HOCHTIEF has a presence in the Australian and Asian markets as well as the Gulf states due to its majority interest in the Leighton Group. HOCHTIEF Asia Pacific impressed again in 2008 with strong performance and new orders totaling EUR 12.65 billion. Contributing in particular to the positive performance were the activities in the Gulf states, where the Al Habtoor Leighton Group does business. Leighton holds a 45 percent interest in the company.
The financial crisis led to delays in major planned projects in the Gulf region, among them Trump Tower in Dubai, a project awarded to the Al Habtoor Leighton Group that has been delayed until further notice. However, jobs at the company have not been affected to date thanks to the continued robust order backlog at Al Habtoor Leighton and the award of new projects, among them the expansion of Dubai Airport. However, payment patterns have deteriorated, particularly in Dubai.
Weaker demand for raw materials – especially from China – resulted in the first production cuts, and even mine closures in Australia. However, this has only marginally impacted on Leighton's activities, since the mine closures have affected mines that extract different minerals or those with higher production costs than Leighton's.
These include projects launched in recent years by the Australian government with private partners to improve transportation infrastructure. Some of these projects also involve Leighton. However, the business prospects of these ventures, some of which are still under construction, have not changed and therefore the stock prices at yearend did not reflect the true value of the infrastructure projects. We do not consider the original value of these holdings to be impaired. Nonetheless Leighton decided to take this step as a precaution. Further writedowns cannot be ruled out, depending on the performance of the stock markets.
The acquisition of a 40 percent stake in leading Australian project developer Devine Limited in 2007 ensured Leighton's strategic positioning in the residential construction market and a stronger presence in the project development market. Devine is working with Leighton Properties to build a mixed-use property valued at around EUR 200 million in Brisbane. A second joint project involves developing a residential building in Townsville with a total of 1,800 residential units for an aggregate value of EUR 500 million.
The interest in mining services provider Macmahon is developing well: Several projects to be carried out in joint ventures are in the pipeline. Furthermore, the prospects are good for more joint projects in Australia and Asia.
In Queensland, Leighton Contractors is working with a consortium to expand the Ipswich Motorway. Our share of the project totals more than EUR 120 million. Moreover, the company is participating in a joint venture to build the Ballina Bypass in the Australian state of New South Wales. The company's share of the project amounts to EUR 303 million. The Ballina Bypass is 12.4 kilometers long and part of a government program to expand the Pacific Highway. We are planning and constructing the four-lane road and building 19 bridges, among other structures, for this purpose. In addition, Leighton Contractors is part of a joint venture that was awarded the project to maintain streets in Auckland, New Zealand. The contract is worth EUR 121 million.
Apart from the Airport Link, John Holland won the EUR 141 million upgrade contract for Westgate Bridge and a EUR 90 million contract for sewer work. Both projects are in Melbourne.
In spring 2008, Leighton won the contract to plan and assemble 200 kilometers of offshore pipeline in India within three years. The pipeline will be installed 80 kilometers off the coast of Mumbai in a project valued at more than EUR 465 million.
The Australian mining company Wesfarmers Curragh also extended its contract with Thiess. Thiess will expand the Curragh North coal mine in Australia for EUR 148 million and operate the mine for another three years. In Australia, Leighton Contractors is developing the iron ore mine Mesa A for production. The contract is worth EUR 202 million. HWE Mining will set up the necessary equipment and mine infrastructure. HWE will also perform the preparatory work so that mining can begin before the end of 2009.
Leighton subsidiary John Holland also won contracts for raw materials projects. For instance, the company will build a ship coal loader with a capacity of 7,200 metric tons per hour under a contract worth EUR 168 million. In addition, John Holland will expand two alumina refineries in a contract totaling EUR 151 million.
Another green building will be erected in the heart of Brisbane. Leighton Contractors was awarded the EUR 196 million contract to plan and construct the 44-story highrise for the project at 111 Eagle Street. The aim is for the building to obtain 6 Star Green Star certification from the Green Building Council of Australia, which is the premiumgrade rating.
The government of New South Wales awarded Leighton Properties the contract to develop the first section of the new Green Square Town Centre in Sydney together with a partner. The value of the contract is EUR 870 million. Work is due to start in 2010. By 2031, 28,000 people are expected to be living and 22,000 people to be working on the 280-hectare area.
Leighton's subsidiary Thiess is also constructing a green building, the Ark office tower, worth EUR 60 million. The hallmark of the 21-story building in the north of Sydney is its up to 2,000-square-meter floors. It is anticipated that the sustainable design of the building, which is slated to be completed in spring 2010, will receive at least five stars in the Green Star rating system.
In Abu Dhabi, Leighton is working with a joint venture to build several tourism-related projects valued at EUR 404 million. The projects include three hotels, a golf course, an office building and a complex with residential facilities for 20,000 workers.
A campus of Sorbonne University is also being built in Abu Dhabi for approximately EUR 211 million. The Al Habtoor Leighton Group is planning and constructing the educational building along with residential and sports facilities on a site measuring 90,000 square meters off the coast of Abu Dhabi.
At the same time, we are participating in building a second university project in the Emirate: Al Habtoor Leighton is planning and constructing the campus of Zayed University. The company's share of the contract amounts to EUR 319 million. All departments and student facilities on the 200,000-square-meter campus will be built in double because men and women there attend classes separately.
| (EUR million) | 2008 | 2007 |
|---|---|---|
| New orders | 12,651.0 | 10,415.7 |
| Work done | 8,638.9 | 7,409.2 |
| Order backlog | 16,194.2 | 14,928.9 |
| Divisional sales | 6,884.8 | 5,989.8 |
| External sales | 6,884.5 | 5,989.4 |
| Operating earnings (EBITA) | 427.5 | 441.3 |
| Profit before taxes | 327.2 | 404.5 |
| Capital expenditure | 1,005.2 | 1,364.9 |
| RONA (%) | 22.7 | 32.2 |
| Net assets (December 31) | 2,081.5 | 1,759.8 |
| Employees (average over the year) | 37,076 | 27,940 |
Work done and external sales rose correspondingly – work done by 16.6 percent to EUR 8.64 billion and external sales by 14.9 percent to EUR 6.88 billion.
At EUR 16.19 billion, the order backlog likewise set a new record, with an increase of 8.5 percent on the prior year.
Despite the excellent operating performance, both operating earnings (down 3.1 percent) and profit before taxes (down 19.1 percent) were below prior-year levels. The decrease mainly reflects impairment losses recognized by Leighton for stakes in listed concession companies and in other businesses as a result of the financial crisis, combined with a marked depreciation in the Australian dollar over the course of 2008.
Capital expenditure dropped by 26.4 percent to EUR 1 billion. The main factor in the large figure in 2007 was Leighton's acquisition of a 45 percent interest in Al Habtoor Engineering, Dubai.
The number of employees increased in line with with work done, averaging 37,076 in the year under review.
Leighton has taken preventive action by reducing costs, restricting capital expenditure and refraining from financial investments. In addition, Leighton holds a strong position in its core markets along with a record order backlog. Sustained growth in Asia, continued strong demand for resources and persistently high demand for infrastructure services in Leighton's domestic market of Australia lead us to expect an increase in pretax operating earnings in 2009.