market’s confidence.
With the present annual report we not only want to discuss
the events of fiscal 2005 and present our consolidated financial statements. We also seek to give you a broader understanding of our integrated product and service spectrum, our strategy and HOCHTIEF’s prospects.
In March 2005, we finalized the announced airport investment partnership and founded HOCHTIEF AirPort Capital
(HTAC). At EUR 343 million, the volume of the transaction
is a powerful testament to the increased value of our Airport division’s portfolio. The professional merger of airport
and finance expertise makes HOCHTIEF AirPort one of the
most important players in the airport industry.
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Annual Report 2005
The real estate development market, an area in which
HOCHTIEF Projektentwicklung specializes, has reconfirmed
its appeal to our Group. Our objective in this business segment is also to tap new regions: With the founding of a new
subsidiary, HOCHTIEF Projektentwicklung has now extended its presence beyond Poland and the Czech Republic to include Hungary and is working even harder to
cultivate business in the growing real estate market in
Eastern Europe.
After completing the integration of two companies acquired
in 2004, HOCHTIEF Facility Management has been acting
in the marketplace as a united corporate group since June
2005. The company is constantly acquiring new clients in
its business segments and offering them efficient solutions
such as innovative offers relating to energy management.
Working in close cooperation with affiliate HOCHTIEF PPP
Solutions, HOCHTIEF Facility Management landed contracts
to operate PPP projects in Germany, the UK and Ireland.
The HOCHTIEF Americas division is committed to increasing its profitability amid growth consolidation in a market
that is again picking up steam. Cost-saving measures and
restructuring at our companies in the US and Canada have
served to support this strategy.
We aim to work with our HTAC partners to expand our airport portfolio. All of HOCHTIEF’s activities in this sector
are guided by the principle that we only participate in projects where we can acquire stakes at a reasonable price
and realize growth.
The HOCHTIEF Asia Pacific division can look back on a
successful year with substantial boosts in sales and earnings. Major new orders and a record order backlog prove
once again that the division is excellently positioned both
in the market overall and with respect to the competition.
In the Development division, public-private partnership (PPP)
business was superb in the year under review. Starting in
January 2005, we began bundling our PPP activities in
Europe and the Americas into the company HOCHTIEF
HOCHTIEF Europe took another major step forward: The
strategy to focus on profitable market segments has borne
fruit. HOCHTIEF Construction won significant, attractive
To Our Shareholders
The close cooperation on projects among all of the Group’s
operational units is a matter of course for us and creates
added value for all involved. We systematically exhaust all
opportunities to profit from existing client contacts within
the Group’s network. In no small measure cooperation
within HOCHTIEF benefits the divisions in the area of finance, in terms of liquidity as well as the provision of guarantees.
Corporate Governance
In our efforts, we also rely on the vision that was formulated by our managerial staff and introduced at HOCHTIEF in
2005: “HOCHTIEF is building the future.—Along with our
partners, we expand horizons, link people and organizations, create new ways to think and act, and continually
enhance the values entrusted to our care.” We are completely dedicated to realizing this vision.
I thank you, our shareholders, clients and partners, for your
confidence and hope that you will continue your journey
with our company this year. Once again, we would like to
let actions speak louder than words and convince you with
our achievements. I extend my special appreciation to each
and every one of our employees. By working as hard and
professionally as they do, they set the stage for the success
on which we all will continue to build.
HOCHTIEF Stock
contracts in the German construction market, which is
showing the first encouraging signs of a turnaround. Growing
in importance are the expanding markets in Central and
Eastern Europe, where the prospects for new contracts
are good, not least because of the increasing allocation of
EU development funds to the region. The division has stepped
up its local presence and is now optimally positioned with
subsidiaries in Poland, the Czech Republic, Russia and
Hungary.
Essen, February 21, 2006
Dr. Hans-Peter Keitel
Management Report
To continue to improve the value-driven management of
HOCHTIEF, we introduced return on net assets (RONA) as
a new central control variable in 2005. RONA replaces the
ROCE model we previously used. The new return on capital
metric represents an internally consistent value system at
Group and divisional level that allows integrated management of the Group and its divisions in tune with the capital markets.
Risk management continued to play a pivotal role for the
entire HOCHTIEF Group in the reporting year. All units view
and implement it equally as an essential dimension of professional project processing.
Financial Statements and Notes
We ensure the quality of our work with several targeted
measures. By having the best employees, winning our clients
over with end-to-end solutions, turning innovative ideas
into reality and setting new standards, we increase the values entrusted to our care. Fairness, reliability and a sense
of responsibility are key factors in our success. We work
daily throughout the Group to bear out our claim of providing superior quality.
Annual Report 2005
7
Report of the Supervisory Board
Dear Shareholders,
sory Board members were asked to approve specific actions by circularization. The Chairman of the Supervisory
Board also maintained regular contact with the Executive
Board outside of meetings to remain informed about the
business situation and key transactions.
D r. r e r. p o l . h . c .
M a r t i n Ko h l h a u s s e n ,
C h a i r m a n of t h e S u p e rvisory Board
Throughout the 2005 fiscal year, the Supervisory Board
closely supervised and advised on the Executive Board’s
management of the Company, and performed the tasks
and responsibilities incumbent upon it by law, under the
Company’s Articles of Association and under the Supervisory Board’s Standing Orders. The Executive Board provided the Supervisory Board with full, timely and regular
verbal and written reporting on the Company’s and the
Group’s financial situation and development, their business policy plans, questions of principle regarding their future direction, their risk position and risk management, and
specific material transactions. Any departures from the
planned or targeted course of business were explained in
detail by the Executive Board and examined by the Supervisory Board. The Supervisory Board covered this reporting
in depth at its meetings, discussed it with the Executive
Board and made all necessary decisions. There was no
cause to institute measures, such as inspection of the
Company’s books or documents, under the first sentence
of Section 111 (2) of the German Stock Corporations Act
(AktG).
The Supervisory Board met four times during the 2005 fiscal
year to review Executive Board activities and concluded
on each occasion that the management of the Company
was both proper and appropriate. All Supervisory Board
members attended at least half of the meetings. Outside
of its scheduled meetings, the Supervisory Board was kept
fully abreast of projects and plans of special urgency or
importance to the Company. Where necessary, Supervi-
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Annual Report 2005
During the year under review—the first full fiscal year since
the sale by RWE Aktiengesellschaft of its majority stake in
HOCHTIEF—the Supervisory Board focused on the stepping up of capital market and investor relations activities,
and in particular on the presentation of the HOCHTIEF
business model to the financial market and to institutional
investors. A substantial amount of attention was devoted to
the Group’s value-driven management strategy. HOCHTIEF’s
strategic onward development, from construction-related
services and project management right through to financial
market transactions, was discussed in depth with regard to
profitability, concentration on core businesses and strategic
integration.
With regard to the Airport division, attention focused on the
world’s first investment partnership in airport operating activities as a platform for continued growth and a door to
new capital for expansion in this segment. Other major topics
of discussion comprised operational developments at the
Group’s airport holdings—including the operating concession for Tirana, the opening of a new terminal in Hamburg
and the extended operating license for Düsseldorf.
In respect of the Development division, the Supervisory
Board primarily concerned itself with profitability, expansion
of public-private partnership business in Germany, the UK
and Ireland, and efforts to privatize sections of freeway in
Germany. Concerning real estate development, the Supervisory Board deliberated on differential trends in Central and
Eastern European countries and in German cities. Reporting on facility management focused on integration of the
acquired Siemens and Lufthansa facility management activities, the signing of a company-level collective agreement, plus approval and practical implementation of a final
organizational structure.
To Our Shareholders
The Supervisory Board discussed HOCHTIEF’s financing
strategy and was provided with information about the syndicated revolving credit facility to secure the Group’s cash
advance facilities on a long-term basis. The Supervisory
Board was also informed about ethics management at
HOCHTIEF.
Another major agenda item at Supervisory Board meetings
was corporate governance. In compliance with Point 3.10
of the German Corporate Governance Code, the Executive
Board provides a joint Executive Board and Supervisory
Board Corporate Governance Report in the next section
of this Annual Report.
The Supervisory Board has formed three committees, whose
members are listed in the Boards section. The Audit Committee met three times in the 2005 fiscal year, in particular
to examine the annual Financial Statements and Consolidated
Financial Statements for 2004 and the ensuing quarterly
Extensive reports on the meetings and work of the committees were presented at meetings of the full Supervisory
Board.
HOCHTIEF Stock
Central topics of discussion relating to the Europe division
included growth markets and market conditions in Eastern
Europe along with establishing business units and subsidiaries in the region. The Supervisory Board also looked at
the division’s concentration on high-growth, profitable
market segments and its rigorous implementation of risk
management.
The Human Resources Committee met four times in the
2005 fiscal year. It focused on reviewing the Executive Board
compensation system, the amount of compensation provided, appointment of a new Executive Board member and
the future division of Executive Board responsibilities. The
Mediation Committee pursuant to Sec. 27 (3) of the Codetermination Act (MitbestG) was not convened.
The annual Financial Statements prepared for HOCHTIEF
Aktiengesellschaft by the Executive Board, the Consolidated
Financial Statements and the combined HOCHTIEF Aktiengesellschaft and Consolidated Management Report for FY
2005, together with the bookkeeping, were audited by and
received an unqualified auditor’s report from the Essen
branch of PricewaterhouseCoopers Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft, Frankfurt am Main, Germany. The auditors were appointed by the General Shareholders’ Meeting of May 18, 2005 and instructed to perform
the audit of the annual Financial Statements and Consolidated Financial Statements by the Supervisory Board.
Management Report
Discussions on the Asia Pacific division centered around
Leighton regaining its accustomed strong earnings performance after successfully dealing with problem contracts
from 2004. The Chairman of the Supervisory Board met
personally with Leighton’s management to discuss this,
especially from a risk management standpoint.
reports. Focal topics also included risk management, the
internal control system and the Group auditing function.
Other issues included ensuring auditors’ independence,
determining priority areas for auditing, and establishing
auditors’ fees.
The above-mentioned statements, the Annual Report, the
proposal on use of the net profit and the auditor’s reports—
on the annual Financial Statements and Consolidated Financial Statements—were duly submitted to all members
of the Supervisory Board prior to the meeting of the Audit
Committee on March 13, 2006 and the Board’s financial
statements plenary meeting on March 14, 2006. The Executive Board also provided verbal explanations at the meetings. The auditors who signed the auditor’s reports took
part in the Supervisory Board and Audit Committee discussions regarding the documents submitted, during which
In connection with the Americas division, deliberations pivoted
on the flagging US construction activity that has also retarded growth at Turner and set off an aggressive price war.
The Supervisory Board looked closely at Turner’s construction management business model. Other major issues were
the restructuring of Aecon, HOCHTIEF’s future presence
on the Canadian market and the impact of the US dollar to
euro exchange rate.
Annual Report 2005
9
they reported on the most significant results of the audit
and were available to answer questions.
The Audit Committee scrutinized these statements and reports prior to the Supervisory Board meeting and recommended that the Supervisory Board approve the annual
Financial Statements, the Consolidated Financial Statements
and the combined Company and Group Management Report. The Audit Committee further recommended that the
Supervisory Board nominate Deloitte & Touche GmbH
Wirtschaftsprüfungsgesellschaft for appointment as auditors by the General Shareholders’ Meeting.
The Supervisory Board appointed Dr. Burkhard Lohr to
serve as an ordinary member of the Executive Board with
effect from January 1, 2006.
The Supervisory Board expresses its thanks and appreciation to the Executive Board, Group company management teams and all employees for their work in 2005.
Essen, March 14, 2006
Dr. rer. pol. h. c. Martin Kohlhaussen, Chairman
On behalf of the Supervisory Board
The Supervisory Board reviewed the annual Financial Statements, the Consolidated Financial Statements, the combined Company and Group Management Report and the
proposal on use of the net profit. This review concluded
that there are no objections to be raised. Following its own
appraisal and taking account of the Audit Committee’s report, the Supervisory Board approved the results of the
auditor’s examination of the annual Financial Statements
and Consolidated Financial Statements. The Supervisory
Board has approved and formally adopted the annual Financial Statements and approved the Consolidated Financial Statements. It concurs with the proposal on appropriation of the net profit submitted by the Executive Board.
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Annual Report 2005
005-023 englisch 2005.indd 6
24.03.2006 12:47:51 Uhr
To Our Shareholders
Executive Board
HOCHTIEF in a class of
i t s o w n—w i t h i n n o v a tive PPP projects into
which we channel our
e n t i r e s e r v i c e e x p e r tise, generating added
value not only for our
customers and shareholders but also for
students and their
teachers.
HOCHTIEF Stock
Fr o m l e f t t o r i g h t :
Albrecht Ehlers,
Herbert Lütkestratkötter,
B u r k h a r d L o h r,
H a n s - P e t e r Ke i t e l ,
Peter Noé,
H a n s - G e o r g Va t e r,
Mar tin Rohr
Dr. Burkhard Lohr, 42,
became a member of the Executive Board on January 1,
2006; starting April 1, 2006, he will be responsible for the
Controlling, Accounting and Tax corporate centers.
Dr.-Ing. Herbert Lütkestratkötter, 55,
has served on the Executive Board since 2003; responsible for the Development division, the Corporate Develop-
Dr. Peter Noé, 48,
joined the Executive Board in 2002; responsible for the Airport and Construction Services Asia Pacific divisions; until
September 30, 2005, additionally responsible for Insurance
Management. Since October 1, 2005, his responsibilities
also include Corporate Finance and Investor Relations.
Management Report
Attorney-at-law Albrecht Ehlers, 48,
joined the HOCHTIEF Executive Board in 2004; responsible
for labor relations, the Human Resources corporate center
as well as cross-divisional Service Centers; also responsible
for Corporate Headquarters as well as occupational health
and safety and environmental protection. Since October 1,
2005, his responsibilities also include Insurance Management.
ment corporate center and the Construction Services
Americas division.
Dr.-Ing. Martin Rohr, 50,
has served on the Executive Board since 2004; responsible
for market relations, networking of the Group companies,
business development, and for the Global Procurement
corporate center.
Dr. Hans-Georg Vater, 64,
member of the Executive Board from 1996 until March 31,
2006; responsible for Corporate Finance and Investor Relations until September 30, 2005, and for the Controlling,
Accounting and Tax corporate centers until March 31, 2006.
Dr.-Ing. Dr.-Ing. E.h. Hans-Peter Keitel, 58,
became Chairman of the Executive Board in 1992, having
served on the Board since 1990; responsible for corporate
governance, the Construction Services Europe division and
the Corporate Communications corporate center.
Annual Report 2005
11
TR NSPARENCY
Openness by design:
Masterminded by Lord
Norman Foster and
built by Turner, the fusion of New York’s historic Hearst Building
with a striking 42-floor
steel and glass tower
sets high sustainability standards and secured a Green Building
Design Award. Turner
is now fitting out the
entire interior.
12
Annual Report 2005
To Our Shareholders
The General Shareholders’ Meeting 2005 was broadcast
live over the Internet in full, including discussions. A similar
webcast is planned for the 2006 general meeting.
Starting with the report on the first quarter 2006, HOCHTIEF
will publish all interim reports within the times stipulated in
Point 7.1.2 of the Code.
During the 2005 fiscal year, the Supervisory Board again
subjected its work to a thorough efficiency review and conducted an appraisal of the results. Completing a detailed
questionnaire, all Supervisory Board members rated the
various aspects of the Board’s activities and made suggestions to further improve efficiency. Areas examined included cooperation between the Executive Board and the Supervisory Board, meeting preparation, the work done in
Supervisory Board meetings and those of its committees,
and cooperation within the Supervisory Board itself. Overall, existing practices met with widespread approval.
As in 2004, no material transactions were entered into
during the 2005 fiscal year between HOCHTIEF Aktiengesellschaft or any Group company and Executive Board or
HOCHTIEF Stock
The main points of the Executive Board compensation
system, including details of the stock option plans based
on stock appreciation rights (SARs), are published on the
HOCHTIEF website and in the Annual Report. The Chairman of the Supervisory Board additionally outlined the
main points of the compensation system and any changes
to it at the General Shareholders’ Meeting 2005. This will
be repeated at the 2006 meeting.
Executive Board member compensation comprises a fixed
annual salary supplemented by performance-linked and
non-cash remuneration components. The 2004 and 2005
Long-term Incentive Plans add stock appreciation rights
(SARs)—a variable pay component combining a long-term
incentive with a risk element. If the Plan targets are met
during a two-year performance period, the SARs give Executive Board members a monetary claim against the
Company which they can exercise over the next three
years. The targets cannot be changed once set. The total
value of the SARs is limited so that the amount remains
reasonable even in the event of extraordinary or unforeseen developments.
Management Report
HOCHTIEF makes it easy for shareholders to exercise their
rights at general meetings. They can vote in person, appoint
a representative of their choice to vote on their behalf, or
authorize a company-appointed proxy to vote according to
instructions. Shareholders were able to issue their voting instructions to company-appointed proxies both before and
during the General Shareholders’ Meeting of May 18, 2005.
They will have these same options at the upcoming General Shareholders’ Meeting on May 10, 2006.
Supervisory Board members or companies or persons close
to them. No conflicts of interest arose involving Executive
Board or Supervisory Board members.
Executive Board compensation also includes long-term
SARs under the Top Executive Retention Plan 2004—a
once-only plan set up on the sale of RWE Aktiengesellschaft’s stake in HOCHTIEF Aktiengesellschaft. The targets are even higher and the overall waiting periods longer
than those contained in the Long-term Incentive Plans.
HOCHTIEF has long based its actions on nationally and internationally accepted best practices for good and responsible corporate governance. Continuing to improve our corporate governance is a key concern.
H O C H T I E F c o m p l i e s w i t h a l l r e c o m m e n d a t i o n s o f t h e G e r m a n C o r p o r a t e G ove r n a n c e C o d e .
I n a c c o r d a n c e , t h e E xe c u t i ve B o a r d r e p o r t s j o i n t l y o n b e h a l f o f t h e S u p e r v i s o r y B o a r d o n
c o r p o r a t e g ove r n a n c e a t H O C H T I E F.
The Long-term Incentive Plans 2004 and 2005 and the
Top Executive Retention Plan have also granted SARs to
other members of upper management.
Annual Report 2005
13
The Long-term Incentive Plan 2000 expired in 2005. Because its ambitious targets were not met, SARs granted
under the plan could not be exercised. HOCHTIEF shares
invested as a condition of participation have been released.
Full disclosure of Executive Board compensation is provided in the Notes to the Consolidated Financial Statements.
In accordance with the Code recommendations, separate
figures are disclosed for each Executive Board member
and each remuneration component.
Pursuant to Point 6.6 of the Code, HOCHTIEF board members and other managerial staff exercised SARs under the
Long-term Incentive Plan 2003 in spring 2005. The Longterm Incentive Plan 2005 granted new SARs to the same
group. As a precautionary measure in view of Section 15a
of the German Securities Trading Act (WpHG), the individuals concerned notified the German Federal Financial Supervisory Authority (BaFin) of the exercise and the granting
of their SARs. The notices were published on the HOCHTIEF
website. According to BaFin Issuer Guidelines subsequently
(EUR thousand)
Dr. Martin Kohlhaussen
Gerhard Peters
Alois Binder
Detlev Bremkamp
Dr. Gerhard Cromme
Günter Haardt
Ulrich Hartmann
Prof. Dr. Herbert Henzler
Josef Hess
Gerhard Hilke
Dr. Dietmar Kuhnt
Udo Paech
Prof. Dr. Heinrich von Pierer
Fritz Voelkner
Dr. Heinrich Weiss
Klaus Wiesehügel
Supervisory Board total
14
Annual Report 2005
Fixed remuneration
36
24
12
18
12
12
12
17
18
18
24
12
12
12
13
12
264
published in July 2005, neither the exercise nor the granting
of SARs needed to be reported or disclosed under Section 15a, WpHG. The information is therefore not repeated
in this corporate governance report. It is disclosed in any
case in the Annual Document published on the HOCHTIEF
website on March 16, 2006 pursuant to Section 10 of the
German Securities Prospectus Act (WpPG). At the balance
sheet date, there were no securities holdings subject to
reporting requirements under Point 6.6 of the Code.
Supervisory Board compensation for the 2005 fiscal year
is shown in the table below (figures based on the proposed dividend of EUR 0.90 per no-par-value share).
Variable remuneration
120
80
40
60
40
40
40
56
60
60
80
40
40
40
44
40
880
Attendance fees
8
8
8
8
8
8
6
8
8
8
8
8
8
8
6
6
122
Total
164
112
60
86
60
60
58
81
86
86
112
60
60
60
63
58
1,266
To Our Shareholders
Publication of two interim reports was not completed
within 45 days of the end of the reporting period (Point
7.1.2, Sentence 3 of the Code). The deadline was exceeded by a few days because the interim financial statements
included the results of Australian Group companies with
different fiscal years from the rest of the Group.
HOCHTIEF Stock
In the period since the last compliance declaration of March
17, 2005, HOCHTIEF Aktiengesellschaft complied with
the recommendations dated May 21, 2003 and June 2,
2005, except as stated in the following:
Supervisory Board compensation was disclosed as a
sum total subdivided into fixed remuneration, variable remuneration and attendance fees (Point 5.4.5, Para. 3,
Sentence 1 of the Code dated May 21, 2003).”
Essen, March 14, 2006
For the Supervisory Board
Dr. Kohlhaussen
For the Executive Board
Dr.-Ing. Keitel, Dr. Vater
Management Report
“HOCHTIEF Aktiengesellschaft complies in full with the
recommendations of the Government Commission on
the German Corporate Governance Code dated June 2,
2005 and published on July 20, 2005 by the German
Ministry of Justice in the official section of the electronic
Bundesanzeiger (Federal Official Gazette).
In the Notes to the Consolidated Financial Statements as
of December 31, 2004—unlike the Notes to the Consolidated Financial Statements as of December 31, 2005, in
which the Code recommendations were complied with
without exception—only compensation paid to the Chairman of the Executive Board was disclosed separately
and subdivided into fixed remuneration, performancebased components and components combining a longterm incentive with a risk element. Compensation paid
to the remaining Executive Board members was given as
a sum total subdivided into components (Point 4.2.4,
Sentence 2 of the Code).
Pursuant to Section 161 of the German Stock Corporations Act (AktG), the Executive Board and Supervisory
Board of HOCHTIEF Aktiengesellschaft submit their
compliance declaration for 2006 as follows:
Compliance Declaration pursuant to Section 161 of the German Stock Corporations Act
Further information on
corporate governance at
HOCHTIEF is provided on
the HOCHTIEF website,
www.hochtief.com
Annual Report 2005
15
T KEOFF
Taking to the air:
HOCHTIEF Construction and HOCHTIEF’s
Austrian subsidiary
Durst-Bau are extending Vienna International Airport. The contract
includes core and shell
work along with part of
the fitting-out for the
new Skylink airport complex. Another HOCHTIEF
company, Streif Baulogistik, is to provide 300
containers as the works
progress. The contract
is worth approximately
EUR 60 million.
16
Annual Report 2005
To Our Shareholders
HOCHTIEF Stock
High performer in 2005
Further upward momentum for HOCHTIEF stock came
from its inclusion in the MSCI (Morgan Stanley Capital International) World Index from May 31, 2005. This is one of
the world’s most influential stock market indices and a key
benchmark for the performance of stock portfolios. Inclusion in the MSCI World Index helped raise HOCHTIEF’s
profile in international capital markets.
Stock market indices
HOCHTIEF is listed in the Prime Standard—the premium
segment of Frankfurt Stock Exchange. It is also a component of the MDAX index, occupying 14th place with a
weighting of 2.59 percent at the end of 2005. HOCHTIEF
had 1.9 and 1.4 percent weightings in two Dow Jones
construction indices: DJ Euro STOXX Construction & Materials and DJ STOXX Construction & Materials. Finally, it
had a 0.01 percent weighting in the MSCI World Index at
the close of 2005.
HOCHTIEF Stock
During 2005, the regular activities of the Investor Relations
department included two analysts’ conferences held on
publication of the financial statements for 2004 and the
first-half figures for 2005. As in the previous year, the Executive Board used telephone conferences to present analysts and investors with the results for the first quarter
and for the year to September. The Executive Board made
further use of telephone conferences to explain the aims
of and background to key strategic moves like the airport
investment partnership.
HOCHTIEF also took part in seven international investor
conferences held by renowned investment banks and in
17 roadshows in major financial centers. These included
Frankfurt am Main, London, Edinburgh, Paris, Zurich,
Vienna, Milan, Stockholm, Copenhagen, Boston and
New York.
Management Report
The upward trend in the stock price was driven by
HOCHTIEF’s rewarding business performance, which was
well ahead of target. The establishment of the investment
partnership in the HOCHTIEF Airport division played a
major part: The transaction underscored the soundness
of the business portfolio, and this fed through into the
price of HOCHTIEF stock. We also opened up additional
potential for investors by further enhancing our position in
the German public-private partnership (PPP) sector and
by entering the UK PPP market.
Investor relations activities
We place great value on furnishing capital market participants with high-quality information at all times. This provides a basis for informed analysis of the HOCHTIEF Group
and secures a fair capital market valuation. We actively
promote analyst reporting on HOCHTIEF. Transparency,
clarity and reliability are key features of our communications activities. We further improved the quality of communications with investors and analysts during the year under
review. In 2005, for example, we began reporting in detail
on our concessions portfolio.
November 2005 saw HOCHTIEF stage its traditional Capital Market Day, this time in London. A special information
day for professional investors and analysts, the HOCHTIEF
Capital Market Day presents selected business activities in
depth. Topics in 2005 included the divisional strategy and
future prospects of HOCHTIEF Construction Services Europe.
Stock price
The HOCHTIEF stock price performed very healthily in
2005. The year’s closing price of EUR 37.83 marks 57.7
percent value growth from the last price for 2004.
HOCHTIEF shares thus outstripped both the MDAX and
the DAX index, which only gained 36 and 27.1 percent.
M e e t i n g t h e i n t e r e s t s o f c a p i t a l m a r ke t p a r t i c i p a n t s i s a ke y p r i o r i t y a t H O C H T I E F. Fo c u s i n g
o u r s t r a t e g y o n va l u e g r ow t h a n d a l i g n i n g t h e G r o u p’s o n w a r d d eve l o p m e n t t o s h a r e h o l d e r
a n d c a p i t a l m a r ke t n e e d s , w e s t a y i n c o n s t a n t d i a l o g w i t h i nve s t o r s a n d a n a l y s t s .
Annual Report 2005
17
The International Securities
HOCHTIEF stock in 2005
Identification Number (ISIN)
for HOCHTIEF stock is
Jan.
Feb.
DE00006070006. The Reuters
160%
code (Xetra prices) is HOTG. 160
DE and the Bloomberg code
is HOT GY.
— HOCHTIEF
150%
150
Mar.
Apr.
May
Jun.
Jul.
Aug.
Sep.
Oct.
Nov.
Dec.
— MDAX
— DAX 30
140%
140
130%
130
120%
120
110%
110
100%
100
90%
90
30.12.2004
03.01.2005
04.01.2005
05.01.2005
06.01.2005
07.01.2005
10.01.2005
11.01.2005
12.01.2005
13.01.2005
14.01.2005
17.01.2005
18.01.2005
19.01.2005
20.01.2005
21.01.2005
24.01.2005
25.01.2005
26.01.2005
27.01.2005
28.01.2005
31.01.2005
01.02.2005
02.02.2005
03.02.2005
04.02.2005
07.02.2005
08.02.2005
09.02.2005
10.02.2005
11.02.2005
14.02.2005
15.02.2005
16.02.2005
17.02.2005
18.02.2005
21.02.2005
22.02.2005
23.02.2005
24.02.2005
25.02.2005
28.02.2005
01.03.2005
02.03.2005
03.03.2005
04.03.2005
07.03.2005
08.03.2005
09.03.2005
10.03.2005
11.03.2005
14.03.2005
15.03.2005
16.03.2005
17.03.2005
18.03.2005
21.03.2005
22.03.2005
23.03.2005
24.03.2005
29.03.2005
30.03.2005
31.03.2005
01.04.2005
04.04.2005
05.04.2005
06.04.2005
07.04.2005
08.04.2005
11.04.2005
12.04.2005
13.04.2005
14.04.2005
15.04.2005
18.04.2005
19.04.2005
20.04.2005
21.04.2005
22.04.2005
25.04.2005
26.04.2005
27.04.2005
28.04.2005
29.04.2005
02.05.2005
03.05.2005
04.05.2005
05.05.2005
06.05.2005
09.05.2005
10.05.2005
11.05.2005
12.05.2005
13.05.2005
16.05.2005
17.05.2005
18.05.2005
19.05.2005
20.05.2005
23.05.2005
24.05.2005
25.05.2005
26.05.2005
27.05.2005
30.05.2005
31.05.2005
01.06.2005
02.06.2005
03.06.2005
06.06.2005
07.06.2005
08.06.2005
09.06.2005
10.06.2005
13.06.2005
14.06.2005
15.06.2005
16.06.2005
17.06.2005
20.06.2005
21.06.2005
22.06.2005
23.06.2005
24.06.2005
27.06.2005
28.06.2005
29.06.2005
30.06.2005
01.07.2005
04.07.2005
05.07.2005
06.07.2005
07.07.2005
08.07.2005
11.07.2005
12.07.2005
13.07.2005
14.07.2005
15.07.2005
18.07.2005
19.07.2005
20.07.2005
21.07.2005
22.07.2005
25.07.2005
26.07.2005
27.07.2005
28.07.2005
29.07.2005
01.08.2005
02.08.2005
03.08.2005
04.08.2005
05.08.2005
08.08.2005
09.08.2005
10.08.2005
11.08.2005
12.08.2005
15.08.2005
16.08.2005
17.08.2005
18.08.2005
19.08.2005
22.08.2005
23.08.2005
24.08.2005
25.08.2005
26.08.2005
29.08.2005
30.08.2005
31.08.2005
01.09.2005
02.09.2005
05.09.2005
06.09.2005
07.09.2005
08.09.2005
09.09.2005
12.09.2005
13.09.2005
14.09.2005
15.09.2005
16.09.2005
19.09.2005
20.09.2005
21.09.2005
22.09.2005
23.09.2005
26.09.2005
27.09.2005
28.09.2005
29.09.2005
30.09.2005
03.10.2005
04.10.2005
05.10.2005
06.10.2005
07.10.2005
10.10.2005
11.10.2005
12.10.2005
13.10.2005
14.10.2005
17.10.2005
18.10.2005
19.10.2005
20.10.2005
21.10.2005
24.10.2005
25.10.2005
26.10.2005
27.10.2005
28.10.2005
31.10.2005
01.11.2005
02.11.2005
03.11.2005
04.11.2005
07.11.2005
08.11.2005
09.11.2005
10.11.2005
11.11.2005
14.11.2005
15.11.2005
16.11.2005
17.11.2005
18.11.2005
21.11.2005
22.11.2005
23.11.2005
24.11.2005
25.11.2005
28.11.2005
29.11.2005
30.11.2005
01.12.2005
02.12.2005
05.12.2005
06.12.2005
07.12.2005
08.12.2005
09.12.2005
12.12.2005
13.12.2005
14.12.2005
15.12.2005
16.12.2005
19.12.2005
20.12.2005
21.12.2005
22.12.2005
23.12.2005
27.12.2005
28.12.2005
29.12.2005
30.12.2005
HOCHTIEF stock: Historical perfomance
2004
2005
Million
Million
EUR million
70.0
63.0
1,680
70.0
63.6
2,648
High
EUR
Low
EUR
Close
EUR
Shares traded (average per day)
Dividend per share
EUR
Total dividends
EUR million
Earnings per share
EUR
26.60
16.91
23.99
329,504
0.75
52.5
0.65
37.83
23.00
37.83
399,962
0.90
63.0
0.99
Number of shares
Of which issued
Market capitalization
The investor relations presentations used in our activities
and all financial publications are available on the HOCHTIEF
website from the day they are presented or published
(www.hochtief.com/investor-relations).
18
Annual Report 2005
At the end of 2005, HOCHTIEF regularly featured in analyses published by 19 different banks. We aim to continue
increasing the number of banks who track and report on
our business performance.
General Shareholders’ Meeting 2005
At the General Shareholders’ Meeting on May 18, 2005,
HOCHTIEF Aktiengesellschaft’s Executive Board presented the 2004 financial statements, provided information
about current business performance and outlined the
Group’s financial and strategic goals. The stockholders
voted well over 90 percent in favor of the motions tabled
by the Supervisory Board and the Executive Board. The
attendance rate was 32.5 percent.
Capital stock
HOCHTIEF Aktiengesellschaft’s capital stock of EUR 179.2
million is divided into 70,000,000 no-par-value bearer shares.
As of December 31, 2005, HOCHTIEF held 6,399,134 (9.14
percent) of its own shares. This treasury stock was acquired
between September 1999 and October 2001.
To Our Shareholders
Mar.
Apr.
May
Jun.
Jul.
Aug.
Sep.
Oct.
Nov.
Dec.
37.83
37.68
37.15
35.56
33.98
33.45
 HOCHTIEF
stock:
Month range (EUR)
(based on end-of-day
prices)
 HOCHTIEF stock:
End-of-day prices
33.68
32.42
31.60
31.88
31.27
29.54
29.00
28.00
27.88
25.04
23.51
25.27
25.30
HOCHTIEF Stock
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As in previous years, many HOCHTIEF employees took
the opportunity to participate in the Group’s success by
purchasing employee shares in 2005.
Management Report
The free float is largely owned by institutional investors,
with 38 percent held in Germany. The internationally held
portion is distributed as follows: 28 percent in the UK, 15
percent in the USA, 5 percent in France, and the remainder elsewhere in continental Europe.
Dividends
The Executive Board and Supervisory Board propose that
the EUR 63,000,000.00 unappropriated net profit for the
2005 fiscal year should be used to pay a dividend of EUR
0.90 on each of the 70,000,000 no-par-value shares in the
nominal capital stock of EUR 179,200,000.00. The dividend includes a EUR 0.10 bonus per no-par-value share
for the airport investment partnership. HOCHTIEF will then
have increased its dividends by an average of 15.8 percent
a year for four years in succession.
The total distribution of EUR 63 million represents a payout of just under 36 percent of HOCHTIEF Aktiengesellschaft net income. HOCHTIEF aims to continue increasing
dividends in line with earnings.
Ownership structure
Of the 70,000,000 no-par-value shares in HOCHTIEF Aktiengesellschaft, a total of 73.16 percent were freely traded
at the end of 2005. The portion not included in this free
float comprises the shares owned by Custodia Holding AG
(10.64 percent), those held indirectly by RWE Aktiengesellschaft (7.06 percent), and HOCHTIEF’s treasury stock
(9.14 percent).
Information on Leighton
stock is provided on the
Leighton website, www.
leighton.com.au; information on Aecon stock is
available at www.aecon.
com
Annual Report 2005
19
Value Driver for HOCHTIEF Stock:
Our Airport and PPP Portfolio
**The concessions projects
undertaken by Leighton, Aecon
and Concor are not included
in this discussion.
*see glossary on page 136
HOCHTIEF has in recent years systematically evolved into
an international provider of construction services. Increasingly focusing on concessions projects is consistent with
our strategy of targeting profitable growth. HOCHTIEF’s
concessions business encompasses its airport and public-private partnership* activities in particular. The competitive advantages we command from our international experience and high level of expertise create an excellent basis
from which to exploit opportunities in these fast-growing
segments.
HOCHTIEF benefits from a number of factors in this regard:
• our reputation as a reliable, world-leading construction
group;
• our capacity to design, finance, build and operate projects, thus covering every link in the value chain;
• our experience in international transactions and
• our ability to import know-how edge from countries
where long-standing experience exists.
Structure of HOCHTIEF’s concessions business
Airports
HOCHTIEF
AirPort
GmbH
Toll roads/transportation
Public
buildings/
social infrastructure
Australia,
Southeast
Asia,
Africa
North
America
Europe,
South
America
Leighton
Holdings
Limited,
Concor
Limited
Aecon
Group Inc.
HOCHTIEF
PPP
Solutions
GmbH
HOCHTIEF
PPP
Solutions
GmbH
HOCHTIEF is currently involved in 23 PPP projects worldwide and also has its five airport holdings, a presence that
has propelled our Group to a leading global position in the
area of privately financed infrastructure projects. HOCHTIEF
is by far Germany’s number one contractor in terms of international concessions experience.
20
Annual Report 2005
The following discussion focuses on the activities of
HOCHTIEF AirPort and HOCHTIEF PPP Solutions, highlighting the projects and value of their respective portfolios.**
HOCHTIEF AirPort
HOCHTIEF’s PPP know-how edge had its beginnings in
the airport segment: The company now holds stakes in
the Düsseldorf, Hamburg, Athens, Sydney and Tirana airports. With a combined volume of nearly 70 million passengers in 2005, these airport holdings make HOCHTIEF
one of the largest independent airport managers in the
world.
Our extensive experience is brought to bear in each new
project, enabling us to develop airports into attractive centers of transportation and commerce in a wide variety of
settings. Every new partner benefits from this know-how
and our network of competence. HOCHTIEF AirPort supports the exchange of technical, business and legal expertise among the privatized airports and harnesses synergies
in order to provide professional, customer-driven services
in both the aviation and non-aviation segments. Working in
close cooperation with local business leaders and politicians,
we thus consider the overall development potential of an
airport and regional economy.
HOCHTIEF AirPort is pursuing a strategy of restructuring
and optimizing its airport holdings, thereby increasing the
value we can free up at short notice. Together with three
financial partners, HOCHTIEF AirPort founded the world’s
first airport investment partnership in March 2005, HOCHTIEF
AirPort Capital (HTAC). The partners to the venture are
Hastings Funds Management (Australia), Caisse de dépôt
et placement du Québec (Canada) and KfW IPEX-Bank
(Germany). HOCHTIEF AirPort brought a portion of its airport stakes into the partnership: namely, one third each of
its interests in the Athens, Düsseldorf and Hamburg airports
and 49 percent of its stake in Sydney Airport. The transaction volume of EUR 343 million confirmed our estimate that
the overall value of the airport portfolio exceeded EUR 1 billion, which is more than 38 percent above HOCHTIEF’s
original investments in the holdings. The proceeds from
To Our Shareholders
HOCHTIEF has won key new projects with the contracts to
finance, refurbish and operate seven schools in Cologne
and a vocational training center in Leverkusen. Our overall
PPP portfolio, which now counts just under 60 schools,
has made us Germany’s market leader. HOCHTIEF debuted
in the fast-growing UK and Irish PPP markets with two additional projects: In Manchester, the company has been
commissioned to design, finance and operate a sports
college for 1,800 students. In Cork, Ireland, we have been
contracted to finance, build and operate the Cork School
of Music. Our intent is to use the HOCHTIEF structures
already in place in the region to carry out the UK and Irish
projects.
As a private investor and operator, HOCHTIEF earns money
on PPP projects through the fees paid by public sector users,
dividends, interest on loans the company makes and, where
applicable, through sales proceeds.
HOCHTIEF Stock
HOCHTIEF PPP Solutions
Since January 2005 HOCHTIEF PPP Solutions has been
the nerve center of HOCHTIEF’s PPP activities in Europe
and South America, which were built up considerably as
the year progressed. The company focuses on the toll
roads/transportation and public buildings/social infrastructure segments.
Valuation
We value the assets of HOCHTIEF AirPort and HOCHTIEF
PPP Solutions using the discounted cash flow (DCF) method, basing our measurements on contractual agreements
and well-founded studies by external experts on subjects
like future traffic developments. In addition to our own assessments, independent appraisals of these estimates are
conducted by the financing banks and institutional investors.
When performing our DCF calculations, we look at the
cash flows between the project companies and HOCHTIEF,
discounting the paid-in capital, dividends, interest and fees
making up those cash flows.
Prototypical development in the value of a concessions project
Cumulative cash flows
(nominal)
Management Report
The investment partnership combines the industry-specific
airport expertise of HOCHTIEF AirPort with the financing
power of the three financial partners to the venture. The
goal behind the investment partnership is to expand the
airport business further and continually enhance our competitive standing.
The Group also benefits from the added possibility of obtaining construction, refurbishment and facility management contracts. This is a prime example of the advantage
of our service offering’s closely integrated modules: With
development, construction, services plus concessions and
operation, HOCHTIEF covers every link in the value chain
of a project’s construction and life cycle.
Net present value
Cash flows
(nominal)
Financial close
Development
Beginning of operations
Construction
Ramp-up
Growth
Time
Maturity
We use a discount rate of 13 percent for the airport holdings. The successful offering of the investment partnership
showed this to be in line with market rates. At present, discount rates in the airport segment are trending downward,
which may result in higher asset values in the future.
the transaction have been and will continue to be used to
reduce our liabilities as well as invest in additional profitable infrastructure projects and the expansion of our service offering.
Annual Report 2005
21
For our PPP projects, we apply a risk-based discount rate
that reflects the rates used for secondary market transactions. We take two factors into consideration: a risk-free
base rate plus a market-oriented markup determined according to the project type and phase of completion. This
gives a weighted discount rate of 11.9 percent for our PPP
portfolio at the present reporting date. As more progress
is made on projects, the markup drops and the value of
our assets, in turn, increases.
Discounting method for PPP projects
Project phase
Development
Construction
Rampup
Growth
Maturity
Risk markup for
project phase (%)
3
2
Risk markup for
project type (%)
2–4
2–4
2–4
2–4
+ Risk-free base rate
(6%)
6
6
6
6
= Discount rate (%)
11–13
10–12
8–10
8–10
Our project selection criteria require a clear minimum return on investment—from where we stand now, all projects
must achieve at least a 14 percent internal rate of return
(IRR). The IRR can be increased further through gains on
the sale of equity stakes. We believe the optimum time to
sell is a point after the start-up phase. Going live and starting to earn revenues improves a project’s risk profile, resulting in a lower discount rate and a correspondingly higher
project value. Being conservative in our portfolio valuation,
we currently leave certain potential value gains out of the
equation:
• Refinancing after the start-up phase makes higher distributions to stakeholders possible.
• We realize further potential if a project does better than
projected in the business plan due to higher demand or
the exploitation of better marketing opportunities—for
example, when the traffic density on a toll road exceeds
forecast.
When valuing our portfolio, we only include projects that
have reached “financial close” status.
Thus, the net present value (NPV) as of the December 31,
2005 cut-off date is EUR 665.7 million for our airport projects and EUR 207.4 million for our PPP projects, putting
the total net present value of our portfolio at EUR 873.1
million. This means that the discounted future cash flows
exceed the some EUR 502 million in capital we have provided by around EUR 371 million.
Outlook
Airports that handle in excess of five million passengers
and meet the criteria for stable growth and attractive appreciation will be the primary focus of our efforts to further
expand our airport portfolio.
New projects are already in the pipeline at HOCHTIEF PPP
Solutions: HOCHTIEF is the preferred bidder for school
projects in Bangor and Comber, North Ayrshire, East Ayrshire and Salford. We expect these to reach financial close
before the year is out. Construction of the San Cristóbal
Express toll tunnel in Chile is set to begin this year. We are
also currently engaged in competitive tendering for eight
public building and six toll road contracts.
Portfolio value of HOCHTIEF concessions projects
*HTA HOCHTIEF Airport
HTD HOCHTIEF Development
**Excluding parts placed in
investment partnership
Status:
Financial
close
Airports
HTA
PPP projects
HTD
Total
22
Annual Report 2005
Division*
Total capital required
410.2
Capital provided by Dec.
31, 2005
407.4
NPV of expected cash
flows at Dec.
31, 2005
665.7
NPV at Dec.
31, 2004
589.3**
Difference due to
portfolio
value
growth
growth
18.9
57.5
116.2
94.9
207.4
113.4
7.0
87.0
526.4
502.3
873.1
702.7
25.9
144.5
To Our Shareholders
Project List: Concessions Business within
the HOCHTIEF Group
Project
Division*
HOCHTIEF
stake
HOCHTIEF
capital required
(%)
(EUR million)
Concession
period
HOCHTIEF
capital
provided
(EUR million)
Athens International Airport Eleftherios
Venizelos, Greece1)
HTA
26.7
80.5
80.5
1996–2026
Düsseldorf International, Germany1)
HTA
20.0
54.1
54.1
Leasehold to 2057
Hamburg Airport, Germany1)
HTA
26.1
210.2
210.2
Leasehold to 2060
Tirana International Airport Nene
Tereza, Albania1)
HTA
47.0
4.4
1.6
2005–2025
Sydney Kingsford Smith Int.
Airport, Australia1)
HTA
5.4
61.0
61.0
1998–2097
*Divisions:
HTA HOCHTIEF Airport
HTD HOCHTIEF Development
HTAM HOCHTIEF Americas
HTAP HOCHTIEF Asia Pacific
1)
Also included in the portfolio
value table on page 22
Airports
Toll roads/transportation
Total
project
value
(EUR million)
HOCHTIEF
share in
concession
company
(%)
HOCHTIEF
capital required
HOCHTIEF
capital
provided
(EUR million)
(EUR million)
Concession
period
ADrail rail line, Australia
HTAP
670.0
11.7
32.0
29.1
2004–2054
Mitcham Frankston Freeway
(Eastlink), Australia
HTAP
2,219.3
15.2
146.9
0.0
2004–2043
Lane Cove Tunnel, Australia
HTAP
968.0
11.0
35.9
0.4
2007–2040
North Luzon Expressway, Philippines
HTAP
303.9
16.5
16.0
12.4
2005–2035
WestLink M7, Australia
HTAP
1,240.0
5.0
33.4
30.4
2006–2036
Bakwena Platinum Toll Road,
South Africa
HTAP
274.2
3.6
0.7
0.7
2002–2032
Chapman’s Peak Drive toll road,
South Africa
HTAP
17.0
55.0
1.5
1.5
2004–2034
Huguenot Toll Tunnel,** South Africa
HTAP
n. a.
n. a.
n. a.
n. a.
1988–2005
Tsitsikamma Toll Road,** South Africa
HTAP
n. a.
n. a.
n. a.
n. a.
2001–2006
Funicular and tourist center,**
South Africa
HTAP
2.3
49.9
0.0
0.0
1995–2011
Herren Tunnel Lübeck, Germany1)
HTD
179.4
50.0
11.7
9.7
2005–2035
Vespucio Norte Express toll highway ,
Chile1)
HTD
520.0
45.0
94.1
84.5
2005–2032
Puentes del Litoral toll link , Argentina***
HTD
380.0
26.0
37.6
37.6
2003–2022
San Cristóbal Express toll tunnel , Chile
HTD
70.0
50.0
16.5
2.6
2007–2037
Chiloé Bridge, Chile****
HTD
500.0
27.0
10.0
0.0
2012–2042
Cobequid Pass Toll Highway, Canada
HTAM
88.2
50.0
0.0
0.0
1997–2026
Cross Israel Highway, Israel
HTAM
1,150.3
25.0
30.2
30.2
2004–2029
Division
Total
contract
volume
HOCHTIEF Stock
Division*
**Operating agreement
***Subject to impairment
charges in the years 2002–2004.
****Technical and economic
feasibility currently being
assessed.
Management Report
Project
Public buildings/social infrastructure
(EUR million)
Gladbeck city hall, Germany
HOCHTIEF
share in
project
company
(%)
HOCHTIEF
capital required
HOCHTIEF
capital
provided
(EUR million)
(EUR million)
Concession
period
HTD
44.0
100.0
0.0
0.0
2006–2031
Schools in Offenbach, Germany1)
HTD
410.8
94.90
0.1
0.1
2006–2019
Schools in Cologne, Germany1)
HTD
125.0
100.0
4.1
0.0
2005–2029
Vocational training center in
Leverkusen, Germany1)
HTD
69.6
100.0
0.0
0.0
2005-2034
Sports college in Manchester, UK1)
HTD
170.0
50.0
2.4
0.2
2005–2032
Cork School of Music, Ireland1)
HTD
209.7
50.0
3.8
0.4
2005–2032
1)
Status of project list: Dec. 31, 2005
Project
Annual Report 2005
23
EXP NSION
The world’s tallest
building, the Burj Dubai,
is currently being erected in the heart of Dubai.
The exact height of the
skyscraper, for which
HOCHTIEF subsidiary
Turner is managing
construction, is being
kept under wraps by the
client, but is expected
to top 700 meters. The
Chicago architect firm
of Skidmore, Owings &
Merrill based its design
for Emaar Properties
on a six-leaf desert
flower.
24
Annual Report 2005
To Our Shareholders
Combined Company and Group
Management Report
Business activities
HOCHTIEF spans the entire project life cycle. The company’s services are grouped accordingly into four modules:
construction, development, services and concessions
and operation.
tegrated management system that includes stringent
quality and risk control measures ensures that the transitions between project phases are seamless.
Thanks to our global network, we are present in all of the
world’s key markets. Our business activities focus chiefly
on Europe, the Americas and the Asia-Pacific region.
HOCHTIEF Stock
HOCHTIEF creates one-of-a-kind solutions, because each
project is unique in its conditions, requirements and implementation. This is why the production process behind
each of our projects is specific to the task at hand. An in-
A s a n i n t e r n a t i o n a l p r ov i d e r o f c o n s t r u c t i o n s e r v i c e s , H O C H T I E F A k t i e n g e s e l l s c h a f t h a s a
t h o r o u g h , we l l - i n t e g r a t e d p r o d u c t a n d s e r v i c e s p e c t r u m . A s r e p o r t e d i n E n g i n e e r i n g N ew s Re c o r d’s To p 2 2 5 G l o b a l Co n t r ac to r s r a n k i n g fo r 2 0 0 5 , H OCHTI E F i s t h e wo r l d’s t h i r d l a r g e s t
p r ov i d e r o f c o n s t r u c t i o n s e r v i c e s .
HOCHTIEF
Aktiengesellschaft
(management
holding company)
HOCHTIEF Airport
division
HOCHTIEF
Development
division
HOCHTIEF
Construction
Services Americas
division
HOCHTIEF
Construction
Services Asia
Pacific division
HOCHTIEF
Construction
Services Europe
division
Control level:
Procurement, Controlling, Finance,
Human Resources,
Accounting, Legal,
Auditing, Tax, Corporate Development,
Corporate Communications, Insurance
Management
HOCHTIEF AirPort
GmbH, Germany
HOCHTIEF PPP
Solutions GmbH,
Germany
The Turner
Corporation, USA
Leighton Holdings
Limited, Australia
HOCHTIEF Construction AG, Germany
Turner Construction
Company
Leighton Contractors
Pty Limited, Australia
HOCHTIEF (UK)
Construction Ltd., UK
Aecon Group Inc.,
Canada
Thiess Pty Ltd.,
Australia
HOCHTIEF do Brasil
S. A., Brazil
John Holland Group
Pty Ltd., Australia
Entreprise Générale
de Construction
HOCHTIEFLuxembourg S. A.,
Luxembourg
HOCHTIEF Insurance
Broking and Risk
Management
Solutions GmbH
HOCHTIEF PPP
Solutions (UK) Ltd.,
UK
Athens International
Airport S. A.,
Greece
HOCHTIEF PPP
Solutions (Chile)
Ltda., Chile
Flughafen Düsseldorf
GmbH, Germany
HOCHTIEF Facility
Management GmbH,
Germany
Flughafen Hamburg
GmbH, Germany
Sydney Airport Corporation Ltd., Australia
Tirana Airport Partner
Sh.p.k., Albania
Transport & Logistics
Consultancy Ltd., UK
HOCHTIEF Polska
Facility Management
sp.z.o.o., Poland
HOCHTIEF Facility
Management Ireland
Ltd., Ireland
HOCHTIEF Projektentwicklung GmbH,
Germany
Leighton Properties
Pty Limited, Australia
Leighton Asia (Northern) Limited, Hong
Kong
Leighton Asia
(Southern) Pte Ltd.,
Malaysia
Concor Limited,
South Africa
Durst-Bau GmbH,
Austria
Streif Baulogistik
GmbH, Germany
HOCHTIEF Polska
Sp. z o.o., Poland
HOCHTIEF VSB a. s.,
Czech Republic
HOCHTIEF Russia
Mélyépít ő Kft.,
Hungary
HOCHTIEF Bulgaria
Deutsche Bau- und
Siedlungs-Gesellschaft
mbH, Germany
Service level:
Personnel Management Center Europe,
Service Center (services from the corporate centers), OSHEP
competence center
for occupational safety, health and environmental protection
HOCHTIEF AirPort
Capital VerwaltungsGmbH & Co. KG,
Germany
Management Report
Corporate structure of HOCHTIEF
The companies named serve to exemplify HOCHTIEF’s international focus. See the foldout on pages 3 and 4 as well as Segment Reporting on pages 61–73 for additional details about the divisions. This organizational chart is supplemented by the legal description of the subsidiaries, associates and other significant equity interests provided on pages 130 and 131.
Annual Report 2005
25
Orders and Work Done in 2005
New orders, work done and order backlog again
at record levels
O u r i n t e r n a t i o n a l e m p h a s i s a n d b r o a d e n i n g o f o u r p o r t f o l i o a l o n g t h e e n t i r e va l u e c h a i n o f
c o n s t r u c t i o n h a ve c r e a t e d t h e b a s i s f o r s o l i d o r d e r b o o k s a t H O C H T I E F. G r ow t h wa s exc e l l e n t i n t h e A s i a P a c i f i c d i v i s i o n’s wo r k d o n e , w h i c h c l i m b e d n e a r l y o n e -t h i r d d u e t o t h e h i g h
vo l u m e o f n ew o r d e r s i n 2 0 0 4 a s w e l l a s n ew l a r g e - s c a l e i n f r a s t r u c t u r e a n d m i n i n g p r o j e c t s
acquired in 20 05. The increases in work done in the Americas were also a result of the stronger
U S d o l l a r. T h e s u c c e s s f u l p e r f o r m a n c e o f o u r f a c i l i t y m a n a g e m e n t b u s i n e s s a n d f o c u s o n
p r o f i t a b l e m a r ke t s e g m e n t s i n c o r e c o n s t r u c t i o n o p e r a t i o n s e n s u r e a s t a b l e o r d e r s s i t u a t i o n d e s p i t e G e r m a n y ’s w e a k e c o n o m y.
New orders:
Prior year’s record topped
Group new orders were EUR 15.60 billion in absolute figures
(exchange rate adjusted, EUR 15.32 billion), putting them
on a par with the prior year’s record EUR 15.59 billion. Considerable gains in the European construction business offset the slight decline in the Asia-Pacific region, which is to
be viewed against the backdrop of the substantial volume
of new orders in 2004.
Internationally, HOCHTIEF edged out the high new orders
of the prior year by 1.7 percent, thereby setting a new record. In 2005 new orders reached an all-time high of EUR
13.05 billion (exchange rate adjusted, EUR 12.77 billion).
As expected, the USD 7.67 billion in new orders at our US
subsidiary Turner were slightly below the prior year’s high
level (USD 7.81 billion). At 47.4 percent, Turner continues to
deliver the lion’s share of HOCHTIEF’s international new orders. In Australia in 2005, subsidiary Leighton again booked
significant orders in the contract mining and infrastructure
New orders
Work done
Order backlog
EUR billion
EUR billion
EUR billion
21.10
18.72
Turn to pages 137 and
138 for the detailed
five-year summary.
16.47
15.59
14.18
14.43
15.60
14.85
14.35
13.83
12.98
14.07
13.11
12.78
11.50
International activities
Activities in Germany
26
Annual Report 2005
11.86
12.21
12.17
12.83
13.05
10.58
10.72
9.45
10.72
12.47
11.65
11.80
14.07
15.51
17.77
2.32
2.22
2.18
2.76
2.55
2.40
2.06
2.05
2.39
2.38
2.18
2.27
2.40
3.21
3.33
2001
2002
2003
2004
2005
2001
2002
2003
2004
2005
2001
2002
2003
2004
2005
Group work done: International infrastructure
projects plus concessions and operation make for
a record-setting year
In fiscal 2005, HOCHTIEF increased its Group work done
by 13.3 percent from a year earlier to EUR 14.85 billion
(versus EUR 13.11 billion in 2004). Adjusted for exchange
rate effects, the gain was 11.1 percent on the prior year.
The share of international work done in the overall figure
rose 16.3 percent and reached EUR 12.47 billion in absolute terms. Turner in the US and Leighton in Australia contributed the most to this gain with major long-term orders.
The exchange-rate-adjusted increase was 13.7 percent.
HOCHTIEF’s resolute international focus is reflected in an
impressive 84 percent share in Group work done.
Germany
16.3%
Asia/
Pacific 36.7%
Europe
8.7%
Americas
40.8%
To Our Shareholders
Outstanding figure of over EUR 21 billion reached
The HOCHTIEF Group’s order backlog is two and a half
times higher than it was five years ago. At EUR 21.10 billion in absolute figures at year-end 2005, it exceeded the
prior year’s record by a considerable 12.7 percent (exchange rate adjusted, 3.7 percent). Thus, despite substantial gains in output evidenced by work done, a forward
order book of approximately one and a half years is ensured. Internationally, the order backlog rose to EUR 17.77
billion, an increase of 14.6 percent (exchange rate adjusted, 3.7 percent). The order backlog in Germany climbed
3.7 percent. HOCHTIEF more than made up for the slight
drop in traditional construction operations with significant
gains in the HOCHTIEF Development division.
Work done
by region
New orders
by region
Asia/
Pacific 34.2%
Order backlog:
HOCHTIEF Stock
In Germany, HOCHTIEF acquired new orders in the commercial construction segment worth EUR 1.91 billion (compared with EUR 1.96 billion in the previous year), equivalent to 75.2 percent of new orders. The company received
orders from the public sector to the tune of EUR 0.56 billion
(prior year: EUR 0.70 billion). This construction segment thus
accounted for 22.1 percent of new orders in Germany.
Management Report
New orders in Germany, at EUR 2.55 billion, were down
7.6 percent from a year earlier (EUR 2.76 billion). This performance is in keeping with our plans and reflects the
tense climate in the German construction market.
Although construction industry sales in Germany continued to slide last year (down 4.2 percent from a year earlier),
HOCHTIEF once again succeeded in breaking away from
this national trend. While HOCHTIEF Construction AG in
Germany reported a decline in work done of EUR 42.9 million, a total that was only 2.6 percent shy of the prior year’s
level, business in the service-based HOCHTIEF Development
division was up a considerable 5.1 percent. Altogether,
work done in Germany was EUR 2.38 billion, which is on a
par with the year-earlier figure. The commercial construction segment accounted for EUR 1.94 billion (versus EUR
2.04 billion in 2004) and, at 81.3 percent, constitutes the
biggest share of work done in Germany. The share contributed by public sector construction rose to EUR 0.35 billion
(prior year: EUR 0.23 billion), accounting for 14.6 percent.
Order backlog
by region
Asia/
Pacific 44.5%
Germany
16.0%
Europe
5.9%
Americas
41.4%
Germany
15.8%
Europe
6.8%
segments. In absolute figures, the AUD 8.54 billion could
not reach the substantial level from a year earlier (AUD
9.34 billion), but still represents 40.2 percent of international new orders.
Americas
32.9%
Annual Report 2005
27
Markets
Economic environment and industry trends
HOCHTIEF is among the leader s of its industr y and operates in all major world markets.
M a s te r i n g a w i d e r a n g e of c a p a b i l i t i e s , g e n e r a t i n g a m a jo r s h a r e of i t s o u t p u t i n te r n a t io n a l l y
and commanding global presence, HOCHTIEF can turn numerous economic trends to its adva n t a g e a n d i s s u p e r b l y p r e p a r e d f o r g r ow t h m a r ke t s s u c h a s p u b l i c - p r i va t e c o n t r a c t i n g .
The global economy
In line with previous years, the global economy maintained
a growth trend through 2005. Despite sharply rising oil prices
and the price increases for other commodities, the world
economy grew by three percent, only slightly down from the
3.7 percent growth recorded in 2004. A further 3.1 percent
growth is forecast for 2006. Reasons include persistently
low capital market interest rates, monetary policy with an
expansionary bias, and strong earnings across most of industry.
ther drop in unemployment. Domestic demand consequently emerged unscathed, boosting economic growth
as a whole.
At the same time, real GDP growth shows marked regional
variation. The global economic trend is mostly driven by
emerging economies such as China and Russia (with 9.2
percent and 6 percent growth respectively) and by the
United States, the leading industrialized nation (with 3.6
percent).
Russia has benefited from price gains on the energy markets during 2005. While the trend in energy prices curbed
growth in most regions of the world, Russia profited due to
its rich resources. Only state intervention in the energy sector
and an inflation rate of over 12 percent prevented an even
stronger growth surge in the economy as a whole.
US economic growth in 2005 proved highly resilient to the
adverse impacts of energy price inflation. Households compensated for the marked loss of purchasing power with a
further reduction in the savings ratio. There was also a fur-
Strong growth was also evident in other industrialized nations like Canada (2.9 percent) and Japan (2.3 percent).
The 25 countries of the European Union lagged well behind
with an average 1.6 percent. Feeble growth in the euro zone
China continues on the clear expansionary course of the
last several years. The government’s restrictive money and
capital market policy reduced the risk of overheating. Nevertheless, neither this nor high energy prices could halt economic growth. Production continues to expand apace but
is currently proving amenable to fiscal and monetary control.
Overall economic growth (percentage GDP growth) in regions served by HOCHTIEF
6
 2005
 2006 E
5
4
3
2
1
0
Australia
28
Annual Report 2005
Germany
UK
Canada
Latin
America
Austria
Poland
Russia
Southeast
Asia
Czech
Republic
Hungary
USA
To Our Shareholders
Percentage growth in markets served by HOCHTIEF
worldwide compared with previous year
6
 Civil engineering
 Non-residential construction
 Total construction
Exchange rate-adjusted figures
5
4
3
2
1
is mostly down to weak domestic demand. The increasing
volume of idle production capacity prevented capital spending from materializing in many regions despite good corporate profits and persistently favorable interest rates.
According to the Association of German Economic Research
Institutes, there will be no major change in these trends during 2006. As in previous years, the overall trend in the world
economy will be largely determined by the economic situation in the key US and Chinese economies.
Industry trends
The international construction market
The strong correlation between general economic growth
and construction activity asserted itself once again in 2005.
According to estimates from the Global Insight research
institute, construction volume in the 55 biggest construction economies exceeded the EUR 3.5 trillion mark for the
first time. This is equivalent to nominal growth of 6.1 percent. Average nominal growth of 4.4 percent is forecast
worldwide for the period 2006 to 2008.
Western Europe
Western European states in the Euroconstruct area* saw
an increase in construction activity during 2005. At 1.1 percent, however, this lagged well behind growth rates in the
Asian and American markets. Western European construction volume totaled EUR 1.17 trillion in 2005. A further rise
to EUR 1.18 trillion, equivalent to growth of just under one
percent, is anticipated for 2006.
Key regions for HOCHTIEF in Western Europe include Austria and the UK. Austria saw real economic growth of 1.5
percent while the British economy stagnated. In 2006, Austria will probably achieve 2 percent growth and the UK
economy 0.8 percent. In these countries, as in all other regions in which we operate, HOCHTIEF’s activities in these
two markets focus on civil engineering and non-residential
construction. Both segments grew in Austria—non-resi-
dential construction by 2.4 percent and civil engineering
by 2.8 percent. The UK saw a 3.6 percent decline in civil
engineering activity, while the volume of non-residential
construction fell by 0.7 percent. The two segments are likely
to recover and return to positive growth rates in the UK
during 2006.
2006E
Germany
A mid-year rise in construction permits was not enough to
prevent the German construction industry from closing
2005 with another decline in activity. Construction volume
totaled EUR 228 billion in 2005, a reduction of 2.9 percent
in nominal and 4.2 percent in real terms. All construction
segments were affected, with residential, commercial and
public-sector construction each showing corresponding
declines. The German Institute for Economic Research forecasts that construction volume will drop again in 2006, although the downward trend will rapidly bottom out to close
the year with a real decrease of 0.9 percent. The commercial and industrial construction segment so important to
HOCHTIEF Construction may show a positive trend for the
first time in many years with an increase of 1.7 percent.
Eastern Europe
Construction volume in the Eastern European states of the
Euroconstruct area increased by 5.4 percent to EUR 45.9
billion in 2005. The forecast for 2006 is a further 7.3 percent
growth to over EUR 49 billion. This trend is likely to continue
unabated in 2007. The markets relevant to HOCHTIEF developed as follows:
HOCHTIEF Stock
2005
Management Report
2004
Poland saw the largest volume gain with a real growth rate
of 6.3 percent. The extra-rapid, 11.9 percent growth in civil
engineering was particularly gratifying for HOCHTIEF. Nonresidential construction increased by 4.4 percent. Even
higher growth rates are forecast for both segments in
2006.
0
The Czech market climate in 2005 was similarly favorable,
with the overall construction market expanding by 5.5 percent and forecast to gain another 5.7 percent in 2006. The
general construction boom includes the segments served
by HOCHTIEF, with non-residential construction growing
Annual Report 2005
29
by 4.8 percent and civil engineering by 5.3 percent. This trend
is forecast to continue, with growth of 4.7 percent and 5.8
percent respectively in 2006.
Compared with Poland and the Czech Republic, Hungary
is slightly behind in the growth stakes. Even so, 2005 saw
volume grow by 4.4 percent to EUR 9.4 billion. The temporary slowdown in overall growth will be over by 2006, when
construction volume will rise to EUR 10 billion, an increase
of 6.7 percent. The segments relevant to HOCHTIEF have
been on a positive trend since 2005. Civil engineering in
particular enjoyed a 12 percent surge in growth. This is set
to be repeated in 2006.
For Russia, the experts at Global Insight put the growth
rate for 2005 at 9.6 percent, to be followed by 9.1 percent
in 2006. Sharply rising demand for office space in the
greater Moscow area, strong construction demand in the
commercial properties segment and the need to create
warehousing and logistics capacity make commercial construction an attractive business for HOCHTIEF. In civil engineering, large numbers of forthcoming road, bridge building, airport and rail projects fuel positive market expectations
that are likely to be sustained over coming years.
The international construction market: Percentage growth by
region, 2003 to 2006
11
11.0
10
9
8.0
 America
 Australia
 Germany
 Europe (except
Germany)
Exchange rate-adjusted figures
8
6.8
7
6
5
5.2
4.8
4
3.0
3.2
3
2.5
2
2.8
2.0
0.9
1
0
–1
–0.7
–0.9
–2
–3
–4
–3.9
–3.1
–4.2
–5
2003
2004
2005
2006E
USA
The US market continued its established growth trend
through 2005. Experts from the McGraw-Hill Construction
research institute put construction volume at just under
EUR 535 billion (USD 637 billion), representing growth of
eight percent. Construction expenditure in the United States
has risen by some 90 percent in nominal terms since 1994.
The forecast for 2006 suggests that growth will slow to 2.8
percent. Translated into absolute figures, this still represents
a volume increase of EUR 15 billion.
The non-residential construction sector so important to
HOCHTIEF subsidiary Turner grew at a below-average yet
still substantial 3.5 percent. This unexpectedly weak construction growth was mostly due to reduced investment in
the commercial and manufacturing segment, which gained
only 0.4 percent. In contrast, institutional construction showed
a further marked increase of 6.1 percent. These two sectors in particular are expected to have a major influence on
overall construction activity in 2006. The experts forecast
substantial growth of 8.8 percent for the commercial and
manufacturing segment—above the market average. The
forecast for institutional construction is 7.4 percent.
Despite the strong ongoing growth trend, the US building
construction industry’s profit margins came under pressure during 2005. After the most pronounced price increases for 20 years, material costs prompted a sustained
hike in the cost of construction work. A shortage of skilled
labor is having a visible impact on labor costs.
Canada
The Canadian construction market grew by 3.9 percent in
2005, faster than the previous year. The reason for the relatively slight growth was the weak state of the residential
construction segment, which Aecon, our Canadian associated company, does not traditionally serve. The segments
relevant to HOCHTIEF demonstrated lively growth overall,
with non-residential construction up 0.4 percent and civil
engineering gaining 6.1 percent.
To Our Shareholders
Australia
The Australian construction market grew unevenly in 2005.
While the non-residential construction segment stagnated
at a high level, civil engineering—a major part of HOCHTIEF
subsidiary Leighton’s business—surged forward by 6.6 percent.
HOCHTIEF is likely to benefit substantially from Australian
construction market trends in 2006. Experts from the BIS
Shrapnel research institute forecast growth of 16.8 percent for non-residential construction and 12.4 percent for
civil engineering. Overall, construction volume in the Australian market is expected to be just under EUR 50 billion
(AUD 81.4 billion).
HOCHTIEF Stock
China, the world’s third largest construction market, recorded double-digit (11 percent) growth in construction volume,
substantially more than other major construction markets
such as India (6.2 percent) and Japan (7.3 percent). If overall
economic growth is not checked by bottlenecks in the provision of new energy sources, the Chinese construction market will grow by 12 percent in 2006. Leighton Asia has already completed a number of major projects in Hong Kong.
The concessions business
The privatization trend in major international airports continued in 2005. All economic regions of the world saw operating responsibility for airports pass into private hands.
The trend is most pronounced in the Asian and Eastern
European regions. The experts agree that privatization tenders will remain attractive. This assumption is based on
the anticipated continued growth in passenger numbers
and freight volumes. According to a study by the International Air Transport Association (IATA), passenger numbers on all international routes will rise by an average of
5.6 percent between 2005 and 2009. Freight volumes will
parallel this trend and likewise increase sharply, with annual
growth of 6.3 percent expected for the period 2005 to 2009.
Management Report
Brazil
After several sluggish years, Brazil has been back on track
for growth since mid-2004. The construction industry enjoyed a growth rate of approximately two percent in 2005,
putting it slightly below the 3 percent overall economic
growth. Sustained gains in exports of steel products and
raw materials are fueling capital investment in industrial construction. A slight increase is anticipated for 2006 compared
with 2005. However, there are uncertainties regarding the
outcome of the presidential elections and a potentially major
devaluation of the unusually strong Brazilian real.
Asia
According to research by BCI Asia, the growth aspirations
of numerous Asian states once again resulted in a substantial increase in construction activity. Ambitious infrastructure
development plans and high capital spending in the energy
sector caused almost all economic regions to record marked
growth. Overall, the Southeast Asian construction market,
including Indonesia and Malaysia, grew by about nine percent. Construction activity is forecast to rise by a further
9.2 percent in 2006. At 8.2 percent, growth in India is likewise expected to beat the world market average.
PPP contracts are gaining importance internationally. In
Europe alone, investment in the toll roads segment is estimated at about EUR 20 billion for the years 2005 to 2009.
Strong pent-up demand in this segment of the market
lends added growth stimulus for transport infrastructure
This trend is set to continue in non-residential construction,
with 1.1 percent growth in 2006. For civil engineering, the
Conference Board of Canada forecasts an increase of 3.3
percent. Overall, total construction volume will increase
only slightly due to the persistently weak residential construction segment.
Annual Report 2005
31
projects in EU accession states in Central and Eastern Europe.
*see glossary page 134
In Germany, the Federal Ministry of Transport, Building
and Urban Development plans to launch a number of new
“A model”* pilot projects in freeway construction by mid2006. HOCHTIEF is participating in the tendering process
initiated in 2005 for the first pilot project, for construction
and operation of a segment of the A8 freeway. The company plans to bid for more A-model contracts.
PPP contracting models are proving their worth especially in
public-sector construction. German state and local governments are increasingly waking up to the advantages of the
PPP contracting model and are turning to this innovative way
of partnering with private enterprise. 2004 saw around EUR
1 billion-worth of PPP contracts concluded in Germany. In
2005, the figure was EUR 344 million. A significant increase
is expected once again in 2006, with projects worth an anticipated total of EUR 1.4 billion.
Schools and administrative buildings in Germany are increasingly tendered out as PPP contracts. Based on various studies, HOCHTIEF expects that PPP tenders worth between
EUR 20 billion and EUR 30 billion will go out in Germany for
schools, administrative buildings and hospitals alone by 2010.
Since 2005, HOCHTIEF has also been successfully involved
with PPP building contracts in the lucrative UK market. Over
the next few years, this market is expected to plateau at a
high spending level of EUR 6 billion a year. This offers sustained positive business prospects for HOCHTIEF.
The contract mining segment profited from a general mining
boom. As a result of the unbroken global demand for raw
materials, the Australian mining market grew by 14 percent
overall during the year under review. A further 17.5 percent
growth is forecast for 2006. Contract mining is a major focus
of activities for HOCHTIEF subsidiary Leighton. This segment gained 10.9 percent during the 2005 fiscal year in
Australia. An increase of 13.4 percent is expected for 2006.
The upward trend is set to continue until at least 2008.
32
Annual Report 2005
Construction-related services
Facility management
The German facility management market is on a continuous growth trend. Market research institute Interconnection Consulting Group puts the growth rate for the facility
management market as a whole at an annual three percent for the next few years.
According to Interconnection Consulting, demand is growing particularly strongly in the integrated facility management segment. This showed annual growth of about 14
percent over the years 2000 to 2004 and will probably manage double-digit growth again in 2006. The rising demand
for integrated facility management solutions can be seen in
all industries. For HOCHTIEF, this trend offers long-term
opportunities for sustained gains in business. HOCHTIEF
Facility Management focuses on integrated solutions and
its services are increasingly in demand from industry.
According to research by Interconnection Consulting, the
strongest growth in demand for outsourced facility management solutions came from industry (36 percent) and
the public sector (26 percent), followed by banking and insurance (17 percent) and healthcare (12 percent). HOCHTIEF
Facility Management meets this demand with the services
offered in its industry segments. A PPP segment will be
added in 2006.
Integrated facility management is also taking an increasing
hold internationally. HOCHTIEF Facility Management accordingly reports a strong business trend in the UK and Ireland, and also in Hungary, Poland and Greece. Here again,
rapidly increasing demand for outsourcing solutions comes
from the public sector.
To Our Shareholders
New law to expedite PPP contracts
On June 30, 2005, the German Bundestag passed a
bill to expedite the implementation of public-private
partnerships and to improve the legal framework for
them. Providing greater certainty about the legal position and removing constraints that have previously held
back PPP projects, the new act thus paves the way for
a further increase in the volume of PPP contracts in
Germany.
HOCHTIEF Stock
Follow-up approval for Düsseldorf Airport
The Northrhine-Westphalia state transport department
granted follow-up approval to Düsseldorf Airport in November, allowing for further growth in coming years.
With immediate effect, the airport is permitted to process up to 45 flights an hour at peak times and approximately 15 percent more flights overall in the six
busiest months.
Management Report
The European market as a whole grew very healthily throughout 2005 with investment spending at EUR 100 billion. The
strong growth mostly reflects the upward trend in central
Eastern Europe and international investors displaying greater interest in the German real estate market. Property turnover also increased in Eastern Europe, where demand for
high-quality office, wholesale/retail and logistics properties increased sharply. HOCHTIEF was quick to spot this
trend. Its strong local presence in Poland, the Czech Republic and Hungary has enabled it to build initial office and
logistics developments or to begin with planning and design. Due to huge pent-up demand, 2006 is expected to
be a year of strong growth comparable to 2005.
Legal and economic factors
Project development
The German market for office real estate bottomed out in
2005. Office space turnover in almost all cities rose significantly compared with the previous year. Vacancy rates also
decreased in most cities, partly reflecting the low level of
new development, most of which is speculative. Peak rents
are settling down in the high-quality commercial rental
property segment long served by HOCHTIEF. The company benefits from this trend by targeting developments that
are versatile in their potential use and offer top-class amenities.
Annual Report 2005
33
INNOV TION
In ViCon, or Virtual Design and Construction,
HOCHTIEF is using one
of the construction
industry’s key innovative technologies and
setting new standards
for planning and executing projects in the process. Computer models
provide comprehensive
simulations, allowing, for
example, engineering
aspects, costs, timing
and use of space to be
realistically depicted
both well before and
during a project’s construction. The digital
building models deliver
time and cost-saving
information over the
entire project life cycle.
34
Annual Report 2005
To Our Shareholders
Strategy
Quality: The foundation of our business
Motivated employees who offer superior service ensure a
high degree of customer satisfaction. This is a key factor
in our company’s economic success. Our employees thus
proactively contribute to our value growth—for the good of
clients, shareholders and the company.
We offer our clients tailor-made end-to-end
solutions.
HOCHTIEF’s standards for providing superior quality apply
throughout all Group companies and units. The advantage
to our clients is consistent excellence—whether they seek
modular solutions or aim to take advantage of our full product and service spectrum. We always take an end-to-end
view of our projects. In this way, we can offer and implement intelligent, tailor-made answers that cover the entire
HOCHTIEF Stock
We shape markets and set new standards.
The exceptional work of our employees puts HOCHTIEF
at the forefront of innovation. We often tread new territory
with our projects, leading the way in the development of
technological solutions and new products. Such best practice examples are used throughout the Group network.
We systematically draw on our know-how edge and provide innovative engineering services in order to bring
unique, demanding projects to fruition for our clients.
We always act responsibly.
Acting responsibly with respect to our employees, shareholders, clients and subcontractors is a matter of course
for HOCHTIEF. We want to live up to the expectations they
have of our company as a fair, reliable partner and follow
binding ethical guidelines throughout the Group.
Management Report
HOCHTIEF stands for quality.
We have the best people.
Highly qualified, devoted employees enable us to achieve
our promise of providing unsurpassed quality. With their
ability to provide expert advice from a project’s early stages
to long after its conclusion as well as innovative construction-related services, our employees stand ready to assist
clients according to their individual needs. This is why we
work hard to integrate the best employees into the HOCHTIEF
Group and offer them an optimum working environment.
And to accomplish that, HOCHTIEF attaches great importance to continuing education and employee retention
programs as well as cooperation among the divisions.
project life cycle. In doing so, we value working with our
clients in a spirit of partnership.
To address the economic and quality demands of projects
responsibly, we deploy our sophisticated risk management
system. This system ensures HOCHTIEF’s ability to act at
all times with an eye toward creating value.
Our vision gives us direction.
Implementing these strategic principles as part of our daily
routine represents a conscious effort to fulfill our vision:
“HOCHTIEF is building the future.—Along with our
partners, we expand horizons, link people and organizations, create new ways to think and act, and
continually enhance the values entrusted to our
care.”
HOCHTIEF’s business is shaped by innovative thinking,
working in a spirit of partnership and maintaining transparency. We are a reliable, trustworthy partner to our clients and dedicated to providing quality, because we believe this is the only way to give the best service and
increase the values entrusted to our care.
We see our selves as a company t hat of fer s clients unparalleled qualit y—in all project phases,
for all modules of our product and ser vice mix. Our commitment to of fer sustainable, endt o - e n d s o l u t i o n s e l eva t e s u s a b ove p u r e l y p r i c e - b a s e d c o m p e t i t i o n . H O C H T I E F ’s c l i e n t s
b e n e f i t f r o m k n ow i n g t h a t t h e i r t i m i n g , c o s t a n d q u a l i t y r e q u i r e m e n t s w i l l b e m e t . We a r e
d e d i c a t e d t o p r ov i d i n g q u a l i t y o n eve r y p r o j e c t a n d s e t m a r ke t s t a n d a r d s a s a r e s u l t . Fo r
c l i e n t s , t h i s m a y a p p e a r t o c o m e a t a h i g h e r p r i c e i n i t i a l l y, b u t l o n g -t e r m t h e y p r o f i t f r o m
l owe r c o s t s .
Annual Report 2005
35
Strategy
Network and growth:
Added value within the
Group
Internationalization and worldwide integration have had a
lasting impact on what happens in our Group. The modules
of our product and service mix—development, construction, services plus concessions and operation—are closely
interrelated and cover every link in the project value chain.
This means we can optimally combine the know-how and
services of our various operational units and offer our clients customized solutions. Our balanced portfolio enables
us to profit from differing economic developments.
Development
Concessions
and operation
Construction
Services
All modules of the product and service portfolio are closely interrelated
Our products and services
Development
This module encompasses everything related to real estate development, from planning and finance all the way
to marketing, either as individual offerings or an all-in
package.
Construction
This module consists of traditional construction operations as well as construction management in the areas of
building construction, civil engineering and infrastructure
development.
Services
The services module covers services in the pure sense,
such as construction planning, logistics, asset management, facility management and insurance. Construction
management at fee* is also included.
Concessions and operation
Included here are activities aimed chiefly at managing
business processes which, in particular, comprises the
work of our Airport division as well as our public-private
partnership business in the toll roads and public buildings segments. Contract mining, with its focus on operation, also falls into this category.
36
Annual Report 2005
Exploiting cross-selling effects
The intense cooperation among our operational units means
realizing efficient value growth by jointly executing projects.
The companies acquire new clients through these crossselling effects, generating additional business as a result.
Such synergies are especially effective in the area of public-private partnerships, one of the Group’s growth segments. The ability to offer all services completely from one
source has made HOCHTIEF PPP Solutions the market
leader in Germany.
As Group companies with which HOCHTIEF PPP Solutions successfully markets these services, HOCHTIEF
Construction and HOCHTIEF Facility Management in turn
land contracts in the PPP market segment through the
close cooperation.
Services optimize the portfolio
Notably the services module is the optimal strategic complement to our construction and project activities. Services
offered include PreFair, facility management and insurance.
PreFair
Part of our strategy is to strike a dialog with our clients as
early as possible. We also shape the market by focusing
on project quality and on rendering consulting and planning services in a spirit of partnership. One of the fruits
of our labor in this regard has been PreFair, a business
model in which clients, architects and engineers work in
close cooperation from a project’s earliest stages. The overwhelmingly positive response to PreFair has confirmed
that we were right to take this strategic step. Accordingly,
To Our Shareholders
Insurance services
Insuring projects and project risks is part of our service
portfolio. We have generated added value for HOCHTIEF,
and hence our shareholders, by making this strategic addition to our traditional construction business.
HOCHTIEF Insurance offers custom coverage to all of the
Group’s operational units and outside project partners, insuring everything from construction projects to facility management services. Clients, owners and end users can also
turn to HOCHTIEF for protection against postconstruction
risks such as fire and service interruption.
In conjunction with its growing service portfolio, HOCHTIEF
offers tailor-made reinsurance services through subsidiaries
in Luxembourg. The policies reinsured include coverage
for construction services, loss of suppliers and liability predominantly relating to the operating activities of the Americas division.
Focus on concessions and operation
The concessions business* is one of HOCHTIEF’s strategic
focuses and a value driver for our stock. The returns are
attractive and, with a guaranteed stream of income over
the long term, the concessions business is less vulnerable
to cyclical fluctuations than traditional construction operations.
In HTAC, HOCHTIEF AirPort has also made a lasting contribution toward strengthening its competitive position in
the field of international airport management. What is more,
the finance expertise of the financial partners to the venture is an ideal complement to the specialized knowledge
of HOCHTIEF AirPort, which is one of the leading independent airport managers worldwide.
HOCHTIEF Stock
Thanks to Group-wide networking, all HOCHTIEF companies are in a position to include facility management services in their offerings, thus achieving higher order volume
for HOCHTIEF overall.
Public-private partnership
With PPP know-how concentrated in the companies
HOCHTIEF PPP Solutions, Leighton and Aecon, HOCHTIEF
has strategically set the stage to grow in this attractive
segment across all key regions. We intend to increase our
market share in the PPP growth market in Germany, as
well as the continually expanding PPP markets in the UK
and Ireland in particular.
Contract mining
In the field of contract mining, HOCHTIEF is an established
partner for underground and open pit mining via its Australian subsidiary Leighton. Leighton leads the market in
contract mining down under. By acquiring 15 mining projects in Australia and New Zealand from Henry Walker Eltin
Group Ltd., Leighton is adding activities in the promising
iron ore mining industry to its already robust coal mining
business. Our subsidiary has secured an excellent position for itself through this purchase. It will enable us to service the consistently brisk demand for raw materials, particularly in China, in the most advantageous way possible.
Management Report
Facility management
As part of systematically pursuing our strategy to cover the
entire project life cycle, we have expanded our service spectrum in the area of integrated facility management. In facility
management, HOCHTIEF has chosen a highly profitable
field within a growth market that promises a higher, more
stable income stream for the long term.
Airport
HOCHTIEF took a strategic step toward realizing future
growth in the promising airport market in 2005 by founding
the world’s first airport investment partnership, HOCHTIEF
AirPort Capital (HTAC). Capital freed up from existing airport holdings can be used to invest in additional projects
going forward, whether they involve the acquisition of stakes
in privatized airports or execution of demanding infrastructure projects.
*For additional information
on our airport and PPP
portfolios beyond that provided in the Management Report, turn to pages 20-23.
Annual Report 2005
37
we intend to systematically expand our portfolio with additional valuable services.
Research and Development
Innovations as the foundation for lasting corporate
success
Re s e a r c h a n d D eve l o p m e n t ( R & D ) oc c u r s o n t wo l eve l s a t H OCHTI E F : T h e h o l d i n g c om p a ny ’s
m a n ag e m e n t of i n n ova t i o n s w i t h G r o u p -w i d e i m p ac t s u p p o r t s H OCHTI E F ’s o n go i n g s t r a te g ic
d eve l o p m e n t , w h i l e d e c e n t r a l i z e d a c t i v i t i e s o f t h e c o r p o r a t e u n i t s i n c r e a s e t h e d i v i s i o n s’
c o m p e t i t i ve n e s s a n d d e l i ve r i n d i v i d u a l , g r o u n d - b r e a k i n g s o l u t i o n s f o r o u r d e m a n d i n g p r o j ects. This approach continued to bear fruit in 2005.
R&D at HOCHTIEF: New technologies and
procedures often originate from our projects
Construction is a project business centered on creating
something that is unique each time. Fundamentally, this is
what separates construction companies from businesses
involved in the mass production of goods. This is why time
and again R&D activities are carried out at HOCHTIEF job
sites. The construction of complex projects such as highrises, tunnels and bridges frequently represents new technological territory for the HOCHTIEF companies, requiring
the development of innovative technical procedures and
processes—on site and as the project progresses. Many
times, it is also necessary to find innovative solutions for
specific project management and logistical demands. A
property’s particular location, for example, may necessitate
an elaborate logistics strategy. Such project-related R&D
activities are initiated and implemented by the respective
corporate unit. A case in point is the construction of the new
Container Terminal IV in Bremerhaven, which involves an-
External and internal innovation ideas
Project ideas
Innovation plans
Innovation
projects
Implementation
The innovative process: from idea to implementation
38
Annual Report 2005
choring, to the centimeter, more than 700 steel panels that
are up to 42 meters long in order to build a level sheet pile
wall. To accomplish this, HOCHTIEF created the jack-up
platform known as “Odin” in 2005, which allows for driving
the panels into the ground with extreme pressure. “Odin”
has also given us a competitive advantage in the promising
market for offshore wind parks.
The holding company’s structured and systematic
innovation management
Corporate Development is responsible for working with the
individual HOCHTIEF companies to identify and coordinate
innovation projects with Group-wide impact. It reviews how
useful projects will be to the Group and, as applicable, supports their execution. Such projects include new technologies and optimized processes as well as product innovations and forward-looking strategies for previously untapped
market segments. New ideas are generated and fine-tuned
in a number of different ways. One way is through HOCHTIEF’s
close contact with leading scientists, universities and research institutions worldwide. Cooperating with competitors
and sharing experiences with companies from other industries also make it easier to pinpoint and implement innovative ideas.
Our company’s efforts in the year under review included
working with the renowned Stanford University in the area
of innovation management, participating in several EU research projects and taking part in ENCORD, the European
Network of Construction Companies for Research and
Development.
Internally, R&D specialists from Corporate Development,
ideas competitions as well as workshops with the divisions
and outside experts assist in identifying potential innovations that could have a positive impact on the Group’s
strategic future. Initially, no limits are placed on partici-
To Our Shareholders
InTun
2,110
1,344
ViCon
Networking
1,572
221
633
1,313
187
–
1,669
5,759
1,462
4,752
799
336
6,558*
0.2
5,088*
0.1
iBuild
Other R&D projects
Subtotal
Idea finding, coordination,
etc.
Total
Additional external R&D funding
pants’ creativity. It is not until the next phase of idea discovery that suggestions are assessed with a view to marketability. If the assessment is positive, the proposal is
developed into an innovation plan. Then the Innovation
Committee, which is made up of members from all divisions and the Executive Board, decides whether the idea
should become a new innovation project. If the experts
give an idea the green light, individual project teams are
formed. The implementation phase, which is accompanied by a rigid oversight process, comes next. Rigorous
oversight ensures that projects remain economical for their
duration and are successfully brought to a close.
R&D expenditure increases
The expenditure on central R&D projects of the HOCHTIEF
holding company was approximately EUR 6.5 million in the
year under review, an increase of around 29 percent from
a year earlier. Some 85 knowledgeable employees from
the worldwide HOCHTIEF network worked exclusively or at
least for a substantial period of time on research and development in 2005. HOCHTIEF carried out work on a total of 42 central R&D projects in the period under review;
15 projects were started, 9 were completed.
The Stifterverband für die Deutsche Wissenschaft, a nonprofit umbrella foundation dedicated to the promotion of
science, research and education, estimates that the construction sector in Germany spent EUR 40 million on R&D
Participating divisions
Europe
All divisions
All divisions
Europe, HOCHTIEF Development
All divisions
The implementation of
projects at the individual
HOCHTIEF companies accounts for a significant
portion of overall R&D expenditure. Such costs thus
cannot be listed individually and are not contained
in this table.
Holding company, Corporate Development
corporate center
*of which 5,208,000 attributable to Corporate Headquarters (2004: 4,234,000)
and 1,350,000 to the divisions (2004: 854,000) (figures rounded to thousands)
HOCHTIEF Stock
2004
activities in 2005. Considering HOCHTIEF’s central R&D
expenditure of over EUR 6 million, our R&D investments
are exceptionally high for the industry.
R&D key subjects in 2005**
The innovation focuses capable of creating Group-wide
synergies and tapping new sales and earnings potential
for HOCHTIEF included the following projects in the year
under review:
**Further information
on our R&D key subjects is available on
the web at www.
hochtief.com
InTun (Innovative Modules for Tunneling)
The strategic research focus InTun brings together
HOCHTIEF’s myriad research and development activities
in the technology-driven market for tunnel construction.
Thus far, 15 different R&D projects on conventional and
machine tunneling have been started. Some of these were
already brought to a successful close in the period under
review.
Management Report
2005
Patents have been applied for on four innovations. Additional applications, with which HOCHTIEF can extend its competitive lead in the tunneling segment, are in the pipeline.
The results of InTun activities find direct application in bids
and construction projects. As with any other HOCHTIEF
research focus, they benefit the corporate network. Australian HOCHTIEF Group company Thiess, for example,
has profited from our developments in the area of tunnel
fire protection.
R&D activity
Central R&D expenditure by activity (EUR thousand)
Annual Report 2005
39
B u i l d d ig i t a l l y f i r s t :
V i Co n i s a s m a r t so l u t io n to u s e i n t h e
b e g i n n i ng s t ag es of
a ny c h a l l e ng i ng p r oje c t a n d c a n l ea d to
c os t s av i ng s—w h e ther the task is deve l o p i ng l ig ht i ng a n d
e n e r g y co nc e pt s fo r
a i r p o r t h a ng a r s o r
s p e c i a l d es ig n s fo r
t u n n e l i ng.
ViCon (Virtual Design and Construction)
The forward-thinking technology ViCon makes it possible
to first create projects digitally, down to the smallest detail.
To do so, all aspects of buildings and infrastructure jobs
are captured—engineering needs, costs, timing, use of
space, required trades. The result is a digital model that
delivers process-improving information over the entire life
cycle. Particularly in combination with our partnership-based
PreFair business model, ViCon helps to significantly reduce
risks and optimize interfaces. It is also a tool that can enhance communication among all project participants.
To date we have successfully employed ViCon technology
in over 90 projects, depicting technical solutions for both
building and tunneling projects. We have entered into cooperation agreements with Stanford University’s CIFE center, the Bauhaus University Weimar and Darmstadt’s Technical University in order to develop ViCon to its fullest
potential.
40
Annual Report 2005
Networking
HOCHTIEF is able to set worldwide standards and distinguish itself from the competition thanks to the close cooperation in its international Group network. The Networking
focus thus aims to promote internal communication further
and to create the necessary technological foundation for
continued know-how transfer. Innovative communication
systems such as the international intranet were expanded
in 2004. In 2005, HOCHTIEF worked on optimizing these
tools, thus tapping additional Group-wide synergy potential.
iBuild (Intelligent Building)
HOCHTIEF’s aim with this research focus is to make more
of a name for itself in the growing segment of intelligent
building. The aim is to work together with the Fraunhofer
Institute and distinguished partners from industry to find
integrated solutions that can combine components such
as telephone, heating and lighting into one single building
system. Microchips embedded inside concrete, for example, could be used to regulate heating usage and save energy. The transmission of voice over data networks is another example of where customer benefits can be increased
and operating costs decreased. Our goal looking ahead is
To Our Shareholders
Steel-concrete composite solutions capable of
handling extraordinary forces
The need for efficient methods of securing at-risk buildings
against impacts, earthquakes and explosions is on the rise
worldwide. As a result, HOCHTIEF is collaborating with
universities and a steel producer to create innovative steelconcrete composite solutions with safety-maximizing properties. The EU supports the research project and is bearing
60 percent of the costs.
Multi-generational residential concepts
Demographic change requires new residential concepts
for young and old alike. HOCHTIEF’s answer to this challenge is a research project launched in 2005 on integrated, self-determined living and working. The first results are
scheduled to be incorporated into a pilot project in 2006.
Harnessing synergies with research projects
Research projects carried out centrally often complement
those handled decentrally. HOCHTIEF Construction, for instance, is working on a high-rise prototype based on an
integral security concept. The R&D activities being carried
out simultaneously at the HOCHTIEF holding company in
the area of composite solutions resulted in a forward-thinking method of protecting the building against impacts, earthquakes and explosions.
HOCHTIEF Stock
Building rating systems
Taking an end-to-end approach to the life cycle of properties boosts their value and also makes them more marketable. For this reason, HOCHTIEF has combined its Groupwide knowledge in the area of sustainable building into
one innovation project on building rating systems in which
all divisions participate. The goal is to work in close cooperation with clients to design and execute construction
projects that are in tune with client needs, environmentally
friendly, energy saving and socially responsible. Long-term
viability and sustainability factors are considered early on
during planning. A comprehensive market analysis is helping to gauge where sustainable construction stands in
terms of public awareness, future significance and image.
Involvement in innovative developments in the
construction industry
Throughout the world HOCHTIEF companies are involved
beyond internal R&D activities in diverse initiatives spearheaded by the governments, universities and organizations
in their respective countries. A case in point is the participation of HOCHTIEF in the European Construction Technology Platform. Co-initiated by our company, the ECTP
works to ascertain what research needs exist in the European construction sector.
Leighton is supporting a campaign by the Australian government to maximize occupational safety during coal extraction. HOCHTIEF and its US subsidiary Turner jointly
sponsored the 2005 annual congress of the World Green
Building Council, a point of convergence for leading experts in sustainable building. The US HOCHTIEF company
is considered a trendsetter in the growing field of green
building in the US thanks to its know-how and the numerous completed projects to its credit.
Management Report
Other R&D projects
The HOCHTIEF holding company invested around EUR
1.7 million, or about 25 percent of its total R&D expenditure, in “other R&D projects.” The following activities are
particularly innovative and have attractive potential for our
company:
Number of patents continues to grow
Over and above the activities highlighted, the companies
of the HOCHTIEF Group are also systematically adding to
their individual product and service portfolios through innovation. HOCHTIEF Construction, for example, applied
for nine patents in the year under review, most of them in
the tunneling segment. In addition, five applications were
published in 2005 and four new patents granted.
to do more work in this area. The first R&D projects on
iBuild have begun.
HOCHTIEF’s international R&D activities is
available in our sustainability report and at
www.hochtief.com/
sustainability
Annual Report 2005
41
Employees
Competent employees make for unsurpassed
quality in all of the Group’s endeavors
Further information on employees as well as occupational
safety, health and environmental protection is available in
our sustainability report and at
www.hochtief.com/sustainability
O u r e m p l oy e e s a r e o u r m o s t i m p o r t a n t a s s e t a n d r e s o u r c e . H O C H T I E F ’s o b j e c t i ve i s t o a p p r o a c h a l l o f i t s wo r k w i t h s u p e r i o r s k i l l a n d a p t i t u d e : B y h a v i n g t h e b e s t e m p l oy e e s , a t o u r
c l i e n t s’ s e r v i c e, t h ey c a n c o u n t o n a d e p e n d a b l e so u r c e of k n ow- h ow. T h u s , a p r i m a r y foc u s
o f t h e G r o u p’s h u m a n r e s o u r c e s m a n a g e m e n t i s t o o f f e r c o n t i n u i n g e d u c a t i o n o p p o r t u n i t i e s
t o ex i s t i n g e m p l oye e s of t h e wo r l d w i d e H OCHTI E F n et wo r k a s we l l a s i d e n t i f y a n d i nte g r a te
n ew t a l e n t .
Competent employees
Continuously increasing globalization coupled with
HOCHTIEF’s strategy of concentrating on construction-related services and the concessions business require that we
make sure our existing employees receive ongoing training, and hire new employees with the requisite qualifications. A sound knowledge of project finance, the various
aspects of facility management, the real estate business
and concessions are just part of what we look for in, and
seek to teach, our employees. Systematic international
personnel exchange helps to draw the worldwide Group
companies that much closer and foster know-how transfer. Cooperation among the divisions and employee expertise factor heavily into the HOCHTIEF Group’s lasting
success, creating substantial added value as a result.
HOCHTIEF also works hard in all divisions to boost its attractiveness as an employer by providing a broad range of
training opportunities for developing employees’ hard and
soft skills. At the same time, the company implements targeted measures aimed at fostering loyalty and offers an
attractive remuneration structure.
by managerial staff as part of the series and is based on
our guiding principles succinctly documents our management policy.
For select new talent, the longstanding and successful personnel development forums are now complemented by
the “HOCHTIEF Campus,” a program in which small, interdisciplinary groups formulate and expand on ideas and
strategies related to specific topics. The Campus also promotes cross-divisional cooperation among up-and-coming managers, giving them the chance to introduce themselves and their thoughts to the company at large.
In July 2005, the second degree-bound class to enter the
HOCHTIEF Academy finished their four-year program of
study, with 17 employees receiving the accredited degree
of “HOCHTIEF engineer.” The in-house academy is an expression of our commitment to keep pace with the rapid
evolution of the construction industry, distinguish ourselves
from the competition and proactively confront the future
need for fresh qualified talent.
Number of employees at HOCHTIEF
Innovative personnel development tools
A new workshop series geared toward teaching and enhancing leadership skills was designed for middle and upper management in the year under review. Participants in
the management workshop develop scenarios on how to
proactively implement the corporate strategy. The content
is closely informed by the company’s vision and guiding
principles, which were further developed in 2005. Key topics also include dealing with mistakes and creating an environment in which to learn from them as well as our Code of
Conduct. These workshop events served to sustainably foster commitment and motivation on the part of all HOCHTIEF
employees. The management code that was developed
42
Annual Report 2005
Average for the year
 Total  International employees  Employees in Germany
33,100
34,039
24,663
7,751
2003
41,469
26,986
26,288
8,437
2002
36,409
31,708
9,423
2004
9,761
2005
To Our Shareholders
HOCHTIEF continues to provide training in excess
of its own requirements
HOCHTIEF created 50 additional training places in Germany in 2005, maintaining its tradition of providing training beyond its own requirements. Some 400 young adults
throughout the country received training in over 20 differWages and salaries at HOCHTIEF
EUR million
 Total  International  Germany
1,513
2002
1,419
1,649
1,961
1,100
1,017
1,182
1,475
413
402
467
486
2003
2004
2005
Code of Conduct modified
HOCHTIEF’s Code of Conduct, which is binding on all
employees, was revised and implemented in 2005. The
rules underscore HOCHTIEF’s commitment to fight corruption and increase transparency and accountability.
Seminars on this topic will be offered in 2006.
HOCHTIEF Stock
More efficiency in human resources services
The Personnel Management Center Europe (PMCE) is
the nerve center for the entire human resources management of the European divisions. The uniform standards
introduced at the center in 2005 are helping to boost the
operation’s efficiency and create numerous synergies.
Among the measures implemented in the year under review were centralization of the recruiting process, installation of a new intranet portal geared to building up an
Employee Self-Service System as well as integration into
the PMCE of the human resources work of the newly acquired facility management companies.
Value-based incentive system for managerial staff
Optimal implementation of a value-driven strategy hinges on
tying the personal success of managerial staff to the company’s success. In this spirit, it was decided to modify
performance-related compensation to incorporate RONA
(return on net assets, see page 46) in the form of value
created.
Management Report
Strategy in Eastern Europe requires more
personnel
HOCHTIEF’s strategy in Eastern Europe and expansion
into these markets also requires hiring new, qualified employees. Thus, the recruiting of graduates from international
universities and of experienced managerial staff has been
stepped up. Ideal candidates are proficient in the local language and have country-specific expertise, both of which
are necessary to succeed, win new contracts and set
quality standards at regional level. The companies in Poland and the Czech Republic have already been integrated
into the Group’s system of international personnel exchange,
allowing engineers and industrial employees working on
joint projects to profit from knowledge transfer and intercultural experience.
ent occupations in the year under review, including for
the first time training as a building and infrastructure systems electronics technician.
A word of thanks to employees and staff
representatives
HOCHTIEF owes the positive business performance of
2005 to its employees, whose outstanding expertise, tireless devotion and loyalty—whether at the job site or in the
office, whether as a trainee or manager—ensure the company’s success on a lasting basis.
Number of employees climbs higher
The number of employees in the HOCHTIEF Group rose
by almost 14 percent in the year under review, particularly
due to the number of new employees hired for large-scale
projects in Australia.
The at all times dedicated, solution-driven cooperation with
staff representatives contributes to maintaining HOCHTIEF’s
readiness for the future. For that, the Executive Board wishes
to thank all employees and staff representatives.
Annual Report 2005
43
Supply Management
Generating cost benefits, guaranteeing
superior quality
Expenditure on the procurement of materials and subcontracted ser vices accounted for around
75 p e r c e n t o f t o t a l o p e r a t i n g p e r f o r m a n c e i n t h e y e a r u n d e r r e v i e w, o r E U R 11.1 b i l l i o n .
The company intensified Group-wide cooperation in the area of purchasing to enhance
t h e qualit y of products and ser vices and, by combining order volumes, achieve optimum value
for money. Supply management at the international level became increasingly impor tant in 20 05.
Group-wide Procurement Directive adopted
Supply management in construction generally occurs on a
per-project, regional basis. However, with standardized
products and services, international suppliers and easier
access to the world’s procurement markets, HOCHTIEF’s
global purchasing strategy is gaining in importance.
In performing its work, HOCHTIEF’s procurement network
looks at and analyzes current information to ensure that
good materials, services and suppliers are always available
to HOCHTIEF clients at the best prices. ProVis will enhance
the quality of the divisions’ procurement activities and deliver direct value.
In accordance with its corporate governance principles,
HOCHTIEF adopted a Group-wide Procurement Directive
in the year under review that lays down uniform rules on
subcontractor and supplier management and on all procurement activities. The Directive fosters an entrepreneurial
mindset with respect to procurement at HOCHTIEF by establishing networks for interaction with clients and suppliers.
Focusing on optimum value for money
Looking at the life-cycle costs of a project means that procurement efforts focus not only on an attractive price, but
also products that are durable and easy to maintain. Such
lasting products reduce, for example, the maintenance and
service expense incurred by HOCHTIEF Facility Management, whose properties and facilities under management
in many cases include ones that were built by HOCHTIEF
Construction or are operated by HOCHTIEF PPP Solutions. Our clients, thus, profit from our integrated approach
to supply management.
The Procurement Directive also supports HOCHTIEF’s
quality directives. Having purchasing specialists in place
throughout the Group facilitates the introduction and implementation of high standards of quality for goods and
services on an international basis. Altogether the Group
employs 700 buyers.
The Procurement Global Network Team, which is made up
of the divisions’ highest-ranking buyers, ensures ongoing
coordination of the Group’s procurement activities. The increased cross-divisional cooperation in supply management supports uniform processes and generates purchasing advantages.
ProVis project: Transparency in supply management
The project ProVis was launched in 2005. The objective of
ProVis is to make the company’s procurement processes
transparent so that, for example, upcoming orders can be
bundled with reliable subcontractors.
44
Annual Report 2005
Worldwide purchasing leverage
HOCHTIEF is concentrating on tapping synergies between
its corporate divisions and building up its procurement network further as a means of continuing the internationalization of its supply management.
Efficient subcontractor management
Subcontractors are a vital part of what we do. HOCHTIEF
Construction alone, for example, worked with some 15,000
subcontractors in the year under review. A special system
of subcontractor management provides the operational
units with comprehensive information, especially details
about vendors in key trades like facade work, electrical
work, heating, ventilation and plumbing. Such information
includes a review of the subcontractors’ performance, specialties and credit standing as well as ongoing market analyses. We ensure in this way that the subcontractors we em-
To Our Shareholders
competitive advantage in the extremely fast-growing healthcare properties segment.
We also use lead buyers to handle procurement contracts
in key trades like facade work. Lead buyers possess concentrated knowledge about the demand for specific products at HOCHTIEF and what fluctuations to expect in international demand.
More than 100 individuals who combine an engineering background with specific product knowledge work for Turner
Logistics. Strategic partnerships with 80 key suppliers and
relationships with another 200 vendors ensure the ability
to use high procurement volumes to tap attractive savings
potential without sacrificing quality.
Turner Logistics succeeded during the year under review
in sharply increasing the purchasing volume in all procurement segments, including smart building technology. In
2006 the company hopes to also boost the efficient purchasing of tenant build-out materials like flooring systems,
light fixtures and the complete range of office furniture and
works equipment. Turner Logistics has already become a
specialist in the rapidly emerging field of hospital equipment
and furnishings, including high-tech machinery and supplies,
making the HOCHTIEF company the sole US provider capable of delivering turnkey solutions including all equipment for hospitals and research facilities: a significant
HOCHTIEF Stock
Procurement consulting services expanded
Companies and clients benefit from HOCHTIEF’s well integrated global network and its resulting first-hand knowledge
of regional procurement markets. They are able to take
advantage of a package of services that can include strategic procurement planning plus bid request, contract award
and quality management in addition to direct purchasing.
The year under review witnessed the successful completion of the first series of projects, one being HOCHTIEF’s
procurement of EUR 70 million in materials on behalf of
the Chinese construction company in charge of expanding
the international airport in Algiers. Savings of 14 percent
were realized because of the high order volume. Supply
management can help generate attractive double-digit margins for HOCHTIEF, which is why we intend to develop this
service further.
Management Report
Turner Logistics sets standards for the entire Group
Through Turner Logistics our US subsidiary has been providing comprehensive procurement services along the entire value chain for Turner projects and external clients since
2002. The overarching goal is to optimize product quality,
generate cost savings by combining orders and ensure ontime delivery. To achieve this goal the company buys materials directly from suppliers and distributors and delivers
them straight to the job sites. Since its inception Turner
Logistics has been involved in more than 700 projects. Sixtyfive percent of Turner’s clients on projects over USD 10
million chose Turner Logistics to provide procurement services for their projects in 2005. Business with external clients
was also dynamic and will be expanded further.
Expansion of supply management activities creates
upside revenue potential
HOCHTIEF Construction in Germany began applying its
“HOCHTIEF direct” strategy in 2005. Modeled after Turner
Logistics, the program involves purchasing large-scale
components for electrical and mechanical installations
plus products like light fixtures, ceramics and fittings for
specific projects directly from suppliers and distributors
throughout Europe. Subcontractors install the materials
procured via “HOCHTIEF direct,” which are cost-effective
because of the high purchasing volumes. The pilot phase
for the new business model ran smoothly. Plans are to start
using direct procurement in additional product areas.
We set great store by working with our subcontractors in
a spirit of partnership and transparency. Subcontractor
management is a mandatory component of HOCHTIEF’s
management system.
ploy have the requisite financial strength and skills and are
able to deliver the high level of quality we require.
Annual Report 2005
45
Measuring Return on Capital:
Return on Net Assets
Enhancing value-driven management for the
HOCHTIEF Group
HOCHTIEF’s use of RONA as a
measure of return on capital is
provided on the HOCHTIEF
website, www.hochtief.com
C o n s i s t e n t a t t a i n m e n t o f o u r s t r a t e g i c g o a l s c r e a t e s va l u e . D e l i ve r i n g s u s t a i n e d va l u e
g r ow t h i s t h u s t h e m a i n f o c u s o f t h e H O C H T I E F G r o u p’s m a n a g e m e n t s t r a t e g y.
Return on net assets (RONA)
Sustained growth in value is HOCHTIEF’s prime financial
goal. In achieving this goal, systematic enhancement of
our management and control systems is key. We placed
our value-driven management system on an entirely new
footing in 2005 by adopting RONA (return on net assets)
as the Group’s new measure of return on capital. Whereas
the previous measure, ROCE (return on capital employed),
related to capital employed in operating activities only,
RONA measures return on the entire capital invested and
so acknowledges that investors and lenders expect a suitable return on all funds they provide.
The two main control parameters used in the new approach
are RONA plus value created. If RONA is greater than WACC
(weighted average cost of capital—see below), value created is positive, meaning that the Group is generating value.
Expressed in absolute figures, value created is RONA, minus
WACC, times average net assets.
RONA is the percentage ratio of return to net assets and
indicates how well HOCHTIEF’s assets are performing as
an investment. Return is defined for this purpose as operating earnings (EBITA, shown in the Operational Statement
of Earnings) plus interest income from the Group’s financial assets. The net assets figure reflects the total capital
commitment from which the Group is required to generate
returns.
For divisional management purposes, net assets are determined from the assets side by deducting non-interestbearing liabilities from total assets. The assets-side calculation is useful for management purposes as it highlights
accounting parameters such as liquidity, trade accounts
receivable and trade accounts payable, which operational
managers must aim to optimize.
46
Annual Report 2005
For external reporting of Group performance, net assets
are determined from figures on the liabilities side. Net assets are obtained by adding interest-bearing liabilities items
on the published balance sheet (shareholders’ equity,
pension provisions, and financial liabilities) and adjusting
for deferred taxes to eliminate tax effects (since returns
are calculated on a pre-tax basis).
Weighted average cost of capital (WACC)
WACC is the weighted average of the costs of equity and
debt capital, expressed as a percentage. In 2005, HOCHTIEF
adjusted the parameters used to calculate WACC to take
account of changes in the economic environment. Factors
prompting these adjustments included HOCHTIEF’s improved risk profile, sustained low capital-market interest
rates and changes in the Group’s capital structure.
Taking all calculation parameters into account, the weighted average cost of capital for the HOCHTIEF Group
amounts to 10 percent before tax:
HOCHTIEF Group: Weighted average
cost of capital (WACC)
2005
Risk-free interest rate
Market risk premium
Beta
Post-tax cost of equity capital
Pre-tax cost of debt capital
Tax-deductibility of interest (tax shield)
Post-tax cost of debt capital
Equity capital share
Debt capital share
Post-tax WACC
Effective rate of tax on income
Pre-tax WACC
5.0%
4.5%
0.9x
9.1%
6.0%
–2.0%
4.0%
50%
50%
6.5%
35%
10.0%
To Our Shareholders
(EUR million)
Operating earnings (EBITA)*
+ Interest income**
Return
Shareholders’ equity (including
minority interests)
+ Pension provisions
+ Financial liabilities
– Deferred tax assets
+ Deferred tax liabilities
Net assets at December 31
Average net assets
Return on net assets (RONA)
Value created (absolute)
2005
365.7
64.0
429.7
2004***
227.0
65.5
292.5
2,290.3
106.6
1,087.9
1,904.6
313.3
1,173.8
144.7
88.2
249.8
56.0
3,428.3
3,313.1
13.0%
99.4
3,198.0
3,348.3
8.7%
(43.5)
HOCHTIEF Group: Return on
net assets (RONA)
HOCHTIEF generated a return of EUR 429.7 million—
about half as much again as 2004—with the Airport and
Asia Pacific divisions contributing particularly strongly.
Average net assets were also slightly down from the previous year, reducing the denominator in the equation and
so further boosting RONA. The decrease in average net
assets results from transferring pension commitments to a
pension fund and repaying debt. This reduction is partly
offset by an increase in shareholders’ equity, among other
things from retained post-tax profit.
Value created by the HOCHTIEF Group increased by over
EUR 140 million from minus EUR 43.5 million in 2004 to plus
EUR 99.4 million in 2005. All divisions apart from HOCHTIEF
Development achieved positive figures for value created.
HOCHTIEF Stock
HOCHTIEF Group performance
Reflecting its very strong performance, the HOCHTIEF Group
increased RONA to 13 percent in 2005 (from 8.7 percent
in 2004). The main factor in the increase is a marked improvement in earnings compared with the previous year.
Management Report
* See page 126 for the derivation of operating earnings (EBITA).
** Interest income is adjusted to eliminate interest from advance payments received, which is already included as an interest credit in
EBITA.
*** Return on capital has been measured using RONA since 2005.
Prior-year figures are adjusted to the new system for comparison
purposes.
Annual Report 2005
47
Divisions
* RONA adjusted by adding
tax back into the post-tax
income figures reported for
airport holdings.
Return
Net assets
RONA
WACC
2005
2005
(EUR million) (EUR million)
2005
(%)
Value
created
2004
(EUR million)
99.4
64.2
46.6
222.9
65.2
688.7
835.0
293.5
723.7
551.6
14.4
7.7
15.9
30.8
11.8
10.2
9.6
14.1
11.6
11.3
4.2
–1.9
1.8
19.2
0.5
29.6
(16.0)
5.3
138.9
2.8
(53.1)
(12.5)
8.4
53.5
(11.1)
Group
429.7
3,313.1
13.0
10.0
3.0
99.4
(43.5)
Divisional value created
On adoption of the RONA approach, division-specific figures were established for the cost of capital to ensure effective divisional management. These figures represent
the minimum return required from each division. The costs
of capital for the various divisions mostly reflect their differing operational focus.
The HOCHTIEF Europe division generated 11.8 percent
RONA, exceeding its division-specific cost of capital. Apart
from steps taken to boost efficiency, the increase was
achieved by focusing on profitable market segments. The
increase was also helped along by a decrease in net assets, partly due to pension commitments being transferred
to a pension trust.
With RONA at 14.4 percent, the HOCHTIEF Airport division is well ahead of its cost of capital. Alongside healthy
performance by the airport holdings, this reflected the
positive impact of the investment partnership established
in 2005. Divisional operating earnings include the Group’s
share of net income from equity-accounted airport holdings, which is stated after tax paid by the holdings themselves. The tax is added back into net income when determining RONA to ensure that all divisions are measured
using pre-tax figures.
Value created: A keystone of performance-linked
remuneration
HOCHTIEF’s very strong business performance in 2005
generated an overall increase in value. Its new method of
measuring return on capital improves value-driven management. This ensures transparency at all levels throughout the Group. To further sharpen the focus on value, the
key control parameter of value created is to be made a
major element of performance-linked management compensation.
The 7.7 percent RONA for HOCHTIEF Development is
lower than the cost of capital established for the division.
This partly reflects high expenditure incurred, as planned,
in securing new contracts for the HOCHTIEF PPP segment.
HOCHTIEF will continue consistent implementation of its
value-driven corporate strategy to boost earning power in
all divisions and deploy invested capital for maximum returns.
HOCHTIEF Asia Pacific again comfortably exceeded its
cost of capital, with RONA at 30.8 percent. The rise reflects
increased sales and earnings in the Leighton Group, an
improvement chiefly driven by large-scale infrastructure
contracts and mining activities.
Annual Report 2005
Value
created
2005
(EUR million)
HOCHTIEF Airport*
HOCHTIEF Construction Services Americas
HOCHTIEF Construction Services Asia Pacific
HOCHTIEF Construction Services Europe
The HOCHTIEF Americas division exceeded its minimum rate of return with 15.9 percent RONA. It almost
maintained the previous year’s level despite competitive
and cost pressure in the US building industry. The division’s average net assets figure increased slightly due to
exchange rate effects.
48
2005
(%)
Value
created
2005
(%)
To Our Shareholders
Value Added
Net value added in 2005 was adversely affected by a decrease in investment and interest income and an increase
in investment expenses. The main factors here were lower
income from sales of securities and lower interest income.
As in the previous year, the largest portion of net value
added—over 84 percent—was distributed to employees.
The higher 2005 figure for net value added distributed to
minority shareholders primarily reflects a marked rise in
the earnings contribution from our Australian subsidiary,
Leighton. Based on a dividend of EUR 0.90 per no-parvalue share—an increase of 20 percent on the prior year—
HOCHTIEF shareholders stand to receive 2.2 percent of
net value added. This figure relates to shares in circulation,
shares held by HOCHTIEF itself being excluded from dividends. The increase in net value added distributed to public authorities is mainly due to precautionary impairment
losses charged to deferred tax assets recognized for domestic tax loss carryforwards. Net value added distributed
to HOCHTIEF represents the difference between consolidated net profit and the dividend payout.
Net value added
EUR million
%
EUR million
%
13,653.2
0.8
274.4
13,928.4
(10,422.2)
(777.7)
(40.9)
(11,240.8)
113.7
63.4
2,864.7
(286.9)
98.0
0.0
2.0
100.0
74.8
5.6
0.3
80.7
0.8
0.5
20.6
2.1
11,943.7
(1.1)
169.8
12,112.4
(9,151.4)
(707.5)
(25.9)
(9,884.8)
128.2
33.7
2,389.5
(262.7)
98.6
0.0
1.4
100.0
75.6
5.8
0.2
81.6
1.1
0.3
19.7
2.2
2,577.8
18.5
2,126.8
17.6
Distribution of value added
Employees
Lenders
Minority shareholders
HOCHTIEF shareholders*
Public authorities
HOCHTIEF
Net value added
2004
2005
HOCHTIEF Stock
The increase in net income from participating interests,
which likewise had a positive impact on net value added,
mainly reflects improved income from the Airport division’s
airport holdings (see pages 51 and 52).
Sales
Changes in inventories
Other operating income
Corporate performance
Materials
Other operating expenses
Other investment expenses
Input costs
Investment and interest income
Net income from participating interests
Gross value added
Depreciation and amortization
2005
2004
EUR million
%
EUR million
%
2,171.1
77.7
88.5
57.2
177.7
5.6
2,577.8
84.2
3.0
3.5
2.2
6.9
0.2
100.0
1,864.3
75.1
40.0
47.6
106.2
(6.4)
2,126.8
87.6
3.5
1.9
2.2
5.0
– 0.2
100.0
Management Report
The positive trend in value added largely reflected a particularly strong gain in the corporate performance figure. This
was up 15 percent, compared with only a 13.7 percent
rise in input costs. Part of the rise in corporate performance was due to other operating income being augmented
by the book gain on the investment partnership.
Sources of value added
* The total dividend amount stated for 2005 is based on the number of shares in circulation on
December 31, 2005. The actual amount determined on the day of the General Shareholders‘
Meeting (May 10, 2006) may differ due to interim purchases and sales of own shares.
HOCHTIEF achieved a further substantial increase in net
value added in 2005. Total value added was EUR 2,577.8
million, 21.2 percent higher than the previous year.
Va l u e a d d e d a n a l y s i s s h ow s h ow H O C H T I E F g e n e r a t e s a d d e d va l u e f o r t h e e c o n o m y a n d
h ow i t i s d i s t r i b u t e d t o t h e va r i o u s s t a ke h o l d e r g r o u p s .
Annual Report 2005
49
DRIVING
HEAD
Paving the way: Vespucio Norte Express, an
approximately 30-kilometer section of the
beltway circling Santiago de Chile, opened
in January 2006 and will
significantly ease gridlock in the capital.
HOCHTIEF secured the
contract to design, finance, build and operate the toll road together
with Spanish contractors at the end of 2001.
The project is a technological milestone for
fully electronic toll systems.
50
Annual Report 2005
To Our Shareholders
Financial Review
Increased profit: Potential and growth in the
HOCHTIEF Group
At 83.4 percent of total sales (versus 81.4 percent in 2004),
HOCHTIEF’s high international sales underscore its position as the world’s third largest and most international construction services provider.
HOCHTIEF held its own against the industry trend in the
still fiercely competitive German market, slightly increasing
sales from EUR 2.22 billion in 2004 to EUR 2.27 billion in
2005. This reflects considerable successes in HOCHTIEF’s
core construction business and targeted expansion of services in the facility management and public-private partnership segments.
HOCHTIEF Stock
One especially rewarding outcome was that the Airport division returned a profit even before the positive impact of
the investment partnership. We have thus attained our target for the Airport division of breakeven independent of
exceptional items three years earlier than originally provided
for in the business plan.
Operating earnings (EBITA) improved by EUR 138.7
million or no less than 61.1 percent, from EUR 227 million
in 2004 to EUR 365.7 million in 2005. This includes a EUR
51.8 million non-recurring gain on establishment of the investment partnership. Another major contributor to the increase was the Asia Pacific division, whose outstanding
business performance was reflected in operating earnings
of EUR 220.1 million, representing an increase of EUR 101.1
million from the prior year. Operating earnings in 2004 suffered the ongoing effects of risk provisioning for two problem contracts at Leighton.
Management Report
On international markets, HOCHTIEF generated sales of
EUR 11.38 billion, an increase of 17.1 percent from the prior
year’s EUR 9.72 billion. The Asia Pacific division performed
outstandingly with sales of EUR 4.58 billion, a EUR 1.13 billion increase from 2004. The division profited from largescale infrastructure and mining contracts undertaken by
Leighton, HOCHTIEF’s Australian subsidiary. Leighton
achieved sales of AUD 7.45 billion, a further marked rise
from the already high prior-year figure of AUD 5.8 billion.
Currency translation effects due to the strengthening Australian dollar boosted divisional sales by another EUR 178
million. HOCHTIEF’s US activities retain their importance,
with sales of EUR 6 billion outstripping the 2004 record
figure of EUR 5.65 billion by 6.2 percent despite marginfocused, selective order taking. Currency translation from
the US dollar had no significant impact in 2005.
Strong business year in all divisions
The Group’s profit figures are well up on 2004. Particularly
notable is the success of our airport business in establishing the world’s first airport investment partnership, and the
outstanding operating performance in our Asia Pacific division.
Net income from participating interests was EUR
63.4 million, an impressive 88.7 percent above the prioryear figure of EUR 33.6 million. HOCHTIEF benefited from
healthy earnings growth at its airport holdings, with Sydney and Athens airports making the largest contributions
to earnings.
Earnings
Sales grew strongly to EUR 13.65 billion, up 14.3 percent
or EUR 1.71 billion on the prior-year figure of EUR 11.94
billion.
Building on a sound financial and asset base, HOCHTIEF has systematically broadened the
s c o p e o f i t s a c t i v i t i e s t o s p a n t h e e n t i r e p r o j e c t va l u e c h a i n . T h e G r o u p o f f e r s a c l o s e l y i n tegrated range of capabilities, from development, construction and ser vices through to
c o n c e s s i o n s a n d o p e r a t i o n . H O C H T I E F a c h i e v e d s u b s t a n t i a l y e a r- o n - y e a r p r o f i t g r o w t h ,
e xc e e d i n g i t s a m b i t i o u s t a r g e t s f o r 2 0 0 5 .
Annual Report 2005
51
* see glossary on page 135
** see glossary on page 134
In a change made to comply with IFRS*, 2005 is the first
year that profits from Düsseldorf and Athens airports were
reported without a lag of one accounting period. This
change boosted 2005 net income from participating interests by EUR 11 million.
The EUR 14.7 million negative figure for non-operating
earnings is due to restructuring expenditure in the Europe
division. This represented a marked improvement on the
prior-year figure of minus EUR 26.1 million.
Net investment and interest income slipped as expected from minus EUR 13.6 million in 2004 to minus EUR
22 million in 2005—mainly because the 2004 figure was
buoyed up by exceptional gains on sales of shares effected
to reduce equity exposure in our special-purpose investment funds.
Operational Statement of Earnings1)
HOCHTIEF Group
(EUR million)
Profit from operating activities
+ Net income from participating interests
– Non-operating earnings
+ Interest credited
Operating earnings (EBITA)
Net investment and interest income
Non-operating earnings
Profit before taxes
Income taxes
Profit after taxes
Of which: Consolidated net profit
Of which: Minority interest
2005
2004
280.2
63.4
(+) 14.7
7.4
156.3
33.6
(+) 26.1
11.0
365.7
(22.0)
(14.7)
227.0
(13.6)
(26.1)
329.0
(177.7)
187.3
(106.2)
151.3
81.1
62.8
88.5
41.2
39.9
Including reconciliation of operating earnings (EBITA)—a management metric—to profit from operating activities in the IFRS-basis
consolidated statement of earnings.
1)
52
Annual Report 2005
Transferring assets to the pension fund (CTA**) depleted
securities holdings, resulting in lower income from securities and lower net interest income. In contrast, the inclusion of expected return on plan assets transferred to the
pension fund sharply reduced the interest expense relating to
increased pension obligations.
Strong domestic and international earnings growth
IFRS-basis profit before taxes was EUR 329 million, up
from EUR 187.3 million in 2004. The sharp increase of EUR
141.7 million or 75.7 percent reflects HOCHTIEF’s success
both internationally and in its German home market.
Tax expense was EUR 177.7 million, an increase of EUR
71.5 million on the prior-year figure of EUR 106.2 million.
EUR 51.5 million of the total comprised current income tax,
which rose as expected from the previous year’s EUR 40.9
million due to higher profits in 2005. Deferred taxes totaled
EUR 126.2 million, almost double the EUR 65.3 million recognized in 2004. This mainly reflects EUR 60 million (versus EUR 20 million in 2004) in precautionary impairment
charges on assets recognized in earlier years for tax refund entitlements from German tax loss carryforwards.
The effective tax rate was 54 percent, an improvement on
the prior-year rate of 56.7 percent. The largely tax-free gain
from the investment partnership in the Airport division compensated for the increased impairment charge on assets
recognized for tax refund entitlements.
To Our Shareholders
(EUR million)
2005
2004
Cash flow
Net cash provided by operating
activities
Net cash used for investing activities
Net cash used for financing activities
Net cash increase in cash and cash
equivalents
418.0
319.7
635.6
(299.5)
(110.8)
311.0
(131.9)
(154.2)
225.3
24.9
1,061.3
769.6
Cash and cash equivalents
at year-end
HOCHTIEF Stock
Statement of Cash Flows for the HOCHTIEF Group
(Summary)*
* The full Consolidated
Statement of Cash Flows
appears on page 90, in the
Financial Statements and
Notes section.
Management Report
The results for 2005 are rewarding testimony to the stability of our risk management and control system.
Cash flow
Consolidated statement of cash flows
HOCHTIEF generated strong positive cash flow amounting to EUR 418 million in fiscal 2005, up 30.7 percent from
the 2004 figure of EUR 319.7 million. A major factor was
substantially improved earnings from the Asia Pacific division. The EUR 298 million inflow of liquidity generated on
setting up the investment partnership is reported in
changes in other balance sheet items and thus adds to
net cash provided by operating activities. In contrast, the
balance of the increases in receivables and payables reported as changes in net current assets and resulting from
the extra business volume produced a net cash outflow of
EUR 164.8 million (versus EUR 155.8 million in 2004). The
total figure for net cash provided by operating activities in
the HOCHTIEF Group was EUR 635.6 million, compared
with EUR 311 million in 2004.
Capital expenditure amounted to EUR 574.2 million, a
decrease of EUR 103.9 million or 15.3 percent compared
with the prior-year figure of EUR 678.1 million. Capital expenditure on purchases of intangible assets, property,
plant and equipment and investment properties rose from
EUR 440.3 million in 2004 to EUR 496.8 million in 2005,
an increase of 12.8 percent. The lion’s share of this sum
was accounted for by the Asia Pacific division, which
spent EUR 409.3 million on property, plant and equipment
for major infrastructure projects and for the ongoing expansion of its mining business. Capital expenditure on
property, plant and equipment remained at the previous
year’s level in all divisions except HOCHTIEF Develop-
Profit after taxes reflected the Group’s very healthy business performance, rising from EUR 81.1 million in 2004 to
EUR 151.3 million in 2005—an increase of no less than
86.6 percent. EUR 62.8 million of the total was allocated to
consolidated net profit, which thus increased by 52.4
percent from the prior-year figure of EUR 41.2 million. The
minority interest amounted to EUR 88.5 million, compared
with EUR 39.9 million in 2004. The substantial increase in
the minority interest reflects profit growth at Leighton and
at airport holdings in which minority shareholders hold significant ownership stakes.
Annual Report 2005
53
ment, which had invested more heavily in development
projects in 2004.
As planned, capital expenditure on financial assets was
significantly lower in 2005, at EUR 77.4 million compared
with EUR 237.8 million in the previous year. Activities in
2004 were directed at expanding the business portfolio—
increasing HOCHTIEF’s ownership share in Leighton, acquiring and paying capital into business holdings at Leighton, and acquiring the Lufthansa Gebäudemanagement
group. The focus in 2005 was on consolidating the new
acquisitions, with capital expenditure on financial assets
mostly restricted to putting capital into project companies
in the Leighton Group. Total cash used for investing activities was EUR 299.5 million, versus EUR 131.9 million in
2004, when cash outflows for capital spending were countered by substantial cash inflows from sales of securities.
Cash used by financing activities totaled EUR 110.8
million in 2005, compared with EUR 154.2 million in 2004.
The Airport division used most of the funds generated
from the investment partnership to reduce bank borrowings. Loan repayments totaling EUR 509.9 million exceeded new borrowing of EUR 466.3 million.
After exchange rate changes, HOCHTIEF had EUR 1.06
billion in cash and cash equivalents as of December 31,
2005. This represents an increase of EUR 291.7 million
from the prior-year figure of EUR 769.6 million.
54
Annual Report 2005
Free cash flow was EUR 386.9 million in 2005, compared
with a negative figure of EUR 80.5 million in 2004—a striking indication of the continued growth in HOCHTIEF’s financial clout. Free cash flow consists of net cash provided
by operating activities (EUR 635.6 million), proceeds from
asset disposals (EUR 329.9 million), changes in cash and
cash equivalents due to consolidation changes (minus 4.4
million), less capital expenditure (EUR 574.2 million).
Credit facilities for enhanced long-term
financial security
HOCHTIEF further strengthened its financial situation in fiscal 2005 by securing an internationally syndicated revolving credit facility and a credit line in Canada. These major
loan facilities testify to the Group’s strong credit standing.
They are key to securing the funds needed for its divisional
operations for the long term and so to implementing the
Group financial strategy.
Following the EUR 1.65 billion syndicated revolving guarantee facility secured in 2004, a EUR 600 million syndicated revolving credit facility was signed with an international
banking syndicate in 2005. The facility has an initial term of
five years, with two one-year renewal options taking it up
to a maximum of seven. The credit facility documentation,
the agreed terms and the extremely positive response from
the international banks involved reflect HOCHTIEF’s immaculate credit standing for long-term finance. Like the Group’s
other guarantee and credit lines, the facility is unsecured
and provides the funds necessary for planned investment
in the Group’s growth activities.
To Our Shareholders
Balance sheet
Consolidated balance sheet reflects HOCHTIEF’s
financial strength
The balance sheet layout differs from 2004 to comply with
changes introduced by the IFRS Improvements Project.
Current and non-current assets and liabilities are now
classified separately.*
* see page 99 for further
information
Two main factors brought about changes in the Group’s
net asset position in 2005:
HOCHTIEF Stock
HOCHTIEF further improved the structure of its pension
arrangements in 2005. In 2004, sums previously invested
in special-purpose investment funds and shares in a real
estate development company were transferred to a pension
plan under a contractual trust arrangement (CTA) covering
HOCHTIEF Aktiengesellschaft. The CTA model has now
been implemented for subsidiary HOCHTIEF Construction
AG, including its subsidiary Streif Baulogistik. For both
companies, the plan assets almost entirely comprise fixedinterest securities and a small proportion of cash or cash
equivalents. Assets worth EUR 213.7 million were transferred to the pension fund in 2005 to meet pension obligations for the subsidiaries concerned. In compliance with
International Financial Reporting Standards, pension provisions are stated on the balance sheet net of plan assets.
Management Report
The positive business trend in the operating divisions has
also had a significant impact on the net asset position of
the HOCHTIEF Group.
Despite the netting-out effect of the CTA, the expansion of
business activities along with exchange rate effects produced an increase in total assets to EUR 8.1 billion, up
11.1 percent from the end of 2004.
A further credit line for USD 300 million has been secured
to enable the provision of bonds required for HOCHTIEF
Construction AG to work on major infrastructure projects in
Canada. The facility is initially provided solely for HOCHTIEF
Construction AG and its Canadian activities, but can be
extended to other Group companies if needed. HOCHTIEF
Aktiengesellschaft provides indemnification.
Annual Report 2005
55
Within the total assets figure, non-current assets decreased by EUR 124.4 million, or 4.7 percent, to EUR 2.42
billion. Property, plant and equipment grew by EUR 16.2
million to EUR 682.2 million. This was mainly due to substantial capital spending at Leighton to carry out large-scale
infrastructure contracts and to continue the expansion of
its mining business. Conversely, the investment property
portfolio shrank by EUR 28 million to EUR 206.6 million
due to sales by the Development division. Intangible assets (mostly goodwill) increased by EUR 33.4 million to
EUR 330.3 million. This was offset by a EUR 46.7 million
decrease in non-current financial assets to EUR 912.5 million, primarily due to the sale of airport interests on establishment of the investment partnership. Deferred tax assets decreased by EUR 105 million to EUR 144.7 million,
mostly due to precautionary impairment charges on assets
recognized for tax refund entitlements from German tax
loss carryforwards.
Current assets were EUR 5.68 billion, having increased
by EUR 934.6 million from December 31, 2004. Receivables and cash and cash equivalents rose particularly
strongly. The growth in receivables mostly reflects the
marked expansion of our operating activities, which resulted in substantially higher trade receivables. This operational growth and the cash inflow from the investment partnership boosted cash and cash equivalents by EUR 291.7
million to EUR 1.06 billion. The EUR 298 million cash inflow
from the investment partnership did not produce a corresponding increase in year-end cash and cash equivalents
as about a third was used to repay debt. The asset transfer to the HOCHTIEF Construction AG pension fund decreased marketable securities by EUR 202.3 million. Topup purchases at Turner and insurance-related additions
cut this decrease to EUR 28.8 million, leaving the year-end
figure for marketable securities at EUR 963.2 million. The
securities transferred to the pension fund mostly comprised fixed-interest securities, which are separately ad-
Consolidated Balance Sheet (EUR billion)
Assets
8.10
7.29
8.10
Liabilities
7.29
Non-current assets
Intangible assets, property,
plant and equipment, and
investment properties
1.22
Financial assets
0.91
1.20
Other non-current assets
Deferred taxes
0.14
0.15
0.96
0.30
0.13
0.25
0.85
0.09
0.64
Current assets
Inventories, trade receivables and other current
assets
2.29
1.90
0.51
3.66
2.02
2005
Annual Report 2005
Other non-current liabilities
0.06
Deferred taxes
Current liabilities
Provisions
0.58
3.93
56
0.72
2.99
Marketable securities,
cash and cash equivalents
3.52
1.76
2004
2005
2004
Shareholders’
equity
Non-current liabilities
Provisions
Other current
liabilities
To Our Shareholders
HOCHTIEF Stock
In relation to total assets, shareholders’ equity increased
from 26.1 percent in 2004 to 28.3 percent in 2005. This
marked rise in the equity ratio once again underscores the
strength and soundness of HOCHTIEF’s balance sheet.
Current liabilities were EUR 4.57 billion, an increase of
EUR 471.4 million compared with 2004. Trade payables
rose by EUR 615.6 million to EUR 3.45 billion. This is largely accounted for by the Americas and Asia Pacific divisions. Conversely, current financial liabilities decreased by
EUR 214.7 million to EUR 257.2 million, mainly reflecting
the repayment of loans in the Airport division (EUR 237.3
million) on receipt of the cash inflow from the investment
partnership and the top-up borrowing.
Management Report
Group shareholders’ equity rose by a substantial EUR
385.7 million, or 20.5 percent, to EUR 2.29 billion. Profit after taxes accounted for EUR 151.3 million of the increase.
Another EUR 142.7 million comprised currency translation
differences and gains on marking financial instruments to
fair value, both of which are recognized in equity. Other
changes not recognized in the income statement produced
an increase of EUR 203.1 million and dividend payments resulted in a decrease of EUR 111.4 million. The other changes
largely comprised the increase in the minority interest resulting from the investment partnership in the Airport division.
Non-current liabilities were reduced by EUR 46.9 million to EUR 1.24 billion at the end of fiscal 2005. The main
factors in the reduction were implementation of the CTA at
HOCHTIEF Construction AG and the resultant netting of
pension provisions with plan assets. Pension provisions
thus decreased by EUR 206.7 million to EUR 106.6 million.
In contrast, non-current financial and other liabilities increased by EUR 135.1 million to EUR 851.6 million, mostly
for top-up borrowing in the Airport division.
ministered in trust as plan assets serving to cover the pension liabilities of HOCHTIEF Construction AG.
Annual Report 2005
57
HOCHTIEF Aktiengesellschaft (Holding
Company): Financial Review
H O C H T I E F A k t i e n g e s e l l s c h a f t p r e s i d e s ove r t h e H O C H T I E F G r o u p’s d i v i s i o n s a s a s t r a t e g i c
m a n a g e m e n t h o l d i n g c o m p a n y. B e c a u s e t h e o p e r a t i o n a l b u s i n e s s i s c o n d u c t e d by o t h e r
G r o u p c o m p a n i e s , H O C H T I E F A k t i e n g e s e l l s c h a f t ’s p r o f i t s a r e m o s t l y d e t e r m i n e d by n e t i n c o m e f r o m p a r t i c i p a t i n g i n t e r e s t s a n d by r eve n u e s a n d ex p e n d i t u r e r e l a t i n g t o i t s f u n c t i o n
a s a h o l d i n g c o m p a n y.
The HOCHTIEF Aktiengesellschaft annual financial statements were prepared in accordance with the German
Commercial Code (HGB) and Stock Corporations Act
(AktG) and have been given an unqualified auditors’ report
by auditors PricewaterhouseCoopers Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft. The statements are reproduced in full in the German Federal Gazette and have
been deposited with the Commercial Register, Essen District Court, under registration number HRB 279.
HOCHTIEF Aktiengesellschaft Statement of
Earnings (Summary)
(EUR million)
Sales
Changes in the balance of
construction work in progress
Materials
Personnel costs
Net income from financial assets
Net interest income
Writedowns on financial assets
and marketable securities
Profit from ordinary activities
Income taxes
Net profit before changes in
reserves
HOCHTIEF Aktiengesellschaft: Balance Sheet
(Summary)
(EUR million)
Fixed assets
Intangible assets and property,
plant and equipment
Financial assets
Current assets
Inventories, receivables and other
assets, and prepaid expenses
Cash and cash equivalents, and
marketable securities
Dec. 31,
2005
Dec. 31,
2004
95.6
1,614.9
1,710.5
101.7
1,391.7
1,493.4
512.4
912.5
578.1
1,490.6
2,984.0
1,363.3
541.0
1,079.7
2,984.0
2005
2004
92.4
189.5
Total assets
738.5
1,250.9
2,961.4
(3.4)
162.0
(31.7)
(80.3)
(4.7)
(70.7)
139.6
(13.7)
(76.4)
93.9
(63.2)
(86.6)
(5.5)
(97.5)
140.2
(16.8)
Shareholders’ equity
Provisions
Other liabilities and deferred income
Total liabilities
1,492.0
498.8
970.6
2,961.4
(5.2)
184.3
(8.0)
(11.6)
66.0
9.1
176.3
75.1
Earnings
In the separate financial statements for HOCHTIEF Aktiengesellschaft, profit is primarily determined by net income from participating interests and by increases in the
carrying amounts of own stock and of shares in specialpurpose investment funds.
Balance sheet
Due to its function as a holding company, HOCHTIEF Aktiengesellschaft’s balance sheet is dominated by financial
assets and receivables from affiliated companies. These
represent 68.3 percent of total assets, compared with 69.9
percent in 2004.
HOCHTIEF Aktiengesellschaft’s subscribed capital of EUR
179.2 million is divided, as in previous years, into 70,000,000
no-par-value shares. Shareholders’ equity equalled 50.4
percent of total assets, versus 45.7 percent in 2004.
Liabilities include EUR 200 million in promissory note loans
granted in 2004 with an original term of five years and a five
percent coupon.
HOCHTIEF Aktiengesellschaft’s net profit before changes in
reserves for 2005 was EUR 176.3 million. EUR 34.7 million
58
Annual Report 2005
To Our Shareholders
Executive Board proposal for the use of net profit
The Supervisory Board and Executive Board propose that
the EUR 63,000,000.00 unappropriated net profit for the
2005 fiscal year should be used to pay a dividend of EUR
0.90 on each of the 70,000,000 no-par-value shares in the
nominal capital stock of EUR 179,200,000.00. The dividend
includes a EUR 0.10 bonus per no-par-value share for the
Post balance-sheet
events
Change in ownership structure
Custodia Holding AG published the following ad-hoc
announcement on February 8, 2006 (extract):
In line with its investment strategy, Custodia Holding AG
has increased its shareholding in HOCHTIEF Aktiengesellschaft, Essen, to 25.08 percent.
The purchase takes the shareholding above the 25 percent threshold and is subject to regulatory approval.
HOCHTIEF Stock
was credited to the revenue reserve for own stock in line
with increases in the carrying amount of HOCHTIEF
shares held by the Company. In accordance with Section
58 (2a) of the German Stock Corporations Act (AktG) and
by instruction of the Executive Board, a EUR 65.4 million
increase over the book value of special-purpose securities
investment funds was deducted from net profit before changes
in reserves and credited to other revenue reserves. Another
EUR 18.1 million was transferred to other revenue reserves
from net profit. Including profit carried forward from the
previous year (EUR 4.9 million), unappropriated net profit
comes to EUR 63 million.
Management Report
The amount of the dividend that would have been payable
on own stock held by the Company on the date of the
General Shareholders’ Meeting will be carried forward to
the new fiscal year. This stock is barred from receiving a
dividend under Section 71b of the German Stock Corporations Act (AktG).
Annual Report 2005
59
TE MWORK
Top marks for cooperation: In PPP projects,
such as schools, the
Group companies
HOCHTIEF PPP Solutions, HOCHTIEF Construction and HOCHTIEF
Facility Management
work closely together
from day one. This teamwork pays dividends not
only for HOCHTIEF, but
also for its public sector partners—and, of
course, students and
their teachers.
60
Annual Report 2005
To Our Shareholders
Segment Reporting
Global presence generates local success
ing but the best support in their global projects. This in
turn creates close partnerships, not just among HOCHTIEF
companies but also with national and international regular
and repeat clients.
Thanks to our global portfolio, we are able to compensate
for economic fluctuations in the various markets and balance out potential risks involved in individual projects.
HOCHTIEF Stock
Our global spread generates significant competitive edge
for HOCHTIEF. We draw on our world-spanning network
to share our experience with each other on an ongoing
basis. The nonstop transfer of knowledge between our divisions, companies and interdisciplinary project teams allows us to rapidly bring best practice solutions proven in
one country to bear in other regions. Wherever possible,
we acquire and implement national and international projects as a group network. Here, our cross-border key account management ensures that our clients receive noth-
C o n s t r u c t i o n i s l o c a l p r o j e c t b u s i n e s s—t h a t ’s w h y yo u ’l l f i n d H O C H T I E F w h e r eve r o u r p r o j e c t s a r e b e i n g i m p l e m e n t e d . O u r g l o b a l s e t u p l e t s u s o p e r a t e e f f e c t i ve l y i n l o c a l m a r ke t s .
Whether in Europe, the Americas, Australia or Asia, we are in an ideal position.
Regional overview highlights HOCHTIEF’s global presence
Turner Corporation
HOCHTIEF (UK) Construction Ltd.
HOCHTIEF Facility Management
Ireland Ltd.
HOCHTIEF PPP Solutions (UK) Ltd.
Aecon Group Inc.
HOCHTIEF AirPort GmbH
HOCHTIEF Construction AG
HOCHTIEF Development GmbH
HOCHTIEF Facility Management GmbH
HOCHTIEF Insurance Broking and Risk Management Solutions GmbH
HOCHTIEF PPP Solutions GmbH
Streif Baulogistik GmbH
Durst-Bau GmbH
HOCHTIEF Polska Sp. z o.o.
HOCHTIEF Russia
Management Report
HOCHTIEF VSB a.s.
(Czech Republic)
HOCHTIEF Hungary
(Mélyépitö)
HOCHTIEF Bulgaria
Leighton Asia Limited
Leighton Contractors
Pty Limited
Leighton
Holdings
Limited
Thiess Pty Ltd.
HOCHTIEF PPP
Solutions (Chile) Ltda.
HOCHTIEF (South Africa)
Concor Limited
John Holland Group Pty Ltd.
Leighton Properties Pty Ltd.
HOCHTIEF
do Brasil S.A.
See page 132 for a list of
our business units, branches and offices. For address
and contact information,
please visit our website at
www.hochtief.com
Annual Report 2005
61
HOCHTIEF Airport Division:
Investment partnership confirms value
of the airport holdings
For further information, please
visit: www.hochtief-airport.com
**Final financial statements
were not available at the
time of going to print.
on our airport and PPP portfolios beyond that provided
in the Management Report,
turn to pages 20-23.
T h e A i r p o r t d i v i s i o n’s f i s c a l y e a r w a s s h a p e d by e n c o u r a g i n g d eve l o p m e n t s . H O C H T I E F A i rPo r t G m b H h a s c r e a t e d a f i r m b a s i s f o r i t s f u t u r e b u s i n e s s p e r f o r m a n c e by f o u n d i n g t h e
wo r l d ’s f i r s t a i r p o r t i nve s t m e n t p a r t n e r s h i p . Tr e n d s e t t i n g eve n t s a l s o o p e n e d u p n ew o p t i o n s f o r a d d i t i o n a l g r ow t h a t t h e a i r p o r t h o l d i n g s .
Founding of the investment partnership HTAC
HOCHTIEF AirPort has secured clear skies for its further
growth by founding the investment partnership HOCHTIEF
AirPort Capital (HTAC). Finalized in March 2005, the venture
combines the airport management know-how of HOCHTIEF
AirPort with the infrastructure finance strengths of partners
Hastings Funds Management (Australia), Caisse de dépôt
et placement du Québec (Canada) and KfW IPEX-Bank
(Germany). Both together with its partners and on a standalone basis, HOCHTIEF AirPort participates in bidding on
exciting airport projects.
Airport holdings on growth course
All of the airport holdings* reported encouraging growth
in passenger numbers last year. The five airports handled
just under 70 million passengers in 2005, which is 5.6 percent more than in the prior year. At 22 percent, growth was
the highest at Tirana International Airport (Albania), where a
consortium headed by HOCHTIEF AirPort took over operations as recently as April 2005.
Expanded route networks fueled the positive growth in
passenger volume. Hamburg Airport, for example, added
ten destinations to its direct connections, including Bergamo
(Italy), Gothenburg (Sweden) and Bristol (UK). Düsseldorf
made particular strides in the long-haul segment, with new
services to Port Louis (Mauritius), Calgary (Canada), Natal
(Brazil) and Yekaterinburg (Russia). Tirana International
also added flights.
In keeping with the increasing traffic, all five airports reported
higher income. Athens Airport performed particularly well
in this regard, with earnings up significantly more than 20
percent.
62
Annual Report 2005
The airport holdings
Athens International Airport
Sales for Athens Airport, handling a total of 14.3 million
passengers, were in the order** of EUR 330 million in
2005, with effective, optimization-driven management
feeding the successful economic performance. Non-aviation business was systematically expanded: Extra retail
space was added in the main terminal. Where the business park belonging to the airport was concerned, the
sale of the last available lots to home and garden store
chain Leroy Merlin brought the first development phase to
a close. The airport continued to win numerous awards in
2005, including the “AETRA Global Airport Award” for customer satisfaction.
Düsseldorf International
Düsseldorf Airport can now handle some 15 percent more
flights in the six heaviest travel months (see page 33), allowing it to better serve airlines’ demands for takeoff and
landing slots. The Airport City development project is making considerable progress. As the first major occupant, the
Maritim Group intends to complete construction of a hotel
and convention center with terminal access by late 2007.
Altogether, the airport recorded 15.5 million passengers and
generated sales to the tune of EUR 275 million in 2005.
Hamburg Airport
For the first time in its history, Hamburg Airport handled
more than ten million passengers. The sharp rise in lowcost connections, which accounted for as much as onefifth of total traffic, was one reason for this positive growth
in passenger volume. Another was the airport’s new service to destinations outside Europe. With Terminal 1, the airport has been in a position since May 2005 to handle the
rising number of passengers. The airport’s sales in 2005
were some EUR 200 million.
To Our Shareholders
2004
4.1
1.2
4.1
1.2
0.0
0.0
4.1
1.3
87.0
14.7
65.0
(14.3)
(12.9)
19.4
2.0
0.5
14.4
3.0
661.1
716.2
49
48
Sydney Airport
Passenger volume at Sydney Airport rose seven percent
to 28.3 million in fiscal 2005. Preparations are underway to
service the A380. The first A380 aircraft made a test landing in Sydney in November 2005. By mid-2006, investments
of EUR 60 million will have been made to ready the airport
for handling the superjumbo jet. The airport’s sales rose
EUR 38.5 million last year to EUR 366.7 million.
Tirana International Airport
As soon as operation of the airport in the Albanian capital
was assumed, construction work began on its new terminal. In the area of infrastructure, building of the new access
road to the airport commenced. Passengers were greeted
with additional retail space, restaurants and a redesigned
business lounge. The anticipated development at the site
and its well-balanced business plans attracted international banks to fund the expansion. Their involvement in financing the project is rooted in a positive assessment of the
airport’s creditworthiness. New to Albania, this form of financing makes it possible to meet the demands of a fastgrowing market and ensure lasting profitability. The airport
already reached the breakeven point in its first year. With
0.8 million passengers using the airport, sales in 2005 were
in the order of EUR 12 million.
External sales, at a solid EUR 4 million, stood well above
the prior year (EUR 1 million). Of note were the fees for acquiring the airport in Tirana and for consultancy services
related to the project. The operating earnings of EUR 87
million include the non-recurring gain of around EUR 52
million** from the investment partnership. Even without
this effect, operating earnings were above plan and 139
percent higher than in the prior year. The main cash flow
figure does not include the profit from the investment partnership set up in March 2005. The attendant EUR 298
million cash inflow is incorporated in “changes in other balance sheet items.” The capital expenditure of EUR 2 million mainly reflects the provision of shareholders’ equity for
Tirana Airport in the first and second quarters.
2005
*The RONA return on capital metric was introduced
in 2005. For purposes of
comparison, all prior-year
figures were adjusted to
reflect the new system.
RONA is available on pages 46–48.
HOCHTIEF Stock
New orders
Work done
Order backlog
External sales
Cash flow
Capital expenditure
RONA* (%)
Net assets* (December 31)
Employees (average over the year)
**Accounting profit of
roughly EUR 63 million less
approximately EUR 11 million in consulting fees and
performance-linked components
Management Report
(EUR million)
The division’s key figures
Driven by the founding of the investment partnership and
the positive earnings trends at all airport holdings, the
HOCHTIEF Airport division markedly increased its results
in the 2005 fiscal year. However, this is not adequately reflected in the division’s numbers: The work done reported
is limited to directly billable consultancy and other services
provided by HOCHTIEF AirPort, plus fees for successful
acquisitions. The company’s stake in the work done reported by the airport holdings, which are not fully consolidated, is not shown. The five airports generated sales of
some EUR 1.18 billion in 2005, an amount not captured in
the figures for work done and external sales.
As announced, HOCHTIEF AirPort passed the breakeven
point in 2005. This is three years earlier than projected in
the original business plan, even without the effect from the
Outlook
HOCHTIEF AirPort intends to further expand its portfolio in
2006. Indications are that there will be attractive airport privatizations in the years ahead. The company constantly reviews
relevant projects on the basis of its clear-cut risk management guidelines. The Düsseldorf and Hamburg airport holdings are gearing up to handle traffic for the 2006 World Cup
soccer tournament. Sydney Airport will enjoy its first opportunity to serve more than 30 million passengers in 2006.
Key figures for HOCHTIEF Airport
Annual Report 2005
63
HOCHTIEF Development Division:
Market position further expanded
visit:
www.hochtief-pppsolutions.com
www.hochtieffacilitymanagement.com
www.hochtiefprojectdevelopment.com
T h e d i v i s i o n a n a l y z e s l o c a t i o n s a n d d eve l o p s , d e s i g n s , f i n a n c e s , b u i l d s , m a n a g e s , o p e r a t e s
a n d m a r ke t s r e a l e s t a t e a n d i n f r a s t r u c t u r e p r o j e c t s . I n 2 0 0 5 g r ow t h w a s p a r t i c u l a r l y f a s tp a c e d i n t h e n ew H O C H T I E F PPP S o l u t i o n s u n i t a n d a t H O C H T I E F Fa c i l i t y M a n a g e m e n t .
Market position strengthened in all units
The division’s four operational units—HOCHTIEF PPP Solutions, HOCHTIEF Facility Management, HOCHTIEF Projektentwicklung and Deutsche Bau- und Siedlungs-Gesellschaft (Debausie)—further expanded their
market-leading positions in 2005.
on our airport and PPP portfolios beyond that provided
in the Management Report,
turn to pages 20-23. A list of
Leighton’s, Aecon’s and
Concor’s concession projects is given on page 23.
HOCHTIEF PPP Solutions
The new company has functioned as the nexus for
HOCHTIEF’s years of experience in the public-private partnership (PPP) segment since early 2005. First and foremost,
it focuses on building and operating public infrastructure
with private financing. Its market segments include public
buildings/social infrastructure and toll roads/transport infrastructure, with individual projects ranging from schools
and administrative buildings to bridges and tunnels.
HOCHTIEF PPP Solutions is the Group company responsible for PPP projects in Europe and South America.*
HOCHTIEF made a strategic debut in 2005 in the UK and
Irish PPP markets, landing two project contracts in the
countries’ respective education property segments. The
company is the preferred bidder for four additional projects.
The UK boasts Europe’s largest and most well-developed
PPP market. Twenty percent of all public projects in the region are already handled on a PPP basis. Substantial growth
is also expected going forward—HOCHTIEF intends to make
the most of these opportunities.
With its PPP contracts, HOCHTIEF PPP Solutions harnesses
the synergy potential anchored in HOCHTIEF’s portfolio of
services, working closely with HOCHTIEF Construction and
HOCHTIEF Facility Management.
The forward-thinking method of having private partners refurbish and operate schools has met with positive response from public-sector clients. The strain on public
coffers is considerably reduced through the use of PPP
64
Annual Report 2005
models. Public officials view the cooperation on projects
and high standard of quality very favorably. The PPP business is solid proof that HOCHTIEF is winning clients over
with individual and integrated solutions.
Project highlights
Public buildings market segment
In Cologne, the company is financing, refurbishing and operating seven schools at five locations on the basis of a PPP
contract. The project company set up for this purpose,
HOCHTIEF PPP Schulpartner Köln P1 GmbH & Co. KG, is
in charge of handling the EUR 125 million, 24-year project.
HOCHTIEF Construction is performing the refurbishing work.
An additional PPP project commenced in Leverkusen,
where HOCHTIEF PPP Solutions is financing, refurbishing
and set to operate for 29 years three vocational colleges
that are under a preservation order. The contract volume
is approximately EUR 70 million. A total of EUR 26 million
will be invested in the refurbishing work. Construction will
be handled in full by HOCHTIEF Construction. Another
partner from the HOCHTIEF Group, HOCHTIEF Facility Management, will assume facility management duties for the
school complex. HOCHTIEF’s PPP portfolio in Germany
now includes three school projects covering 60 schools
plus one city hall project. The combined volume is EUR
649 million.
In Manchester, UK, HOCHTIEF PPP Solutions (UK) Ltd. and
a partner are scheduled to finance and build the Wright
Robinson Sports College and then operate it for 25 years.
The contract volume is around EUR 170 million. A total of
EUR 50 million will be spent on construction. This project
marks the company’s successful debut in the UK’s extremely
fast-growing PPP market.
To Our Shareholders
In early 2006, the Vespucio Norte Express toll road in Santiago de Chile opened. HOCHTIEF PPP Solutions helped
finance and build the highway and will now operate it until
2032. HOCHTIEF Construction was responsible for the
road’s construction as a member of a joint venture. The investment outlays will be recouped at an attractive rate of
return through tolls. With Lübeck’s Herren Tunnel, the Vespucio Norte Express beltway in Santiago de Chile and the
Puentes del Litoral toll link in Argentina, three toll road projects from HOCHTIEF PPP Solutions are now in operation.
HOCHTIEF Facility Management
The company’s positive performance continued in the year
under review. Both in winning new clients and expanding
business with its existing client base, HOCHTIEF Facility
Management made good headway. The increased focus
on select, particularly profitable market segments proved
to be a key success factor. In its segments, HOCHTIEF
Facility Management is considered an expert partner for
integrated facility management. Clients are very receptive
to the integrated, tailor-made packages along the value
Project highlights
Airports/Aviation segment
In recognition of its excellent work, HOCHTIEF Facility
Management received a five-year contract extension to
continue its management of the Lufthansa Flight Training
Center in Frankfurt am Main. The contract at Athens Airport was also renewed: HOCHTIEF Facility Management
will perform service and maintenance on the technical installations at Athens International Airport Eleftherios Venizelos for another four years.
HOCHTIEF Stock
In 2005, HOCHTIEF bid on the first pilot project for an Amodel* highway: construction and operation of a segment
of the A8 between Munich and Augsburg. A decision on
the contract award is expected in 2007.
Efforts are currently focused on further expansion in the
high-growth markets of Eastern and Southeastern Europe
as well as in the UK and Ireland. The company’s goal is to
become Europe’s top provider of integrated facility management by 2010.
* see glossary on page
134
Automotive segment
HOCHTIEF Facility Management is boosting its position in
the automotive segment, having won the contract to manage the production facilities of French automotive equipment supplier Faurecia. The contract runs for 36 months.
Financial service providers/real estate investors
segment
The key deals in this segment in 2005 included the followon contract from the KfW, the state-backed Reconstruction Loan Corporation: With the head office in Berlin already
in its portfolio, the company will now also manage the bank’s
office in Frankfurt am Main. Südwestbank hired HOCHTIEF
Facility Management to provide technical services to its
headquarters in Stuttgart as well as 26 branches in BadenWürttemberg for four years.
Management Report
Toll roads market segment
The Herren Tunnel in Lübeck opened to traffic right on
schedule in August 2005, bringing construction of one of
Germany’s first PPP toll roads to a close. Herrentunnel
Lübeck GmbH & Co. KG, a joint project company of
HOCHTIEF PPP Solutions and a partner, designed, financed
and built the EUR 179 million project and will now operate
the tunnel until 2035. At that point, the rights to operate
the tunnel will pass to the city of Lübeck.
chain. HOCHTIEF Facility Management consistently offers
solutions that meet clients’ evolving needs.
Additional project highlights
Business with PPP projects was extremely positive. Synergies and the close networking among HOCHTIEF’s
companies helped HOCHTIEF Facility Management secure contracts to manage 50 schools in Offenbach, the
Wright Robinson Sports College in Manchester, UK, and
In the Cork School of Music, HOCHTIEF PPP Solutions
(UK) Ltd., again working with a partner, acquired the company’s first project in Ireland. The contract volume is some
EUR 210 million, with approximately EUR 68 million earmarked for construction. Once the project is finished, the
partners will operate the music school for 25 years.
Annual Report 2005
65
the Cork School of Music in Cork, Ireland, in cooperation
with HOCHTIEF PPP Solutions. HOCHTIEF Facility Management is thus well represented in the education property market and intends to harness additional sales and
earnings potential in this segment.
HOCHTIEF is also solidly positioned in the energy savings
contracting segment through subsidiary HOCHTIEF Facility
Management Energy. The latter has assumed integrated
energy management for the Federal Research Center for
Nutrition and Food in Kiel. A ten-year contract secures the
client annual cost savings of 42 percent over its past energy and water expenses.
HOCHTIEF Facility Management enjoyed success in the
sports facilities and event arenas segment in 2005, acquiring the contract to manage the Franken-Stadion in Nuremberg, one of the venues for 2006 World Cup soccer.
HOCHTIEF Projektentwicklung
A large number of pre-sales and pre-lease commitments
prior to construction created a firm foundation for starting
numerous new projects in the year under review. In this
way, HOCHTIEF Projektentwicklung solidified its leading
position in the office property and hotel development segments. Many of the projects are being built by HOCHTIEF
Construction, thus creating attractive added value both for
clients and the Group. After entering the Czech and Polish
markets, HOCHTIEF Projektentwicklung (HTP) founded
HTP Hungária in the reporting year in order to establish a
presence in the growing Hungarian market at an opportune
time. Activities in the country got off to a good start with a
land acquisition deal in Budapest.
As of December 31, 2005, in all 18 projects with a total
project value of EUR 735 million were in the construction
phase. The total rentable space involved is 210,800 square
meters. More than 50 percent of this space had been let
as of the balance sheet date. Measured in terms of total
project value, 80 percent of the projects have been presold to final investors. Altogether, HOCHTIEF Projektentwicklung sold EUR 594 million in properties in the period
under review.
66
Annual Report 2005
Project highlights
The “Blue Heaven” hotel, which opened in November 2005,
was sold to Danish investment company Keops InvestorPartner A/S in the period under review.
In Eschborn, near Frankfurt am Main, 75 percent of the
“Helfmann Park” development’s third phase, which offers
16,700 square meters of office space, had been let before
its completion in spring 2006. Commerz Grundbesitz Investmentgesellschaft mbH (CGI) was acquired as the final
investor.
A ten-year lease was signed for 11,500 square meters of
office space at the “Constantin Höfe” in Cologne’s Deutz
district. This means that 77 percent of the facility had been
let before the cornerstone was laid. Atradius Kreditversicherung will use the space for its German headquarters
starting in late 2006.
In “ConventParc,” Hamburg is gaining an exclusive office
complex, one outstanding feature of which is a forwardthinking energy concept. Just under half of the total 8,300
square meters of office space was already let to Lloyd
Fonds AG prior to the beginning of construction. Both the
“Constantin Höfe” and “ConventParc” were sold to AMB
Generali in the period under review.
In Munich, construction of the “Laimer Würfel” office property began. DAB Bank AG has already signed a ten-year
lease to occupy 60 percent (14,200 square meters) of the
total space. Completion of the building is expected in January 2007.
By mid-2007, the “WilhelmGalerie” shopping center will be
erected on a tract of land acquired by HOCHTIEF Projektentwicklung in the heart of Ludwigsburg. The total rental
area will be 17,600 square meters.
To Our Shareholders
2004
1,297.4
928.7
838.6
1,934.0
1,741.5
924.9
723.8
39.7
50.6
38.6
41.7
11.2
(14.7)
51.5
125.7
7.7
8.2
768.7
901.3
5,065
3,866
Asset management
Debausie ensures the value-driven strategic management
of HOCHTIEF’s real estate portfolio. External clients also
profit from its services. The company falls back on the Group’s
expertise and offers an integrated service package that
includes property analysis and appraisal, action plans to
optimize operations for the long term, management of the
plans’ implementation and the sale of properties.
A case in point was an international investor’s acquisition
of Hamburg’s Economic Center from Debausie, an office
building with some 29,000 square meters of rental area.
2005
1,156.5
*The RONA return on
capital metric was introduced in 2005. For purposes of comparison, all
prior-year figures were
adjusted to reflect the
new system. Further information on RONA is
available on pages 46–
48.
HOCHTIEF Stock
New orders
Work done
Order backlog
External sales
Cash flow
Capital expenditure
RONA* (%)
Management Report
(EUR million)
On the whole, new orders followed a positive, high-level
trend. With 2004 marked by nonrecurring items (the acquisition of Siemens’ and Lufthansa’s facility management
companies) and the unusually substantial amount of new
orders from the PPP school project in Offenbach, the 2005
figure fell short of the prior year’s by EUR 140.9 million.
HOCHTIEF PPP Solutions in particular contributed considerably to the EUR 1,156.5 million in new orders with its
school projects in Cologne and Leverkusen. As a result,
the order backlog had climbed 11.1 percent by year-end.
With business progressing so well, work done was up
EUR 90.1 million from a year earlier to EUR 928.7 million.
Growth in the areas of facility management and PPP factored heavily into this gain. External sales also benefited
from the successful expansion, increasing EUR 201.1 million compared with 2004 to close the year at EUR 924.9
million. Operating earnings fell to EUR 39.7 million due
to high acquisition costs at HOCHTIEF PPP Solutions and
the planned reduction in real estate sales. Profit before
taxes stood at EUR 38.6 million and was lower than the
prior-year figure as projected. The sharp drop in capital
expenditure stemmed from the purchases made in the
facility management sector in the prior year as well as the
higher investments in equipment for project development
during that period. The increase in the average number of
employees relates to the robust growth at HOCHTIEF
PPP Solutions and the fact that 2005 marked the first time
Lufthansa Gebäudemanagement employees were on the
books for the full year.
Outlook
The positive performance of the Development division will
continue, a forecast supported by the increased demand
among major real estate companies and portfolio owners
for advice and services from a single source. Integrated
facility management services and PPP projects will serve
as key growth engines.
Key figures for HOCHTIEF Development
Annual Report 2005
67
Americas Division:
Focus on quality creates competitive advantage
visit:
www.turnerconstruction.com
www.aecon.com
www.hochtief.com.br
The HOCHTIEF companies in the US, Canada and Brazil solidified their positions in their res p e c t i ve m a r ke t s i n t h e y e a r u n d e r r ev i ew. U S s u b s i d i a r y Tu r n e r a d o p t e d a m a n a g e d g r ow t h
s t r a t e g y t o f u r t h e r b o o s t p r o f i t a b i l i t y a m i d eve r- i n c r e a s i n g c o m p e t i t i o n .
Turner: Focusing on high-margin projects
Heightened competition, increases in material and energy
costs and a limited supply of qualified personnel are three
pressing issues for the US construction industry. Turner responded to this environment by focusing on select highmargin projects and market segments in order to offer
clients quality, extensive expertise and differentiated products and services with which Turner secures a clear competitive advantage. Coupled with the consolidation of
growth and optimized cost structures, this strategy aims
to increase the company’s profitability.
*See our 2005 Sustainability
Report or visit www.hochtief.
com/sustainability to learn
more about sustainable construction/green building at
HOCHTIEF.
Leading the market
Turner maintained its position as the leading general builder in the US again in 2005, as confirmed by Engineering
News-Record’s rankings. The HOCHTIEF subsidiary further
strengthened its dominance in the consistently dynamic
healthcare market segment. For example, Turner was
awarded the construction management of the replacement
hospital Sacred Heart Medical Center in Springfield, Oregon,
a contract worth EUR 230 million.
**see glossary on page 135
Turner also has a leading position in the market for educational facilities. In particular, the company continues its
growth track in the higher education segment. From the
renowned Yale University, it won a EUR 50 million contract
to refurbish part of the campus built in 1940.
One of the contracts the company landed in the office property market in 2005 was for the construction of the Cira Centre in the heart of Philadelphia, a 29-story high-rise situated
across the street from Philadelphia’s 30th Street Station. With
access from only one side of the building, the job created
tough logistics and put the skills of the design and construction team to the test. In Chicago, Turner built yet another office
building for the international real estate developer Hines. The
68
Annual Report 2005
40-story project, with a construction volume of some EUR 80
million, offers more than 90,000 square meters of floor space.
For the construction of the Hearst Building in New York City
(see page 12), Turner acted as more than just the construction
manager. The company is also responsible for the interior construction of the office tower. A EUR 86 million contract, this
project underscores Turner’s expertise in tenant build-outs.
Green building harbors enormous potential
Turner also leads in the sustainable or Green construction
market*. In 2005, Turner secured 47 Green projects.
Green buildings are in high demand because of the cost
savings potential they offer in areas like energy consumption. The HOCHTIEF subsidiary has identified a substantial
market for sustainable construction, especially in the K-12
and higher educational market segments. In 2005, Southern Methodist University in Dallas, Texas, hired Turner for
the preconstruction and construction management of a
state-of-the-art Green facility for instruction and research.
A first for the campus, the new Embrey Engineering Building is to be LEED** certified. In Michigan, Henry Ford Health
System awarded Turner a contract representing EUR 180
million to build a hospital that will also seek LEED certification. To further reinforce its competitive position, Turner is
currently developing a special supplier database for Green
products. The aim is to optimize procurement processes.
Aecon results improved
The restructuring at our Canadian associated company
Aecon actively supported by HOCHTIEF bore first fruits in
2005. The Buildings segment achieved its turnaround. In
the area of international infrastructure development, the
contract to develop, build and operate the airport in Quito,
Ecuador was awarded to a consortium in which Aecon
has a 45.5 percent stake. The company holds 50 percent
of the joint venture hired to build the new airport. The total
To Our Shareholders
2004
6,396.1
6,068.5
5,683.5
6,901.7
5,746.1
5,934.2
5,605.2
54.1
55.1
39.5
42.0
42.5
43.9
16.9
21.7
15.9
17.2
314.7
272.2
6,745
6,107
volume of the construction contract is EUR 330 million.
Aecon also landed additional contracts to build equipment
for extracting crude oil from the vast oil sand deposits in
the Canadian province of Alberta. Due to the dramatic increase in oil prices as well as the worldwide reduction in oil
reserves, the oil sand industry is exceptionally fast-growing.
HOCHTIEF do Brasil consolidates its market position
The South American HOCHTIEF subsidiary increased its
work done for the year by nearly 40 percent from 2004. At
just under EUR 140 million, HOCHTIEF do Brasil’s order
backlog at the close of the year under review was the largest in
its history. One reason for this growth was the company’s
ability to strengthen its position in the industrial buildings
market in 2005. Clients in this segment include Vale do Rio
Doce, the world’s largest iron ore supplier, for whom the
company is building a bauxite mine in the Amazon rain
forest. HOCHTIEF do Brasil also continues to notch successes in the public buildings segment, having won a major
contract from oil and gas conglomerate Petrobras.
Staff exchange stepped up
At both the management and operating levels, the exchange of professional and executive staff has proved a
success. Where needed, staff from other regions can be
deployed additionally at short notice. At project level, the
exchanges predominantly involved risk and change order
management experts from the HOCHTIEF network who
were deployed internationally. The HOCHTIEF companies
After several years of strong overall growth, new orders
dipped by EUR 87.5 million in 2005 due to more focused
growth at Turner. Adjusted for exchange rate changes, the
decrease was EUR 138.8 million, or 2.2 percent. However,
the absolute value of new orders remained high. The order backlog increased from EUR 5,746.1 million at the
end of the previous year to EUR 6,901.7 million, largely due
to exchange rate effects. After adjusting for these effects,
the actual increase amounted to EUR 216.9 million, or 3.8
percent. The continued strong orders position is mirrored
by a EUR 385 million increase in work done (after adjustment for exchange rate effects, EUR 337.9 million or 5.9
percent) and a EUR 329 million gain in external sales
(exchange rate-adjusted: EUR 280.7 million or 5 percent).
2005
6,308.6
*The RONA return on capital metric was introduced
in 2005. For purposes of
comparison, all prior-year
figures were adjusted to
reflect the new system.
RONA is available on pages
46-48.
HOCHTIEF Stock
New orders
Work done
Order backlog
External sales
Cash flow
Capital expenditure
RONA* (%)
Despite strong demand and increased sales in the USA,
profit margins were squeezed due to relatively strong price
pressure. Operating earnings stayed at the previous
year’s level, with lower earnings at Turner almost fully offset by increased earnings at the Aecon Group. Profit before taxes was EUR 2.5 million down from the previous year.
Capital expenditure decreased due to the baseline effect of the new stock offering at Canadian associate Aecon
in the first quarter of 2004.
Management Report
(EUR million)
in North and South America also profit from international
know-how transfer in those business segments that focus
on construction-related services.
In line with the increase in work done, the number of employees grew in both the USA and Brazil. There was an
especially pronounced increase in Brazil, with 289 additional employees working on a number of major construction projects.
Outlook
The division has initiated the change towards strategic
growth management with a clear focus on technically demanding projects, and is confident of returning to its accustomed profit margins. Given stable US dollar exchange
rates, pre-tax profit above the previous year’s level is expected.
Key figures for HOCHTIEF Construction Services
Americas
Annual Report 2005
69
Asia Pacific Division:
Outstanding performance in growth markets
For further information,
please visit:
www.leighton.com.au
www.leightoncontractors.com.au
www.thiess.com.au
www.johnholland.com.au
www.leightonasia.com.au
www.leightonproperties.com.au
T h e A s i a P a c i f i c d i v i s i o n p e r f o r m e d ve r y s t r o n g l y i n 2 0 0 5 , r e c o r d i n g i t s b e s t f i s c a l ye a r ye t
w i t h r e c o r d p r o f i t s . T h e b o o m i n g t r a n s p o r t i n f r a s t r u c t u r e a n d c o n t r a c t m i n i n g m a r ke t s
c o n t i n u e d t o p r o d u c e h i g h l y p r o f i t a b l e g r ow t h a t A u s t r a l i a n s u b s i d i a r y L e i g h t o n .
Strong position in growth markets
The Leighton Group consolidated its outstanding position
in the Australian market, especially in the growth sectors of
transport infrastructure and resources extraction. A number
of major new mining and rail contract awards contributed
to Leighton maintaining a record order backlog.
Australia is enjoying a continued boom thanks to sustained
strong demand for raw materials, particularly from China.
In early 2006, Leighton further extended its market lead in
contract mining by acquiring 15 mining contracts in Australia and New Zealand from Henry Walker Eltin. With their
primary focus on iron ore mining, these contracts ideally
complement Leighton’s strong coal-mining business. This
acquisition makes the Leighton Group the world’s biggest
contract mining company.
The Australian market is currently also benefiting from increased public sector investment in transport infrastructure
for both road and rail. Several major State Government contracts in Queensland and New South Wales are due for tender in 2006 and Leighton will be submitting bids.
Leighton is also increasing its operations in the Asian markets of India and Dubai. In doing so, it will draw on past experience gained primarily in Hong Kong, Indonesia and
Malaysia.
Successful risk management review
Leighton Group companies have successfully implemented
best practice recommendations resulting from a comprehensive appraisal and review of their risk management system initiated in 2004. Difficulties with two projects necessitating precautionary action in 2004 have now been eliminated:
The Hilton Hotel in Sydney was completed in 2005, and
work on Spencer Street Station is running to plan.
70
Annual Report 2005
Project highlights
Transport infrastructure
Work is proceeding to plan on the EastLink contract in Victoria (formerly the Mitcham-Frankston project), Australia’s
largest transport infrastructure project. Worth some EUR
1.5 billion, the project is Leighton’s largest contract to date.
Leighton companies Thiess and John Holland are building
the motorway in joint venture. The project is due for completion in November 2008. The ConnectEast concession
consortium, of which Leighton is a member, will operate
the road for 35 years.
Leighton Contractors completed the 40-kilometer Westlink
M7 toll road project near Sydney eight months ahead of
the contracted schedule. The motorway was opened in
December 2005. Leighton received a contractually agreed
bonus for the achievement of early completion.
Contract mining
The 2005 fiscal year saw Leighton subsidiary Thiess secure,
in a joint venture, the largest coal handling and processing
contract ever awarded in Australia. The contract for work
at the Dawson coal mine in Queensland is worth EUR 217
million. Thiess contracts were also extended in scope at
the Satui, Senakin and KPC mines in Indonesia. Leighton
Contractors was awarded additional contract coal mining
work.
Additional project highlights
In Brisbane, Leighton subsidiary John Holland secured a
large construction and refurbishment contract in the shape
of the Southbank TAFE Education and Training Precinct
project.
To Our Shareholders
5,521.7
5,296.0
4,038.9
9,274.9
8,602.4
4,577.9
3,446.4
220.1
119.0
203.3
109.3
387.5
296.3
464.5
494.1
30.8
20.2
837.8
609.6
20,577
16,952
In a joint venture with China State Construction Engineering, Leighton Asia (Northern) secured a follow-on contract
worth EUR 125 million for the second construction phase
of the new Wynn Resorts hotel and casino complex in Macau.
The joint venture partners will complete the first phase of
the development in mid 2006.
At a steelworks in South Australia, Thiess is upgrading and
modernizing a plant for steel producer OneSteel. The contract is worth some EUR 135 million and will be completed
in 2007.
Winning a contract to build a series of base transceiver
stations, Leighton Asia (Southern) affirmed its position as
a leading telecommunications infrastructure contractor in
Malaysia.
Leighton Asia (Southern) was awarded its first contracts in
the emerging Indian market and is erecting a facility for Nokia
and a factory for Flextronics in Chennai.
Both operating earnings and profit before taxes in fiscal 2005 were well up on the prior-year figures, which had
been brought down by risk provisioning. A highlight in
2005 was the superb start to the huge EastLink contract.
Capital expenditure, at EUR 464.5 million, did not quite
match the exceptionally high 2004 figure, which was swollen
by large amounts of capital paid into the Leighton Group
business portfolio and an increase in HOCHTIEF’s shareholding in Leighton.
5,248.0
*The RONA return on capital
metric was introduced in 2005.
For purposes of comparison,
all prior-year figures were
adjusted to reflect the new
system. Further information
on RONA is available on pages
46-48.
HOCHTIEF Stock
New orders
Work done
Order backlog
External sales
Cash flow
Capital expenditure
RONA* (%)
2004
Reflecting the sustained dynamism of the Asia-Pacific regional economy, the EUR 5,248 million figure for new orders
came close to the EUR 5,521.7 million record set in 2004.
Work done increased as a result by some 31.1 percent to
EUR 5,296 million, and external sales by 32.8 percent to
EUR 4,577.9 million. The order backlog remained high at
EUR 9,274.9 million, a 7.8 percent improvement on the previous year.
Employee numbers climbed to 20,577 (on average over
the year), mirroring the substantial rise in work done across
the division.
Outlook
With a strong order backlog and booming demand for major
infrastructure works and contract mining, we once again
project outstanding results for the division in 2006. The
Asian market will play a key role in this with its strong demand for raw materials like coal and iron ore. Leighton took
over the mining activities of Henry Walker Eltin as of February 1, 2006, giving it a leading position in Australian ore
mining and preparing the ground for further profitable
growth.
Management Report
Key figures for HOCHTIEF Construction Services
Asia Pacific
2005
(EUR million)
Streamlining the business portfolio
Upon approval by the South African cartel authorities, the
division will part with its minority stake in South Africa’s
Concor Ltd. in 2006. The proceeds from the sale are expected to increase earnings by several million during the
year.
Annual Report 2005
71
Europe Division:
Earnings up once again
visit: www.hochtief-construction.com
U n d e r t h e l e a d e r s h i p o f H O C H T I E F C o n s t r u c t i o n AG , t h e H O C H T I E F C o n s t r u c t i o n S e r v i c e s
E u r o p e d i v i s i o n b r i n g s t o g e t h e r 13 0 y e a r s o f H O C H T I E F ex p e r i e n c e i n c o r e c o n s t r u c t i o n o p erations. The focus is on European building construction, civil and structural engineering
a s w e l l a s a i r p o r t c o n s t r u c t i o n . A s f o r e c a s t , t h e d i v i s i o n d e l i ve r e d f u r t h e r e a r n i n g s g a i n s i n
t h e y e a r u n d e r r ev i ew.
Focus on profitable market segments
The division thrived in the reporting year by continuing to
pursue its strategy of concentrating exclusively on profitable market segments. Business in the growth markets of
healthcare properties, transport infrastructure and refurbishment and upgrading was particularly gratifying. A conscious effort was made to place better margins before
quantity. In this way, HOCHTIEF Europe freed itself from
the persistently unsatisfactory performance of the German
building construction market. The sales potential in Germany’s widely expanding PPP market was successfully
tapped with the first refurbishment projects. Additional enhancements to the risk management system contributed
to earnings stability.
Market presence in Eastern Europe stepped up
further
Tapping growth markets is also part of HOCHTIEF Europe’s
clear strategy. To further strengthen its position in the growing Hungarian market, the division secured the majority
stake in Mélyépítő Kft., one of the country’s leading independent providers of construction services. In addition, a
new business unit was created in Bulgaria, which is set to
become an EU member as of 2007.
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Annual Report 2005
Differentiation through new marketing approach
With its new four-brand strategy (PreFair, ConTrust, FormArt
und AdMore),* HOCHTIEF Construction is refocusing the
way it collaborates with clients. By bundling its areas of expertise into clear packages, the company has made its offerings more transparent and emphasized that it can support clients through every stage of the building process
plus provide after-sales service. With this new marketing
strategy, the company is positioning itself as a premium
provider and especially strengthening its services segment.
PreFair alone accounted for some EUR 700 million in new
orders in 2005. More than one-third of all building construction projects now apply the partnership-based business
model.
Projects highlights from individual product market
segments
One of the key building blocks of the division’s success is
the close cooperation between the competence centers
and the business units, subsidiaries and associates. The
experts at HOCHTIEF Construction bring their specialist
know-how as well as their knowledge of regional markets
to bear. Such competencies include a thorough familiarity
with the local geology and subcontractor market.
Healthcare properties
Work is underway in Hamburg’s Eppendorf district to build
a new 746-bed hospital complex complete with 16 operating rooms and an outpatient treatment facility for the local
university medical center. HOCHTIEF Construction intends
to complete the approximately EUR 113 million project by
early 2008. In addition, the “Deutsches KinderHerz-TransplantationsZentrum,” Germany’s first pediatric heart transplant center, is being built in Giessen. A groundbreaking
project for Hesse, the center represents the state’s first privately financed university facility.
Infrastructure projects
In Gdansk, HOCHTIEF Construction is collaborating with
HOCHTIEF Polska to erect what is currently Poland’s largest project: one of Europe’s first privately financed container
terminals. The total contract value exceeds EUR 100 million; the area being built on covers 400,000 square meters.
By early 2009, HOCHTIEF Construction aims to wrap up
construction on a 100 megawatt hydroelectric power station
located at Loch Ness in Scotland. With a volume exceeding
EUR 180 million, the project includes a 900 meter dam, the
powerhouse cavern plus a 16 kilometer stretch of tunnel and
is being carried out in cooperation with our UK subsidiary.
Working with new Hungarian majority holding Mélyépítő,
HOCHTIEF Hungary is building a 17.3 kilometer section of
a bypass road at Lake Balaton.
To Our Shareholders
2004
2,295.1
2,455.6
2,469.5
2,985.0
2,625.3
2,109.7
2,086.9
28.0
25.8
42.3
28.7
40.9
36.4
29.2
24.0
11.8
9.6
444.2
659.1
8,580
8,994
Together with Austrian subsidiary Durst-Bau, HOCHTIEF
Construction is expanding Vienna airport. The contract
worth some EUR 60 million includes core and shell work
as well as part of the build-out for the new “Skylink” terminal. HOCHTIEF Construction subsidiary Streif Baulogistik
GmbH is setting up a container village at the site with approximately 300 units.
PPP projects
In the Offenbach district, Cologne and Leverkusen, construction work commenced on the in-depth refurbishment
and upgrading of virtually 60 schools from HOCHTIEF
PPP Solutions’ project portfolio. The contracts are worth a
total of nearly EUR 200 million to HOCHTIEF Construction.
Shopping centers
By building the Schloss-Arkaden shopping and service center in Brunswick, HOCHTIEF Construction is participating
in one of Europe’s most noteworthy urban construction
projects today. Scheduled for completion in early 2007 are
three retail stories with approximately 30,000 square meters total sales space. The shopping center will be directly
adjacent to the former stately palace, the historical main
facade of which is being reconstructed. The value of the
project is nearly EUR 100 million, with work being executed
under a PreFair contract.
Amid a challenging market environment, the HOCHTIEF
Europe division thrived in its market segments and reported a positive orders situation. New orders rose more than
20 percent in the reporting year to EUR 2,780.6 million, a
new record. Some major projects acquired in the fourth
quarter played a significant role in this gain. Work done
was nearly on a par with the prior year. The order backlog, which also reached an all-time high, ensures good
use of capacity for 2006 and beyond. Fueled by international business, external sales once again climbed slightly
higher compared with the prior year’s solid performance.
The profit figures for HOCHTIEF Europe were very gratifying. Operating earnings were again up, this time more
than 8 percent, among other things as a result of improved
margins thanks to the increasing share of PreFair contracts. Profit before taxes, at EUR 42.3 million, gained
47.4 percent on the prior year. This marked four years of
continued earnings improvement for the division. Capital
expenditure related to replacements and to financial assets in Eastern Europe.
2005
2,780.6
*The RONA return on capital
metric was introduced in 2005.
For purposes of comparison,
all prior-year figures were
adjusted to reflect the new
system. Further information
on RONA is available on pages
46-48.
HOCHTIEF Stock
New orders
Work done
Order backlog
External sales
Cash flow
Capital expenditure
RONA* (%)
Management Report
(EUR million)
Office/Commercial properties
In this segment the company acquired five projects worth
in excess of EUR 215 million in November 2005. The client
is a consortium consisting of real estate developer Future
Office Management and LEG Baden-Württemberg. The
office buildings will be constructed in Munich and elsewhere
under the PreFair model. In Munich, HOCHTIEF Construction is building the new corporate headquarters for newspaper publisher Süddeutscher Verlag.
Outlook
HOCHTIEF Construction Services Europe intends to stay
its successful course in 2006 and generate profitable growth.
The division will improve its results on a lasting basis by
systematically pursuing sales opportunities. High-earnings
markets and growth niches will be tapped using intelligent
solutions and concepts such as the four-brand strategy.
Key figures for HOCHTIEF Construction
Services Europe
Annual Report 2005
73
Risk Report
Risk management as a foundation for sustained
business success
Detailed information about
HOCHTIEF’s risk management
processes and early warning
system is available in the Investor Relations section of our
website at www.hochtief.com
H O C H T I E F ’s g l o b a l b u s i n e s s n a t u r a l l y i nvo l ve s r i s k s . B u t r i s k s c a n o n l y c a u s e r e a l h a r m i f
they remain undetected and hence uncontrolled and uncontained. Our sophisticated risk
m a n a g e m e n t s y s t e m e m p l oy s p r o a c t i ve r i s k c o n t r o l t o m i n i m i z e t h e p o t e n t i a l i m p a c t . T h u s ,
i t i s ke y t o a d va n c i n g t h e G r o u p’s s u c c e s s f u l d eve l o p m e n t a n d p r o f i t a b i l i t y.
Integrated risk management
Risk management at HOCHTIEF takes in all organizational
processes geared toward early risk detection as well as
the development and implementation of appropriate countermeasures. A risk is defined as any contingency with a
potential negative impact on the attainment of quantitative
and qualitative business goals—particularly on earnings.
HOCHTIEF deploys and continuously fine-tunes integrated
planning, control and monitoring systems to ensure that
risks are detected in sufficient time, as well as assessed
and managed appropriately.
Considered a key success factor at HOCHTIEF, risk management is one of the integral components of our management system. To systematically enhance the risk awareness
of our employees, we have introduced a continuously evolving risk culture on all levels, sustained by organizational processes, IT systems and open communication.
Group-wide early warning system
A Group directive lays down standard procedures to account
for risks above and beyond the provision made in planned,
forecast and reported earnings; the divisions supplement
the Group directive with organizational instructions tailored
to their specific circumstances.
Risks are inventoried locally every quarter and aggregated
to Group level in a bottom-up process. By involving decision-makers at all levels of the corporate hierarchy, this approach ensures that risk awareness is all-pervasive—from
project managers right up to divisional heads and holding
company executives.
All risks are assigned an impact, probability, category, timescale and action to be taken. Supplemental to this quantitatively focused reporting, HOCHTIEF recognizes a special
74
Annual Report 2005
need for risk to be openly discussed by management. Accordingly, a dedicated Risk Management Steering Committee of divisional and corporate center representatives is
a key element of our early warning system. This panel looks
at reported risks from the perspectives of the divisions and
the holding company, allowing all material risks to be evaluated in a holistic framework. The Steering Committee also
coordinates and adopts binding countermeasures.
The outcome of the Steering Committee’s work is a risk atlas
detailing all major risks in table and chart format. The Executive Board finalizes the risk atlas as an integral part of
quarterly reporting by the Controlling function.
Overall risk
The company’s average overall risk, as determined by the
Risk Management Steering Committee on an annual basis,
is currently some 10 percent of the profit before taxes for
2005. This value represents the sum of the individual risks
that have been identified and weighted in terms of their
probability. At more than 40 percent, contract and project
risk accounts for the largest portion of overall risk. Risk
from equity holdings makes up some 25 percent, financial
risk just under 15 percent and market risk approximately
10 percent. Personnel risk and internal risk each account
for less than 5 percent of overall risk.
In absolute terms, the average overall risk is nearly unchanged
from 2004. However, due to the increase in profit before
taxes, the risk situation has improved considerably on a
relative basis.
To Our Shareholders
Formal risk management procedure
Our ultimate goal is to systematically avoid risks. This is why
we work in a spirit of partnership with clients to optimize all
process sequences early on under the PreFair contracting
model. PreFair helps us reduce risks and scale back the
provisioning necessary to deal with risks that do materialize.
In the HOCHTIEF Construction Services Europe division,
the Risk Management department ensures through regular
project audits that projects are carried out in compliance
with the terms of their approval and the contractual agreements. The internal auditing function regularly analyzes domestic and international projects for technical, commercial
and legal risk.
4. Holding company Executive Board
discusses and adopts the Group risk atlas
HOCHTIEF Stock
Besides risks that have the potential of materializing in the
construction phase, the extent to which claims for supplementary work can be billed to project owners often also affects a project’s commercial success. Risks arise if change
orders cannot be implemented as planned.
We address warranty risks from the construction business
by requiring subcontractors to post surety or guarantees
and, where applicable, by entering into service contracts
and setting up regular monitoring. HOCHTIEF takes out insurance to cover liability risks and claims. HOCHTIEF keeps
the risks from its insurance activities in check by having
different levels of liability limits.
Although HOCHTIEF generates a high volume of sales with
some business partners, the company does not depend
on any single client or supplier for its survival. Our global
requirement for well over 600,000 tons of steel per year,
for example, necessitates the proactive management of
price and supply risks. In order to achieve the highest degree of certainty in cost and supply planning, we enter into
long-term project supply contracts that have fixed conditions, or negotiate price escalator clauses with our clients
wherever possible. We also maintain close relationships
with steel producers and distributors and enter into equivalent agreements for other key products and major services
purchased.
Management Report
Before the HOCHTIEF Construction Services Europe division is allowed to submit any bid with a contract value in
excess of EUR 3 million or a specific risk profile, the bid
must be reviewed and approved by a centralized Contract
Review Committee made up of qualified specialists. The
Contract Administration department and Legal corporate
center support project teams as they plan and implement
projects. Turner has similar procedures in place, taking into
account market-specific variance. Leighton stipulates a host
of project-specific requirements for processing and approving bids. Despite these efforts, cost risk cannot be completely eliminated with large-scale projects spread out over
several years.
3. Risk Management Steering Committee
evaluates the risks in the provisional Group
risk atlas
Contract and project risk
In addition to special transactions such as acquisitions, real
estate investments, development projects and entry into
new business segments, all routine projects are systematically scrutinized once their volume or level of risk reaches
a certain threshold. This allows potential contract and project risks to be detected and reduced as far as possible at
an early stage. The processes used to this end are not typically standardized processes, but rather empirically relevant,
effective tools. For example, in the case of real estate development projects, pre-lease or pre-sales rates commensurate with the type of project must be attained before
construction is permitted to begin.
2. Corporate Center Controlling
categorizes risks and prepares the provisional
Group risk atlas
Actions
1. Divisions
identify and explain their respective risks
Annual Report 2005
75
Acceptance
audit
Contract
Review
Committee
Execution
audit
Bid audit
Evaluation
of countryspecific risks
Contract
review
Careful
selection of
partners
Credit
check
Liquidity
management
Project risk management
*Detailed information about
our sales regions is available on pages 28–33.
Our company pursues a stated goal of avoiding in-court
disputes as far as possible. Nevertheless, HOCHTIEF has
been compelled to be a party to various court cases and
arbitrations both at home and abroad. While the outcome
of legal disputes is nearly impossible to predict, we believe,
after carefully reviewing our litigation risks, that adequate
accounting provisions have been established for all current
cases such that none of these are likely to adversely affect
earnings.
One subcontractor from construction of the Sony Center
in Berlin is suing us for EUR 36 million for claims relating to
supplementary work. HOCHTIEF has petitioned to have
the entire suit dismissed and also filed a counterclaim in
the amount of EUR 15 million. The court’s extensive advisory opinions in the matter confirm our positive assessment
of the proceedings.
The State of Berlin, represented by the region’s development
bank, is pursuing HOCHTIEF on appeal for alleged irregularities in connection with the use of public funds during
construction of the Berliner Reifenwerke tireworks. The trial
court had rejected the original claim in its entirety.
Risk from equity holdings
This category encompasses risks from companies over
which we have no controlling influence.
The identified risks from equity holdings notably relate to
our minority stakes in the airport companies.
76
Annual Report 2005
A final decision on the fees external service providers will
have to pay to use airport infrastructure at European airports in the future has not yet been reached. The outcome
of negotiations could have a negative impact on the results
budgeted.
As already reported in 2004, the financial situation of Olympic
Airlines and Olympic Airways poses a potential risk to the
airport company in Athens. This risk is accounted for in its
identified extent in the 2005 annual financial statements by
adjustments to the carrying amounts of receivables and in
the form of security provided.
Market risk*
An additional increase in the price of raw materials and,
more particularly, oil is seen as a major risk to the overall
economy. The world economy could slow if monetary policy were further tightened as a result.
If the US deficit continues to grow, the US dollar could fall
against the euro. The resulting increase in import prices
could put the brakes on growth in the US, and countries
that export to the US would face declining exports.
HOCHTIEF is able to offset a large part of its market-related
risks thanks to its successful internationalization strategy.
The growth of our business along the value chain of construction enhances this effect. By further expanding PPP
and facility management activities, the company expects
higher returns than seen in the traditional construction business, with less earnings fluctuation and stable cash flow.
Developments on the international aviation market were markedly positive in the year under review, following setbacks
in 2001 and 2002. The airport holdings of the HOCHTIEF
Airport division benefited from this trend. We anticipate
that the airport business will experience sustainable, longterm growth since experience shows that local armed
conflicts or acts of terror have only a short to mediumterm impact on the volume of air travel.
To Our Shareholders
HOCHTIEF Construction has weathered the recent years
of persistent crisis on the German construction market in
part by implementing major capacity adjustments. To maintain responsiveness to market trends, further selective trimming cannot be ruled out. In addition, HOCHTIEF Construction is increasingly concentrating on construction services
such as after-sales service and building diagnosis, as well
as the successfully established PreFair contracting model.
HOCHTIEF’s internationalization process and the continued
expansion of promising market segments such as refurbishment and upgrading are also being pursued further. Despite
these successful steps, the market risk most affecting
HOCHTIEF comes from the German construction market.
Financial risk
In order to diminish the risk from securities holdings, our
company left the weighting of stocks in special-purpose
investment funds low in the reporting year. We also do not
anticipate the need for any major writedowns in the foreseeable future, provided the markets remain stable.
The two EUR 100 million five-year promissory note loans
(Schuldscheindarlehen) with a five percent coupon taken
out in the prior year are a major component of ensuring the
Group’s long-term financing needs.
HOCHTIEF Stock
Through subsidiary Leighton, the Asia Pacific division is
profiting from lucrative contracts with long terms and high
margins, particularly in the areas of mining and the concessions business. This helps offset risks in other segments.
The Group has an adequate supply of liquidity given the
available amounts of cash in hand, bank balances and securities holdings, and also the availability of unutilized credit
lines. For the most part, these bilateral, short-term credit
lines are granted on the basis of written agreements and
are not collateralized. Their sole purpose is to function as
short-term cover for liquidity swings.
Over and above that, a credit facility was arranged with an international banking syndicate in 2005 to supplement these
two long-term loans. The facility has a volume of EUR 600
million and an initial tenor of five years. HOCHTIEF has the
option to extend the facility two times for a further year.
Given the low interest rates at present, the initial margin of
27.5 basis points and commitment fee of 35 percent of the
margin that HOCHTIEF will pay are attractive in view of the
long tenor. The company can draw on the facility on a revolving basis in all of the major currencies in which the
HOCHTIEF Group does business. After the first drawing
on the facility, an amount of over EUR 400 million presently
remains available to HOCHTIEF.
Management Report
Through subsidiary Turner, the Americas division reacted to
margin pressure in the US construction industry by carefully selecting projects and systematically adjusting its market
segment groups. Turner also stepped up business in construction-related, lower-risk services such as logistics and
insurance.
Ongoing control of all securities assets is ensured by continuously observing and analyzing the markets. Project
finance for the HOCHTIEF Europe and HOCHTIEF Development divisions is, where necessary, secured with fixed-income securities rather than bank guarantees.
Signing the agreement for this broadly placed instrument
has put the Group’s funding base on solid ground for the
long term. Coupled with the three-year syndicated guarantee facility for EUR 1.65 billion arranged in the prior year,
this ensures that the Group has adequate credit facilities
for the coming years. Only two-thirds of the guarantee facility is currently in use. The company also has access
when needed to short-term, project-based loan agreements which, in the case of project development contracts
in the Development division, for example, can be used to
The business of the HOCHTIEF Development division in
Europe is dominated by individual large-scale projects. Future earnings in this sector are thus tightly linked to success
in placing these projects on the market with commensurate
pre-lease rates (see page 66). As before, a substantial share
of the real estate development business is in densely populated areas in Germany. There is also an increasing focus
on Eastern European growth markets.
Annual Report 2005
77
provide financing often without recourse to any of the Group’s
other assets.
To avoid risks associated with providing security, we find it
helpful to keep the volume of guarantees to a minimum.
We achieve this by having an efficient, ongoing guarantee
management system in place. In 2004, we ensured the
long-term availability of sufficient guarantee facilities for the
HOCHTIEF Airport, HOCHTIEF Development and HOCHTIEF
Construction Services Europe divisions by securing the
aforementioned syndicated guarantee facility.
A USD 300 million credit facility was arranged in April 2005
to furnish bonds for HOCHTIEF Construction’s building work
on major infrastructure projects in Canada. This as yet untapped bonding facility has been backed by a counter-guarantee from HOCHTIEF Aktiengesellschaft.
Turner has continued access to sufficient guarantee lines
to cover its US operations for the long term. The amount is
USD 3.25 billion. Indemnity is provided by HOCHTIEF Aktiengesellschaft. The guarantee lines available to Leighton
are AUD 2.49 billion, with just under 80 percent of that
amount tapped. In this case, HOCHTIEF does not furnish
any backup.
Overall, it is clear that all of the Group’s units have sufficient
credit and bonding facilities at their disposal to finance both
current business and planned growth. What is more, resolutions of the 2005 General Shareholders’ Meeting have
provided an ample framework in which to increase our equity
capital.
We seek to offset the risk of interest rate movements by locking in interest rates for the longest terms possible. When
circumstances require taking out variable-rate financing,
we ensure long-term hedging of the related interest rate
risks through targeted use of interest rate derivatives. Hedging is used for project finance on an as-needed basis, depending on the term and volume.
All derivative financial instruments, such as interest-rate
swaps and currency options, are used only to hedge po-
78
Annual Report 2005
tential risks from existing underlying transactions. They are
never used for speculative purposes. To minimize intrayear fluctuations from marked-to-market accounting of
derivates, utmost care is taken to ensure that all hedging
relationships qualify for hedge accounting.
For the most part, each HOCHTIEF Group company operates
in a single currency region and does not face any material
currency risk. Transaction risks related to profit distributions
from international subsidiaries to HOCHTIEF Aktiengesellschaft are hedged directly using corresponding forward
transactions. HOCHTIEF faces translation risks in its consolidated financial statements when figures from companies that report in other currencies are translated into euros.
In response to the euro’s continued sharp swings vis-à-vis the
US dollar, options were also taken out in fiscal 2005 to
hedge the euro value of Turner’s year-end results. A similar
measure was taken with respect to Leighton’s results. In
its planning horizon HOCHTIEF assumes that the euro will
moderately appreciate with respect to the US and Australian dollars.
HOCHTIEF is not currently aware of any material risks related to company pensions. A conversion from pension
commitments that are strictly defined-benefit-based to
calculable ones that are defined-contribution-based already took place in Germany in the prior years. All new
commitments follow the latter scheme. The holding company’s pension obligations are covered in full by the inhouse pension fund and pension liability insurance. In the
reporting year, the pension obligations of HOCHTIEF Construction and Streif Baulogistik were contracted out to
HOCHTIEF Pension Trust e. V. by way of the transfer in
trust of fixed-income securities as well as cash and cash
equivalents. With that transfer, the largest part of the Group’s
pension liabilities in Germany are now contracted out to
pension funds and backed by valuable assets (see pages
55, 57 and 117–119).
To Our Shareholders
The annual impairment tests used to show whether the
market value of goodwill still meets or exceeds its book
value indicated no need for writedowns in 2005, which
was also the case in 2004. As of today, there are no discernible developments that could necessitate writedowns
in the future.
Actuarial reports are prepared in order to ensure that all
pension liabilities are covered.
Risk management audit
The auditors examined the early warning system and its integration into planning and reporting processes when auditing the annual financial statements. Their review shows
that the Executive Board has taken appropriate measures
to set up a system for the early detection of risk as stipulated by Sec. 91 (2) of the German Stock Corporations Act
(AktG). In addition, this early warning system is fundamentally capable of identifying at an early stage any development that might jeopardize the company’s continued existence. The efficiency of the entire risk management system is
also reviewed and evaluated by our internal auditing function, which submits suggestions for improvement.
HOCHTIEF Stock
All new pension commitments at Leighton and Turner follow the defined contribution model. Existing commitments
from closed-end defined benefit pension funds at Turner,
which are largely hedged by other investments, will run out
over the long term.
Personnel risk and internal risk
Personnel risk is largely strategic and as such is hard to
quantify. The competition for highly qualified managerial
and specialist staff remains fierce. The company’s success
hinges largely on our ability to hire and integrate the right
employees and to foster their long-term commitment to
HOCHTIEF. This is why careful attention is paid to succession planning, employee training, motivation and staff turnover.
Management Report
HOCHTIEF counters potential IT-related risks in collaboration with first-rate providers. An IT security directive subject to continuous external review ensures that risk avoidance measures are efficiently implemented. The Auditing
corporate center regularly reviews the application of these
measures by internal IT experts. Use of the latest hardware
and software ensures data availability and prevents unauthorized access. To prevent data loss, we maintain daily
offsite backups and apply new technologies such as remote
real-time data replication. Our advanced security systems
prevented all computer virus attacks in 2005.
Annual Report 2005
79
VIT LITY
A healthy business: The
fast-growing healthcare
property segment is
gaining in significance
for HOCHTIEF. Company experts with specialist knowledge of the
medical field ensure
HOCHTIEF can deliver
solutions that best
meet clients’ unique
needs.
80
Annual Report 2005
To Our Shareholders
Looking Ahead
Continually enhancing the values entrusted
to our care
Our estimates peg the order backlog to stand at some EUR
21 billion at the end of this year, which puts it close to the
record level of 2005. That amount represents a forward
order book of around one and a half years.
Group sales set to be high again
Based on our order backlog from 2005 and the expected
new orders, we project Group sales for fiscal 2006 of between
EUR 13 billion and EUR 14 billion. With this goal we are
seeking to repeat the very solid performance of 2005.
HOCHTIEF Stock
Our budget for 2006 assumes a further improvement in
earnings:
Profit before taxes for fiscal 2006 will exceed the prior-year
figure adjusted for the impact of the investment partnership.
Our medium-term goal for consolidated net profit is EUR
100 million. We will make substantial progress toward this
goal in 2006.
We assume that all divisions will make a positive contribution to pretax profit and consolidated net profit for the current fiscal year as they did in 2005.
Attractive participation by shareholders in
consolidated net profit continues
HOCHTIEF has pursued a dividend policy based on the
company’s success for years. For 2005, the Executive
Board will propose a use of net profit that includes participation by shareholders in the investment partnership’s
success in the form of a bonus of EUR 0.10 per no-par-value
share. Shareholders also stand to enjoy a dividend of EUR
0.80, which marks yet another increase over the prior
year. HOCHTIEF has thus raised its profit distribution by
an average of 15.8 percent per year for four years running.
The dividend yield of HOCHTIEF’s stock, calculated with respect to its closing price for the year, has averaged an impressive 3.1 percent for the last four years. HOCHTIEF intends to continue this distribution policy: For future fiscal
Management Report
New orders and order backlog forecast to match
prior-year records
HOCHTIEF expects new orders for 2006 to be on a par
with the record levels of 2004 and 2005.
Projected increase in profit before taxes and
consolidated net profit
We substantially increased our profit before taxes and
consolidated net profit in the 2005 reporting year compared with the prior-year figures.
Our projections for 2006 are based on the assumption that
the situation in areas of political tension will not worsen,
there will be no crisis-scale weakening of the economy and
the international financial markets will not be restrained by
turbulence. With respect to the euro exchange rate, we
assume the 2006 average will be around USD 1.25 and
AUD 1.65.
L e a d i n g e c o n o m i c r e s e a r c h i n s t i t u t e s a r e p r o j e c t i n g t h a t t h e wo r l d e c o n o m y w i l l ex p a n d by
s o m e t h r e e p e r c e n t i n 2 0 0 6 , a s s u m i n g o i l p r i c e s a n d exc h a n g e r a t e s r e m a i n l a r g e l y s t a b l e .
T h u s , g l o b a l g r ow t h i s l ike l y to c o n t i n u e t h e t r e n d f r o m 2 0 0 5 . Ec o n o m i c d eve l o p m e n t s i n t h e
U S a n d e m e r g i n g m a r ke t s w i l l h a ve a s u b s t a n t i a l i m p a c t o n t h e wo r l d e c o n o m y.
Annual Report 2005
81
years, we also hold out the prospect of an attractive share
in consolidated net profit for our shareholders.
Corporate value to be sustainably increased
In the enhanced return on capital metric we implemented
in 2005—return on net assets (RONA)—HOCHTIEF has an
optimized system in place for integrated, value-driven control of the Group and its divisions.
For 2006, HOCHTIEF again expects to achieve a return on
capital in excess of its cost of capital, which stands at ten
percent, and so deliver once more positive value created.
When comparing with 2005, it is important to bear in mind
that the 2005 figures were positively impacted by the gain
on the investment partnership.
Capital expenditure consistently aligned with
Group strategy
The HOCHTIEF Group strategy is about systematically
growing from our core competency of construction. In doing so, we consider the entire life cycle of complex projects:
Strengthening our service activities and expanding the
concessions business are as much on the agenda as construction and development. HOCHTIEF is budgeting capital
expenditure of more than EUR 600 million for the current
fiscal year. The focus will be on further enhancing the concessions and operation module, with the bulk of investments earmarked for Leighton’s concessions business in
the capital intensive, profitable contract mining segment.
We also intend to step up our concessions and operation
activities in the areas of airport holdings and PPP projects.
Long-term stability in Group financing created
In the year under review, HOCHTIEF made further progress in applying its finance strategy by implementing further key components (see pages 54–55), such as securing
an internationally syndicated revolving credit facility and a
local guarantee line for activities in Canada. Both these
major loan facilities reaffirm the Group’s credit standing
and are crucial to securing the divisional operating businesses on a long-term basis. These developments further
strengthen the financing of planned growth.
Increased research and development activities
HOCHTIEF plans on raising its expenditure on research
and development projects with cross-divisional significance to nearly EUR 7 million in 2006, an approximately
five percent increase over 2005. Our innovation focuses
(see pages 39–41) will take center stage.
Our Virtual Design and Construction (ViCon) project will remain an important innovation focus in 2006, with ViCon activities to be pursued as fervently as in 2005. We prepared
the project Intelligent Building (iBuild) in 2005. Our goal is
to start a series of new research projects related to iBuild
in 2006. We will initiate additional projects in our Networking focus. Work related to InTun was largely finalized in
2005, which means that the related expenditure will be
sharply reduced in 2006. The promising developments
made over the past few years in this area are now ready
for global marketing in conjunction with tunnel construction projects.
Our sights are set on starting a new innovation focus in
2006. We are currently reviewing the topic of Lean Construction, the objective of which is to design more efficient
production processes.
82
Annual Report 2005
To Our Shareholders
Forward-looking statements
This annual report contains statements related to the future performance of the HOCHTIEF Group and its companies as well as to economic and political developments.
These statements represent estimates we made on the
basis of a thorough review of all information available to us
at the time of going to print. If the underlying assumptions
prove false or additional risks arise, actual results may differ materially from those currently expected. Thus, we are
unable to guarantee the statements made here.
Human resources’ support for new talent to be
expanded
According to our current estimates, the overall number of
staff employed by the HOCHTIEF Group will change little
as of December 31, 2006. In 2006, we will continue our
longstanding tradition of providing training in excess of our
own requirements so as to offer that many more young
people in Germany the chance to improve their job prospects. We also intend to employ a greater number of fresh
faces in the technical disciplines than in years past and
adopt them into our young talent programs.
HOCHTIEF Stock
The prospects in Germany are also looking bright, with
growing indications of an end to the structural crisis plaguing the construction industry. With increasing momentum in the PPP segment and commercial construction, we
expect construction demand to improve, particularly in the
public sector. The positive signals from the federal government’s planned spending package as well as raised estimates for the cities’ and towns’ trade tax revenue support
this forecast. Under the coalition agreement, the federal
government wants to increase spending on transport infrastructure by EUR 4.3 billion between 2006 and 2009. A
fast-track implementation of the Transport Infrastructure
Planning Acceleration Act (Infrastrukturplanungsbeschleunigungsgesetz) should make putting the additional funding
to use quicker and easier.
Management Report
Further expansion of international cooperation in
supply management
In the years ahead, expenditure on the procurement of
supplies and services will continue to account for around
80 percent of the Group’s total operating performance.
HOCHTIEF’s goal is to continue to expand Group-wide
cooperation in procurement going forward. One aspect of
this is more densely integrating the networks for the various product groups so as to achieve better control of international cooperation in procurement. Another aspect is
closer monitoring of the markets in order to be ready to respond in a timely manner to supply shortages. Offering
supply management services to external clients promises
to increase procurement volumes, thus generating even
more value for the Group.
Opportunities in HOCHTIEF’s markets
Due to the booming demand for raw materials in the AsiaPacific region, HOCHTIEF sees considerable opportunities
for continued organic growth of its activities in the Australian market.
Opportunities await HOCHTIEF in Central and Eastern Europe, where construction volume has been forecast to grow
by more than seven percent in the years ahead. The countries in this region are benefiting from EU development funding earmarked for infrastructure and environment projects
as well as for expansion of the transportation network.
Annual Report 2005
83
Boards
*
Supervisory Board member
representing employees
a) Membership in other supervisory boards prescribed by
law (as of December 31,
2005)
b) Membership in comparable
domestic and international
corporate governing bodies
(as of December 31, 2005)
Supervisory Board
Dr. rer. pol. h. c. Martin Kohlhaussen
Bad Homburg, Chairman of the Supervisory Board of
Commerzbank AG, Frankfurt am Main
a)
b)
Bayer AG
Commerzbank AG (Chairman)
Heraeus Holding GmbH
Schering AG
ThyssenKrupp AG
Verlagsgruppe Georg von Holtzbrinck GmbH
Gerhard Peters *
Butzbach, Deputy Chairman, Administrative Officer
a)
Alois Binder *
Wyhl, Construction Plant Operator
Detlev Bremkamp
Munich, Vice Chairman of the Mondial Assistance Group,
Munich
a)
b)
Allianz Global Risks Rückversicherungs-AG
Allianz Marine & Aviation Versicherungs-AG
Asea Brown Boveri AG
Allianz General Insurance Company S.A.
Allianz Global Risks US Insurance Company
Allianz Life Insurance Company S.A.
Allianz Nederland Groep N.V.
Allianz Risk Transfer AG
Allianz, Compañia de Seguros y Reaseg. S.A.
Allianz Portugal S.A., Companhia de Seguros
Assurances Générales de France
Elmonda Assistance
Lloyd Adriatico S.p.A.
Riunione Adriatica de Sicurtà S.p.A.
Dr. jur. Gerhard Cromme
Essen, Chairman of the Supervisory Board of ThyssenKrupp AG,
Düsseldorf
a)
b)
Allianz AG
Axel Springer AG
Deutsche Lufthansa AG
E.ON AG
Siemens AG
ThyssenKrupp AG (Chairman)
Volkswagen AG
BNP Paribas S.A.
Compagnie de Saint-Gobain
SUEZ S.A.
Günter Haardt *
Frankfurt am Main, Executive Manager of Vermögensverwaltungsund Treuhandgesellschaft mbH der Industriegewerkschaft
Bauen-Agrar-Umwelt (the asset management and trust company of the Construction, Agricultural and Environmental Employees’ Union), Frankfurt am Main
a)
b)
apm alpha print medien AG
Ulrich Hartmann
Düsseldorf, Chairman of the Supervisory Board of E.ON AG,
Düsseldorf
a)
84
Annual Report 2005
b)
Deutsche Bank AG
Deutsche Lufthansa AG
E.ON AG (Chairman)
IKB Deutsche Industriebank AG (Chairman)
Münchener Rückversicherungs-Gesellschaft AG
ARCELOR
Henkel KGaA
Professor Dr. Herbert Henzler
Munich, Vice Chairman of the Advisory Council of Credit Suisse
Group, Zurich
a)
SMS GmbH
FC Bayern München AG
Josef Hess *
Vilshofen, Warehousekeeper and Vice Chairman of the Company Works Council (HOCHTIEF Construction AG)
Dipl.-Ing. Gerhard Hilke *
Rödermark-Urberach, Management Chairman, Southwest
Division of HOCHTIEF Construction AG
Dr. jur. Dietmar Kuhnt
Essen, Former Chairman of the Executive Board of RWE AG,
Essen
a)
Allianz Versicherungs-AG
Dresdner Bank AG
GEA Group AG
Hapag-Lloyd AG
RWE AG (until April 13, 2006)
TUI AG
Udo Paech *
Berlin, Technical Employee
Professor Dr. jur. Dr.-Ing. E. h. Heinrich v. Pierer
Erlangen, Chairman of the Supervisory Board of Siemens AG,
Berlin & Munich
a)
Deutsche Bank AG
Münchener Rückversicherungs-Gesellschaft AG
Siemens AG (Chairman)
ThyssenKrupp AG
Volkswagen AG
Fritz Voelkner *
Duisburg, Assistant Foreman
Dr.-Ing. E. h. Heinrich Weiss
Hilchenbach-Dahlbruch, Chairman of the Managing Board of
SMS GmbH, Düsseldorf
a)
b)
Commerzbank AG
Deutsche Bahn AG
SMS Demag AG (Chairman)
Voith AG
Bombardier Inc.
Concast AG (Vice President)
Thyssen-Bornemisza Group
Klaus Wiesehügel *
Königswinter, National Chairman of the Construction, Agricultural and Environmental Employees’ Union, Frankfurt am Main
a)
Zusatzversorgungskasse des Baugewerbes VVaG (Chairman)
To Our Shareholders
Management Committee
All members of the Executive Board of HOCHTIEF
Aktiengesellschaft
Dr.-Ing. E. h. Friedel Abel,
Chairman of the Executive Board of HOCHTIEF Construction
AG
Dr.-Ing. Reinhard Kalenda,
Chief Executive Officer of HOCHTIEF AirPort GmbH
International Committee
All members of the Executive Board of HOCHTIEF
Aktiengesellschaft
Wal M. King,
CEO and Managing Director
Leighton Holdings Limited, Sydney, Australia
Thomas C. Leppert,
CEO and Chairman
The Turner Corporation, Dallas, Texas, USA
Representative Directors
Henning Mähl, Essen
Attorney-at-law Hartmut Paulsen, Düsseldorf
b)
Eurohypo Aktiengesellschaft
HOCHTIEF Construction AG (Chairman)
National-Bank AG
HOCHTIEF AUSTRALIA Ltd.
Leighton Holdings Limited (Deputy Chairman)
The Turner Corporation (Deputy Chairman)
Attorney-at-law Albrecht Ehlers
Herdecke, Member of the Executive Board of HOCHTIEF
Aktiengesellschaft, Essen
a)
b)
Glunz AG
Sierra Development Germany AG
Builders’ Credit Reinsurance Company S.A.
Contractors’ Casualty & Surety Reinsurance Company S.A.
Dr. rer. pol. Burkhard Lohr
Haltern, Member of the Executive Board of HOCHTIEF Aktiengesellschaft, Essen
– from January 1, 2006 –
b)
HOCHTIEF Stock
Audit Committee
Dr. jur. Dietmar Kuhnt (Chairman)
Detlev Bremkamp
Professor Dr. Herbert Henzler (from March 18, 2005)
Dipl.-Ing. Gerhard Hilke
Gerhard Peters
Dr.-Ing. E. h. Heinrich Weiss (until March 17, 2005)
a)
HOCHTIEF Polska Sp. z o.o. (Chairman)
HT-LUX S.A. (Chairman)
Dr.-Ing. Herbert Lütkestratkötter
Essen, Member of the Executive Board of HOCHTIEF Aktiengesellschaft, Essen
a)
b)
ThyssenKrupp Elevator AG
Aecon Group Inc.
The Turner Corporation
Leighton Holdings Limited (Alternate Member)
Dr. rer. pol. Peter Noé
a)
b)
Flughafen Düsseldorf GmbH (Chairman)
Athens International Airport S.A.
HOCHTIEF AUSTRALIA Ltd.
HOCHTIEF AUSTRALIA HOLDINGS Ltd.
Leighton Holdings Limited
Management Report
Human Resources Committee
Dr. rer. pol. h. c. Martin Kohlhaussen (Chairman)
Gerhard Peters
Executive Board
Dr.-Ing. Dr.-Ing. E. h. Hans-Peter Keitel
Essen, Chairman of the Executive Board of HOCHTIEF Aktiengesellschaft, Essen
Professor Dr.-Ing. Martin Rohr
a)
b)
Arenberg-Recklinghausen GmbH (Chairman)
Flughafen Hamburg GmbH
Aecon Group Inc.
HOCHTIEF VSB a.s. (Chairman)
Dr. rer. pol. Hans-Georg Vater
Ratingen, Member of the Executive Board of HOCHTIEF
Aktiengesellschaft, Essen
– until March 31, 2006 –
a)
b)
Supervisory Board Committees
Mediation Committee pursuant to Sec. 27 (3) of the Codetermination Act (MitbestG)
Dr. rer. pol. h. c. Martin Kohlhaussen (Chairman)
Josef Hess
Gerhard Peters
SAB Spar- und Anlageberatung AG
Athens International Airport S.A.
Illbruck GmbH
Annual Report 2005
85
WORKING
C PITAL
Rich prospects: Under
a “life of mine” contract,
Leighton subsidiary
Thiess and its joint venture partners are responsible for all operations
at the Collinsville Mine
in Queensland, Australia. Contract mining is
one of HOCHTIEF’s key
business areas and secures long-term earnings potential.
86
Annual Report 2005
To Our Shareholders
HOCHTIEF Group Consolidated Financial
Statements as of December 31, 2005
Contents
Consolidated Statement of Earnings ............................................................................................................................... 88
Consolidated Balance Sheet ........................................................................................................................................... 89
Consolidated Statement of Cash Flows ........................................................................................................................... 90
Consolidated Statement of Changes in Equity ................................................................................................................. 91
Notes to the Consolidated Financial Statements ..............................................................................................................92
Proposal by Executive Board for Use of Net Profit ..........................................................................................................128
Group Auditor’s Report ..................................................................................................................................................129
Management Report
HOCHTIEF Stock
Subsidiaries, Associates and Other Significant Participating Interests of the
HOCHTIEF Group at December 31, 2005 ......................................................................................................................130
Annual Report 2005
87
Consolidated Statement of Earnings
(EUR thousand)
Sales
Changes in inventories
Note
2005
2004
(1)
13,653,195
766
11,943,660
(1,118)
(2)
274,406
169,830
Materials
(3)
(10,422,211)
(9,151,334)
Personnel costs
(4)
(2,161,393)
(1,834,549)
(5)
(286,884)
(262,697)
(6)
(777,683)
(707,523)
280,196
156,269
Net income from equity-method investments
(7)
38,766
(5,721)
Net income from other participating interests
(7)
24,648
39,374
(8)
113,653
128,173
Investment and interest expenses
(8)
(128,213)
(130,803)
329,050
187,292
(177,714)
(106,173)
151,336
81,119
Profit before taxes
Income taxes
(9)
Profit after taxes
62,789
41,165
Of which: Minority interest
(10)
88,547
39,954
Diluted and undiluted earnings per share (EUR)
(31)
0.99
0.65
Of which: Consolidated net profit
88
Annual Report 2005
To Our Shareholders
Consolidated Balance Sheet
(EUR thousand)
Note
Dec. 31, 2005
Dec. 31, 2004
Intangible assets
(11)
330,298
296,879
Property, plant and equipment
(12)
682,220
665,995
Investment properties
(13)
206,631
234,621
Equity-method investments
(14)
718,167
716,071
Other financial assets
(15)
194,362
243,110
Financial receivables
(16)
28,278
49,952
Other receivables and other assets
(17)
110,198
82,950
Deferred tax assets
(18)
144,726
249,750
2,414,880
2,539,328
(19)
(16)
(20)
35,333
50,697
3,376,967
49,164
62,148
2,637,235
210,774
Assets
Non-current assets
Inventories
Trade receivables
Other receivables and other assets
(17)
150,900
Current income tax assets
(21)
42,243
25,026
Marketable securities
(22)
963,182
992,024
(23)
1,061,301
769,605
5,680,623
4,745,976
8,095,503
7,285,304
Subscribed capital
179,200
179,200
Capital reserve
400,806
400,806
1,175,241
1,100,843
(65,163)
(184,688)
HOCHTIEF Stock
Current assets
Liabilities and Shareholders’ Equity
(24)
Attributable to the Group
Accumulated other comprehensive income
Unappropriated net profit
Minority interest
63,000
52,500
1,753,084
1,548,661
537,230
355,979
2,290,314
1,904,640
* Own stock with an
acquisition cost of EUR
200,373,000 (2004:
EUR 216,274,000) is offset
in revenue reserves as of
December 31, 2005.
Management Report
Revenue reserves*
(26)
298,556
512,690
Financial liabilities**
(27)
830,680
701,892
Other liabilities**
(28)
20,954
14,677
Deferred tax liabilities
(18)
88,223
56,029
1,238,413
1,285,288
Current liabilities
Provisions
(26)
643,474
578,654
Financial liabilities
(27)
257,172
471,888
Trade payables
(29)
3,449,977
2,834,349
Other liabilities
(28)
215,589
208,714
Current income tax liabilities
(30)
564
1,771
4,566,776
4,095,376
8,095,503
7,285,304
** The EUR 851,634,000
(2004: EUR 716,569,000)
total for financial liabilities
and other liabilities in the
non-current category (with
residual terms greater than
one year) includes EUR
827,959,000 (2004: EUR
696,700,000) in interestbearing liabilities.
Provisions
Annual Report 2005
89
Consolidated Statement of Cash Flows
(EUR thousand)
Profit after taxes
Depreciation/write-ups
Note (35)
2005
2004
151,336
289,016
81,119
272,125
671
3,906
Changes in deferred taxes
126,240
65,262
Gains/(losses) from disposals of fixed assets and marketable securities
Other non-cash income and expenses (primarily equity accounting) and
deconsolidations
(37,629)
( 81,236)
Changes in long-term provisions
Cash flow
(111,605)
(21,510)
418,029
319,666
48,316
34,649
Changes in working capital (net current assets)
(164,805)
(155,750)
Changes in other balance sheet items
Net cash provided by operating activities
334,099
635,639
112,472
311,037
(496,751)
(440,311)
225,529
136,401
Purchases
(77,447)
(237,834)
Proceeds from asset disposals/divestments
104,427
149,201
Changes in short-term provisions
Intangible assets, property, plant and equipment, and investment properties
Purchases
Proceeds from asset disposals
Acquisitions and participating interests
Changes in cash and cash equivalents due to consolidation changes
Changes in loans, securities holdings and liquid investments
Net cash used in investing activities
Payments into equity
259,552
(131,961)
31,197
–
13,050
(111,430)
466,271
–
(84,606)
337,646
Service of debt
Net cash used in financing activities
(509,901)
(110,813)
(407,218)
(154,178)
Net cash increase in cash and cash equivalents
225,274
24,898
77,872
(31,895)
Changes recognized in equity (transfer to HOCHTIEF pension fund)
(11,450)
(286,000)
Overall change in cash and cash equivalents
291,696
(292,997)
769,605
1,062,602
1,061,301
769,605
Cash and cash equivalents at the start of the year
Cash and cash equivalents at year-end
Annual Report 2005
1,030
(50,861)
(299,552)
Payments received from sale of treasury stock
Dividends to HOCHTIEF’s and minority shareholders
Proceeds from new borrowing
Effect of exchange rate changes
90
(4,449)
To Our Shareholders
Consolidated Statement of Changes in Equity
Accumulated other comprehensive Unapprop- Attributable
income
riated net to the
profit
Group
Changes in
Currency
translation
fair value of
differences
financial
instruments
Attributable to
minority
interest
Total
179,200
–
400,806
–
1,110,813
–
(111,543)
–
(36,481)
–
45,500
(40,984)
1,588,295
(40,984)
386,997
(43,622)
1,975,292
(84,606)
39,954
81,119
–
–
–
–
–
41,165
41,165
Withdrawals
from revenue
reserves
–
–
(6,819)
–
–
6,819
–
Currency translation differences
and changes
in fair value of
financial instruments
–
–
–
(20,606)
(16,058)
–
(36,664)
(10,992)
(47,656)
Other changes
not recognized
in the Statement
of Earnings
–
–
(3,151)
–
–
–
(3,151)
(16,358)
(19,509)
179,200
400,806
1,100,843
(132,149)
(52,539)
52,500
1,548,661
355,979
1,904,640
–
–
–
–
–
(47,597)
(47,597)
(63,833)
(111,430)
88,547
151,336
Balance as of
Dec. 31, 2004/
Jan. 1, 2005
Dividends paid
Profit after
taxes
–
–
–
–
–
–
–
62,789
62,789
Transfer to
revenue
reserves
–
–
4,692
–
–
(4,692)
–
Currency translation differences
and changes
in fair value of
financial instruments
–
–
–
76,654
42,871
–
119,525
23,184
142,709
Other changes
not recognized
in the Statement
of Earnings
–
–
69,706
–
–
–
69,706
133,353
203,059
179,200
400,806
1,175,241
(55,495)
(9,668)
63,000
1,753,084
537,230
2,290,314
Balance as of
Dec. 31, 2005
–
Capital
Revenue
reserve of
reserves*
HOCHTIEF
Aktiengesellschaft
HOCHTIEF Stock
Balance as of
Jan. 1, 2004
Dividends paid
Profit after
taxes
Subscribed
capital of
HOCHTIEF
Aktiengesellschaft
–
Management Report
(EUR thousand)
* Own stock with a purchase cost of EUR 200,373,000 (2004: EUR 216,274,000) is accounted for as a deduction from revenue reserves as of December 31, 2005.
Annual Report 2005
91
Notes to the
Consolidated
Financial Statements
Declaration by the Executive Board
General information
The Executive Board of HOCHTIEF Aktiengesellschaft is respon-
The Consolidated Financial Statements are prepared in accord-
sible for preparing and for ensuring the comprehensiveness
ance with International Financial Reporting Standards (IFRS)
and accuracy of the HOCHTIEF Group Consolidated Financial
as adopted by the EU and with supplementary provisions of
Statements and the combined HOCHTIEF Group and HOCHTIEF
German commercial law applicable under Section 315a (1) of
Aktiengesellschaft Management Report.
the German Commercial Code.
The Consolidated Financial Statements as of December 31,
In addition to the Statement of Earnings, Balance Sheet and
2005 are prepared in accordance with International Financial
Statement of Cash Flows, the Consolidated Financial State-
Reporting Standards (IFRS) as adopted by the EU. All prior-
ments also include a Statement of Changes in Equity. Segment
year figures are stated on the same basis.
reporting is provided in these Notes.
Due and proper preparation of the Consolidated Financial State-
For purposes of clarity, a number of items are combined in the
ments and Group Management Report is assured by internal
Statement of Earnings and in the Balance Sheet. These items
monitoring systems, uniform Group-wide guidelines and work-
are broken down into their constituents and commented on
force training. Legal compliance, adherence to internal guide-
elsewhere in these Notes. The Statement of Earnings is pre-
lines and the reliability and operability of our monitoring sys-
sented using the nature of expense method of analysis.
tems are kept under constant review throughout the Group.
As required by law, our risk management system is geared to-
The Consolidated Financial Statements are presented in euros.
ward ensuring that the Executive Board can identify potential
risks at an early stage and take the necessary evasive action.
The Consolidated Financial Statements relate to the 2005 fiscal
PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprü-
cember 31, 2005. Corresponding prior-year figures are stated.
year, comprising the reporting period from January 1 to Defungsgesellschaft, elected as auditors by resolution of the
General Shareholders’ Meeting, have audited the Consolidated
All monetary amounts in the text of these Notes are rounded
Financial Statements and the combined Group and HOCHTIEF
to the nearest thousand euros unless specifically stated other-
Aktiengesellschaft Management Report and issued the unqual-
wise.
ified Group Auditor’s Report reproduced at the end of these
Notes. The Consolidated Financial Statements, the combined
Basis of consolidation
Group and HOCHTIEF Aktiengesellschaft Management Report
The Consolidated Financial Statements include HOCHTIEF
and the Group Auditor’s Report were discussed in detail in the
Aktiengesellschaft (the parent company) and all significant
presence of the auditors by the Audit Committee and at the
domestic and foreign subsidiaries in which it directly or indi-
Supervisory Board meeting on the financial statements. The
rectly holds the majority of voting rights. Significant associates
findings of the Supervisory Board’s examination are set out in
are accounted for using the equity method. In the case of The
the Supervisory Board Report (see pages 8-10 of this Annual
Turner Corporation, the Consolidated Financial Statements in-
Report).
clude Turner’s proportionate interest in the accounts of certain
construction joint ventures.
Signed in Essen on February 21, 2006
by the Executive Board:
Holdings in subsidiaries or associated companies deemed to
be of minor significance from a Group perspective are not consolidated and are accounted for in accordance with IAS 39.
The combined list of subsidiaries, associates and other equity
interests held by the HOCHTIEF Group and HOCHTIEF Aktiengesellschaft (pursuant to Sections 285 (11) and 313 (2) 1-4 of
Dr. Keitel
Ehlers
Dr. Lohr
Dr. Lütkestratkötter
the German Commercial Code) is on file in the commercial registry at Essen District Court. The main consolidated subsidiaries
Dr. Noé
92
Annual Report 2005
Prof. Dr. Rohr
Dr. Vater
and equity-method investments are listed on pages 130-131.
The financial statements of domestic and international compa-
German and 237 foreign consolidated companies. The number
nies included in these Consolidated Financial Statements are
of consolidated companies increased by a net balance of 16
prepared in accordance with uniform Group accounting and
over the previous year. The additions are mainly newly estab-
valuation principles. Subsidiaries with a different reporting date
lished companies and segmental spin-offs, with six German and
generally prepare interim financial statements as of the Group
24 foreign companies consolidated for the first time in 2005.
reporting date. The main such subsidiary is the Leighton Group,
Most of these are in the Asia Pacific and Americas divisions
whose fiscal year ends June 30. All business combinations
and the Development division’s public-private partnership (PPP)
(acquisitions) are accounted for using the purchase method.
segment. The Consolidated Financial Statements also include
Business combinations are measured at the acquisition date
three special-purpose securities investment funds, comprising
by allocating the consideration given, plus any costs directly
two funds newly set up in 2005 and five pre-existing funds that
attributable to the business combination, to the acquired sub-
were merged into one in the course of the year.
sidiary’s net assets measured at fair value. All assets, liabilities
To Our Shareholders
Consolidation policies
2005 contain HOCHTIEF Aktiengesellschaft and a total of 41
The Consolidated Financial Statements as of December 31,
and contingent liabilities of the acquired subsidiary that satisfy
Two domestic and twelve foreign companies—most of them
the recognition criteria are measured at full fair value regard-
from the Asia Pacific and Americas divisions—were removed
less of any minority interest. Intangible assets are recognized
from the consolidated group. An entity is generally added to
separately from goodwill if they are separable from the ac-
or removed from the consolidated group at the time the equity
counting entity or arise from contractual or other legal rights.
stake in the entity is acquired or disposed of.
Any goodwill then left is recognized as an asset. Goodwill is
not amortized, but is tested instead for impairment losses in
Forty-three affiliated companies not material to the Group’s fi-
accordance with IAS 36 on an annual basis and whenever
nancial position and results of operations were not consolidat-
there are indications that it may be impaired. Negative good-
ed in the year under review. Their combined sales represented
will arising on initial measurement is recognized immediately in
less than one percent of consolidated sales.
income. On divestment, the carrying amount of a subsidiary’s
HOCHTIEF Stock
goodwill is taken into account when measuring disposal proFive domestic and 46 foreign associated companies were ac-
ceeds.
counted for using the equity method, giving a net increase of
two equity-accounted companies. Due to their minor signifi-
Goodwill increased by EUR 16,458,000 over the year under
cance, a further 13 associated companies were not accounted
review, from EUR 211,222,000 to EUR 227,680,000.
for using the equity method.
Income and expenses, receivables and liabilities between conSpecific instances where consolidation changes materially af-
solidated companies are eliminated. Unrealized intercompany
fected balance sheet or earnings statement items are stated
profits and losses are eliminated unless they are of minor sig-
in the Notes.
nificance. Any impairment losses recognized for consolidated
companies in separate-entity financial statements are reversed.
of shares in companies consolidated for the first time and to
The same policies apply for equity-method investments. Any
increase existing shareholdings. All such purchases were made
goodwill increases the carrying amount of the investment.
in cash.
Like other goodwill, goodwill on equity-method investments is
Management Report
A total of EUR 3,131,000 was paid out in 2005 for purchases
not amortized. Any impairment losses charged against the
Balance Sheet or Statement of Earnings.
carrying amount of equity-method investments are accounted
for in net income from equity-method investments. The financial statements of all equity-method investments are prepared
in accordance with uniform Group accounting and valuation
principles.
New acquisitions did not materially affect the Consolidated
Annual Report 2005
93
Currency translation
For currency translation purposes, the following exchange rates have been used for the main Group companies outside the euro
area:
(All rates in EUR)
1 US dollar (USD)
1 Australian dollar (AUD)
Annual average
2005
2004
Daily average at reporting date
2005
2004
0.81
0.61
0.80
0.59
0.85
0.62
0.73
0.57
1 Canadian dollar (CAD)
0.67
0.62
0.73
0.61
1 British pound (GBP)
1.46
1.47
1.46
1.42
24.86
22.14
25.91
24.48
100 Czech koruna (CZK)
3.36
3.14
3.45
3.28
100 Chilean pesos (CLP)
0.14
0.13
0.16
0.13
100 Polish zloty (PLN)
In their separate financial statements, Group companies dis-
The Turner name and goodwill are no longer amortized. They
close transactions denominated in foreign currency using the
are tested instead for impairment losses in accordance with
average exchange rate on the day of recording the transaction.
IAS 36 on an annual basis and whenever there are indications
Exchange gains or losses from valuing foreign currency-denomi-
that they may be impaired.
nated monetary assets or liabilities at the average exchange
rate on the reporting date are recognized in other operating
Property, plant and equipment is stated at depreciated
income or other operating expenses.
cost. Only amounts directly attributable to an item of property,
plant or equipment are included in its cost. Borrowing costs
Financial statements of consolidated companies domiciled in
are not included. Items of property, plant and equipment are
countries with foreign currencies are translated using the
depreciated on a straight-line basis unless, in exceptional cases,
functional currency method. As all companies outside the
another form of depreciation better reflects their commercial
euro area operate autonomously in their own national curren-
use over time.
cies, their balance sheet items are translated into euros using
the average exchange rate prevailing on the reporting date in
Items of property, plant, machinery and equipment typically
accordance with official requirements. The same method is
encountered in the HOCHTIEF Group are depreciated over the
used to translate the annual valuation of the shareholders’
following uniform useful lives:
equity of equity-accounted foreign associated companies.
Differences from the previous year’s translated valuation are
recognized in other comprehensive income and are reversed
to income or expense on sale. Goodwill assets of commercially
independent foreign Group entities are translated at the exchange
No. of years
Buildings and investment properties
Technical equipment and machinery,
transportation equipment
Other equipment and office equipment
20-50
3-10
3-8
rate prevailing on the reporting date. Income and expense
items are translated into euros using the annual average ex-
Estimated useful lives and depreciation methods are reviewed
change rate.
annually.
Accounting policies
Items of property, plant and equipment on finance leases are
Intangible assets are reported at amortized cost. With the
recognized at fair value or the present value of the minimum
exception of the Turner name (recognized as an asset on ac-
lease payments, whichever is lower, and are depreciated on a
quisition of the Turner Group) and goodwill, all intangible as-
straight-line basis over their estimated useful life or over a shorter
sets have a finite useful life. Such assets include concessions
period if appropriate.
and other licenses with useful lives of up to 30 years. They
also encompass software for commercial and engineering
applications, which is amortized on a straight-line basis over
three to five years, and a title to guarantee-payments under the
syndicated guarantee line, which is amortized over the threeyear term of the guarantee agreement. Estimated useful lives
and amortization methods are reviewed annually.
94
Annual Report 2005
All other financial assets, comprising interests in non-con-
action costs are included on initial measurement. The fair val-
solidated subsidiaries, other participating interests and non-
ues of investment properties are disclosed in the Notes. These
current securities, are classed as held for sale and are meas-
are assessed using internationally accepted valuation methods,
ured at fair value where a fair value can be reliably estimated.
such as taking comparable properties as a guide to current
Initial measurement is performed as of the settlement date.
market prices or by applying the discounted cash flow method.
Unrealized gains or losses are accounted for, after adjusting
To Our Shareholders
Investment properties are stated at amortized cost. Trans-
reversed to income or expense on disposal of the asset. If
goodwill), property, plant and equipment or investment prop-
there is objective material evidence of impairment, the carrying
erties if their recoverable amount (net selling price or value in
amount of a financial asset is reduced and the impairment loss
use, whichever is higher) falls below their carrying amount. Im-
recognized as an expense.
for deferred taxation, in other comprehensive income and are
Impairment losses are recognized for intangible assets (including
pairment testing may require assets and in some cases liabilities to be grouped into cash-generating units. For goodwill,
Receivables and other assets are measured at amortized
impairment testing is performed on cash-generating units cor-
cost using the effective interest rate method (accounting for
responding to the HOCHTIEF divisions that feature in segmen-
factors such as premiums and discounts). Impairment losses
tal reporting. For any asset that is part of an independent cash-
are recognized according to actual credit risk. “Receivables”
generating unit, impairment is determined with reference to
comprise financial receivables, trade receivables and other re-
the recoverable amount of the unit. If the carrying amount of a
ceivables.
cash-generating unit falls below its recoverable amount, the
resulting impairment loss is allocated first to any goodwill be-
Long-term loans (with a term of more than one year) are stated
longing to the unit and then to the unit’s other assets on a pro-
at amortized cost. Loans yielding interest at normal market
rata basis. Except in the case of goodwill, impairment charges
rates are reported at face value, and non-interest-bearing and
are reversed when the impairment ceases to exist.
low-interest-bearing loans are discounted to present value.
Discounting is always done using a risk-adjusted discount rate.
the acquired equity interest in an associate plus any goodwill.
Construction contracts are reported using the percentage
The carrying amount is increased or decreased annually to rec-
of completion (POC) method. Cumulative work done to date,
ognize the Group’s share of after-tax profits or losses, any div-
including the Group’s share of net profit, is reported under
idends, and other changes in equity. Goodwill is not amortized,
sales on a pro rata basis according to the percentage com-
but is tested instead for impairment losses in accordance with
pleted. The percentage of completion is measured as the ratio
IAS 36 on an annual basis and whenever there are indications
of contract costs incurred for work performed so far to total
that it may be impaired. If the recoverable amount of an equity-
contract costs (cost-to-cost method). Construction contracts
method investment is less than its carrying amount, an impair-
are reported in trade receivables and trade payables, as “Gross
ment loss is recognized for the difference.
amount due from/to customers for/from contract work (POC)”.
HOCHTIEF Stock
Equity-method investments are stated at cost, comprising
If cumulative work done to date (contract costs plus contract
net profit) of contracts in progress exceeds progress payments
received, the difference is recognized as an asset and includManagement Report
ed in amounts due from customers for contract work. If the
net amount after deduction of progress payments received is
negative, the difference is recognized as a liability and included
in amounts due to customers for contract work. Anticipated
losses on specific contracts are estimated taking account of
all identifiable risks and are accounted for by recognizing writedowns or provisions. Construction contracts handled by construction joint ventures are also accounted for using the POC
method. Trade receivables from construction joint ventures include pro rata entitlements to contract net profit. Anticipated
losses are covered by writedowns or provisions that reduce
contract net profit. Contract income is recognized as the income stipulated in the contract and/or any change orders confirmed in writing by the client. In the consolidated-basis financial statements for the Turner Group, some change orders are
capitalized according to the likely timing of their approval and
taking full account of all identifiable risks.
Annual Report 2005
95
Deferred taxes arising from temporary differences between
Cash and cash equivalents consist of petty cash, cash bal-
the IFRS accounts and tax base of individual Group companies
ances at banks and marketable fixed-income securities with
or as a result of consolidation are recognized as separate as-
maturities of no more than three months at the time of acqui-
sets and liabilities. Deferred tax assets are also recognized for
sition.
tax refund entitlements resulting from the anticipated use of
existing tax loss carryforwards in subsequent fiscal years pro-
Non-current assets held for sale and liabilities to be dis-
vided it is sufficiently certain that they will be realized. Deferred
posed of with them are measured in accordance with IFRS 5.
tax assets and liabilities are offset within each company or
To be classed as held for sale, assets must be available for
group. Deferred taxes are measured on the basis of tax rates
immediate sale and their sale must be highly probable. Assets
applying or expected to apply in each country when they are
held for sale can be individual non-current assets, groups of
realized. For domestic operations, a tax rate of 39.28 percent
assets held for sale (disposal groups) or discontinued opera-
is assumed taking account of corporate income tax plus the
tions. Liabilities that are disposed of with assets in a single
“solidarity surcharge” (to support development in eastern Ger-
transaction are part of a disposal group or discontinued oper-
many) and the average rate of municipal trade tax faced by
ation and are separately reported as liabilities held for sale.
Group companies. For all other purposes, deferred taxes are
Non-current assets held for sale cease to be depreciated or
measured on the basis of the tax regulations in force or enacted
amortized, and are measured at their carrying amount or at
at the reporting date.
fair value less costs to sell, whichever is lower. Gains or losses
arising on the measurement of discontinued operations at fair
Inventories are initially stated at cost of purchase or produc-
value less costs to sell, profits or losses of discontinued oper-
tion. Production cost includes costs directly related to the
ations and gains or losses on their disposal are reported under
units of production plus an appropriate allocation of materials
results of discontinued operations. Gains or losses arising on
and production overhead, including production-related depre-
the measurement of individual assets held for sale or of disposal
ciation charges. Borrowing costs are not recognized as part
groups are reported under results from continued operations
of purchase or production cost. Inventories are written down
until their ultimate disposal.
to net realizable value if their recoverable amount is less than
their carrying amount at the reporting date. If the recoverable
Share-based payment transactions are measured in ac-
amount of inventories subsequently increases, the resulting
cordance with the transitional provisions of IFRS 2 in the case
gain must be recognized. This is done by reducing materials
of options granted after November 7, 2002. Stock option plans
expense.
implemented from this date are accounted for as cash-settled
share-based payment transactions. Provisions for obligations
96
Annual Report 2005
All marketable securities are classed as held for sale and
under the Long-term Incentive Plan 2003 (LTIP 2003), 2004
measured at fair value. They mainly comprise securities held
(LTIP 2004) and 2005 (LTIP 2005) and under the Top Execu-
in special-purpose funds and fixed-income securities with a
tive Retention Plan (TERP) are recognized in the amount of the
residual term of more than three months but less than one
expected expense, which is spread over the stipulated waiting
year at the time of purchase. Initial measurement is performed
period in line with the performance of the stock price. The fair
as of the settlement date and includes any transaction costs
value of stock options is measured using generally accepted
directly attributable to the acquisition of the securities. Unreal-
financial models, the value of the plans being determined with
ized gains or losses are reported in other comprehensive in-
the Black-Scholes option pricing model. The specific problem
come and are reversed to income or expense on disposal. If
of valuing the plans in question is solved using the Monte Carlo
there is objective material evidence of impairment, the impair-
simulation technique. The computations are performed by an
ment loss is recognized as an expense.
outside appraiser.
the reporting date that result from past business transactions
former employees and their surviving dependants. The obliga-
or events but are uncertain in their amount and/or settlement
tions primarily relate to pension benefits, partly for basic pen-
date. Provisions are stated at the estimated settlement amount
sions and partly for optional supplementary pensions. The in-
and are not offset against any rights to reimbursement. For
dividual benefit obligations vary from one country to another
obligations with a settlement probability exceeding 50 percent,
and are determined for the most part by length of service and
the amount set aside is calculated on the basis of the most
pay scales. The Turner group’s obligations to meet healthcare
likely settlement outcome. A provision can only be recognized
costs for retired staff are likewise included in pension provi-
on the basis of a legal or constructive obligation toward third
sions due to their pension-like nature.
parties. Long-term provisions with a term of more than one
Provisions for pensions and similar obligations are computed
amount as of the reporting date and are reported under non-
by the projected unit credit method. This determines the pres-
current liabilities.
To Our Shareholders
Other provisions account for all identifiable obligations as of
ognized for current and future benefit payments to active and
Provisions for pensions and similar obligations are rec-
year are stated at the present value of the estimated settlement
ent value of future entitlements, taking into account current and
future benefits already known at the reporting date plus antici-
Liabilities are reported at amortized cost using the effective
pated future increases in salaries and pensions and, for the
interest rate method (accounting for factors such as premiums
Turner group, in healthcare costs. The computation is based
and discounts). Finance lease liabilities are initially recognized
on actuarial appraisals using biometric accounting principles.
at fair value at the inception of the lease or the present value
Plan assets as defined in IAS 19 are shown separately as de-
of the minimum lease payments, whichever is lower.
sets transferred to pension funds to meet pension obligations,
Derivative financial instruments are only ever used for
shares in investment funds purchased under deferred com-
hedging purposes. Variable rate loans are hedged to counter
pensation arrangements, and qualifying insurance policies in
variations in payment amounts due to interest rate changes.
the form of pension liability insurance. If the fair value of plan
All derivatives are carried as assets or liabilities and are re-
assets is greater than the sum of the present value of employee
ported regardless of purpose at fair value as of the reporting
benefits and actuarial gains/losses not yet recognized, the dif-
date. Initial measurement is performed as of the settlement
ference is reported under other assets.
date. If an instrument is classed as a fair value hedge (that is,
HOCHTIEF Stock
ductions from pension obligations. Plan assets comprise as-
if it hedges exposure to changes in the fair value of the hedged
Actuarial gains and losses of more than ten percent above or
item), any change in the fair value of the hedging instrument or
below the higher of the present value of employee benefits and
the hedged item is recognized as income or expense. Gains
the fair value of plan assets are recognized in income or ex-
and losses from remeasuring a hedging instrument at fair value
pense over the workforce average remaining period of service.
are recognized in the same earnings statement item as gains
The current service cost is reported under personnel costs.
and losses from remeasuring the hedged item.
The interest element of the increase in pension obligations,
diminished by anticipated returns on plan assets, is reported
In the case of cash flow hedges and hedges of net investments
in net investment and interest income.
in foreign entities, unrealized gains or losses on the hedging
Tax provisions comprise current tax obligations. Income tax
come. A cash flow hedge covers exposure to variability in cash
provisions are offset against tax refund entitlements if they re-
flows from the hedged item. A hedge of a net investment in a
late to the same tax jurisdiction and are congruent in nature
foreign entity covers currency risk from investing in an entity
and accounting period.
with a foreign functional currency. Gains and losses on a cash
Management Report
instrument are initially reported in other comprehensive in-
flow hedge or a net investment hedge are not recognized in income until the hedged transaction affects income. If a hedged
planned transaction subsequently results in recognition of a financial asset or liability, gains or losses recognized in equity in
the meantime are reclassified to income or expense in the period when the asset or liability affects income. If a hedged
planned transaction subsequently results in recognition of a
non-financial asset or liability, gains or losses recognized in
equity in the meantime are taken out of equity and subtracted
from or added to the initial cost of the asset or liability. These
Annual Report 2005
97
procedures may only be applied to the portion of gains and
All estimates and assumptions are based on current circum-
losses on a hedging instrument that is determined to be effec-
stances and appraisals. Forward-looking estimates and as-
tive for hedging purposes. The ineffective portion is recog-
sumptions made as of the balance sheet date with a view to
nized directly as income or expense.
future business performance take account of circumstances
prevailing on preparation of the Consolidated Financial State-
Contingencies, commitments and other obligations are
ments and future trends considered realistic for the global and
possible or current obligations, based on past transactions,
industry environment. Actual amounts can vary from the esti-
that are unlikely to lead to an outflow of resources. They are
mated amounts due to changes in the operating environment
disclosed separately and are not included in the Balance Sheet
that are at variance with the assumptions and lie beyond man-
unless assumed in the course of a business combination. The
agement control. If such changes occur, the assumptions and
amounts stated for contingent liabilities reflect the extent of
if necessary the carrying amounts of affected assets and lia-
the liabilities as of the reporting date.
bilities are revised accordingly.
Judgments made by management in applying the ac-
At the time the Consolidated Financial Statements were pre-
counting policies primarily relate to the following issues:
pared, there was no evidence of any need for significant
• Securities may be grouped in different categories.
change in their underlying estimates and assumptions. The
• Actuarial gains and losses can be accounted for in various
reported amounts of assets and liabilities are therefore not ex-
ways when determining provisions for pensions and similar
pected to undergo significant adjustment in the coming fiscal
obligations.
year.
• Assets earmarked for sale must be assessed to confirm that
they are available for immediate sale and their sale is highly
New accounting pronouncements
probable. If the result of this assessment is positive, they
Adoption by the IASB of new and revised International Finan-
and any liabilities to be disposed of in the same transaction
cial Reporting Standards whose application is mandatory
must be reported and accounted for as assets or liabilities
from January 1, 2005 has resulted in changes to account-
held for sale.
ing policies. The HOCHTIEF Group applied the following International Financial Reporting Standards as adopted by the
The decision made by the HOCHTIEF Group in each instance
EU for the first time in the 2005 reporting year:
is set out under Accounting Policies in these Notes.
IAS 1 (2003)
Presentation of Financial Statements
IAS 2 (2003)
Inventories
Preparation of the IFRS Consolidated Financial Statements
IAS 8 (2003)
Accounting Policies, Changes in Accounting
requires Group management to make estimates and as-
Estimates and Errors
sumptions that affect the reported amount of assets, liabili-
IAS 10 (2003) Events After the Balance Sheet Date
ties, income and expenses, and disclosures of contingencies,
IAS 16 (2003) Property, Plant and Equipment
commitments and other obligations. The main estimates and
IAS 17 (2003) Leases
assumptions relate to the following:
IAS 21 (2003) The Effects of Changes in Foreign Exchange
• Assessing projects on a percentage of completion basis, in
IAS 24 (2003) Related Party Disclosures
Rates
particular with regard to accounting for change orders, the
IAS 27 (2003) Consolidated and Separate Financial Statements
timing of profit recognition and the amount of profit recognized.
• Estimating the economic life of property, plant and equipment and of investment properties.
IAS 28 (2003) Investments in Associates
IAS 31 (2003) Interests in Joint Ventures
IAS 32 (2003) Financial Instruments: Disclosure and
Presentation
• Accounting for provisions.
• Testing goodwill and other assets for impairment.
IAS 33 (2003) Earnings per Share
• Testing deferred tax assets for impairment.
IAS 39 (2004) Financial Instruments: Recognition and
Measurement
IAS 40 (2003) Investment Property
98
Annual Report 2005
IFRS 2
Share-based Payment
IFRS 4
Insurance Contracts
IFRIC 1
IFRIC 2
Non-current Assets Held for Sale and
The main changes introduced in IAS 28 (2003) are, firstly,
Discontinued Operations
that the mandatory use of uniform accounting policies through-
Changes in Existing Decommissioning,
out the Group now applies to equity-accounted associates
Restoration and Similar Liabilities
and, secondly, that if such associates have a different report-
Members’ Shares in Co-operative Entities and
ing date to the rest of the Group, they should prepare interim
Similar Instruments
financial statements as of the Group reporting date. There are
SIC-12 (2004) Consolidation—Special Purpose Entities
To Our Shareholders
IFRS 5
also new disclosure requirements. For example, the Group is
now required to disclose its share of the net assets and net in-
Changes in International Financial Reporting Standards most
come of equity-method investments.
significant to the HOCHTIEF Group are as follows:
Changes introduced by IAS 39 (2004) relate to hedge accountIAS 1 (2003) requires a current/non-current classification of
ing. The main changes relate to hedges of planned transac-
assets and liabilities in the balance sheet. The HOCHTIEF
tions and are explained elsewhere in these Notes (under Ac-
Consolidated Balance Sheet therefore presents current and
counting Policies/Derivative Financial Instruments). Hedges of
non-current assets and current and non-current liabilities as
unrecognized firm commitments can no longer be accounted
separate categories. Current assets and liabilities are those
for as cash flow hedges and must now be treated as fair value
expected or due to be realized or settled within twelve months
hedges. The application of IAS 39 (2004) will have no impact
or in the reporting entity’s normal operating cycle. Investment
on the Consolidated Financial Statements compared with the
properties are shown as a separate item under non-current
accounting policies applied so far.
rately. Other financial assets now mostly comprise other parti-
IFRS 4 introduces rules on financial reporting for insurance
cipating interests and non-current securities. Trade receivab-
contracts. It applies to all insurance and reinsurance contracts
les and payables are generally classified as current assets and
issued and all reinsurance contracts held by a reporting entity
liabilities. Provisions for pensions and similar obligations are
in its capacity as an insurer. A characteristic feature of insur-
classed as non-current liabilities. Deferred taxes are required
ance contracts is that they involve the insurer accepting signif-
to be classified as non-current assets and liabilities. Prepaid
icant insurance risk. Contracts that do not expose the insurer
expenses and deferred income are reported under other as-
to significant insurance risk are accounted for as financial in-
sets and other liabilities. In the Statement of Earnings, net in-
struments in accordance with IAS 39. IFRS 4 has no significant
come from equity-method investments is shown separately
impact on the HOCHTIEF Group as it largely allows existing
from other net income from other participating interests. The
accounting policies to be retained. The only exceptions are
former single net interest and investment income item in the
the disallowance of equalization provisions and the requirement
Statement of Earnings has been replaced by separate items
of an annual liability adequacy test. As HOCHTIEF has not rec-
for interest and investment income and interest and invest-
ognized equalization provisions in the past, the rule that insu-
ment expenses.
rers are no longer allowed to recognize them requires no change
HOCHTIEF Stock
assets. Equity-method investments are likewise shown sepa-
to its accounting policies. The liability adequacy test ensures
that the carrying amount of insurance liabilities (less deferred
acquisition costs) is adequate in the light of current estimates
Management Report
of future cash flows from insurance contracts. HOCHTIEF already meets this requirement as its insurance contracts are
subject to annual review by an outside appraiser taking account of the requirements of IFRS 4.
IFRS 5 specifies the accounting treatment of assets held for
sale, including groups of such assets (disposal groups), and
the presentation and disclosure of discontinued operations.
Assets and, where appropriate, associated liabilities are classed
as held for sale if they are available for immediate sale and
their sale is highly probable. Both assets held for sale and dis-
Annual Report 2005
99
posal groups cease to be depreciated or amortized, and are
Explanatory Notes to the Statement of Earnings
measured at their carrying amount or at fair value less costs to
sell, whichever is lower. IFRS 5 also lays down additional dis-
1. Sales
closure requirements for discontinued operations.
The EUR 13,653,195,000 (2004: EUR 11,943,660,000) sales
figure comprises, firstly, contract sales recognized under the
Other new accounting pronouncements issued by the
percentage of completion (POC) method in general construc-
IASB and IFRIC take the form of standards and interpretations
tion and construction management, products and services
that affect the HOCHTIEF Consolidated Financial Statements
provided to construction joint ventures, the Group’s share of
but do not have to be applied for the 2005 fiscal year:
profits from construction joint ventures, and other related services. Secondly, the sales figure also includes revenues from
Amendment to IAS 19 Employee Benefits—Actuarial Gains
services such as construction planning, logistics, asset man-
and Losses, Group Plans and Disclosures: This amend-
agement, facility management and insurance business, plus
ment introduces an additional recognition option for actuarial
revenues from concessions and contract mining.
gains and losses, permitting them to be recognized outside
profit or loss. It also requires additional disclosures on pension
Sales recognized under the percentage of completion method
plans. The amendment applies for annual periods beginning
were EUR 11,497,973,000 (2004: EUR 10,385,765,000).
on or after January 1, 2006. Aside from the added disclosures
in the Notes, first-time application of the revised IAS 19 will
Sales figures provide only an incomplete view of work done
not significantly affect the HOCHTIEF Consolidated Financial
during the fiscal year. For additional information, work done by
Statements.
the Group is presented below, including the Group’s share of
work done in construction joint ventures. The breakdown by
IFRS 7 Financial Instruments—Disclosure: This standard
division is as follows:
replaces and adds to disclosures on financial instruments under
IAS 32 Financial Instruments—Disclosure and Presentation. The
(EUR thousand)
standard applies for annual periods beginning on or after Jan-
Airport
Development
Construction Services
Americas
Asia Pacific
Europe
Corporate Headquarters
uary 1, 2007.
IFRIC 4 Determining Whether an Arrangement Contains
a Lease sets out criteria for identifying lease elements in arrangements not formally designated as leases. Such elements
must be accounted for as leases in accordance with IAS 17.
IFRIC 4 applies for annual periods beginning on or after January 1, 2006. It is unlikely to have any significant impact on the
HOCHTIEF Consolidated Financial Statements.
The IASB has also issued further amendments to IAS 39 that
apply for annual periods beginning on or after January 1, 2006.
Firstly, the amendments restrict the options for designating financial instruments as “at fair value through profit or loss”. Secondly, they contain provisions on accounting for cash flow
hedges with regard to hedging the foreign currency risk of
highly probable forecasted intragroup transactions. Thirdly,
they specify the accounting treatment of financial guarantees.
These amendments are unlikely to have any significant impact
on the HOCHTIEF Consolidated Financial Statements.
100
Annual Report 2005
2005
2004
4,108
928,713
1,264
838,599
6,068,450
5,683,483
5,295,999
4,038,915
2,455,648
101,415
2,469,482
75,165
14,854,333
13,106,908
To Our Shareholders
2. Other operating income
No impairment losses were recognized in 2004 or 2005 for intangible assets, property, plant and equipment or investment
(EUR thousand)
6. Other operating expenses
134,355
82,741
58,368
16,927
24,887
4,316
64,756
274,406
57,886
169,830
Sundry other operating income includes insurance payments
received for damages and income from rental and lease agreements.
3. Materials
(EUR thousand)
Raw materials, supplies and
purchased goods
Purchased services
2005
2004
1,481,447
8,940,764
1,094,205
8,057,129
10,422,211
9,151,334
4. Personnel costs
2005
2004
1,960,621
1,648,815
200,772
2,161,393
185,734
1,834,549
(EUR thousand)
Wages and salaries
Social insurance, pensions
and support
properties
(EUR thousand)
Insurance expenses
Rentals and lease rentals
Technical and business
consulting
Travel expenses
Court costs, attorneys’ and
notaries’ fees
External organization and
programming
2005
2004
177,421
149,618
183,424
109,008
102,193
47,109
84,496
39,456
32,206
28,802
20,482
16,459
Impairment losses and
losses on disposal of
current assets (except
inventories)
16,620
18,605
Mail and funds transfer
expenses
Office supplies
16,044
14,789
16,591
14,041
Marketing
13,411
13,550
9,021
7,589
2,939
6,616
175,830
168,886
777,683
707,523
Currency losses
Restructuring and adjustment costs
Sundry other operating
expenses
Income from reversal of
provisions
Foreign exchange gains
Sundry other operating
income
2004
HOCHTIEF Stock
Income from the disposal of
property, plant and equipment, including proceeds
from divestitures
2005
The insurance expenses mainly relate to project risk management in the Turner Group. Insurance payments by Turner and
other project stakeholders such as suppliers and clients are
combined to minimize project execution risks to Turner and its
Expenditure on pensions totaled EUR 15,472,000 (2004: EUR
customers. The insurance expenses are counterbalanced by
8,100,000). This mostly comprises new entitlements accrued
revenue reported in sales.
during the year.
Sundry other operating expenses mostly comprise order proEmployees (average for the year)
2005
2004
of preparing the annual financial statements, losses incurred
21,133
20,336
17,474
18,935
on disposal of property, plant and equipment, and other ex-
41,469
36,409
amounting to EUR 8,437,000 (2004: EUR 7,311,000).
5. Depreciation and amortization
Management Report
Waged/industrial employees
Salaried/office employees
cessing, costs of materials for administrative purposes, costs
penses not reported elsewhere. It also includes sundry taxes
Including personnel and material expenses, a total of EUR
6,558,000 was spent on research and development in 2005
2005
2004
Intangible assets
Property, plant and
equipment
6,473
6,568
275,484
4,927
251,244
4,885
286,884
262,697
(2004: EUR 5,088,000).
(EUR thousand)
Annual Report 2005
101
7. Net income from participating interests
Net income from participating interests includes all income
and expenses relating to equity-method investments and participating interests.
These are classified as follows:
(EUR thousand)
Net income from equity-method investments
Of which: Impairment
(5,721)
[(2,350)]
(4,397)
[(4,551)]
Income from the disposal of participating interests
Expenses on disposal of participating interests
Income from long-term loans to participating interests
Other income from participating interests
21,875
10,815
[(112)]
[(8,583)]
4,826
29,580
(2,591)
(4,117)
2,220
7,493
24,648
39,374
63,414
33,653
Net income from equity-method investments consists of EUR
Net income from other participating interests includes EUR
28,925,000 (2004: EUR 31,081,000) in dividend income and a
21,565,000 (2004: EUR 17,009,000) in distributed profits of
EUR 9,841,000 net increase (2004: EUR 34,452,000 net de-
Southern Cross Airports Corporation Holdings Ltd. from the
crease) in the carrying amount of those investments.
ownership interest in Sydney Airport.
Dividend income includes EUR 13,327,000 (2004: EUR
The income from the disposal of participating interests mostly
23,429,000) from Flughafen Hamburg GmbH, EUR 7,600,000
represents a contractually agreed price increase relating to the
(2004: EUR 6,420,000) from Athens International Airport S.A.
sale of Ballast Nedam N.V. in 2004. Most of the 2004 figure
and EUR 3,094,000 (2004: –) from Flughafen Düsseldorf GmbH.
related to Ballast Nedam N.V. and the James Fielding Group.
Adjustments to the carrying amounts of equity-method investments consist of a EUR 9,255,000 increase (2004: EUR 833,000
decrease) for Athens International Airport S.A., a EUR 6,014,000
increase (2004: EUR 12,090,000 decrease) for Flughafen Düsseldorf GmbH, a EUR 7,687,000 (2004: EUR 10,717,000) decrease for Flughafen Hamburg GmbH and a EUR 1,801,000
(2004: EUR 12,105,000) decrease for Aecon Group Inc.
Annual Report 2005
38,766
[–]
(1,682)
Net income from other participating interests
102
2004
[(2,019)]
Net income from non-consolidated subsidiaries
2005
To Our Shareholders
2005
2004
71,442
42,211
76,499
51,674
113,653
128,173
Interest and similar expenses
(77,750)
(75,147)
(9,573)
(29,754)
(EUR thousand)
Interest and similar income
Other investment income
Interest component of increases in pension obligations
Other investment expenses
Investment and interest expenses
(40,890)
(25,902)
(128,213)
(130,803)
(14,560)
(2,630)
Interest and similar income consists of interest on cash in-
Interest and investment income and expenses not included in
vestments, interest-bearing securities, interest on other long-
interest and similar income and expenses or in the interest
term loans, and profit shares and dividends from current and
component of increases in pension obligations are reported
non-current securities. Interest and similar expenses represent
as other investment income and expenses. These mostly
all interest incurred. Net interest income—the balance of interest
comprise income and expenses in connection with sales of
and similar income and expenses—is negative, at EUR 6,308,000,
securities and impairment losses on securities.
8. Net investment and interest income
compared with a positive net interest income figure of EUR
1,352,000 in 2004.
The interest component of increases in pension obligations
consists of annual interest on the net present value of longHOCHTIEF Stock
term pension obligations rolled over into the new fiscal year,
minus the expected return on plan assets. EUR 11,014,000
(2004: 29,754,000) related to pension provisions reported as
such. A negative amount of EUR 1,441,000 (2004: –) related
to pension provisions reported net of plan assets and included
in other assets. The negative figure resulted from the fact that
the expected return on plan assets exceeded the interest ac-
Management Report
crual on pension provisions.
Annual Report 2005
103
9. Income taxes
(EUR thousand)
Current income taxes
Deferred taxes
2005
2004
51,474
126,240
40,911
65,262
177,714
106,173
Current income taxes for 2005 include EUR 242,000 in tax expenses from other periods, mostly representing back income
tax. The 2004 figure for current income taxes included EUR
16,274,000 in credit amounts from other periods, mostly accounted for by reversals of tax provisions.
The income tax charge is worked out on the basis of a theoretical tax charge. As in the prior year, the effective tax rate
applied to pretax profit is 39.28 percent
2005
2004
329,050
187,292
Theoretical tax charge, at 39.28 percent
129,251
73,568
Difference between the above and foreign tax rates
(19,640)
(13,437)
(EUR thousand)
Tax effects on:
(41,020)
(21,424)
Non-tax-allowable expenditure
Tax-exempt income
15,183
16,209
Equity accounting of associates, including impairment of associates
(3,866)
20,053
Change in carrying amount of deferred tax assets for tax loss carryforwards
60,000
20,000
Unrecognized deferred tax assets for tax loss carryforwards
33,941
23,373
3,865
(12,169)
177,714
106,173
54.0
56.7
Other
Effective tax charges
Effective rate of tax (percent)
Tax-exempt income mostly consists of the gain on the invest-
10. Minority interest
ment partnership in the Airport division, tax-exempt profit distributions, and proceeds from disposals of participating inter-
The EUR 88,547,000 (2004: EUR 39,954,000) minority interest
ests.
in consolidated net profit represents the balance of profits totaling EUR 88,638,000 (2004: EUR 45,014,000) and losses to-
For reasons of accounting prudence, an impairment loss of
taling EUR 91,000 (2004: EUR 5,060,000). The profits mainly
EUR 60,000,000 (2004: EUR 20,000,000) was recognized for
comprise EUR 71,790,000 (2004: EUR 41,597,000) for minority
tax credits in 2005.
shareholders in the Leighton Group and EUR 15,268,000
(2004: 2,035,000) for minority shareholders in airport companies.
104
Annual Report 2005
To Our Shareholders
Explanatory Notes on the Consolidated Balance Sheet
11. Intangible assets
The table below shows the composition of and changes in intangible assets on the balance sheet for 2005 and the previous year.
(EUR thousand)
Concessions, industrial property and similar rights and
assets and licenses in such
rights and assets
Goodwill arising
on consolidation
Total
Jan. 1, 2005
124,882
211,222
2,911
(2,970)
(59)
Additions
10,429
–
10,429
Disposals
1,443
–
1,443
Additions or disposals due to consolidation changes
Reclassifications
Currency adjustments
Dec. 31, 2005
Cost of acquisition or production
336,104
–
–
–
15,829
19,428
35,257
152,608
227,680
380,288
39,225
–
39,225
Jan. 1, 2005
Amortization
Disposals
Reclassifications
Impairment reversals
Dec. 31, 2005
Carrying amounts as of Dec. 31, 2005
115
–
115
6,473
–
6,473
626
–
626
–
–
–
4,803
–
4,803
–
–
–
49,990
–
49,990
102,618
227,680
330,298
322,561
HOCHTIEF Stock
Cumulative amortization
105,404
217,157
12,178
79,605
91,783
Additions
12,339
–
12,339
Disposals
572
77,148 *
77,720
–
–
–
(4,467)
(8,392)
(12,859)
124,882
211,222
336,104
33,612
77,148
110,760
1,288
–
1,288
Amortization
6,568
–
6,568
Reclassifications
Dec. 31, 2004
Management Report
Jan. 1, 2004
Disposals
Reclassifications
22
77,148 *
77,170
–
–
–
(2,221)
–
(2,221)
–
–
–
Dec. 31, 2004
39,225
–
39,225
85,657
211,222
296,879
Jan. 1, 2004
*In accordance with new rules on accounting for goodwill introduced in IFRS 3 and applied from the beginning of 2004, accumulated goodwill amortization from earlier reporting periods was eliminated in 2004 with an entry under disposals.
Annual Report 2005
105
The figure for concessions includes EUR 27,793,000 (2004:
In impairment testing, the carrying amount of the cash-gener-
EUR 24,071,000) for the value of the Turner name, which was
ating unit to which goodwill is allocated is compared with the
recognized as an asset on initial consolidation of the Turner
unit’s recoverable amount. A unit’s recoverable amount is either
Group. The Turner name is no longer amortized. It is tested in-
its fair value less costs to sell or its value in use. The fair value
stead for impairment losses in accordance with IAS 36 on an
is the best estimate of what a neutral third party would pay for
annual basis and whenever there are indications that it may be
the unit in an arm’s length transaction on the reporting date. If
impaired. The increase in the reported amount compared with
a fair value cannot be established, the recoverable amount is
the previous year is entirely due to currency translation effects.
taken to be the value in use. This is determined from an out-
Intangible assets also include EUR 46,288,000 (2004: EUR
sider’s standpoint using the discounted cash flow method and
38,530,000) for a concession on an expressway project in
cash-flow forecasts based on the budget for the years 2006
Santiago de Chile. This concession is attached to a commit-
to 2008 as approved by the Executive Board and current at
ment to construct a toll road and is being amortized over a
the time of impairment testing. The forecasts incorporate past
30-year useful life, after which it has to be handed over to the
experience and expected future market developments. The
Chilean state. The increase in the reported amount compared
discount rates used are segmental costs of capital ranging
with the prior year is also due entirely to currency translation
from 9.6 to 14.1 percent pre-tax and, allowing typical tax rates
effects.
for each country, from 6.2 to 8.2 percent post-tax.
Goodwill recorded for consolidated companies on initial con-
Divisional-level impairment testing has shown the fair value or
solidation is allocated to cash-generating units at segment
value in use of each cash-generating unit to be above its car-
level for the purposes of impairment testing. The cash-gen-
rying amount.
erating units correspond to the divisions used in segment reporting.
Changes in goodwill by segment in 2005 were as follows:
(EUR thousand)
Jan. 1,
2005
Currency
adjustments
Consolidation
changes
Impairment
losses
Dec. 31,
2005
Airport
Development
1,058
55,343
–
–
(142)
(7,100)
–
–
916
48,243
105,809
16,359
–
–
122,168
44,666
3,069
1,219
–
48,954
4,346
–
3,053
–
7,399
211,222
19,428
(2,970)
–
227,680
Construction Services Americas
Construction Services Asia Pacific
Construction Services Europe
106
Annual Report 2005
To Our Shareholders
12. Property, plant and equipment
(EUR thousand)
Land, similar
rights and
buildings,
including
buildings on
land owned by
third parties
Technical
equipment
and machinery, transportation equipment
Other equipment and
office equipment
Prepayments
and assets
under construction
Total
291,308
1,008,309
220,541
7,727
(33,879)
(1,101)
416
(6,987)
(41,551)
10,475
406,529
36,174
33,097
486,275
45,209
210,860
25,119
3,079
284,267
(51,000)
423
35
(28,770)
(79,312)
Additions
Disposals
Reclassifications
1,527,885
8,856
86,322
14,655
122
109,955
180,551
1,289,622
246,702
2,110
1,718,985
Jan. 1, 2005
93,725
606,027
160,931
1,207
861,890
(3,690)
(2,016)
172
–
(5,534)
7,885
236,413
31,171
15
275,484
Disposals
18,043
113,732
24,154
1
155,930
Reclassifications
(1,940)
(23)
–
–
(1,963)
2,891
50,631
9,294
2
62,818
Dec. 31, 2005
Jan. 1, 2005
Depreciation
–
–
–
–
–
Dec. 31, 2005
80,828
777,300
177,414
1,223
1,036,765
99,723
512,322
69,288
887
682,220
Jan. 1, 2004
323,683
909,365
214,179
20,169
1,467,396
(10,821)
4,992
20,596
(64,842)
(50,075)
Additions
13,600
330,241
31,437
52,023
427,301
Disposals
73,983
201,690
39,942
49
315,664
Reclassifications
40,158
463
12
(715)
39,918
HOCHTIEF Stock
Cumulative depreciation
Dec. 31, 2004
(1,329)
(35,062)
(5,741)
1,141
(40,991)
291,308
1,008,309
220,541
7,727
1,527,885
101,922
578,251
152,188
1,242
833,603
Management Report
Jan. 1, 2004
Depreciation
Disposals
Reclassifications
Dec. 31, 2004
(81)
4,246
17,143
–
21,308
10,176
210,166
30,902
–
251,244
207,756
7,667
164,022
36,067
–
(6,107)
13
(13)
–
(6,107)
(974)
(22,627)
(3,222)
2
(26,821)
3,544
–
–
37
3,581
93,725
606,027
160,931
1,207
861,890
197,583
402,282
59,610
6,520
665,995
Property, plant and equipment includes lease-financed assets
Property, plant and equipment to the value of EUR 6,412,000
worth EUR 10,353,000 (2004: EUR 8,933,000); these mainly
(2004: EUR 70,133,000) is subject to restrictions.
Cumulative depreciation
comprise vehicles at Turner.
Annual Report 2005
107
13. Investment properties
(EUR thousand)
Jan. 1, 2005
330,276
5,487
Additions
47
Disposals
73,786
Reclassifications
41,778
Dec. 31, 2005
257
304,059
Jan. 1, 2005
Amortization
95,655
–
4,927
Disposals
5,161
Reclassifications
1,963
Dec. 31, 2005
44
–
97,428
206,631
Jan. 1, 2004
Additions
Disposals
Reclassifications
Dec. 31, 2004
326,283
–
671
8,071
11,082
311
330,276
Jan. 1, 2004
4,885
Disposals
4,667
Reclassifications
6,107
Dec. 31, 2004
Annual Report 2005
–
Amortization
108
89,284
46
–
95,655
234,621
Investments in associates accounted for using the equity
internationally accepted valuation procedures, such as taking
method include EUR 26,362,000 (2004: EUR 39,558,000) in
comparable properties as a guide to current market prices or
goodwill belonging to the Airport division.
To Our Shareholders
The fair values of investment properties are established using
the discounted cash flow method, and amounted to EUR
255,912,000 (2004: EUR 297,081,000) as of December 31,
The fair value of investments in associates for which there are
2005. EUR 95,241,000 (2004: EUR 189,325,000) of this total
published price quotations was EUR 77,494,000 as of Decem-
is accounted for by fair value adjustments following indepen-
ber 31, 2005.
erties in the reporting year totaled EUR 24,204,000 (2004:
HOCHTIEF’s share of contingent liabilities of equity-accounted
EUR 19,739,000). Direct operating expenses in connection
associates incurred jointly with other investors amounts to
with investment properties totaled EUR 10,898,000 in the re-
EUR 35,635,000.
dent external appraisals. Rental income from investment prop-
porting year (2004: EUR 9,918,000).
15. Other financial assets
Investment properties to the value of EUR 119,969,000 (2004:
144,486,000) are subject to restrictions in the form of real es-
(EUR thousand)
tate liens.
Non-consolidated
subsidiaries
Other participating interests
14. Equity-method investments
The tables below show the main balance sheet and statement
Non-current securities
of earnings items relating to equity-method investments.
Dec. 31, 2005
Dec. 31, 2004
15,579
159,437
15,901
208,983
19,346
18,226
194,362
243,110
The non-current securities mostly comprise fixed-interest securities and stocks. They are not subject to any restrictions.
6,358,081
(4,813,124)
They are classified as available for sale and are measured
1,544,957
Adjustment to HOCHTIEF share and for
equity accounting
(826,790)
Equity-method investments
(EUR thousand)
718,167
2005
Sales
1,976,008
Profit
70,257
Adjustment to HOCHTIEF share and for
equity accounting
Net income from equity-method
investments
at fair value.
HOCHTIEF Stock
Net assets
(31,491)
38,766
Management Report
Assets
Liabilities
Dec. 31, 2005
(EUR thousand)
Annual Report 2005
109
16. Financial receivables
(EUR thousand)
Dec. 31, 2005
Non-current
Long-term loans to non-consolidated subsidiaries and to
participating interests
Financial receivables from non-consolidated subsidiaries
Financial receivables from participating interests
Interest accruals
Other financial receivables
Dec. 31, 2004
Current
Non-current
Current
1,500
–
41,802
–
–
838
1,830
1,025
22,226
22,965
4,710
17,199
–
9,214
–
8,631
4,552
17,680
1,610
35,293
28,278
50,697
49,952
62,148
Non-current
Current
Non-current
Current
86,573
–
–
66,917
65,693
–
–
139,399
8,084
Receivables from equity-method investments total EUR
44,674,000 (2004: EUR 43,503,000).
17. Other receivables and other assets
(EUR thousand)
Pension fund credit balances
Entitlements from real estate sales
Tax receivables (excluding income taxes)
–
8,629
–
–
6,715
–
–
Prepaid expenses
–
30,110
–
23,649
Prepaid expenses consist of rents, insurance premiums and
taxes applicable to later accounting periods. They also include
commission paid by HOCHTIEF insurance companies for insurance arranged by direct insurers. Such commission is reversed to expense on a straight-line basis over the lifetime of
the policy.
Sundry other assets include EUR 1,597,000 (2004: EUR
1,139,000) in receivables from derivative financial instruments.
Annual Report 2005
Dec. 31, 2004
Receivables from selling price adjustments
Sundry other assets
110
Dec. 31, 2005
23,625
38,529
17,257
39,642
110,198
150,900
82,950
210,774
To Our Shareholders
18. Deferred taxes
Deferred tax assets and liabilities break down as follows:
Dec. 31, 2005
(EUR thousand)
Dec. 31, 2004
Deferred tax
assets
Deferred tax
liabilities
Deferred tax
assets
Deferred tax
liabilities
34,224
27,902
51,051
126,055
29,126
35,453
42,826
79,214
Pension provisions
65,296
–
71,172
–
Other provisions
48,285
–
49,333
–
7,799
–
5,001
–
Other provisions
71,868
58,471
62,216
34,563
Sundry current liabilities
32,495
11,734
35,440
15,903
287,869
247,311
287,741
172,506
Non-current assets
Current assets
Sundry non-current liabilities
15,945
–
78,486
–
303,814
247,311
366,227
172,506
Offsetting item
159,088
159,088
116,477
116,477
Reported amount
144,726
88,223
249,750
56,029
Losses carried forward
Gross amount
Deferred tax assets and deferred tax liabilities are offset within
Deferred tax liabilities totaling a gross amount of EUR 247,311,000
each company or group. The EUR 303,814,000 (2004: EUR
(2004: EUR 172,506,000) are entirely due to taxable temporary
366,227,000) gross amount of deferred tax assets includes
differences, mostly from adjustments to ensure uniform Group-
the following tax refund entitlements arising from the expected
wide compliance with IFRS valuation principles.
HOCHTIEF Stock
Current liabilities
future use of tax loss carryforwards
EUR 1,690,000 was charged (2004: EUR 1,851,000 credited)
(EUR thousand)
Corporate income tax
German municipal trade tax
Dec. 31, 2005
Dec. 31, 2004
11,841
4,104
56,383
22,103
translation of foreign entity financial statements. EUR 1,250,000
15,945
78,486
on amounts recognized in equity for changes in the fair value
to equity for deferred tax relating to exchange differences from
(2004: EUR 6,748,000) was charged to equity for deferred tax
of derivative and non-derivative financial instruments.
There is adequate assurance that the tax loss carryforwards
will be realized. For reasons of accounting prudence, as in 2004,
19. Inventories
in Germany in 2005. The carrying amount of assets recognized
(EUR thousand)
for tax refund entitlements was reduced by a EUR 60,000,000
Raw materials and supplies,
spare parts
Work in progress
impairment charge in 2005 (2004: EUR 20,000,000). Tax loss
carryforwards for which no deferred tax assets have been recognized amount to EUR 345,141,000 (2004: EUR 120,750,000)
in respect of corporate income tax and EUR 472,723,000
(2004: EUR 203,364,000) in respect of German municipal
Dec. 31, 2005
Dec. 31, 2004
21,489
3,546
29,017
2,165
Finished goods
3,015
1,755
Prepayments
7,283
16,227
35,333
49,164
Management Report
deferred tax assets were not recognized for tax losses incurred
trade tax.
The inventories are not subject to any restrictions.
Deferred tax assets are recognized for tax-deductible temporary differences if it is probable that taxable profit will be available against which the deductible temporary differences can
be utilized.
Annual Report 2005
111
20. Trade receivables
All marketable securities are classified as available for sale
and are carried at fair value. The carrying amount was de-
(EUR thousand)
Dec. 31, 2005
Trade receivables
– Gross amount due from
customers for contract
work (POC)
– Less: progress
payments received
Dec. 31, 2004
creased due to fair value adjustments in 2005 by EUR 361,000
(2004: EUR 39,216,000). Marketable securities valued at EUR
37,797,000 (2004: EUR 190,481,000) are pledged as performance bonds to ensure the proper execution of construction
2,490,263
1,983,629
(1,164,644)
1,325,619
(1,029,515)
954,114
174,287
1,841,999
132,407
1,523,453
23. Cash and cash equivalents
3,341,905
2,609,974
Cash and cash equivalents total EUR 1,061,301,000 (2004:
22,395
25,587
12,667
1,674
3,376,967
2,637,235
– From construction joint
ventures
– Other
work in accordance with contract requirements and as collateral against progress payments received. The average market
return of fixed-interest bonds in 2005 was 4.99 percent (2004:
5.21 percent).
– From non-consolidated
subsidiaries
– From participating
interests
EUR 769,605,000) and comprise petty cash, cash at banks,
and marketable fixed-income securities with maturities at the
time of acquisition of no more than three months. EUR
799,650,000 (2004: EUR 713,031,000) of the total is subject
to variable interest rates and EUR 240,980,000 (2004: EUR
53,569,000) to fixed interest rates. The average variable inter-
The figure of EUR 1,325,619,000 (2004: EUR 954,114,000),
est rate was 3.57 percent (2004: 2.71 percent). The average
representing the gross amount due from customers for con-
fixed interest rate was 2.37 percent (prior year: 2.40 percent).
struction work less progress payments received, relates to
Cash and cash equivalents to the value of EUR 1,083,000 are
construction contracts where incurred contract costs (includ-
subject to restrictions (2004: –).
ing shares of contract net profit) exceed progress payments
received from customers. The combined total of contract
24. Shareholders’ equity
costs (including net profit shares) reported under trade receiv-
The Consolidated Statement of Changes in Equity is shown
ables and trade payables is EUR 3,208,182,000 (2004: EUR
on page 91.
2,729,140,000). The combined total of progress payments received and offset against these items is EUR 2,188,176,000
As in the previous year, HOCHTIEF Aktiengesellschaft’s sub-
(2004: EUR 2,022,492,000).
scribed capital of EUR 179,200,000 is divided into 70,000,000
no-par-value shares.
Trade receivables include EUR 489,889,000 (2004: 376,536,000)
in contractual retention amounts.
The capital reserve contains premiums received when new
stock is issued by the Company.
Trade receivables also include properties under development
that are subject to restrictions in the amount of EUR 290,403,000
As of December 31, 2005, the Company held a total of
(2004: EUR 117,216,000).
6,399,134 (2004: 6,906,964) of its own shares as defined in
Receivables from equity-accounted companies total EUR
These shares were repurchased between September 1999
Section 160 (1) 2 of the German Stock Corporations Act (AktG).
3,228,000 (2004: EUR 812,000).
and October 2001 for purposes laid down by General Shareholders’ Meeting resolutions of June 21, 1999 and June 28,
21. Current income tax assets
2000. They represent EUR 16,382,000 (9.14 percent) of the
The EUR 42,243,000 (2004: EUR 25,026,000) in current in-
Company’s capital stock. The carrying amount (and purchase
come tax assets comprises amounts receivable from domes-
cost) of own shares accounted for as a deduction from share-
tic and foreign revenue authorities.
holders’ equity as of the balance sheet date was EUR
200,373,000 (2004: 216,274,000).
22. Marketable securities
The marketable securities totaling EUR 963,182,000 (2004:
HOCHTIEF sold holdings of its own shares as planned in the
992,024,000) mainly consist of securities held in special-pur-
second quarter of 2005 to meet obligations under its Long-
pose investment funds and fixed-income securities with ma-
term Incentive Plan 2003, whose stock appreciation rights
turities at the time of acquisition of more than three months
became exercisable in April 2005. This comprised a sale of
but less than twelve.
51,125 shares in April for a total of EUR 1,268,000 (representing an average price of EUR 24.81 per share) and 397,000
112
Annual Report 2005
To Our Shareholders
shares in May for a total of EUR 10,052,000 (an average of
Long-term Incentive Plan 2000
EUR 25.32 per share). The shares were sold on the stock mar-
The Long-term Incentive Plan 2000 (LTIP 2000) expired in 2005
ket and make up EUR 1,147,000 (0.64 percent) of HOCHTIEF’s
after a three-year waiting period and a two-year exercise period.
capital stock. A further 59,705 own shares were sold in June
LTIP 2000 did not achieve the required value growth and could
2005 to employees of HOCHTIEF or its affiliates, comprising
not be exercised before its expiration date. The demanding
25,100 shares sold at a price of EUR 20.25 per share, 19,780
performance thresholds were not attained due to the situation
at EUR 21.25 per share and 14,825 at EUR 22.25 per share.
on the construction market and the negative stock market trend.
These sales represent EUR 153,000 (0.09 percent) of capital
The HOCHTIEF shares representing the investment made by
stock.
authorized participants and barred from sale for the duration
of the plan have been released.
Accumulated other comprehensive income is part of revenue
reserves. It includes amounts recognized in equity for changes
in the fair value of available-for-sale financial instruments and
No long-term incentive plan was launched in 2001.
of cash flow hedges, and exchange differences from translation of foreign entity financial statements.
No long-term incentive plan was launched in 2002.
The changes in accumulated other comprehensive income
during the year comprise a EUR 42,614,000 gain (2004: EUR
10,574,000 loss) from changes in the fair value of non-deriva-
The Long-term Incentive Plan 2003 (LTIP 2003) was launched
tive financial instruments, a EUR 257,000 gain (2004: EUR
by resolution of the Supervisory Board in 2003 and is open to
5,484,000 loss) from changes in the fair value of derivatives,
Executive Board members and upper managerial employees
and a EUR 76,654,000 gain (2004: EUR 20,606,000 loss) due
of HOCHTIEF Aktiengesellschaft and its affiliates.
to currency translation differences.
are subject to a two-year waiting period from their date of issue
in the fair value of financial instruments comprises accumulated
followed by a three-year exercise period.
HOCHTIEF Stock
LTIP 2003 is based on stock appreciation rights (SARs). These
The balance as of December 31, 2005 shown under changes
gains of EUR 3,009,000 (2004: accumulated losses of
39,605,000) for non-derivatives and accumulated losses of
The SARs can only be exercised if, for at least ten consecutive
EUR 12,677,000 (2004: accumulated losses of EUR 12,934,000)
stock market trading days before the exercise date, the ten-day
for derivatives.
average stock market closing price of HOCHTIEF stock is
higher relative to the issue price compared with the ten-day
Unappropriated net profit is identical for HOCHTIEF Aktienge-
average closing level of the CDAX Construction Index relative
sellschaft and the HOCHTIEF Group.
to the index base (relative performance threshold) and the stock
market closing price of HOCHTIEF stock on the last stock mar-
EUR 47,597,000 (2004: EUR 40,984,000) in dividends were
ket trading day before the exercise date is at least ten percent
paid out in 2005.
higher than the issue price (absolute performance threshold).
stock market closing price of HOCHTIEF stock exceeds the
companies totaled EUR 537,230,000 (2004: EUR 355,979,000);
issue price by at least 20 percent on ten consecutive stock
this mainly related to the Leighton Group and the airport com-
market trading days before the end of the waiting period.
Management Report
The relative performance threshold is waived if the average
The minority interest in the shareholders’ equity of consolidated
panies.
Provided that the targets are met, SARs can be exercised at
25. Share-based payment
any time after the waiting period except during a short period
The following Group-wide share-based payment systems were
before any business results are published. The number of
in force for managerial staff of HOCHTIEF Aktiengesellschaft
SARs that can be exercised depends on the size of the gain in
and its affiliates in 2005:
the ten consecutive stock market trading day average closing
price of HOCHTIEF stock relative to the issue price, with a
minimum 10, 15 or 20 percent price gain permitting 25 per-
Annual Report 2005
113
cent, 60 percent or all SARs to be exercised. When SARs are
Provided that the targets are met, SARs under the plan can be
exercised, the issuing entity pays out the difference between
exercised at any time after the waiting period except during a
the current stock price and the issue price. The difference is
short period before any business results are published. The
capped at 100 percent of issue price.
number of SARs that can be exercised depends on the size of
the gain in the ten consecutive stock market trading day aver-
Under the LTIP exercise conditions, the amount due on exer-
age closing price of HOCHTIEF stock relative to the issue price,
cise of the SARs—subject to all other applicable conditions
with a minimum 25, 30 or 35 percent price gain permitting 25
being met—can alternatively be paid out in HOCHTIEF stock.
percent, 60 percent or all SARs to be exercised. When SARs
In the case of holders not employed by HOCHTIEF Aktienge-
are exercised, the issuing entity pays out the difference be-
sellschaft, expenses incurred on SARs being exercised are
tween the current stock price and the issue price. During the
borne by the affiliate concerned.
exercise period, this amount is limited to a specific fraction of
the maximum possible difference (capped), the fraction increas-
ing according to the exercise date and thus with the passage
of time. At the end of the period, the difference is capped at
100 percent of issue price.
of HOCHTIEF Aktiengesellschaft and its affiliates. The condi-
Under the TERP exercise conditions, the amount due on exer-
tions only differ from those of LTIP 2003 as regards the relative
cise of the SARs—subject to all other applicable conditions
performance threshold.
being met—can alternatively be paid out in HOCHTIEF stock.
The SARs can only be exercised if, for at least ten consecutive
sellschaft, expenses incurred on SARs being exercised are
stock market trading days before the exercise date, the ten-
borne by the affiliate concerned.
In the case of holders not employed by HOCHTIEF Aktienge-
day average stock market closing price of HOCHTIEF stock is
higher relative to the issue price compared with the ten-day
average closing level of the MDAX index relative to the index
base.
Top Executive Retention Plan
of HOCHTIEF Aktiengesellschaft and its affiliates. The condi-
The Top Executive Retention Plan (TERP) was launched by
tions essentially only differ from LTIP 2004 as regards the ab-
resolution of the Supervisory Board in 2004 in connection with
solute performance threshold. SARs can only be exercised if
the sale of RWE Aktiengesellschaft’s stake in HOCHTIEF Aktien-
return on net assets, as determined from the most recent ap-
gesellschaft and is open to Executive Board members and se-
proved consolidated financial statements, is at least 10 percent.
lected managerial employees. The TERP complements exist-
Provided that the targets are met, SARs can be exercised at
ing measures in helping to forge long-term ties with HOCHTIEF
any time except during certain barred periods. Under the LTIP
and retain expertise within the Company. The plan is based
exercise conditions, the amount due on exercise of the SARs
on stock appreciation rights (SARs).
can be paid out in cash or in HOCHTIEF stock, at HOCHTIEF’s
choice.
The issued SARs accrue in three tranches, with waiting periods of between two and four years and exercise periods of
Provisions recognized for the stated share-based payment ar-
between three and five years.
rangements totaled EUR 23,210,000 as of the balance sheet
date (2004: EUR 15,107,000). The total expense recognized for
The SARs can only be exercised if the average (arithmetic mean)
the stated arrangements in 2005 was EUR 19,034,000 (2004:
closing price of HOCHTIEF stock on the XETRA trading system
EUR 10,714,000). The intrinsic value of SARs exercisable at
over the ten stock market trading days preceding the exercise
the end of the reporting period was EUR 127,000.
date increases by a greater percentage relative to the issue
price than the average closing level of the MDAX index increases
over the same ten trading days relative to the index base (relative performance threshold) and the stock market closing price
of HOCHTIEF stock on the last stock market trading day before
the exercise date is at least 25 percent higher than the issue
price (absolute performance threshold). The relative performance threshold is waived if the average stock market closing price of HOCHTIEF stock over the ten consecutive stock
market trading days immediately preceding the exercise date
is at least 30 percent higher than the issue price.
114
Annual Report 2005
To Our Shareholders
The table below shows options granted up to the last reporting date under the 2000 Long-term Incentive Plan pursuant to Section 192 (2) 3 of the German Stock Corporations Act (AktG), SARs granted under the Long-term Incentive Plans 2003, 2004 and
2005, and SARs granted under the TERP:
Originally
granted
Outstanding
at Dec. 31,
2004
Granted in
2005
Expired in
2005
Exercised
in 2005
Outstanding at
Dec. 31,
2005
LTIP 2000
LTIP 2003
537,520
1,010,900
455,750
950,900
–
–
455,750
–
–
940,200
–
10,700
LTIP 2004
1,055,900
1,036,900
13,000
12,800
–
1,037,100
SARs
TERP
1,853,901
1,853,901
–
17,935
–
1,835,966
SARs
885,150
–
885,150
–
–
885,150
SARs
Executive Board participation in the long-term incentive
For their activities on the Board of The Turner Corporation, Dr.
plans
Hans-Peter Keitel and Dr. Herbert Lütkestratkötter have been
Members of the Executive Board exercised all SARs under LTIP
granted awards under the Phantom Stock Plan for The Turner
2003 in 2005 after the difference between the current stock price
Corporation top managers and Board members. The plan is
and the issue price reached its 100 percent maximum.
based on the granting of stock appreciation rights and phantom
LTIP 2005
Options
SARs
stock units whose performance is measured with reference to a
phantom stock price based on earnings.
Dr. Keitel
Ehlers
Dr. Noé
Prof. Dr. Rohr
Dr. Vater
Executive Board
total
LTIP 2000*
LTIP 2004**
TERP 2004**
LTIP 2005**
Turner
Phantom
Stock Plan**
710
184
–
355
184
355
–
–
–
–
–
–
318
82
159
159
90
159
864
301
560
626
430
211
312
156
156
156
156
–
143
–
1,788
–
967
2,992
936
215
* LTIP 2000 expired in 2005.
Its performance targets were
not attained.
** Value at grant date as per
actuarial appraisal
72
–
–
–
Management Report
Paid out for
SARs exercised in 2005
(LTIP 2003)
HOCHTIEF Stock
Variable pay components combining a long-term incentive effect with an element of risk
(EUR thousand)
Annual Report 2005
115
26. Provisions
Dec. 31, 2005
(EUR thousand)
Dec. 31, 2004
Non-current
Current
Total
Non-current
Current
Total
106,596
–
–
18,981
106,596
18,981
313,314
–
–
25,812
313,314
25,812
Personnel-related provisions
Provisions for insurance
claims
Warranty obligations
175,290
169,118
344,408
177,745
142,826
320,571
–
–
105,321
52,494
105,321
52,494
–
–
62,147
59,268
62,147
59,268
Litigation risks
Anticipated losses relating to
pending transactions
Restructuring costs
1,620
31,631
33,251
1,108
25,638
26,746
–
–
10,641
6,167
10,641
6,167
–
–
20,972
10,114
20,972
10,114
Provisions for pensions and
similar obligations
Provisions for taxes
Sundry other provisions
Other provisions
15,050
249,121
264,171
20,523
231,877
252,400
191,960
624,493
816,453
199,376
552,842
752,218
298,556
643,474
942,030
512,690
578,654
1,091,344
The size of provisions for insurance claims is computed annually by an actuary.
Items covered by sundry other provisions include contract administration, contract costs incurred subsequent to invoicing,
preparation of annual financial statements, payments for damages and other uncertain liabilities.
Statement of provisions
(EUR thousand)
* Includes interest component of
EUR 11,014,000
** Includes EUR 213,707,000 negative amount for asset transfers to
pension fund
116
Annual Report 2005
Provisions for pensions
and similar obligations
Provisions for taxes
Other provisions
Balance at
Jan. 1, 2005
Allocations to
provisions
Reversal of
provisions
–
Consolidation changes,
currency adjustments,
reclassifications and
transfers
(227,869) **
Use of
provisions
Balance at
Dec. 31,
2005
(6,649)
106,596
313,314
27,800 *
25,812
6,269
(16)
312
(13,396)
18,981
752,218
402,826
(58,368)
36,399
(316,622)
816,453
1,091,344
436,895
(58,384)
(191,158)
(336,667)
942,030
In foreign operations (the Turner Group), salary and pension
The defined-benefit pension plans encountered mostly in the
increases ceased to be taken into account in 2004 due to a
Turner Group and at HOCHTIEF Aktiengesellschaft and its do-
changeover in the type of pension plan.
To Our Shareholders
Provisions for pensions and similar obligations
mestic subsidiaries require the companies concerned to fulfill
specific benefit obligations to past and present employees.
Unfunded provisions for pensions mostly involve HOCHTIEF’s
Turner switched from defined-benefit to defined-contribution
domestic subsidiaries and are derived as follows:
for defined-benefit plans is determined by using the projected
(EUR thousand)
unit credit method. The current service cost is reported in
Present value of unfunded
benefit obligations
Unamortized actuarial
(losses)/gains
personnel costs and the interest cost, minus the expected return on plan assets, is charged to net investment and interest
income.
Dec. 31, 2005
Dec. 31, 2004
120,073
272,518
(13,850)
106,223
25,418
297,936
plans on January 1, 2004. The size of the accounting provision
HOCHTIEF Aktiengesellschaft’s pension finances were restructured in 2004 by setting up a contractual trust arrangement
The reduction in the present value of unfunded benefit obliga-
(CTA). A similar arrangement was implemented for HOCHTIEF
tions is due to the CTAs implemented at HOCHTIEF Construc-
Construction AG and Streif Baulogistik GmbH in 2005. This
tion AG and Streif Baulogistik GmbH, under which previously
involved extending the HOCHTIEF Aktiengesellschaft pension
unfunded benefit obligations are now reported in funded
fund to cover the two additional companies. Assets worth EUR
benefit obligations. The remaining obligations mainly relate to
202,257,000—mostly fixed-interest securities—were trans-
facility management companies.
ferred to the pension fund to cover the pension obligations of
HOCHTIEF Construction AG. EUR 11,450,000 in cash was
The unamortized actuarial losses of EUR 13,850,000 (2004:
transferred to the fund to cover the pension obligations of Streif
gains of EUR 25,418,000) result from portfolio changes, differ-
Baulogistik GmbH.
ences between actual income trends and computational as-
The transfer of plan assets to the pension fund increased con-
years and in 2005. If unamortized actuarial gains or losses ex-
solidated profit before taxes by EUR 7,120,000.
ceed ten percent of the total benefit obligation, they are rec-
HOCHTIEF Stock
sumptions, and discount rate adjustments made in earlier
ognized as income or expense over the average remaining
service period of employees in the plan.
The provision for funded defined-benefit obligations is reduced
The size of pension provisions is determined on an actuarial
by the amount of the fund set up to meet the benefit obliga-
basis using the following assumptions:
tions. In foreign operations, fund assets exceed benefit obligations. The excess is reported in other assets. As there are several domestic pension plans, domestic operations show both
2005
Pension increases
Health cost increases
Anticipated return on plan assets
Foreign
Domestic
Foreign
4.0
2.75
5.75
–
5.0
2.75
5.75
–
1.5
–
1.5
–
–
5.0
–
5.0
3.25–5.0
9.0
3.25–5.0
9.0
Management Report
Discount factor
Salary increases
2004
Domestic
(Percent)
Annual Report 2005
117
a surplus of fund assets over benefit obligations, which is reported in other assets, and a deficit, for which a provision is
recognized. The changes are as follows:
(EUR thousand)
Dec. 31, 2005
Dec. 31, 2004
Domestic
Foreign
Domestic
Foreign
Present value of funded defined-benefit obligations
Adjustment for unamortized actuarial (losses)/gains
572,836
(48,301)
252,521
(73,161)
313,017
17,373
219,661
(66,267)
Less: fair value of fund assets
538,576
251,519
317,491
216,608
Fund asset surplus/(deficit)
14,041
72,159
(12,899)
63,214
14,414
72,159
2,479
63,214
(373)
–
(15,378)
–
Domestic
Foreign
Domestic
Foreign
317,491
213,707
216,608
–
–
286,000
223,139
–
–
–
25,121
–
20,290
20,845
461
20,159
Of which, reported in:
Other assets
Provisions
If actuarial gains or losses exceed ten percent of the present
value of benefit obligations or the fair value of fund assets,
whichever is the greater, they are recognized as income or expense over the average remaining service period of employees
in the plan.
The assets placed in dedicated funds developed as follows:
2005
(EUR thousand)
Fair value of fund assets at beginning of fiscal year
Asset transfer
Reclassification of assets held in pension liability insurance/
deferred compensation
Anticipated gain on fund assets
Actuarial (losses)/ gains (on assets placed in funds)
Pension disbursements by funds
Contributions to funds
Other changes (primarily currency adjustments)
Fair value of fund assets at end of fiscal year
The fund assets include an office property with a fair value of
EUR 48,500,000.
The anticipated gain on fund assets was EUR 20,290,000
(2004: EUR 461,000) in domestic operations and EUR 20,845,000
(2004: EUR 20,159,000) in foreign operations; the actual gain
was EUR 6,149,000 in domestic operations (2004: EUR 754,000)
and EUR 16,774,000 (2004: EUR 24,399,000) in foreign operations.
118
Annual Report 2005
2004
(14,141)
(4,071)
293
4,240
(23,636)
(15,420)
(1,006)
(13,785)
24,865
–
6,393
–
–
33,557
229
(17,145)
538,576
251,519
317,491
216,608
To Our Shareholders
The total pension expense recognized for defined-benefit plans
in 2005 is derived as follows:
Current service cost
Past service cost
Unfunded
Total
2005
2004
2005
2004*
2005
2004
4,961
3,918
7,893
–
9,933
–
3,986
–
14,894
3,918
11,879
–
Amortization of actuarial gains
Total personnel expense
Interest expense for accrued benefit
obligations
Expected return on plan assets
Funded
(297)
(1,218)
(3,339)
(3,020)
(3,636)
(4,238)
8,582
6,675
6,594
966
15,176
7,641
10,232
–
14,147
–
32,352
(41,135)
16,068
(461)
42,584
(41,135)
30,215
(461)
–
–
8,124
–
8,124
–
Total interest expense
Amortization of actuarial losses
10,232
14,147
(659)
15,607
9,573
29,754
Total pension expense
18,814
20,822
5,935
16,573
24,749
37,395
EUR 102,509,000 was paid into defined-contribution pension
* In 2004, costs of funded
pension plans at Turner
were recorded net in wage
and salary expenses.
(EUR thousand)
Pension provisions developed as follows in 2004:
plans in 2005 (2004: EUR 79,129,000), of which EUR
(EUR thousand)
Leighton Group and EUR 23,830,000 (2004: EUR 21,540,000)
Beginning balance
Allocations
was accounted for by the Turner Group.
2004
532,771
40,414
[29,754]
Of which: Interest component
(3,020)
Reversals
Consolidation changes, currency adjustments, reclassifications and transfers
(227,587)**
Use of provisions
(29,264)
Ending balance
313,314
HOCHTIEF Stock
78,679,000 (2004: EUR 57,589,000) was accounted for by the
** Includes EUR
286,000,000 for asset
transfers to the pension
fund
27. Financial liabilities
Bonds or notes issued
Amounts due to banks
Dec. 31, 2005
Dec. 31, 2004
Non-current
Current
Non-current
Current
124,154
692,103
–
180,346
117,711
565,690
954
445,829
Financial liabilities to non-consolidated subsidiaries
2,288
6,916
795
3
Financial liabilities to participating interests
1,000
58,261
1,000
19,971
Sundry other financial liabilities
11,135
11,649
16,696
5,131
830,680
257,172
701,892
471,888
Bonds or notes issued include EUR 124,154,000 (2004: EUR
Amounts due to banks as of the reporting date comprise EUR
114,554,000) representing 100-year Australian dollar notes is-
315,347,000 (2004: EUR 491,069,000) in variable-interest and
sued by Leighton Holdings in 2003 with a total value of AUD
EUR 557,102,000 (2004: EUR 520,450,000) in fixed-interest li-
200,000,000 and a coupon of 8.01 percent.
Management Report
(EUR thousand)
abilities. The average interest rate on variable-interest amounts
Amounts due to banks include EUR 200,000,000 in promisso-
The average interest rate on fixed-interest amounts was 5.14
ry note loans granted by HOCHTIEF in 2004 with an original
percent (2004: 4.68 percent). The average term is three years.
at the reporting date was 3.81 percent (2004: 4.27 percent).
term of five years and a five percent coupon.
Annual Report 2005
119
Amounts due to companies accounted for using the equity
Other items are short-term loans and other financial liabilities.
method total EUR 1,117,000 (2004: EUR 1,000,000).
The minimum lease payments for liabilities under finance leases
The main item in sundry other financial liabilities comprises
break down as follows
lease liabilities of EUR 16,090,000 (2004: EUR 15,419,000).
Finance leases
Dec. 31, 2005
(EUR thousand)
Due in up to 1 year
Due in 1-5 years
Due after 5 years
Nominal
value
Dec. 31, 2005
Discount
Present
value
Nominal
value
Discount
Present
value
5,518
10,626
232
1,084
5,286
9,542
5,196
9,210
203
766
4,993
8,444
1,651
389
1,262
2,589
607
1,982
28. Other liabilities
Dec. 31, 2005
(EUR thousand)
Liabilities to employees
Tax liabilities (excluding income taxes)
Liabilities under derivative financial instruments
Social insurance liabilities
Deferred income
Sundry other liabilities
Dec. 31, 2004
Non-current
Current
Non-current
Current
–
–
79,553
36,198
–
–
72,302
46,910
19,855
3,838
12,735
10,086
–
16,752
–
18,103
329
40,578
417
30,944
770
38,670
1,525
30,369
20,954
215,589
14,677
208,714
Deferred income mainly comprises insurance premiums received in advance for subsequent years (these are reversed to
income over the life of the policies) and rental payments.
Sundry other liabilities comprise other non-trade payables.
29. Trade payables
(EUR thousand)
Trade payables
– Gross amount due to
customers from
construction work (POC)
– Progress payments
received
– To construction joint
ventures
– Other
Advance payments
received
– From non-consolidated
subsidiaries
– From participating
interests
120
Annual Report 2005
Dec. 31, 2005
Dec. 31, 2004
The figure of EUR 305,613,000 (2004: EUR 247,466,000), representing the gross amount due to customers for construction
work less progress payments received, relates to construction
(717,919)
(745,511)
1,023,532
305,613
992,977
247,466
79,118
3,055,548
80,347
2,496,774
3,440,279
2,824,587
4,789
5,540
3,869
3,974
1,040
3,449,977
248
2,834,349
contracts where progress payments received from customers
exceed incurred contract costs (including shares of contract
net profit).
Trade payables due to companies accounted for using the
equity method were EUR 138,000 (2004: EUR 92,000).
HOCHTIEF uses forward foreign exchange transactions and
This item mostly consists of the amounts owed to the revenue
other derivative financial instruments to offset the effects of
authorities by foreign companies in the Development and Con-
exchange rate and interest rate fluctuations in its international
struction Services Europe divisions.
operations and financing activities. All Group companies are
To Our Shareholders
30. Current income tax liabilities
bound by guidelines laying down rules on the use of such inOther disclosures
struments, separate monitoring and lines of responsibility. Derivatives may only be used in designated hedging relationships
31. Undiluted and diluted earnings per share
invariably banks with first-rate credit standing. Thus, when in-
consolidated net profit attributable to the Company’s stock by
terpreting positive or negative fair value changes relating to
the average number of shares in circulation. This indicator can
derivatives, it is important to remember that they balance hedged
become diluted as a result of potential shares (mainly stock
items whose values move in the opposite direction. Purchases
options and convertible bonds). HOCHTIEF’s share-based
and sales of financial assets are reported using trade date ac-
payment arrangements do not have a dilutive effect on earn-
counting or settlement date accounting. All derivative financial
ings. Consequently, diluted and undiluted earnings per share
instruments are carried as assets or liabilities on the Balance
are identical.
Sheet and reported at fair value regardless of purpose.
2005
Earnings per share (EUR)
Dividend per share (EUR)
Proposed dividend per
share (EUR)
62,789
2004
41,165
Credit risk on derivative financial instruments is the risk of counterparty default and equals, at maximum, the sum of positive
market values with each counterparty. This figure stood at
EUR 1,597,000 on December 31, 2005 (2004: EUR 2,448,000).
63,431
63,056
0.99
0.65
0.75
0.90
As financial transactions are entered into exclusively with counterparties of first-rate credit standing and subject to set limits,
real credit risk is slight.
HOCHTIEF Stock
Consolidated net profit
(EUR thousand)
Number of shares in circulation in thousands (weighted
average)
to hedge risks. The counterparties in hedging transactions are
Undiluted earnings per share are calculated by dividing the
Differences between beginning-of-year and end-of-year carrying amounts of non-derivative financial instruments due to
32. Reporting on financial instruments
changes in fair value are recognized in other comprehensive
Financial instruments include financial assets and liabilities and
income. The same applies to changes in the fair value of de-
contractual claims and obligations relating to exchanges and
rivative financial instruments used as cash-flow hedges.
transfers of financial assets. Financial instruments can be derivative or non-derivative.
As of December 31, 2005, the nominal value of derivative fi-
Non-derivative financial assets mostly comprise cash and
233,500,000 (2004: EUR 493,017,000). An unchanged EUR
cash equivalents, marketable securities, trade receivables and
180,000,000 of this total represents two interest-rate swaps
other financial assets. Marketable securities are carried at fair
entered into by HOCHTIEF Aktiengesellschaft to hedge inter-
value. The fair values of available-for-sale financial assets are
est on general borrowing; these instruments had a maximum
established with reference to market prices or determined using
remaining term of 95 months as of the reporting date. The De-
accepted valuation methods. Non-derivative financial liabilities
velopment division holds interest-rate swaps to hedge the in-
are mostly current liabilities measured at amortized cost. Hold-
terest rates on construction project-related loans in the amount
ings of non-derivative financial instruments are carried on the
of EUR 53,500,000 (2004: EUR 108,500,000) with a maximum
Balance Sheet; the maximum risk of loss or default is equal to
remaining term of 71 months.
Management Report
nancial instruments held to hedge interest-rate risks was EUR
total financial assets. Any such risk identified in respect of finanDerivative financial instruments with a nominal value of EUR
128,586,000 (2004: EUR 61,544,000) are used to hedge foreign
currency risks. Their maximum remaining term is 24 months.
cial assets is accounted for with an impairment loss.
Annual Report 2005
121
The nominal amount allows inferences to be drawn as to the
Cash call commitments on financial assets were EUR
overall use made of derivatives, but does not reflect the level
337,181,000 (2004: EUR 250,172,000), mostly for PPP project
of risk involved in their use. The net fair value of all derivative
companies in the HOCHTIEF Construction Services Asia Pa-
financial instruments as of December 31, 2005 was a negative
cific division. They are to be fulfilled within the next five years.
EUR 22,096,000 (2004: negative EUR 20,373,000).
The term breakdown of minimum lease payments for operating
33. Contingencies, commitments and other financial
leases is as follows:
obligations
The HOCHTIEF Group had EUR 86,091,000 in liabilities from
Operating Leases
(EUR thousand)
Dec. 31, 2005
Nominal
value
Dec. 31, 2004
Nominal
value
Due within 1 year
Due in 1-5 years
123,455
364,298
72,062
212,293
Due after 5 years
79,589
25,263
guarantees and sureties as of December 31, 2005 (2004: EUR
153,201,000). These commitments and potential obligations
primarily serve as security for bank loans, contract performance,
warranty obligations and advance payments. Most guarantees
as of the reporting date related to participating interests and
construction joint ventures. HOCHTIEF is also jointly and severally liable for all construction joint ventures in which it has an
The obligations from operating leases mainly relate to techni-
interest.
cal equipment and machinery leased by the Leighton Group.
The increase is due to the expansion of activities in the mining
HOCHTIEF Aktiengesellschaft took out a EUR 1.65 billion syn-
sector.
dicated guarantee facility in December 2004. This secures the
refinancing of guarantees primarily given for the operating ac-
Lease payments under operating leases were EUR 92,158,000
tivities of HOCHTIEF Construction Services Europe, HOCHTIEF
(2004: 60,285,000).
Development and HOCHTIEF AirPort GmbH. The syndicated
guarantee facility has two years of its initial term remaining, after
Amounts due under long-term tenancies are EUR 76,082,000
which HOCHTIEF has two one-year renewal options. It was
(2004: EUR 53,464,000). The term for which such tenancies
utilized in the amount of EUR 1,192,446,000 as of December 31,
cannot be terminated is between two and 15 years.
2005.
HOCHTIEF Group companies are involved in various legal disHOCHTIEF Aktiengesellschaft furnishes US insurance compa-
putes in the context of their operating activities. HOCHTIEF
nies with an unlimited bonding guarantee for the Turner Group.
does not anticipate any material negative impact from such
Bonding is a statutory form of security used in the US to guar-
disputes on the Group’s business and financial situation.
antee performance of public projects. It is also used with other
selected customers. The total bonding amount decreased in
2005 from USD 2,868 million to USD 2,501 million (EUR 2,120
million). No recourse has ever been made to the guarantees
given in Turner’s favor, and none is anticipated at the time of
writing.
Group order exposure from awarded capital expenditure projects is EUR 213,292,000 (2004: EUR 112,896,000). The increase
is due to the expansion of mining activities at the Leighton
Group.
122
Annual Report 2005
To Our Shareholders
34. Segment reporting
Segmental reporting in the HOCHTIEF Group is based on the
Group’s divisional operations. The breakdown by divisions and
regions mirrors the Group’s internal reporting systems.
The divisions/segments are as follows:
HOCHTIEF Airport
HOCHTIEF Construction Services Americas
HOCHTIEF Construction Services Asia Pacific
HOCHTIEF Construction Services Europe
Corporate Headquarters/Consolidation
The Corporate Headquarters/Consolidation unit comprises
Corporate Headquarters, other activities not assigned to separately listed divisions, including management of financial resources and insurance activities, plus consolidation effects.
Insurance activities are managed from Corporate Headquarters under the responsibility of HOCHTIEF Insurance Broking
and Risk Management Solutions GmbH (formerly VERBAU
Gesellschaft zur Vermittlung von Bauversicherungen mbH),
which has two subsidiaries in Luxembourg. The HOCHTIEF
insurance companies provide various reinsurance offerings for
contractors’ casualty and surety, contractor default, liability
HOCHTIEF Stock
and occupational accident insurance.
The Management Report provides detailed information on the
Management Report
various operating segments.
Annual Report 2005
123
Divisions
(EUR thousand)
Airport
Development
Construction Services Asia Pacific
Divisions
(EUR thousand)
Airport
Development
Divisions
(EUR thousand)
Airport
Development
Regions
(EUR thousand)
Germany
Other Europe
Americas
Asia
Australia
Africa
124
Annual Report 2005
External sales
2005
4,108
924,855
5,934,248
4,577,899
2,109,726
102,359
13,653,195
2004
1,259
723,826
5,605,202
3,446,387
2,086,920
80,066
11,943,660
Profit before taxes
2005
65,020
38,567
39,515
203,252
42,295
(59,599)
329,050
2004
(14,322)
41,707
42,049
109,344
28,650
(20,136)
187,292
Carrying amount of equitymethod investments
2005
520,809
49,028
30,710
117,620
–
–
718,167
2004
564,926
11,164
25,644
114,337
–
–
716,071
External sales by
customer location
2005
2,270,639
693,220
5,998,059
893,029
3,775,934
22,314
13,653,195
2004
2,222,578
544,434
5,654,335
636,673
2,863,123
22,517
11,943,660
Intersegment sales
2005
130
18,205
–
585
204,407
32,702
256,029
2004
183
14,537
–
349
127,857
27,830
170,756
Consolidated net profit
2005
64,638
22,213
22,929
75,924
17,373
(140,288)
62,789
2004
(4,594)
33,291
15,730
39,707
13,753
(56,722)
41,165
Purchases of intangible assets,
property, plant, equipment and
investment properties
2005
128
38,458
16,885
409,256
22,397
9,627
496,751
2004
22
62,415
14,472
328,696
22,544
12,162
440,311
Total assets
(balance sheet total)
2005
3,186,287
796,283
2,165,667
–
1,940,378
6,888
8,095,503
2004
3,486,254
569,504
1,744,870
–
1,479,266
5,410
7,285,304
Net income from equitymethod investments
2005
31,688
2,065
(1,801)
6,814
–
–
38,766
2004
6,208
149
(11,871)
(208)
–
1
(5,721)
2005
32,685
56,949
42,364
209,762
7,678
(69,242)
280,196
Depreciation/
amortization
2005
56
14,078
19,114
231,132
18,154
4,350
286,884
Purchases of financial
assets
Total purchases
2005
1,882
13,079
–
55,227
6,759
500
77,447
2005
2,010
51,537
16,885
464,483
29,156
10,127
574,198
2004
500
63,278
7,193
165,364
1,499
–
237,834
2004
(12,280)
59,352
54,577
113,848
946
(60,174)
156,269
To Our Shareholders
2005
87,100
53,752
73,166
451,211
46,121
(58,793)
652,557
2004
14,779
67,428
74,343
324,139
46,598
(37,545)
489,742
2005
87,044
39,673
54,052
220,079
27,967
(63,142)
365,673
2004
14,733
50,552
55,133
118,975
25,827
(38,175)
227,045
2004
1,442
738,363
5,605,202
3,446,736
2,214,777
107,896
12,114,416
EBITDA
Cash flow
2004
46
16,876
19,210
205,164
20,770
631
262,697
2005
(12,916)
11,209
42,453
387,525
40,917
(51,159)
418,029
2004
19,413
(14,719)
43,873
296,295
36,426
(61,622)
319,666
Total assets (balance
sheet total)
2004
522
125,693
21,665
494,060
24,043
12,162
678,145
2005
702,943
1,145,485
2,047,173
1,945,027
1,519,713
735,162
8,095,503
2004
742,283
1,218,765
1,714,882
1,482,645
1,755,365
371,364
7,285,304
HOCHTIEF Stock
2005
4,238
943,060
5,934,248
4,578,484
2,314,133
135,061
13,909,224
Profit/(loss) from operating
activities (segment result)
Gross debt
2005
409,550
1,040,305
1,869,551
1,317,308
1,144,313
24,162
5,805,189
2004
622,449
1,031,608
1,572,420
998,553
1,389,611
(233,977)
5,380,664
Management Report
Sales by division
(external plus intersegment)
Purchases
2004
96,127
56,014
31,895
105,957
388,103
49
678,145
2005
60,386
31,545
17,550
66,521
397,961
235
574,198
Annual Report 2005
125
Explanatory notes on the segmental data
Earnings from operating activities are adjusted by crediting in-
Intersegment sales represent revenue generated between divi-
terest on the average financing balance for 2005 and 2004. In
sions and segments. They are transacted on an arm’s length
business management terms, this interest credit has an oper-
basis. The sum of external sales and intersegment sales gives
ating, not a financing, origin since it represents the amount by
total sales revenue for each division.
which operating income has been reduced. The average financing balance is calculated by subtracting the level of inventories
Net income from equity-method investments comprises in-
and construction costs (POC) that require funding in the form
come, expenses and impairment losses relating to companies
of interest-bearing financial resources. Such resources com-
accounted for using the equity method.
prise advance and progress payments received for long-term
construction contracts and the balance of receivables and
Depreciation and amortization relate to intangible assets with
payables in respect of third parties and construction joint ven-
finite useful lives, property, plant and equipment, and invest-
tures.
ment properties.
35. Notes on the Consolidated Statement of Cash
Purchases comprise additions to intangible assets, property,
Flows
plant and equipment, investment properties, equity-method
The Consolidated Statement of Cash Flows classifies cash
investments (excluding equity-method adjustments), non-con-
flows into operating, investing and financing activities. Consol-
solidated subsidiaries and other participating interests.
idation and exchange rate effects are eliminated and their influence on the cash position disclosed separately. Changes in
Total assets are equivalent to the divisions’ totals in the Con-
cash and cash equivalents due to acquisitions and disposals
solidated Balance Sheet. Gross debt equals total assets minus
of consolidated companies are shown separately under cash
consolidated shareholders’ equity.
used in or provided by investing activities. Changes in cash and
Operating earnings (EBITA) are derived from earnings from
EUR 4,449,000 in 2005 (2004: positive EUR 1,030,000), repre-
cash equivalents due to consolidation changes were a negative
operating activities as follows:
senting the balance of EUR 2,876,000 (2004: EUR 10,015,000)
in additions to cash and cash equivalents from acquisitions
(EUR thousand)
Earnings from operating
activities
+ Net income from participating interests
– Non-operating earnings
+ Interest credited
2005
2004
280,196
156,269
63,414
33,653
(+) 14,650
(+) 26,153
7,413
10,970
365,673
227,045
This calculation is based on the following considerations:
and EUR 7,325,000 (2004: EUR 8,985,000) in cash and cash
equivalents included in disposals.
The EUR 1,061,301,000 (2004: EUR 769,605,000) total for cash
and cash equivalents shown on the cash flow statement matches
the cash and cash equivalents item on the balance sheet. The
total comprises EUR 4,237,000 (2004: EUR 3,005,000) in petty
cash, EUR 857,482,000 (2004: EUR 522,578,000) in cash balances at banks and EUR 199,582,000 (2004: EUR 244,022,000)
in marketable fixed-interest securities with maturities of no
Net income from participating interests contains all income and
more than three months at the time of acquisition. Cash and
expense from equity stakes held for operational purposes and
cash equivalents are subject to restrictions in the amount of
is thus an integral part of operating earnings.
EUR 1,083,000 (2004: –).
Income and expenses classified as exceptional items for busi-
All non-cash income and expense and all income from asset
ness management purposes or resulting from exceptional
disposals and deconsolidations is eliminated in cash flow.
transactions hinder analysis of ordinary operations and should
be attributed to non-operating earnings. For the year under review,
Net cash provided by operating activities in 2005 exceeded
a negative figure of EUR 14,650,000 (2004: EUR 26,153,000)
cash used in investing and financing activities.
must be taken out of consolidated earnings from operating
activities and reclassified as non-operating earnings. The non-
Net cash provided by operating activities included:
operating earnings consisted entirely of restructuring expenses
• Interest income of EUR 73,662,000 (2004: EUR 92,077,000)
at Construction Services Europe.
versus interest expenses of EUR 77,711,000 (2004: EUR
75,066,000).
126
Annual Report 2005
To Our Shareholders
• Income taxes amounting to EUR 62,121,000 (2004: EUR
36. Related party disclosures
72,868,000), versus refunds totaling EUR 17,430,000 (2004:
Significant related parties comprise our main associated com-
EUR 16,324,000).
panies Athens International Airport S.A., Flughafen Düsseldorf
GmbH, Flughafen Hamburg GmbH and Aecon Group Inc.
uity-accounted interests, net income received (as dividends)
Transactions with related parties gave rise to amounts in the
from such interests was EUR 51,337,000 (2004: EUR 50,727,000).
financial statements as follows:
The dividend distribution to HOCHTIEF’s shareholders in 2005
(EUR thousand)
was EUR 47,597,000 (2004: EUR 40,984,000). Dividends paid
Long-term loans
Receivables
to minority shareholders totaled EUR 63,833,000 (2004: EUR
43,622,000).
Payables
The servicing expense for existing debt was EUR 509,901,000
Sales
Goods and services
purchased
Interest income
(2004: EUR 407,218,000), compared with EUR 466,271,000
(2004: EUR 337,646,000) in new borrowing.
2005
2004
–
22,128
40,177
4,021
119
–
7,093
7,575
1,505
422
337
779
After deducting the non-cash component of income from eq-
Group financial assets (current and non-current) at year-end
All transactions were conducted on an arm’s length basis. The
were as follows:
EUR 40,177,000 in long-term loans to associated companies
in 2004 related to Athens International Airport S.A.
Marketable securities
Non-current securities
(excluding long-term loans to
participating interests)
Dec. 31, 2005
Dec. 31, 2004
1,061,301
963,182
769,605
992,024
19,346
18,226
As in 2004, no material transactions were entered into between
HOCHTIEF Aktiengesellschaft or any Group company and
Executive or Supervisory Board members or persons or companies close to them during the 2005 fiscal year. There were
HOCHTIEF Stock
(EUR thousand)
no conflicts of interest involving Executive Board or Supervi-
77,475
70,298
Total financial assets
Bonds or notes issued, and
amounts due to banks
Other financial liabilities
2,121,304
1,850,153
996,603
91,249
1,130,184
43,595
compensation
Financial liabilities
1,087,852
1,173,779
Executive Board compensation for the 2005 fiscal year
Net financial assets
1,033,452
676,374
sory Board members.
37. Total Executive Board and Supervisory Board
Total compensation for the work of Executive Board members
EUR 3,160,000 in fixed compensation, EUR 4,438,000 in per-
Net financial assets are partly offset by advance payments from
formance-based compensation and EUR 87,000 in non-cash
customers amounting to EUR 305,613,000 (2004: 247,466,000)
benefits. Non-cash benefits mostly comprise amounts to be
and serving to fund contract costs. EUR 37,797,000 (2004:
recognized for tax purposes for use of company cars and ac-
EUR 190,481,000) in marketable securities are pledged as
cident insurance.
Management Report
in the year under review was EUR 7,685,000, consisting of
Financial assets are subject to certain restrictions on their use.
performance bonds to ensure the proper execution of conCompensation for the 2005 fiscal year
(EUR thousand)
Fixed compensation
as collateral against progress payments received. Net financial assets also serve to cover EUR 106,596,000 (2004: EUR
313,314,000) in pension provisions not funded by plan assets.
The financial receivables comprise financial receivables from
non-consolidated subsidiaries and participating interests, interest accruals and other financial receivables.
The other financial liabilities consist of financial liabilities to
non-consolidated subsidiaries and participating interests, and
other financial liabilities.
Performance-linked
compensation
Non-cash
benefits
Total
Dr. Keitel
Ehlers
840
440
1,180
618
17
15
2,037
1,073
480
674
12
1,166
Dr. Noé
480
674
14
1,168
Prof. Dr. Rohr
440
618
13
1,071
Dr. Vater
Executive Board
total
480
674
16
1,170
3,160
4,438
87
7,685
struction work in accordance with contract requirements and
Additions to and disposals from the consolidated group increased net financial assets by EUR 63,648,000 (2004: EUR
52,632,000).
Annual Report 2005
127
Executive Board compensation for past fiscal years
The fees for financial statement audits mostly relate to fees
Amounts paid in 2005 for offices held within the Group in past
charged by Group Auditors PricewaterhouseCoopers for audit-
fiscal years comprised EUR 183,000 in fixed compensation
ing the HOCHTIEF Group consolidated financial statements,
(EUR 125,000 to Dr. Hans-Peter Keitel, EUR 19,000 to Dr. Peter
the combined HOCHTIEF Group and HOCHTIEF Aktiengesell-
Noé and EUR 39,000 to Dr. Hans-Georg Vater) and EUR 111,000
schaft management report, and the financial statements of
in performance-based compensation (EUR 78,000 to Dr. Hans-
HOCHTIEF Aktiengesellschaft and its domestic and interna-
Peter Keitel and EUR 33,000 to Dr. Herbert Lütkestratkötter).
tional subsidiaries. The amount stated for other auditing and
valuation services is largely accounted for by audit-related
Pensions
services. Tax consulting encompasses all services provided in
The Executive Board members have contractually agreed
connection with tax matters, mostly for HOCHTIEF Aktienge-
pensions. The pension amount is determined as a percentage
sellschaft’s international subsidiaries. Most of the other services
of fixed compensation, the percentage rising with each mem-
figure relates to consulting in connection with acquisition proj-
ber’s term of office. The maximum amount is 75 percent of
ects.
fixed compensation for the CEO and 65 percent for all other
Executive Board members. Surviving dependants receive 60
39. Events since the balance sheet date
percent of the pension.
Events subsequent to the reporting period are outlined under
Including unrecognized actuarial losses, the present value of
“Post balance-sheet events”.
pension benefits for present and former Executive Board members is EUR 39,996,000. This amount is fully covered by plan
assets in the form of pension liability insurance entitlements
and the HOCHTIEF pension fund.
The Executive Board
Pension payments to former members of the Executive Board
and their surviving dependants were EUR 2,132,000 in 2005
(2004: EUR 2,039,000).
Supervisory Board compensation for the 2005 fiscal
year
Supervisory Board compensation totaled EUR 1,266,000 in
2005 (2004: EUR 1,090,000). This comprises EUR 264,000 in
fixed compensation (2004: EUR 263,000), EUR 122,000 in attendance fees (2004: EUR 116,000) and EUR 880,000 in variable compensation (2004: EUR 711,000).
38. Auditing fees
Fees for services provided by Group Auditors PricewaterhouseCoopers were paid and recognized as expenses in
2005 as follows:
(EUR thousand)
2005
Proposal by Executive Board for Use of Net Profit
Financial statement audits
Other auditing and valuation services
4,125
150
appropriated net profit for the 2005 fiscal year should be used
776
to pay a dividend of EUR 0.90 on each of the 70,000,000 no-par-
Tax consulting
Other services for HOCHTIEF Aktiengesellschaft or subsidiaries
1,108
6,159
The Executive Board proposes that the EUR 63,000,000.00 un-
value shares in the nominal capital stock of EUR 179,200,000.00.
The dividend includes a EUR 0.10 bonus per no-par-value share
for the investment partnership.
The amount of the dividend that would have been payable on
own stock held by the Company on the date of the General
Shareholders’ Meeting will be carried forward to the new fiscal
year. This stock is barred from receiving a dividend under
Section 71b of the German Stock Corporations Act.
128
Annual Report 2005
To Our Shareholders
Group Auditor’s Report
In our opinion based on the findings of our audit, the consoliby the EU, and the additional requirements of German commer-
by HOCHTIEF Aktiengesellschaft, Essen, comprising the state-
cial law pursuant to § 315a Abs. 1 HGB and give a true and
ment of earnings, the balance sheet, statement of changes in
fair view of the results of operations, financial position and net
equity, cash flow statement and the notes to the consolidated
assets of the Group in accordance with these requirements.
financial statements, together with the group management report,
The combined management report is consistent with the con-
which is combined with the management report of HOCHTIEF
solidated financial statements and as a whole provides a suit-
Aktiengesellschaft, Essen, for the business year from January
able view of the Group’s position and suitably presents the
1 to December 31, 2005. The preparation of the consolidated
opportunities and risks of future development.
dated financial statements comply with the IFRSs, as adopted
We have audited the consolidated financial statements prepared
financial statements and the combined management report in
accordance with the IFRSs, as adopted by the EU, and the
additional requirements of German commercial law pursuant
to § (Article) 315a Abs. (paragraph) 1 HGB (“Handelsgesetzbuch”: German Commercial Code) is the responsibility of the
PricewaterhouseCoopers
parent company’s Executive Board. Our responsibility is to ex-
Aktiengesellschaft
press an opinion on the consolidated financial statements and
Wirtschaftsprüfungsgesellschaft
on the combined management report based on our audit.
We conducted our audit of the consolidated financial statements
in accordance with § 317 HGB and German generally accepted standards for the audit of financial statements promulgated
(Schwarzhof)
(Kunst)
the International Standards on Auditing (ISA). Those standards
Wirtschaftsprüfer
Wirtschaftsprüfer
require that we plan and perform the audit such that misstate-
(German Public Auditor)
(German Public Auditor)
HOCHTIEF Stock
by Institut der Wirtschaftsprüfer in Deutschland (Institute of
Public Auditors in Germany) (IDW) and additionally observed
ments materially affecting the presentation of the results of
operations, financial position and net assets in the consolidated
financial statements in accordance with the applicable financial reporting framework and in the combined management
report are detected with reasonable assurance. Knowledge of
the business activities and the economic and legal environment
of the Group and expectations as to possible misstatements
are taken into account in the determination of audit procedures.
The effectiveness of the accounting-related internal control
system and the evidence supporting the disclosures in the
consolidated financial statements and the combined manage-
Management Report
ment report are examined primarily on a test basis within the
framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of the entities to be included in consolidation, the accounting and consolidation principles used
and significant estimates made by the Company‘s Executive
Board, as well as evaluating the overall presentation of the
consolidated financial statements and the combined management report. We believe that our audit provides a reasonable
basis for our opinion.
Our audit has not led to any reservations.
Annual Report 2005
129
Subsidiaries, Associates and Other
Significant Participating Interests of the
HOCHTIEF Group at December 31, 2005
Percentage stock
held
EUR
thousand
Profit/(loss)
for the year
(EUR
thousand)
100
40**
135,000
136,301
–*
2,787
53.20**
396,090
13,354
51**
120,730
18,884
Local currency
(thousand)
I. Consolidated subsidiaries
Airport Division
HOCHTIEF AirPort GmbH, Essen
Airport Partners GmbH, Düsseldorf
HAP Hamburg Airport Partners GmbH & Co. KG,
Hamburg
Sydney Airport Intervest GmbH, Essen
Development Division
Deutsche Bau- und Siedlungs-Gesellschaft mbH,
Essen
100
85,690
–*
DEBAUSIE Immobilien GmbH & Co. KG, Essen
HOCHTIEF Projektentwicklung GmbH, Essen
HOCHTIEF Facility Management GmbH, Essen
HOCHTIEF PPP Solutions GmbH, Essen
100**
100
100
100
77,528
7,670
1,093
15,127
(2,942)
–*
–*
–*
Construction Services Americas Division
HOCHTIEF Americas GmbH, Essen
The Turner Corporation, Dallas, USA
HOCHTIEF do Brasil S.A., São Paulo, Brazil
100
100**
91.50**
USD
BRL
356,966
29,362
542,524
302,589
10,651
–*
14,337***
(1,704)
Construction Services Asia Pacific Division
HOCHTIEF Asia Pacific GmbH, Essen
Leighton Holdings Limited, Sydney, Australia
100
52.19**
**
AUD
1,000,613
805,242
621,150
–*
147,741***
203,665
31,659
2,652
–*
–*
(3,935)
Construction Services Europe Division
HOCHTIEF Construction AG, Essen
STREIF Baulogistik GmbH, Essen
DURST-BAU GmbH, Vienna, Austria
100
100**
100**
HOCHTIEF (UK) CONSTRUCTION Ltd.,
Swindon, UK
100**
GBP
5,215
7,610
(19,240)
99**
94.66
PLN
CZK
76,253
793,263
19,755
27,352
3,418
2,972
HOCHTIEF Polska Sp. z o.o., Warsaw, Poland
HOCHTIEF VSB a.s., Prague, Czech Republic
130
Annual Report 2005
To Our Shareholders
Local currency
(thousand)
EUR
thousand
Profit/(loss)
for the year
(EUR
thousand)
779
–*
Corporate Headquarters
HOCHTIEF Insurance Broking and Risk Management Solutions GmbH, Essen
100
Contractors’ Casualty & Surety Reinsurance
Company S.A., Steinfort, Luxembourg
100**
USD
5,516
4,676
–
Builders’ Credit Reinsurance Company S.A.,
Steinfort, Luxembourg
100**
USD
3,000
2,543
–
50**
116,762
9,399
26.67**
328,215
47,146
49**
63,760
–*
Percentage stock
held
Flughafen Hamburg GmbH, Hamburg
Construction Services Americas Division
AECON Group Inc., Toronto, Canada
46.28***
CAD
102,956
75,014
(27,756)***
Construction Services Asia Pacific Division
Concor Limited, Johannesburg, South Africa
44.99
ZAR
216,807
29,046
3,305***
*Profit/loss transfer agreement
** Indirect shareholding
*** Consolidated result for group
Management Report
Athens International Airport S. A., Athens,
Greece
Airport Division
Flughafen Düsseldorf GmbH, Düsseldorf
HOCHTIEF Stock
II. Equity-method investments
Annual Report 2005
131
Business Units, Branches and Offices
Supporting our clients and partners worldwide
For address and contact information, please
visit our website at
www.hochtief.com.
HOCHTIEF Airport, Essen
Subsidiaries and associated companies:
Athens International Airport S. A.
Flughafen Düsseldorf GmbH
Flughafen Hamburg GmbH
HOCHTIEF AirPort Capital VerwaltungsGmbH & Co. KG, Essen
HOCHTIEF AirPort GmbH, Essen
Sydney Airport Corporation Limited
Tirana Airport Partner Sh.p.k.
Transport & Logistics Consultancy Ltd., Staines
HOCHTIEF Development, Essen
Subsidiaries:
Deutsche Bau- und Siedlungs-Gesellschaft mbH
HOCHTIEF Facility Management GmbH
HOCHTIEF Facility Management Ireland Ltd.
HOCHTIEF PPP Solutions (Chile) Ltda.
HOCHTIEF PPP Solutions GmbH
HOCHTIEF PPP Solutions (UK) Ltd.
HOCHTIEF Projektentwicklung GmbH
Located in: Aachen, Athens, Augsburg, Bad Homburg,
Berlin, Böblingen, Budapest, Cologne, Dresden, Dublin,
Düsseldorf, Erfurt, Essen, Frankfurt am Main, Hamburg,
Hanover, Heidelberg, Karlsruhe, Leipzig, Luxembourg,
Magdeburg, Manchester, Mannheim, Munich, NurembergErlangen, Offenbach, Osnabrück, Prague, Ratingen,
Santiago de Chile, Stuttgart, Swindon, Warsaw, Wolfsburg
HOCHTIEF Construction Services Americas, Essen
Subsidiaries and associated companies
Aecon Group Inc.
HOCHTIEF do Brasil S. A.
The Turner Corporation
Turner Construction Company
Located in: USA: Albany, NY; Arlington, VA; Arlington
Heights, IL; Atlanta, GA; Boston, MA; Brentwood, TN;
Buffalo, NY; Champaign, IL; Charlotte, NC; Chicago, IL;
Cleveland, OH; Cincinnatti, OH; Columbia, MD; Columbus Worthington, OH; Dallas, TX; Denver, CO; Detroit, MI;
Hawthome, NY; Houston, TX; Huntsville, AL; Seattle, Indianapolis, IN; Kansas City, MO; Los Angeles, CA; Lynnwood, WA; Maumee, OH; Milford, CT; Miami, FL; Nashville,
TN; New York, NY; Oakland, CA; Orange County, CA; Orlando, FL; Philadelphia, PA; Pittsburgh, PA; Portland, OR;
Raleigh, NC; Sacramento, CA; San Diego, CA; San Francisco, CA; San Jose, CA; Seattle, WA; Somerset, NJ;
132
Annual Report 2005
Tampa, FL; Tempe, AZ; Toledo, OH; Washington, DC; Woodcliff Lake, NJ; Canada: Boucherville, Québec; Calgary, Alberta; Cambridge, Ontario; Edmonton, Alberta; Mississauga,
Ontario; Montréal, Québec; Nepean, Ontario; Oakville,
Ontario; Toronto, Ontario; Brazil: São Paulo; Argentina:
Buenos Aires
HOCHTIEF Construction Services Asia Pacific,
Essen
Subsidiaries and associated companies:
Concor Limited
John Holland Group Pty Ltd.
Leighton Asia (Northern) Limited
Leighton Asia (Southern) Pte Ltd.
Leighton Contractors Pty Ltd.
Leighton Holdings Limited
Leighton Properties Pty Ltd.
Thiess Pty Ltd.
Located in: Abbotsford, Bangkok, Beijing, Blacktown,
Brisbane, Cairns, Chatswood, Colombo, Dubai, East
Bentleigh, Ho Chi Minh City, Hong Kong, Jakarta, Johannesburg, Kuala Lumpur, Mackay, Makati, Melbourne,
Milton, Mumbai, Perth, Pyrmont, Rocklea, Seven Hills,
Shanghai, Singapore, South Bank, South Melbourne,
St. Leonards, Sydney, Thornton, West Perth, Winnellie
HOCHTIEF Construction Services Europe, Essen
Subsidiaries:
Durst-Bau GmbH
Entreprise Générale de Construction HOCHTIEFLuxembourg S. A.
HOCHTIEF Bulgaria
HOCHTIEF Polska Sp. z o.o.
HOCHTIEF Russia
HOCHTIEF (UK) Construction Ltd.
HOCHTIEF VSB a.s.
Mélyépítő Kft.
Streif Baulogistik GmbH
Located in: Aachen, Berlin, Bonn, Bremen, Brussels,
Budapest, Chennai, Cologne, Cottbus, Dortmund, Düsseldorf, Erfurt, Essen, Frankfurt am Main, Freiburg im Breisgau,
Fuldabrück, Hamburg, Hanover, Heusenstamm, Innsbruck,
Karlsruhe, Katowice, Kraków, Leipzig, Luxembourg, Magdeburg, Mainz, Mannheim, Moscow, Munich, Nuremberg,
Pozna ń, Prague, Saarbrücken, Sofia, Stuttgart, Swindon,
Vienna, Warsaw, Wiesbaden, Wolfsburg, Würzburg
To Our Shareholders
Index
Management Report
HOCHTIEF Stock
Management report .......................................................25
Markets..................................................................... 28, 61
Net income from participating interests ........................102
Net investment and interest income .............................103
Networking .................................................................... 36
Non-current assets .......................................................105
Notes to the consolidated financial statements ..............92
Operational statement of earnings ..................................52
Orders and work done ................................................... 26
Ownership structure .......................................................19
Personnel development ..................................................42
PPP portfolio ................................................................. 20
Post balance-sheet events ............................................ 59
Procurement Directive ....................................................44
Products and services ................................................... 36
Project development...................................................... 66
Projects in HOCHTIEF’s concessions business ..............23
Proposal for use of net profit ........................................128
Provisions ..................................................................... 116
Publication details and credits .....................................139
Public-private partnership (PPP) ................... 20, 23, 37, 64
Quality ............................................................................35
Reporting methodology ................................................134
Research and development ........................................... 38
Return on capital (RONA) .............................................. 46
Return on net assets (RONA)......................................... 46
Risk management........................................................... 74
Sales ............................................................................100
School projects.............................................21, 23, 60, 64
Segment reporting.......................................................... 61
Services ................................................................... 33, 36
Statement of cash flows ................................................ 90
Statement of earnings ................................................... 88
Stock .............................................................................. 17
Strategy ................................................................... 35, 36
Subsidiaries and associated companies ......................130
Supervisory Board ........................................................... 8
Supply management ......................................................44
Toll road projects ................................................23, 65, 70
Transport infrastructure .............................................65, 70
Turner ............................................................................. 68
Value added .................................................................. 49
Value created .................................................................. 47
ViCon (Virtual Design and Construction) ................. 34, 40
Airports ............................................................... 20, 37, 62
Asset management ................................................. 67, 134
Auditor’s report .............................................................129
Balance sheet................................................................ 89
Boards ............................................................................84
Building rating systems ................................................... 41
Business activities ..........................................................25
Business units, branches and offices ...........................132
Capital expenditure........................................................ 53
Cash flow ................................................................. 53, 90
Combined management report ......................................25
Compliance declaration ..................................................15
Concessions business .................................. 22, 23, 31, 37
Consolidation............................................................92, 93
Contract mining ........................................................ 37, 71
Corporate governance ............................................ 13, 134
Corporate structure ................................................3, 4, 25
Currency translation........................................................94
Debausie ........................................................................ 67
Dividend ................................................................... 19, 82
Employees ......................................................................42
Equity ..................................................................... 91, 112
Executive Board ............................................................ 11
Facility management .................................. 33, 37, 65, 135
Financial calendar .........................................................139
Financial instruments .................................................... 121
Financial review ............................................................. 51
Financial statements ....................................................... 87
Five-year summary ....................................................... 137
Forecast ......................................................................... 81
Free float.........................................................................19
Glossary .......................................................................134
Green building ............................................................... 68
Healthcare properties ...............................................72, 80
HOCHTIEF Airport ..........................................................62
HOCHTIEF Americas ..................................................... 68
HOCHTIEF Asia Pacific ...................................................70
HOCHTIEF Development ................................................64
HOCHTIEF Europe .........................................................72
Industry trends ...............................................................28
Insurance services .......................................................... 37
InTun (Innovative Modules for Tunneling) ....................... 39
Investment partnership ...................................................62
Investor relations............................................................. 17
Leighton .........................................................................70
Annual Report 2005
133
Glossary
“A” model
Financing model for German freeway widening projects
conducted in multiple stages and undertaken by private
operators. Such projects include adding extra lanes and
maintaining, operating and financing segments of freeway.
Alongside a start-up loan, the concession holder is paid all
road-use charges collected from trucks for use of the freeway segment. The fees are reinvested in construction.
Asset management
Asset management means all activities involved in managing buildings and properties. This includes rent accounting,
tenant administration, utility billing and support, systems
maintenance, energy management, coordinating repairs
and refurbishing, and short-to-medium-run planning of all
cash flows relating to the property.
Beta factor
The beta factor expresses the relationship between the
performance of a stock price and that of an index. More
specifically, it measures the sensitivity of the stock price to
changes in the index. If the beta factor is one, the stock’s
and the index’s volatility are equal. A beta of more than
one means that the stock is prone to greater fluctuation
than the index, while a beta of less than one means that
its volatility is lower than the market’s. The beta factor is
used when establishing the cost of equity, to calculate
what rate of return market investors will expect to receive
over and above a risk-free investment when they provide
funds to, say, HOCHTIEF.
Cash flow
One of the key figures used to assess a company’s financial position. Represents the net inflow of funds from sales
and other operating activities.
Consolidation
If one company directly or indirectly holds the majority of
voting rights or has the majority of commercial opportunities and risks in a second company, the second company
is a subsidiary of the first. Consolidated financial statements
are prepared applying uniform accounting principles to the
entire group comprising the parent and its subsidiaries. The
consolidated financial statements show all assets, liabilities,
income and expenses of the parent and its subsidiaries,
except that transactions between companies in the group
are eliminated. If a group includes subsidiaries that are not
wholly owned, separate disclosure must be made of the
134
Annual Report 2005
proportion of shareholders’ equity and Group profit after
taxes attributable to minority interests.
Construction management at fee
An approach to project management where the construction manager advises the client and, during the design
and build phases, provides services for a fee such as administration, construction planning and progress monitoring. The construction manager has little or no financial involvement in the project.
Contractual trust arrangement (CTA)
A contractual trust arrangement is essentially a form of
company pension fund where the fund’s assets have been
transferred to a legal entity separate from the company.
The company is free to decide the timing and size of asset
transfers to the CTA. The terms of contract stipulate that
transferred assets are exclusively and irrevocably dedicated
to meeting and funding the company’s pension obligations.
A CTA is thus a way of meeting pension liabilities through
a trust fund.
Corporate governance
Corporate governance means responsive and responsible
management and control geared to long-term value creation. Besides executive duties of top management, corporate governance takes in the division of responsibilities
between the Executive and Supervisory Boards, and both
boards’ relations with stockholders, other investors, employees, business associates and the public. Deferred tax
assets and liabilities thus correct the assessed tax charges
to provide a true and fair view of the company’s financial
position. The main aim of deferred tax accounting is to
show a tax expense in the commercial law or IFRS-basis
earnings statement that matches the profit before taxes
reported for the year. Deferred taxes may only be recognized for temporary differences.
Deferred taxes
These are not a specific type of tax, but amounts reported
in the published earnings statement and balance sheet to
account for temporary measurement and recognition differences between accounting items calculated in accordance with national or international accounting rules (such
as Germany’s Commercial Code or International Financial
Reporting Standards) and the same items calculated in
accordance with the rules applied by the revenue authorities when assessing taxable profits.
To Our Shareholders
Facility management
Facility management takes in planning, management and
control of a property or facility. Unified oversight and management of a project reduce both capital and running costs
over the long term. Integrated facility management includes
technical, commercial and infrastructure services.
Four brand strategy
HOCHTIEF Construction offers four service packages
spanning the entire project life cycle. ConTrust brings together construction activities in which HOCHTIEF operates
as a general contractor. The company assigns special
teams to each customer contract and provides quality
management, engineering expertise, advice on financing
and after-sales service. Under the partnership-based PreFair business model, all involved work closely together
from the design phase to achieve the best contract outcome. PreFair takes the uncertainty out of construction
schedules and budgets. AdMore covers a wide range of
individual construction-related services, such as engineering, building diagnosis and industrial relocation.
Goodwill
The excess of the cost of an acquired business over the
fair value of the acquired business’s identifiable assets, liabilities and contingent liabilities, as measured at the acquisition date.
HOCHTIEF Stock
Interest-rate derivatives
Standardized financial instruments used to hedge risks of
changes in interest rates. Their valuation depends on the
price and market performance of the underlying instrument (for example the interest rate of a loan). A notable
example is interest rate swaps, which exchange variable
for fixed interest rates or vice versa.
International Financial Reporting Standards (IFRS)
Internationally applicable standards for external corporate
financial reporting, developed and issued by the International Accounting Standards Board (IASB), which aim to
harmonize reporting methods around the globe. In some
respects, the IFRS standards differ considerably from the
requirements of Germany’s Commercial Code (HGB);
prominent examples of this include the timing of profit recognition for long-term projects, and the recognition of deferred tax assets for tax loss carryforwards.
LEED™
LEED (Leadership in Energy and Environmental Design) is
a rating system established by the US Green Building
Council and setting precise standards for sustainable
buildings. Five basic categories are taken into account in
LEED awards: Sustainable Sites, Water Efficiency, Energy
and Atmosphere, Materials and Resources, and Indoor
Environmental Quality.
Management Report
Euroconstruct area
The Euroconstruct area comprises a total of 19 countries—15 in Western Europe and 4 in Eastern Europe.
Regular surveys of regional construction market trends are
performed for the countries concerned. The Euroconstruct
area consists of Austria, Belgium, the Czech Republic,
Denmark, Finland, France, Germany, Hungary, Ireland, Italy,
the Netherlands, Norway, Poland, Portugal, Slovakia, Spain,
Sweden, Switzerland and the United Kingdom.
FormArt
FormArt covers the real estate development segment. The
FormArt package includes site selection and acquisition,
planning site use, commercial feasibility studies, construction planning, turnkey construction of the building, and refurbishment and upgrading of existing properties.
Long-term incentive plan
A long-term incentive plan is an incentives system or pay
component offered to selected managerial staff so that
they participate in the company’s long-term success, thus
securing their loyalty to the company.
Equity method
Associated companies, in which a fully consolidated
Group company holds between 20 and 50 percent of the
voting rights, are normally accounted for in the consolidated
financial statements by using the equity method. This means
an associated company is carried in the consolidated financial statements at an amount proportionate to the Group’s
share in its equity. Similarly, a proportionate share of the
associate’s net profit is included in the Consolidated Statement of Earnings, under net income from participating interests. The rule that uniform accounting policies are used
throughout the Group includes equity-accounted associates.
Annual Report 2005
135
Pension fund
Assets are transferred to a pension trust in order to meet
the company’s pension obligations. In the IFRS financial
statements, plan assets are deducted from pension provisions. This treatment enhances the international comparability of the consolidated financial statements, as external
financing of pension obligations through a pension fund is
common practice internationally.
Prime Standard
The Prime Standard is a premium segment for shares and
share-based certificates within the Official Market and Regulated Market of Frankfurt Stock Exchange. Companies in
the Prime Standard must meet international transparency
requirements that go far beyond the statutory minimum requirements for the Official Market and the Regulated Market.
Public-private partnership
Cooperation between the public sector and usually wellcapitalized private-sector firms to realize a major investment
project. A characteristic feature of such cooperation is that
the parties pursue common objectives and interests as regards the project itself even though they differ in terms of
their broader functions.
Reporting methodology
New orders, work done and order backlog are included in
the Consolidated Statement of Earnings according to the
portion of each company included in the Consolidated
Balance Sheet. Amounts from consolidated companies are
reported at 100 percent. Amounts from equity-accounted
companies are reported at a lesser percentage. Adjustments to values of orders in hand are accounted for in order
backlog. Exchange rate effects are determined by translating reported amounts for the year from local currency
to euros at average prior-year exchange rates (new orders
and work done) or exchange rates applicable at the prioryear balance sheet date (order backlog). This gives a comparable euro amount stripped of exchange-rate effects.
Statement of cash flows
Clarifies the sources and uses of funds in a business, allowing a detailed impression of the flows affecting value.
The statement is divided into net cash flows in respect of
operating, investing and financing activities.
136
Annual Report 2005
Syndicated revolving guarantee facility
A bank loan, structured under an international banking
syndicate, for the provision of bank guarantees as a safeguard for clients.
Value chain
A project’s value chain extends from development and finance, through design and build, and on to operation and
management—for example of buildings, facilities, infrastructures, airports and mines. The value chain thus takes
in the entire project life cycle.
Work done
This reporting term covers all construction work completed
by the company itself, together with its fully consolidated
subsidiaries, and by joint ventures on a pro rata basis, plus
all other sales generated by non-construction operations
during the reporting period.
Five Year Summary
2001
2002
2003
2004
2005
New orders
EUR million
14,179
14,430
14,352
15,587
15,599
Work done
EUR million
12,978
12,782
11,503
13,107
14,854
Order backlog at year-end
EUR million
13,828
14,075
16,465
18,715
21,096
Total
Number
Of total: domestic
international
33,442
10,222
23,220
33,100
8,437
24,663
34,039
7,751
26,288
36,409
9,423
26,986
41, 469
9,761
31,708
Employees (average for year)
Consolidated external sales
Increase/decrease from prior year
Materials
Materials ratio
Personnel costs
Payroll ratio
Net income from participating interests
Net investment and interest income
Of which: Airport
Development
International1)
Profit after taxes
Return on sales
Return on equity
Consolidated net profit
EBITDA
Of which: Airport
Development
International1)
EUR million
%
EUR million
%
EUR million
%
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
%
%
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
12,171
27.0
9,890
81.0
1,639
13.4
266
(18)
55
41
78
(8)
64
64
147
(182)
(31)
78
0.6
3.6
24
376
131
11
74
104
148
(161)
(25)
12,007
–1.3
9,514
79.1
1,677
13.9
288
233
(142)
30
121
(16)
147
67
112
(97)
(117)
90
0.7
4.6
43
425
157
12
153
102
118
(105)
(117)
10,534
–12.3
8,078
76.7
1,579
15.0
232
121
45
(6)
160
3
38
38
127
10
–
77
0.7
3.9
16
431
220
24
52
68
129
–
–
11,944
13.4
9,151
76.6
1,835
15.4
263
156
34
(3)
187
(14)
42
42
109
29
–
81
0.7
4.3
41
490
227
15
51
55
119
26
–
13,653
14.3
10,422
76.3
2,161
15.8
287
280
63
(14)
329
65
39
40
203
42
–
151
1.1
6.6
63
653
366
87
40
54
220
28
–
Earnings per share
Dividend per share
Dividends paid
EUR
EUR
EUR million
0.38
0.50
35
0.69
0.55
39
0.26
0.65
46
0.65
0.75
53
0.99
0.90
63
%
8.2
9.2
13.7
14.2
13.0
EUR million
160
1.3
2.0
112
374
3.1
4.9
(3)
273
2.6
3.7
205
320
2.7
4.4
(80)
418
3.1
5.2
387
ROCE/RONA (from 2005)
Cash flow
As % of Group sales
As % of total assets
Free cash flow2)
EUR million
1) Group companies previously in the International division were transferred to other divisions at the beginning of 2003.
2) Free cash flow: Net cash provided by operating activities, plus proceeds from asset disposals and changes in cash and cash
equivalents due to consolidation changes, less capital expenditure.
Annual Report 2005
137
Assets
Intangible assets
Property, plant and equipment
Financial assets
Other non-current assets3)
Non-current assets
Inventories
Receivables and other assets
Marketable securities and cash and
cash equivalents
Current assets
Total assets
Liabilities and Shareholders’ Equity
Attributable to the Group
Minority interest
As % of non-current assets
Non-current provisions
Non-current financial liabilities
Other non-current liabilities3)
Current provisions
Current financial liabilities
Other current liabilities
Current liabilities
Total liabilities and shareholders’ equity
Property, plant and equipment ratio4)
Capital expenditure, including acquisitions total
Of total: Intangible assets
Of total: Property, plant and equipment
Of total: Investment properties
Of total: Financial assets
Capital expenditure ratio5)
Depreciation and amortization ratio6)
2001
2002
2003
2004
2005
278
732
247
889
667
2,813
35.1
33
2,794
237
660
305
951
634
2,787
36.6
28
2,746
212
634
237
882
450
2,415
32.6
30
2,622
297
666
234
959
383
2,539
34.9
49
2,935
330
682
207
913
283
2,415
29.8
35
3,622
2,376
5,203
64.9
8,016
2,050
4,824
63.4
7,611
2,332
4,984
67.4
7,399
1,762
4,746
65.1
7,285
2,024
5,681
70.2
8,096
EUR million
1,811
365
2,176
27.1
77.4
681
511
330
1,522
19.0
547
604
3,167
4,318
53.9
8,016
1,572
368
1,940
25.5
69.6
666
795
231
1,692
22.2
614
384
2,981
3,979
52.3
7,611
1,588
387
1,975
26.7
81.8
686
857
50
1,593
21.5
590
390
2,851
3,831
51.8
7,399
1,549
356
1,905
26.1
75.0
512
702
71
1,285
17.6
578
472
3,045
4,095
56.3
7,285
1,753
537
2,290
28.3
94.8
299
831
109
1,239
15.3
644
257
3,666
4,567
56.4
8,096
%
EUR million
EUR million
EUR million
EUR million
EUR million
%
%
9.1
556
2
393
96
65
21.6
54.2
8.7
654
21
290
25
318
15.1
85.7
8.6
370
20
243
1
106
12.5
87.9
9.1
678
12
427
1
238
20.1
59.7
8.4
574
11
486
–
77
20.7
57.8
5.4
1.7
4.8
1.5
4.3
1.4
4.7
1.6
4.5
1.8
1,530
1,124
1,153
676
1,033
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
EUR million
Receivables turnover7)
Total assets turnover8)
Net financial assets
EUR million
3) Deferred tax assets and liabilities have been offset within each company or group since 2003.
4) Property, plant and equipment ratio: Property, plant and equipment as a percentage of total assets.
5) Capital expenditure ratio: Capital expenditure on intangible assets, property, plant and equipment and investment property as a
percentage of cumulative cost of acquisition.
6) Depreciation and amortization ratio: Depreciation and amortization as a percentage of intangible assets, property, plant and equipment
and investment properties.
7) Receivables turnover: Ratio of external sales to average trade receivables.
8) Total assets turnover: Ratio of external sales to average total assets.
Annual Report 2005
138
Publication Details
and Credits
Financial Calendar
Published by:
Opernplatz 2, 45128 Essen, Germany
Tel.: +49 201 824-0, Fax: +49 201 824-2777
[email protected], www.hochtief.com
May 10, 2006
General Shareholders’ Meeting
10:30 a. m., Congress Center Essen, West Entrance,
Norbertstrasse, Essen
Investor relations contact:
HOCHTIEF Investor Relations
Opernplatz 2, 45128 Essen, Germany
Tel.: +49 201 824-2127, Fax: +49 201 824-2750
[email protected]
Design, text and editing:
HOCHTIEF Corporate Communications, UKom Agency;
Protext, Cologne
English adaptation:
Burton, Münch & Partner, Düsseldorf
Photographer:
Wolfgang Kleber, HOCHTIEF
Other photo credits:
Michael Goodman, New York City
HOCHTIEF photo archive, Essen
Leighton Holdings, Sydney
Skidmore, Owings & Merrill LLP, Chicago
The Turner Corporation, Dallas
Imaging work, typesetting and prepress:
Creafix GmbH, Solingen
May 15, 2006
Quarterly Report at March 31, 2006
Conference Call with Analysts and Investors
August 14, 2006
Half-Year Report at June 30, 2006
Analysts’ and Investors’ Conference
November 14, 2006
Fall Press Conference
Interim Report at September 30, 2006
March 22, 2007
Business Results Press Conference
Analysts’ and Investors’ Conference
May 9, 2007
General Shareholders’ Meeting
10:30 a. m., Congress Center Essen, West Entrance,
Norbertstrasse, Essen
May 15, 2007
Quarterly Report at March 31, 2007
Printed by:
Bacht Grafische Betriebe und Verlag GmbH, Essen
This report was printed on paper manufactured using an
environmentally friendly process.
This annual report is a translation of the original
German version, which remains definitive.
The editorial deadline for this annual report was February 21,
2006; the report was published on March 16, 2006.
Annual Report 2005
139
Cover photo:
New learning incentive at
Cologne schools
Up until quite recently, students
attended classes in rooms urgently in need of refurbishment. Now,
as a temporary measure, they are
taught in bright, spacious containers. But soon the children will be
able to return to their thoroughly
modernized school buildings.
And in no small part, HOCHTIEF
is making it happen: Through
public-private partnership, we are
laying the cornerstone for a contemporary learning environment
that allows kids and their teachers
to find school fun again. What’s
more, it’s even saving the public
sector money.
Opernplatz 2, 45128 Essen

Annual Report 2005

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