Turner: Focusing on high-margin projects
Heightened competition, increases in material and energy costs and a limited supply of qualified personnel are three pressing issues for the US construction industry. Turner re- sponded to this environment by focusing on select high- margin projects and market segments in order to offer clients quality, extensive expertise and differentiated prod- ucts and services with which Turner secures a clear com- petitive advantage. Coupled with the consolidation of growth and optimized cost structures, this strategy aims to increase the company’s profitability.
Leading the market
Turner maintained its position as the leading general build- er in the US again in 2005, as confirmed by Engineering News-Record’s rankings. The HOCHTIEF subsidiary further strengthened its dominance in the consistently dynamic healthcare market segment. For example, Turner was awarded the construction management of the replacement hospital Sacred Heart Medical Center in Springfield, Oregon, a contract worth EUR 230 million.
Turner also has a leading position in the market for educa- tional facilities. In particular, the company continues its growth track in the higher education segment. From the renowned Yale University, it won a EUR 50 million contract to refurbish part of the campus built in 1940.
One of the contracts the company landed in the office prop- erty market in 2005 was for the construction of the Cira Cen- tre in the heart of Philadelphia, a 29-story high-rise situated across the street from Philadelphia’s 30th Street Station. With access from only one side of the building, the job created tough logistics and put the skills of the design and construc- tion team to the test. In Chicago, Turner built yet another office building for the international real estate developer Hines. The
40-story project, with a construction volume of some EUR 80 million, offers more than 90,000 square meters of floor space. For the construction of the Hearst Building in New York City (see page 12), Turner acted as more than just the construction manager. The company is also responsible for the interior con- struction of the office tower. A EUR 86 million contract, this project underscores Turner’s expertise in tenant build-outs. Green building harbors enormous potential
Turner also leads in the sustainable or Green construction market*. In 2005, Turner secured 47 Green projects. Green buildings are in high demand because of the cost savings potential they offer in areas like energy consump- tion. The HOCHTIEF subsidiary has identified a substantial market for sustainable construction, especially in the K-12 and higher educational market segments. In 2005, South- ern Methodist University in Dallas, Texas, hired Turner for the preconstruction and construction management of a state-of-the-art Green facility for instruction and research. A first for the campus, the new Embrey Engineering Build- ing is to be LEED** certified. In Michigan, Henry Ford Health System awarded Turner a contract representing EUR 180 million to build a hospital that will also seek LEED certifica- tion. To further reinforce its competitive position, Turner is currently developing a special supplier database for Green products. The aim is to optimize procurement processes. Aecon results improved
The restructuring at our Canadian associated company Aecon actively supported by HOCHTIEF bore first fruits in 2005. The Buildings segment achieved its turnaround. In the area of international infrastructure development, the contract to develop, build and operate the airport in Quito, Ecuador was awarded to a consortium in which Aecon has a 45.5 percent stake. The company holds 50 percent of the joint venture hired to build the new airport. The total
The HOCHTIEF companies in t he US, Canada and Brazil solidified t heir positions in t heir re- spective markets in t he year under review. US subsidiar y Turner adopted a managed grow t h st rategy to fur t her boost profit abilit y amid ever-increasing competition.
For further information, please visit:
www.turnerconstruction.com www.aecon.com
www.hochtief.com.br
*See our 2005 Sustainability Report or visit www.hochtief. com/sustainability to learn more about sustainable con- struction/green building at HOCHTIEF.
To O u r S h C o rp o ra te G o ve rn a n c e H O C H T IE F S to c k M a n a g e m e n t R e p o rt c ia l S ta te m e n ts a n d N o te s
HOCHTIEF Construction Services
Americas Division:
Focus on quality creates competitive advantage
volume of the construction contract is EUR 330 million. Aecon also landed additional contracts to build equipment for extracting crude oil from the vast oil sand deposits in the Canadian province of Alberta. Due to the dramatic in- crease in oil prices as well as the worldwide reduction in oil reserves, the oil sand industry is exceptionally fast-growing. HOCHTIEF do Brasil consolidates its market position The South American HOCHTIEF subsidiary increased its work done for the year by nearly 40 percent from 2004. At just under EUR 140 million, HOCHTIEF do Brasil’s order backlog at the close of the year under review was the largest in its history. One reason for this growth was the company’s ability to strengthen its position in the industrial buildings market in 2005. Clients in this segment include Vale do Rio Doce, the world’s largest iron ore supplier, for whom the company is building a bauxite mine in the Amazon rain forest. HOCHTIEF do Brasil also continues to notch suc- cesses in the public buildings segment, having won a major contract from oil and gas conglomerate Petrobras. Staff exchange stepped up
At both the management and operating levels, the ex- change of professional and executive staff has proved a success. Where needed, staff from other regions can be deployed additionally at short notice. At project level, the exchanges predominantly involved risk and change order management experts from the HOCHTIEF network who were deployed internationally. The HOCHTIEF companies
in North and South America also profit from international know-how transfer in those business segments that focus on construction-related services.
The division’s key figures
After several years of strong overall growth, new orders
dipped by EUR 87.5 million in 2005 due to more focused growth at Turner. Adjusted for exchange rate changes, the decrease was EUR 138.8 million, or 2.2 percent. However, the absolute value of new orders remained high. The or- der backlog increased from EUR 5,746.1 million at the end of the previous year to EUR 6,901.7 million, largely due to exchange rate effects. After adjusting for these effects, the actual increase amounted to EUR 216.9 million, or 3.8 percent. The continued strong orders position is mirrored by a EUR 385 million increase in work done (after adjust- ment for exchange rate effects, EUR 337.9 million or 5.9 percent) and a EUR 329 million gain in external sales
(exchange rate-adjusted: EUR 280.7 million or 5 percent). Despite strong demand and increased sales in the USA, profit margins were squeezed due to relatively strong price pressure. Operating earnings stayed at the previous year’s level, with lower earnings at Turner almost fully off- set by increased earnings at the Aecon Group. Profit be- fore taxes was EUR 2.5 million down from the previous year.
Capital expenditure decreased due to the baseline ef- fect of the new stock offering at Canadian associate Aecon in the first quarter of 2004.
In line with the increase in work done, the number of em- ployees grew in both the USA and Brazil. There was an especially pronounced increase in Brazil, with 289 addi- tional employees working on a number of major construc- tion projects.
Outlook
The division has initiated the change towards strategic growth management with a clear focus on technically de- manding projects, and is confident of returning to its ac- customed profit margins. Given stable US dollar exchange rates, pre-tax profit above the previous year’s level is ex- pected.
Key figures for HOCHTIEF Construction Services Americas (EUR million) 2005 2004 New orders 6,308.6 6,396.1 Work done 6,068.5 5,683.5 Order backlog 6,901.7 5,746.1 External sales 5,934.2 5,605.2
Operating earnings (EBITA) 54.1 55.1
Profit before taxes 39.5 42.0
Cash flow 42.5 43.9
Capital expenditure 16.9 21.7
RONA* (%) 15.9 17.2
Net assets* (December 31) 314.7 272.2
Employees (average over the year) 6,745 6,107
*The RONA return on capi- tal metric was introduced in 2005. For purposes of comparison, all prior-year figures were adjusted to reflect the new system. Further information on RONA is available on pages 46-48.