On the international front, our HOCHTIEF Americas and HOCHTIEF Asia Pacific divisions sustained their successful performance trend. HOCHTIEF Americas generated sales of EUR 8.05 billion (2007: EUR 6.95 billion). Most of this sales growth was accounted for by our subsidiary Flatiron, which was acquired late in 2007. Flatiron was only included in the 2007 consolidated financial statements for a short fiscal year consisting of a single month with sales of EUR 58.3 million. In 2008, Flatiron was included for the full year and contributed EUR 854.2 million toward Group sales. Our US subsidiary Turner likewise boosted sales, by 5.2 percent to EUR 7.1 billion (2007: EUR 6.75 billion). The falling US dollar once again diminished the subsidiary"s sales growth after translation into euros by 6.3 percent over the year. In local currency, Turner broke the USD 10 billion barrier with total sales of USD 10.45 billion representing a 12.2 percent rise on the prior year (2007: EUR 9.31 billion). The upward trend also continued in the Asia- Pacific region. Sales at the HOCHTIEF Asia Pacific division were up 14.9 percent to EUR 6.88 billion (2007: EUR 5.99 billion). A falling exchange rate also made itself felt here, with a 6.4 percent drop in the year's average rate for the Australian dollar pulling down divisional sales by nearly half a billion euros. On the Eastern European market, which is becoming increasingly important to HOCHTIEF, the Group further expanded its activities and generated sales of almost EUR 1 billion.
| (EUR million) | 2008 | 2007 |
|---|---|---|
| Profit from operating activities | 310.5 | 122.9 |
| + Net income from participating interests | 306.0 | 354.3 |
| - Non-operating earnings | (+) 15.0 | (+) 22.6 |
| + Interest credited | 44.6 | 39.7 |
| Operational earnings (EBITA) | 676.1 | 539.5 |
| Net investment and interest income | (141,0) | (15,6) |
| Non-operating earnings | (15,0) | (22,6) |
| Profit before taxes | 520.1 | 501.3 |
| Income taxes | (177,9) | (160,3) |
| Profit after taxes | 342.2 | 341.0 |
| Of which: Consolidated net profit | 175.1 | 140.7 |
| Of which: Minority interest | 167.1 | 200.3 |
The international share of Group sales was held constant from the prior year at 86.5 percent, underscoring the strongly international character of the Group and the importance of foreign markets to HOCHTIEF.
Business was also very strong in our German home market in the past year. With sales of EUR 2.58 billion, HOCHTIEF achieved 16.2 percent sales growth in Germany compared with the prior year (2007: EUR 2.22 billion). In the process, we developed our activities away from the difficult German building construction market and toward project development, service and operating business focusing on infrastructure projects, real estate and facilities.
The HOCHTIEF Asia Pacific division made another particularly large contribution, adding EUR 427.5 million to the HOCHTIEF Group's operating earnings in the year under review. This was slightly down on the prior-year figure, however (2007: EUR 441.3 million). The main negative impact here was the precaution taken at Leighton of writing down all interests in listed infrastructure companies to their quoted prices as of December 31, 2008. A positive factor consisted of a deconsolidation gain on the transfer of Leighton subsidiary Gulf Leighton L.L.C. to associate Al Habtoor Engineering Enterprises Co. L.L.C. Leighton's very successful operating business meant that despite the adverse effect of the impairment charge, HOCHTIEF Asia Pacific operating earnings were only 3.1 percent down on the prior year.
Net income from participating interests came to EUR 306 million – as expected, below the prior-year figure, which was swelled by extraordinary items (2007: EUR 354.3 million). Notable positive factors in fiscal 2007 included a special dividend received from Sydney Airport and, occasioned by the German corporate tax reform, a remeasurement of deferred tax items recognized on accounting for Hamburg Airport using the equity method. Given the extraordinary items in the prior year and the impairment charges recognized for various project companies in the HOCHTIEF Asia Pacific division, the businesses in HOCHTIEF's portfolio
As in the prior year, the negative amount shown for nonoperating earnings (minus EUR 15 million, compared with minus EUR 22.6 million in 2007) related in its entirety to restructuring expenditure at the HOCHTIEF Europe division.
Net investment and interest income came to minus EUR 141 million in 2008 and was thus substantially deeper into negative figures than in the prior year (2007: minus EUR 15.6 million). This mostly reflected bank borrowing to finance the major expansion of our business activities and the high level of capital expenditure undertaken in the prior year. We also responded promptly to the increasing difficulties in obtaining funding on the capital market that arose in connection with the financial crisis. To secure the cash resources needed by the Group, we therefore made further utilization of the credit facilities we have available.
The effective tax rate was 34.2 percent and thus stayed at a low level. There was a moderate rise compared with the prior year (2007: 32 percent), the effective tax rate having been reduced in fiscal 2007 by extraordinary items in the airports segment.
Profit after taxes, at EUR 342.2 million, was slightly up on the high prior-year figure of EUR 341 million. The amount attributed to consolidated net profit grew even more strongly. Consolidated net profit rose by a significant 24.4 percent or EUR 34.4 million, from EUR 140.7 million in 2007 to EUR 175.1 million in 2008. In contrast, the minority interest dropped sharply. The minority interest was EUR 167.1 million, a fall of EUR 33.2 million or 16.6 percent from the prioryear figure (2007: EUR 200.3 million). This change was driven by a shift in divisional earnings contributions compared with the prior year. The minority interest was reduced by both an increase in earnings at Group companies with little or no minority share of equity and a decrease at Group companies in which minority stockholders hold a large share.
With the presented results, and despite the financial crisis, we have attained in full the increased forecast for the Group published in our interim report as of September 30, 2008. Group sales, profit before taxes and consolidated net profit are – as predicted – above the figures for 2007.
| (EUR million) | 2008 | 2007 |
|---|---|---|
| Net cash provided by operating activities | 266.1 | 609.3 |
| Net cash used for investment activities | (901,3) | (1,554.6) |
| Net cash provided by financing activities | 1,046.1 | 1,035.2 |
| Net cash increase in cash cash and equivalents | 410.9 | 89.9 |
| Cash and cash equivalents of year-end | 1,787.7 | 1,402.5 |
609.3 million), mainly due to a further rise in net cash tied up in working capital. The main factor at play here was growth in the operating business and the resulting rise in trade receivables. Aside from the HOCHTIEF Real Estate division, the HOCHTIEF Asia Pacific division recorded a particularly large increase in receivables.
HOCHTIEF undertook very substantial capital expenditure on property, plant and equipment and financial assets in 2008, once again exceeding the EUR 1 billion mark. As expected, however, at EUR 1.16 billion, total capital expenditure fell short of the prior-year record (2007: EUR 1.77 billion). Purchases of intangible assets and property, plant and equipment accounted for EUR 645.5 million of the 2008 total (2007: EUR 703.2 million). The main focus of capital expenditure was once again on property, plant and equipment at Leighton. Carrying out large infrastructure projects and the asset-intensive contract mining business necessitated a capital outlay of EUR 538.7 million (2007: EUR 638.3 million) in the HOCHTIEF Asia Pacific division.
After a record level of investment spending on financial assets in the prior year, HOCHTIEF concentrated in the year under review on targeted additions and scaled back expenditure to a normalized level. At EUR 510.5 million, investment outlay on financial assets was therefore well down on the prior year (2007: EUR 1.07 billion). The lion's share was again accounted for by investment at Leighton in infrastructure project companies and in the interest acquired during 2007 in the Gulf construction company Al
At EUR 1.05 billion, net cash provided by financing activities showed scarcely any change compared with the prior year (2007: EUR 1.04 billion). There was substantial new borrowing – primarily at Leighton and HOCHTIEF Aktiengesellschaft – in the form of bank loans, promissory note loans, further drawings on syndicated revolving credit
HOCHTIEF's cash and cash equivalents stood at EUR 1.79 billion as of December 31, 2008, an increase of EUR 385.2 million compared with the prior year (2007: EUR 1.4 billion). Within the total, exchange rate changes had a negative impact of EUR 25.7 million (2007: EUR 81.9 million).
Free cash flow improved in fiscal 2008 compared with 2007 to minus EUR 635.2 million (2007: minus EUR 945.3 million). The figure consists of net cash provided by operating activities (EUR 266.1 million) less net cash used in investing activities (EUR 901.3 million).
Despite the continued difficulties on the finance and capital markets, which show no sign of settling down, we succeeded in July 2008 in issuing two new promissory note loans for a total of EUR 250 million. A notable feature of the loans is their tenors of five and seven years. Loan terms of this length are now scarcely attainable. The two loan tranches thus mean that a further major portion of the Group's financing is secure. Obtaining longer maturity periods continues to be very important in order to prevent debt bunching. The new issue allowed HOCHTIEF to further extend the maturity profile of key elements of its financing to the years 2013 and 2015.
Another key factor in opting for promissory note loans as a financing vehicle was lender diversification, which we further enhanced with these loans. The issue was marketed to gratifyingly strong demand outside of HOCHTIEF's core banks, which ultimately allowed the total amount to be increased to EUR 250 million. This again reduces our dependence on the mainstream banking sector, which still continues to be more than reticent as regards new lending. The documentation is largely based on that of the syndicated facilities. No new financial covenants needed to be accepted. The negotiated terms and conditions are highly attractive for loans with durations as long as five and seven years, reaffirming the immaculate long-term credit standing of the HOCHTIEF Group in the lending markets.
These central Group financing sources are supplemented on a case-by-case basis with project-specific facilities taken out exclusively for short-term finance on individual projects. These are each secured against the project in question and so avoid regular recourse to the Group. Individually negotiated project financing of this kind provides us with maximum flexibility, for example, regarding the terms of settlement if a project is sold early to the end investor.
The non-European divisions also have their own local financing. Turner and Flatiron, for example, have continued access in the USA to a USD 4.76 billion bonding facility that can be expanded to USD 5 billion at any time. This ensures that local bonding for construction contracts is available on a long-term basis – an important financing component especially in light of the infrastructure programs planned by the new US administration. Flatiron has additionally been able to obtain a bilateral short-term revolving credit facility to secure local financing.
The Leighton Group in Australia likewise has sufficient long-run finance through its own long-term loans and supplementary project borrowings. Leighton's financing base was further strengthened in the year under review by the very successful stock issue.
Total assets consequently showed a further marked increase in 2008 and amounted to EUR 12.1 billion at the December 31, 2008 balance sheet date. This represents growth of a significant EUR 1.44 billion or 13.5 percent compared with the comparative prior-year figure of EUR 10.66 billion.
Non-current assets totaled EUR 4.4 billion, a gain of EUR 140.5 million or 3.3 percent compared with the prior year (2007: EUR 4.26 billion). After swelling to EUR 505.1 million in 2007 due to goodwill recognized on acquisitions, intangible assets dropped back slightly to EUR 482.7 million as of the 2008 year-end. The decrease is mostly accounted for by future earnings implicit in the order backlog at the time of the Flatiron acquisition being amortized to income. Acquisition-related goodwill stood at EUR 407.8 million as of the balance sheet date (2007: EUR 406.5 million). The remainder of intangible assets mainly consisted of concessions and licenses. Property, plant and equipment increased in line with the higher level of output and the correspondingly higher capacity needed – above all in the HOCHTIEF Europe and HOCHTIEF Asia Pacific
The major EUR 1.3 billion or 20.3 percent surge in current assets to EUR 7.7 billion (2007: EUR 6.4 billion) tracks the expansion of the operating business pushed forward in 2008. Trade receivables increased as a result by EUR 952.1 million or 25.7 percent to EUR 4.64 billion (2007: EUR 3.69 billion). The rise in trade receivables was spread across all divisions. Other receivables and other assets sank by EUR 140.7 million to a year-end total of EUR 171 million (2007: EUR 311.7 million). Most of this decrease is connected to the receipt of payment for shares sold in 2007 in the Vespucio Norte Express infrastructure project. Holdings of marketable securities grew during fiscal 2008
Shareholders' equity came to EUR 2.86 billion as of December 31, 2008, down EUR 139.4 million from the prioryear figure (2007: EUR 3 billion). Profit after taxes boosted Group shareholders' equity by EUR 342.2 million. Other changes not recognized in the statement of earnings added a further EUR 124.8 million, mainly comprising the balance of purchases of the Company's own stock (a reduction of EUR 93.5 million) and payments into equity by minority shareholders at Leighton and the Sydney Airport holding company (an increase of EUR 222.1 million). Amounts recognized directly in equity for currency translation differences, changes in the fair value of financial instruments as well as changes in actuarial gains and losses reduced shareholders' equity by EUR 371.8 million. By far the largest part of this reduction comprised changes in the fair value of financial instruments, which had dropped sharply in price with the effects of the financial crisis. Dividend payments to HOCHTIEF's and other shareholders further decreased shareholders' equity by EUR 234.6 million.
The expansion of the balance sheet reflecting the Group"s growth combined with the slight drop in shareholders' equity brought about a fall in the equity ratio – shareholders' equity as a percentage of total assets – to 23.6 percent (2007: 28.2 percent).
Non-current liabilities increased by EUR 595.2 million to EUR 2.43 billion at the December 31, 2008 balance sheet date (2007: EUR 1.83 billion). Provisions for pensions and similar obligations rose – mainly at Turner – from EUR 29 million to EUR 76.7 million. HOCHTIEF has provided for most of its pension obligations in recent years by transferring assets to pension funds. Due to the dwindling of plan
Current liabilities likewise climbed sharply, amounting to EUR 6.81 billion at the 2008 fiscal year-end – an increase of EUR 986.6 million on the prior-year balance sheet date (2007: EUR 5.83 billion). Much of this growth was in financial liabilities, which were up by EUR 605.6 million from EUR 642.7 million to EUR 1.25 billion. The growth mostly consisted of short-term borrowings by the HOCHTIEF Real Estate division to finance its project development business and overnight borrowing by Corporate Headquarters to secure Group liquidity. Trade payables also rose by EUR 418.4 million to EUR 4.56 billion (2007: EUR 4.14 billion). The larger volume of business resulted especially at the HOCHTIEF Americas and HOCHTIEF Europe divisions in a higher level of payables at the fiscal year-end.