Concessions and Operation
HOCHTIEF is geared to sustainable, profitable growth. A key part in this growth strategy is played by our intensive and
continuously expanding activities in the concessions and operation business. These activities include the
airport and
public-private partnership (PPP) segments
served by the HOCHTIEF Concessions division.
Recognizing the growing importance of the concessions business to HOCHTIEF, we created a new
HOCHTIEF Concessions division in the first quarter
of 2008. The division is presided over by HOCHTIEF Concessions GmbH and contains HOCHTIEF AirPort GmbH and HOCHTIEF PPP Solutions GmbH.
It thus brings together our activities in the airports, toll roads, public buildings and renewable energies segments. The new structure
allows closer cooperation and the reaping of synergies in market development, business planning, special operator responsibilities and
other technical areas making us a strong partner for our clients.
A number of factors stand out to differentiate us from international competitors in the concessions business:
- The expertise and innovative strength we have shown time and again in designing, financing, building and operating complex projects,
which means we can optimize and provide services at every stage of the project life cycle
- Our experience with concessions and operation projects worldwide
- Our closely linked international network and cross-border transfer of know-how, which enable us to reap synergies
- Our excellent reputation as one of the world's leading construction services providers.
Our company has stakes in
six airports, eight toll roads,
fifteen public building projects and
two renewable energy projects. Further interests are owned by our subsidiary
Leighton.
Our company consequently occupies a
globally leading position in the market for privately financed infrastructure projects.
The following information relates exclusively to the project portfolios of HOCHTIEF AirPort and HOCHTIEF PPP Solutions and their valuation.
Structure of HOCHTIEF's concessions business
HOCHTIEF AirPort
HOCHTIEF became established in this dynamic market as early as the mid-1990s with the award in Athens of the world's first BOOT concession for an
airport, secured among other things by virtue of our airport construction expertise. We have since added interests in Budapest, Düsseldorf,
Hamburg, Sydney and Tirana airports. This portfolio of attractive airports with strong prospects for the future makes us one of the world's largest private
and independent airport investors and managers.
HOCHTIEF AirPort only enters into long-term arrangements with the goal of
improving an airport's operating efficiency and passenger comfort. Total passenger numbers served across our airport portfolio swelled to some
90 million in fiscal 2008.
We continually build on our airport expertise, creating substantial added value for the airports operated by HOCHTIEF. As an investor, we aim to develop our
airport holdings into profitable transportation and commerce hubs that are ready for the challenges of the future. Our many years' experience in operating and
managing airports of various sizes along with our financing expertise and potential are key elements in meeting this goal. The airports in the HOCHTIEF portfolio
are also integrated into a close network, yielding synergies and fostering direct exchange of experience.
Thanks to strong performance in the first six months of the year, worldwide passenger numbers remained almost unchanged in 2008. At HOCHTIEF's airport
holdings, these numbers even increased by 1.5 percent. However, the weakening economy also caused growth to slow in this segment. Nevertheless, airports
continue to be a dependable long-term choice for institutional investors seeking strong returns with relatively little volatility.
With a view to the planned expansion of the airports portfolio, HOCHTIEF AirPort formed
HOCHTIEF AirPort Capital (HTAC) in 2005. Around one-third of the shares in Athens, Düsseldorf
and Hamburg airports and about half of the shares in Sydney Airport were sold in this connection to our investment partners Hastings Fund Management,
Caisse de dépôt et placement du Québec and KfW IPEXBank. HOCHTIEF AirPort is interested in joining forces with these and possibly other investment partners
in future to field consortia with the financial strength to master further privatization projects.
HOCHTIEF helps its investment partners clear high barriers to entry and earns transaction and management fees from them for its services. In addition, HOCHTIEF and its
investment partners generate income from dividends, interest on shareholder loans, and any gains on disposals of ownership stakes.
HOCHTIEF AirPort met a commitment in 2008 to sell to HOCHTIEF AirPort Capital 1.36 percent of the Sydney Airport shares it had taken over the previous year from
the Spanish construction company Ferrovial. HOCHTIEF AirPort now holds 6.8 percent of Sydney Airport and HOCHTIEF AirPort Capital 6.5 percent.
HOCHTIEF PPP Solutions
HOCHTIEF PPP Solutions serves the concessions market covering toll roads/transportation and public
buildings/social infrastructure as well as the renewable energy segment. The company supplemented its existing European and South American activities in 2008 by also expanding into
North America. We aim to take a slice of the rapidly growing US infrastructure business together with our American subsidiaries Turner and Flatiron. HOCHTIEF PPP Solutions' end-to-end
portfolio of capabilities comprising design, financing, construction and operation allows it to provide services along the full project life cycle while optimizing project cash flows.
This shrinks the necessary capital and operating outlay, at the same time enabling projects to be completed faster and more cost-effectively. As with the airport holdings, our PPP projects
generate income from dividends, interest from shareholder loans as well as transaction and management fees, plus any gains on market placement or disposals of ownership stakes.
HOCHTIEF PPP Solutions' portfolio of toll road contracts comprises eight projects with a total investment volume in excess of EUR 5 billion. In all, the company is responsible
for nearly 800 kilometers of toll road. Some 600 kilometers are accounted for by just two Greek PPP road projects Maliakos-Kleidi and
Elefsina-Patras-Tsakona on which HOCHTIEF reached financial close in 2008. This also brought the concession contract for the two projects into effect. Construction, operation
and toll charging promptly started as a result. The 365-kilometer Elefsina-Patras-Tsakona link is one of Europe's biggest contemporary infrastructure projects.
At the end of fiscal 2008, a further indirect 3.75 percent stake in the Vespucio Norte Express (VNE) project in Chile was sold to investor M.M. Warburg & Co. for a purchase
price of EUR 25.3 million. HOCHTIEF PPP Solutions has now reduced its interest in the VNE toll highway in two stages from 45.45 percent to 29.2 percent.
The sale formed part of our active management of the concessions portfolio and reaffirmed our portfolio valuation.
In the buildings segment, HOCHTIEF PPP Solutions was responsible at the 2008 balance sheet date for
15 projects with a total of
89 schools serving over
60,000 students in Germany, the UK and Ireland. The company's portfolio also includes Gladbeck city hall and Munich's Fürst Wrede barracks. The latter is the German
government's first security-related PPP building project. HOCHTIEF PPP Solutions reached financial close on the project in March 2008. Together with its British team, the company is bidding
for contracts under the UK Building Schools for the Future investment program and is making headway in the fastgrowing Greek PPP building market, where it is already involved in several bids
for education, administration and security infrastructure projects.
In the renewable energy segment, HOCHTIEF PPP Solutions successfully finished drilling work in 2008 on its first geothermal power plant at Dürrnhaar in Bavaria. With the participation of a
drilling team from HOCHTIEF Construction, the first phase of drilling was completed for a second plant in nearby Kirchstockach. These are the first two power plants in a series that the
company and its partners are building in the southern German part of the Molasse basin.
Leighton Holdings Limited
Another HOCHTIEF subsidiary engaged in the segment toll roads / transport infrastructure is
Leighton Holdings Limited in Australia
and Southeast Asia. Leighton is also worldwide market leader in contract mining and a
long-standing partner of many mining companies.
Portfolio valuation
We value the assets of HOCHTIEF AirPort and HOCHTIEF PPP Solutions using the discounted cash flow (DCF) method.
In DCF-based valuation, we determine the cash flow between project companies and HOCHTIEF capital paid in and withdrawn, dividends, interest and fees and discount the future cash
flows by applying a risk-adjusted discount rate.
Only projects that have reached financial close are included in the valuation.
For airport holdings, HOCHTIEF applies a discount rate of 13 percent. The placement price obtained on establishment of the investment partnership in 2005 showed this to be in
line with market rates.
For PPP projects, we apply a risk-adjusted discount rate determined with reference to secondary market transactions. The basic risk-free interest rate is supplemented with market-based mark-ups
according to project type and completion stage. We apply a weighted discount rate of 12.3 percent for our PPP portfolio as of December 31, 2008. As projects move toward
completion, risk and hence the mark-up drops and the value of HOCHTIEF's assets rises.
Project selection is subject to strict return-on-investment targets that are normally above the applied discount rates. Proceeds from sales of equity stakes further boost our internal rate of return.
Discounting method for PPP projects
The net present value of HOCHTIEF's airport portfolio as of the 2008 balance sheet date was EUR
1,245.6 million. This corresponds to a loss in value of
6.9 percent compared to the
previous year. This is partly due to the resale of
1.36 percent of the shares in Sydney Airport to HOCHTIEF AirPort Capital, and partly to changes wrought by the global financial crisis and the
related fall in growth expectations for air travel.
The net present value of HOCHTIEF's PPP projects as of December 31, 2008 was EUR 224.4 million, up EUR 18.5 million on the prior year. Most of the increment is accounted
for by growth in the value of the portfolio, progress and project development and improvement in operating cash flows at project level.
The reduction in the size of the portfolio on disposal of the
3.75 percent stake in the Vespucio Norte Express toll highway in Chile was slightly more than made up for by the gain on the award in
2008 of the Maliakos- Kleidi and Elefsina-Patras-Tsakona highway projects in Greece.
The total value of the concessions portfolio amounts to EUR 1,470 million. The future discounted cash flows exceed HOCHTIEF's EUR 820 million investment by EUR 650 million.
In view of its rapidly growing market potential internationally, the concessions business will continue to offer substantial opportunities for HOCHTIEF.
Portfolio value of concessions projects in the HOCHTIEF Concessions division
|
Status: Financial close (EUR million)
|
Total capital required
|
Capital provided by Dec. 31, 2008
|
NPV of expected cash flows at Dec. 31, 2008
|
NPV at Dec. 31, 2007
|
Difference due to portfolio growth
|
Difference value growth
|
| HOCHTIEF AirPort | 720.0 | 720.0 | 1,245.6 | 1,337.8 | (41,7) | (50,5) |
| HOCHTIEF PPP Solutions | 240.4 | 100.0 | 224.4 | 205.9 | (5,0) | 23.5 |
| Total | 960.4 | 820.0 | 1,470.0 | 1,543.7 | (46,7) | (27,0) |
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