Interim Management Report
Financial Review
Earnings
Sales came to EUR 3.69 billion, another substantial rise compared with the prior-year period (Q1 2006: EUR 3.42 billion). The increase - 8.1 percent or about a quarter of a billion euros - reflects successful, targeted expansion in HOCHTIEF's chosen markets. The Asia Pacific division sustained its growth trend from the previous year into the beginning of 2007. Sales in this flourishing region surged ahead by 13.2 percent compared with a year earlier, from EUR 1.32 billion to EUR 1.5 billion. The Europe and Development divisions likewise achieved double-digit sales growth. On the important US market, Turner secured further sales growth as measured in local currency. The adverse trend in the US dollar-euro exchange rate, however, meant that Americas division sales as measured in euros were slightly down on the prior-year quarter, at EUR 1.46 billion in Q1 2007 compared with EUR 1.49 billion in Q1 2006.Earnings likewise held their established upward trend. Profit from operating activities improved by almost one-third, from EUR 30.6 million to EUR 39.9 million. The individual divisions contributed to varying degrees to this overall positive trend. The Asia Pacific division again stood out, more than doubling its profit from operating activities. In contrast, the prior year's unforeseeable price hikes on the German construction market both for raw materials and goods and services inputs continued to squeeze earnings in the Europe division during the period under review.
All HOCHTIEF airport holdings maintained their strong business trend through the first quarter and generated higher contributions to Group earnings than in the previous year. A highlight is Sydney Airport, which substantially boosted its earnings contribution. The outcome was a marked improvement in net income from participating interests, which rose by 54.2 percent from EUR 16.9 million to EUR 26 million.
Net investment and interest income was slightly down. After a EUR 2.7 million positive balance in the prior-year quarter, HOCHTIEF's investment and interest income and expenses more or less canceled out in the period under review. This was due to lower income from securities.
Income taxes came to EUR 23.8 million, eleven percent below the figure for the prior-year period of EUR 26.7 million. The current tax included in the total was mostly accounted for by the Leighton Group and tracked Leighton's increased earnings. In contrast, deferred tax expense decreased compared with the prior-year quarter.
The 36.1 percent effective tax rate was significantly below the 53.1 percent recorded in the first quarter of 2006. The Group benefited here from healthy earnings growth at the Leighton Group, which faces a relatively low rate of income tax.
Profit after taxes came to EUR 42.1 million, a very substantial near-80 percent rise on the prior-year quarter (Q1 2006: EUR 23.5 million). All operating divisions except HOCHTIEF Europe contributed positively to this achievement.
Consolidated net profit totaled EUR 9.6 million, up 11.2 percent on the prior-year quarter. The minority interest more than doubled compared with Q1 2006, from EUR 14.9 million to EUR 32.5 million. There are two main reasons for this large increase: Firstly, the higher earnings at Leighton, which has significant minority shareholders, meant a marked rise in earnings earmarked for them. Secondly, the Airport division shows a larger minority interest due to greater earnings contributions from its airports. Outside shareholders also hold substantial interests in the Group's airport holdings through our investment partnership.
