Interim Management Report
Financial Review
Earnings
Strong sales performance in all divisions, and especially in international markets, generated a further rise in sales. Group sales were up 11.2 percent, from EUR 7.13 billion in the first half of 2006 to EUR 7.93 billion in the same period of 2007. Particularly strong growth came from the Asia Pacific division, where sales were nearly EUR 370 million higher than in the prior-year period, reaching EUR 3.12 billion. Leighton benefited to an exceptional degree from strong demand for resources and public infrastructure contracting in the booming Asia-Pacific region. Sales in the American market likewise rose substantially, by 9.1 percent from EUR 3.04 billion in the previous year to EUR 3.31 billion in the period under review. This gain would have been even stronger without the adverse US dollar-euro exchange rate. The Development and Europe divisions also reported increased sales. While HOCHTIEF Development moved ahead notably with PPP contracts, HOCHTIEF Europe benefited from the growing Eastern European markets.Profit from operating activities, at EUR 95.2 million, did not match the EUR 118.2 million reported for the prior-year period. The decrease is due to the large loss generated by the Europe division. Much of the negative impact from the German building business was satisfactorily compensated for by excellent performance in the remaining divisions. The Asia Pacific division continued to deliver outstanding earnings performance, raising its profit from operating activities by 50.2 percent to EUR 202.7 million. The Americas and Airport divisions likewise contributed substantially increased earnings.
In line with the successful performance of our Airport division, net income from participating interests climbed strongly in the period under review. The total figure more than doubled from EUR 26.5 million in the prior-year period to EUR 63.9 million in the first half of 2007. All airport holdings contributed to this success with higher earnings. One notable development involved Sydney Airport, which was able to pay shareholders a special dividend following its successful refinancing.
Net investment and interest income likewise improved significantly. After investment and interest income and expenses came close to netting out at EUR 1.1 million in the prior-year period, the first half of 2007 produced a strong positive balance of EUR 22.7 million. Improved, very positive
Profit before taxes grew strongly despite the losses in the Europe division. The 24.7 percent gain to EUR 181.8 million (up from EUR 145.8 million in the prior-year period) is compelling testimony to the enduring earning power of the HOCHTIEF Group as a whole.
Income taxes came to EUR 76.4 million, up EUR 13.4 million on the EUR 63 million recorded in the first half of 2006. The increase is due to improved earnings from our subsidiaries Leighton and Turner, leading to higher current income tax expense. In contrast, deferred tax expense was down. As a result, the effective tax rate remained almost unchanged, at 42 percent compared with 43.2 percent in the prior-year period.
Profit after taxes increased by 27.2 percent to EUR 105.4 million, up from EUR 82.8 million in January to June 2006. This good overall result reflected strong earnings performance in all divisions with the exception of HOCHTIEF Europe.
Consolidated net profit came to EUR 13.8 million, down from EUR 31.5 million in the prior-year period. The minority interest, in contrast, increased by a very substantial 78.5 percent to EUR 91.6 million. This was mostly due to sharp growth in earnings at the Asia Pacific and Airport divisions. The minority stakes in Leighton and our airport holdings mean that a large share of earnings from these businesses are apportioned to outside shareholders.
Cash flow
The HOCHTIEF Group generated a strong positive net cash inflow from operating activities of EUR 113.5 million in the first half of 2007. This nonetheless fell short of the prioryear period figure of EUR 185.5 million. The decrease was primarily a result of the loss situation in the Europe division. The attendant outflow of funds was partly offset, however, by higher cash inflows from the Asia Pacific and Development divisions.Capital expenditure was stepped up by a substantial 33.8 percent compared with the prior-year period, from EUR 471.1 million to EUR 630.5 million. Within this total, capital expenditure on property, plant and equipment and on intangible assets was slightly down on the comparable prior-year
