2008 was a turbulent year in which the financial crisis and its global repercussions presented the world with new challenges. Overcoming these challenges will be a major preoccupation in every area of society in 2009. Despite the crisis, 2008 was also a successful year for the HOCHTIEF Group. We were able to lift our guidance on two occasions and surpassed all the corporate goals set for the reporting period. Consolidated net profit rose by just over 24 percent year on year to EUR 175 million – figures we are proud of.
Despite the company's solid performance, HOCHTIEF shares were unable to buck the stock market trend and fell sharply during the course of year, ceasing to reflect the Group's successful operations and value. The crisis also had a negative impact on the stock price of listed project companies in our subsidiary Leighton's business portfolio. Although these prices similarly failed to reflect the real value of the concession projects, Leighton's Board of Directors decided to take the precaution of writing down its interests as of December 31, 2008 to their market capitalization on the basis of current stock prices.
HOCHTIEF continued its track record of success in spite of these effects. It is precisely at times like this that we see we have been far-sighted in building and expanding our Group. The year under review saw us continue to pursue our viable life cycle strategy unchanged. Our services cover every stage of the project life cycle. That is to say, the modules in our product and service range – development, construction, services, and concessions and operation – span the entire value chain of real estate, facilities
We are going into 2009 feeling confident. Our order backlog stands at more than EUR 30 billion. At the beginning of the year, this already ensures enough business for most of 2009. In addition, we are expecting the measures aimed at reviving the economy to have an effect in several countries. Everywhere, these measures are centered on infrastructure, one of the HOCHTIEF Group's focuses.
Our emphasis in the past on conservative financing, low net debt and a healthy equity ratio is now paying off. This, combined with our compelling business model and transparent reporting during the fiscal year, prompted 18 out of 24 analysts to rate HOCHTIEF stock a buy and four to give a hold recommendation as of the end of 2008.
In response to the financial market crisis, we have taken the precaution of boosting our cash reserves. We are expecting both equity investments in development projects and borrowing costs to be higher for some time to come.
All six divisions contributed to HOCHTIEF's success in 2008. At HOCHTIEF Americas, our subsidiaries Turner and Flatiron turned in another excellent performance in their respective segments, building and infrastructure construction. Major contracts included the Great American Tower in Cincinnati, an office tower worth EUR 165 million which is to be built by Turner. Flatiron, meanwhile, was appointed leader of a joint venture responsible for building a section of the Edmonton Ring Road in Canada worth EUR 624 million. By collaborating, the two companies are demonstrating new strength. They will work together on the refurbishment of Sacramento International Airport, for example, and also have plans for other joint projects.
The construction business in Australia, Asia and the Middle East that is covered by Leighton turned in a strong
The companies in the HOCHTIEF Concessions division also contributed to the solid Group results. At HOCHTIEF AirPort, the airport holdings performed well. Through excellent management, we are realizing the airports' full potential, for example, by expanding non-aviation business. HOCHTIEF PPP Solutions had a very successful year. Among other things, the EUR 2.2 billion Elefsina-Patras-Tsakona toll road project in Greece with a concession term of 30 years reached financial close. A look at our concessions portfolio shows that our infrastructure projects largely held steady amid the current difficult market conditions. At EUR 1.47 billion, the net present value of the portfolio is a marginal 4.8 percent down on the previous year, mainly because of changes to the portfolio. We continue to see considerable opportunities for our company in the concessions business, particularly in the USA.
HOCHTIEF Europe showed once again that our Group is very well placed in the European market. We benefited in particular from growth in Eastern Europe and Russia – examples of current construction contracts include a production plant for glass manufacturer Euroglass Polska in Poland and a chocolate factory for the Ferrero Group in Russia. In Germany too, we have been successful on the new business front. We have restructured our building construction unit and will continue to scale back our construction work in this segment in Germany as planned. Our interest is in business where we can set ourselves apart from competitors on the basis of a fair distribution of risk, the high quality we offer and our partnership-based models. Our firm aim is for the HOCHTIEF Europe division to achieve a pretax return on sales of three percent in 2010.
In the HOCHTIEF Real Estate division, the quality provided by HOCHTIEF Property Management proved to be a winning proposition. Among other things, the company was awarded the contract to manage aurelis Real Estate's entire German portfolio. 2008 therefore saw us become Germany's largest property manager. At HOCHTIEF Projektentwicklung, building started on a number of new projects, including in the growing segment for nursing
Our business in the HOCHTIEF Services division also performed well. HOCHTIEF Facility Management once again proved to be a successful outsourcing partner for public-sector and industrial partners, assuming responsibility for the operation of numerous Siemens sites for a further six years, for example. HOCHTIEF Energy Management's business is also becoming a driver of growth at a time when both energy prices and environmental awareness are on the increase. The company, which offers modern contracting models, booked numerous new orders.
Energy efficiency is of considerable importance to HOCHTIEF. The services we deliver as an international construction services provider play a part in exploiting alternative energies and realizing potential savings. In 2008, HOCHTIEF was rewarded for its commitment to sustainability by being listed once again in the Dow Jones Sustainability Indexes' for the third time in a row. We are proud of this accolade and continue to see sustainability as a major responsibility for our Group going forward. We would like to take this opportunity to tell you a little more about our commitment to energy efficiency: On the image pages in this Annual Report, you will find numerous examples of current projects in this area.
In what was a difficult year on the stock markets, we are delighted that you, our shareholders, remained loyal to our Group and trusted in its strategy. We intend to perform to your satisfaction again in fiscal year 2009 and now have 64,527 employees in all four corners of the globe working toward that goal. To all of them, we would like to express our sincere thanks.
Ahead of us lies a year paved with challenges. It will also be one of opportunities – partly because of the economic stimulus programs now being launched in a number of countries. HOCHTIEF is ready and waiting to capitalize on those opportunities. We invite you to join us on our journey!
Essen, February 23, 2009
Dr.Ing. Herbert Lütkestratkötter