Restructuring continued systematically
Clear improvement in German business in 2008
Further boost for international business
Growth potential tapped

Under the leadership of HOCHTIEF Construction, the HOCHTIEF Europe division draws together the Group"s portfolio of construction and construction-related services in Europe, focusing mainly on building construction, civil and structural engineering in selected countries in Western and Eastern Europe. Moreover, HOCHTIEF Construction also develops high-quality residential real estate. Outside of Europe, the company operates as a general contractor for large-scale projects. In addition, we offer numerous innovative business models and services along the entire construction value chain.

Additional restructuring measures introduced

In the year under review, the division continued to restructure its German building construction operations, a process begun in 2007, and launched additional measures to increase profitability. For instance, return targets for new projects were lifted, and pricing was adjusted strategically. The goal is to compensate HOCHTIEF Europe for the concrete value added created for its clients through innovative technologies and services. For this reason, service and solution packages of varying scope are now offered at different prices.

HOCHTIEF Europe's strategy of focusing our turnkey construction business on the partnership-based PreFair business model, optimizing risk management and boosting return on investment targets clearly increased the quality of earnings in the building construction business in Germany. Thanks to the "Subguard"* insurance model tried and tested at HOCHTIEF's subsidiary Turner, we are also protected from subcontractor default.

Boost for international business

The international business saw above-average growth rates, for example, thanks to projects in Greece, Eastern Europe and South Africa. Development in the civil engineering and infrastructure construction segments in particular was extraordinarily positive during the past fiscal year.

Enhanced cooperation throughout the Group

HOCHTIEF Construction is developing additional attractive sales and earnings potential through continually enhanced cooperation with other Group companies. For example, the company works in partnership with HOCHTIEF PPP Solutions on public-private partnership (PPP) projects. This is underscored by numerous orders received in 2008, such as the construction of the Maliakos-Kleidi and Elefsina- Patras-Tsakona freeways in Greece. HOCHTIEF Construction, HOCHTIEF PPP Solutions and HOCHTIEF Facility Management have also become firmly established as a seasoned team for public building construction projects based on the PPP model.

Further progress in real estate development business

HOCHTIEF Construction has become established as one of the leading residential real estate developers in Germany with the FormArt brand. This unit concentrates on first-rate residential properties in exclusive locations. During the year under review, a large number of projects were completed and the construction of new residential buildings begun.

Sustainable growth potential

As an innovative, profitability-focused company, HOCHTIEF< Construction identifies new, high-growth segments at an early stage and establishes itself in these markets. Renewable energies and sustainable construction are among these segments. We therefore further expanded our operations in areas such as the market for offshore wind plants. Together with HOCHTIEF PPP Solutions, we are one of the top companies in the geothermal market. In addition, HOCHTIEF is already the market leader in sustainable construction.

Project highlights

Large-scale projects

In 2008, construction work continued on the Elbe Philharmonic Hall in the new Hafencity urban development zone in Hamburg. The project valued at EUR 394 million is scheduled to be completed in fall 2011, by which time the hanseatic city will boast three new concert halls and a luxury hotel, among other things. Furthermore, HOCHTIEF is developing more than 40 exclusive freehold apartments. HOCHTIEF Facility Management will handle all aspects of the building's management.

The new Eppendorf university hospital, Europe's most state-of-the-art hospital, was dedicated in Hamburg at the end of 2008. As general contractor, HOCHTIEF Construction was responsible for building the hospital complex with 86,000 square meters of usable space in a project valued at EUR 140 million.

Office and commercial buildings

The Weser Tower will be Bremen's tallest office building. Along with HOCHTIEF Construction, HOCHTIEF Consult is constructing the 82-meter-high building in a project worth approximately EUR 24.7 million.

In July 2008, our Polish subsidiary HOCHTIEF Polska was awarded the construction contract for the second building in the Adgar Plaza complex in Warsaw. The contract is worth EUR 27 million. Construction work on the first office building was wrapped up in October of the year under review. After all work is completed, the complex will be among the most cutting-edge office properties in Poland.

Industrial construction

HOCHTIEF Construction is operating solely as construction manager for the first time during the building of a new plant for plastics manufacturer Ticona. Its subsidiary Streif Baulogistik's role in the contract includes providing the complete electrical equipment for the site such as electric control boxes and power supply cables, plus ten cranes. The new plant in Frankfurt is slated to begin operating in 2011.

HOCHTIEF Russia is building a new production facility and air-conditioned warehouse in the Russian city of Vladimir scheduled for completion by the end of 2009 for confectionery manufacturer Ferrero, one of HOCHTIEF Construction's repeat clients. Support for the project, which is valued at roughly EUR 100 million, is being provided by HOCHTIEF Construction and HOCHTIEF Polska.

Public-private partnership projects

HOCHTIEF Construction is part of a joint venture building a 25-kilometer-long section of the Maliakos-Kleidi freeway in Greece for an operator consortium under the leadership of HOCHTIEF PPP Solutions. The project includes tunnels, bridges and rest stops. The construction work is due to be completed in 2012. HOCHTIEF Construction is also part of the construction joint venture building a second toll road project by HOCHTIEF PPP Solutions in Greece, the Elefsina- Patras-Tsakona road link. As part of this project, 163 kilometers of road are to be newly built and 120 kilometers widened. In addition, 360 bridges will be constructed. These two PPP contracts result in a total contract value of around EUR 636 million for HOCHTIEF Construction.

In the first PPP building construction project involving the German federal government, the Fürst Wrede barracks in Munich, HOCHTIEF Construction is also handling construction and refurbishment operations for HOCHTIEF PPP Solutions.

Real estate development projects

Among other real estate development projects, HOCHTIEF Construction is building 37 exclusive freehold apartments in Heidelberg under its FormArt brand, 23 of which are located in the city's former Schlosshotel. The EUR 26.4 million residential facility is expected to be ready for occupancy in spring 2010.

Infrastructure projects

A 160-megawatt hydroelectric power plant will be completed by 2010 south of Chile's capital of Santiago de Chile. HOCHTIEF Construction is the leader of a joint venture designing and building a turnkey powerhouse that will comprise two turbines, two river diversions and several tunnels with a total length of 19 kilometers.

HOCHTIEF Europe division

(EUR million)	2008	2007
New orders	3,283.3	3,176.1
Work done	3,239.2	2,868.5
Order backlog	3,559.0	3,545.6
Divisional sales	2,569.4	2,321.3
External sales	2,414.9	2,169.5
Operating earnings (EBITA)	(29,6)	(131,7)
Profit before taxes	(34,2)	(149,4)
Capital expenditure	53.5	29.5
RONA (%)	0.4	(21,2)
Net assets (December 31)	513.5	575.0
Employees (average over the year)	9,380	8,807

Near the South African city of Port Elizabeth, we will expand the deepwater port of Ngqura to include two berths for a container terminal by 2010. The contract is worth around EUR 77 million. The port had been built by HOCHTIEF Construction along with a partner in 2006.

The HOCHTIEF Europe division's key figures

The high levels of new orders and order backlog achieved in the previous year by the Europe division were topped once again.

New orders were up by EUR 107.2 million (plus 3.4 percent) over the previous year's figure. Due to the restructuring program implemented in the German building construction business, the foreseeable decline in Germany was more than offset by order taking of large-scale infrastructure projects abroad and in the Eastern European subsidiaries.

Work done also rose by EUR 370.7 million (up 12.9 percent), mostly as a result of our international activities.

At EUR 3.56 billion, the order backlog remained at last year's level, ensuring satisfactory capacity utilization for 2009.

Parallel to the development of work done, external sales climbed compared with the previous year by a total of EUR 245.4 million (plus 11.3 percent). This increase was mostly due to our companies in Russia, Poland and Chile, for example.

The restructuring measures launched in our German building construction operations in 2007 were continued in the year under review and still led to declines in operating earnings and profit before taxes after deduction of foreseeable expenses. However, the prior-year losses were reduced significantly.

The increase in capital expenditure was mainly attributable to technical equipment and machinery as well as other equipment and office equipment for the purpose of building large-scale infrastructure projects abroad.

Net assets declined compared with the previous year, mostly as a result of the disproportionate increase in liabilities. The increase in the number of employees was principally due to the HOCHTIEF Europe division's international activities.

Outlook

Thanks to its presence in the world's growth regions, the division is favorably positioned to largely balance out regional fluctuations. Our capacity utilization is at a satisfactory level, which leads us to be cautiously optimistic about developments in the coming months. The measures instituted in the building construction business in Germany proved to be effective, particularly due to the quality of prices obtained for new contracts.

We continue to hold firm on our forecast and expect a return on sales of around one percent for the Europe division in 2009. For 2010, we are targeting a return of three percent.

HOCHTIEF Europe Division