Cover photo: As technical leader of a joint venture, HOCHTIEF Construction is building an approximately three kilometer long section of the Lainzer

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Cover photo:

As technical leader of a joint venture, HOCHTIEF Construction is building an approximately three kilometer long section of the Lainzer Tunnel in Vienna. The twin-track tunnel is part of the link which will speed up freight and passenger traffic to Vienna from 2013. The tunneling work will be completed by the end of 2010.

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Report of the Executive Board

HOCHTIEF Construction AG is an internationally active con-struction company. Through our innovative business models and service portfolio, we are positioning ourselves more and more as a service provider.

In the year under review, implementers of complex building construction projects in Germany faced immense, unforeseen problems. These difficulties were triggered by a slight upturn in the construction sector which led to significantly stronger demand and hence erratic spikes in the production costs of turnkey buildings. This had an adverse impact on HOCHTIEF Construction’s earnings.

We responded quickly and comprehensively to this trend by launching a program to return our German building construction segment to sustainable profitability. This is why our traditional building portfolio now exclusively comprises lucrative, higher-caliber business models that draw on our expertise as early as the planning phase. In parallel, HOCHTIEF Construction significantly raised its return on investment targets and ratcheted up its risk management procedures once again. FormArt, Shell Construction and Residential became independent units during the course of fiscal 2007, with structures modeled on those of mid-size enterprises.

This fundamental realignment is also reflected in a more efficient organization.* For instance, we withdrew from a number of regions and amalgamated numerous units. We continue to expand our cooperation with other HOCHTIEF Group companies. Here, we already benefited from broad synergies in the past and, for example, in cooperation with HOCHTIEF PPP Solutions generated a sales curve that continues to rise. In the year under review, HOCHTIEF Construction joined with Streif Baulogistik and HOCHTIEF PPP Solutions in making inroads into the expansive geother-mal energy market. Working in close harness with HOCHTIEF Property Management, HOCHTIEF Energy Management and HOCHTIEF Facility Management, we offer building diagnosis services which help property owners boost the value of their portfolios and sustainably reduce energy costs. We are also optimistic as regards public sector construction. To begin with, the government’s improved financial situation creates an atmosphere of much greater readiness to engage in new construction and refurbishment projects. Secondly,

more and more public sector clients are taking part in a new tender procedure labeled “competitive dialog.” In this new method of awarding contracts, which we very much welcome, the deciding factor is not the construction price alone but also the bidder’s expertise. We have already received initial orders awarded on the basis of this new procedure.

We are similarly gratified to report positive results in our international business activities. In Russia, South Africa and Chile, we won large-scale power station and hydro construc-tion projects. On behalf of an Arabian investor, HOCHTIEF Construction is giving shape to a nine kilometer long shopping and commercial center in Doha. These are just a handful of examples of the high demand for profitable, low-risk construction management services. For this reason, we set up our Building International unit in the reporting period. HOCHTIEF Construction generated its highest sales and profit growth in the FormArt segment with the development of residential properties—an area in which the company gained a strong foothold as one of the leading providers. It looks likely that this positive trend is set to continue. Following a difficult fiscal 2007, we can therefore now look to the future with confidence. The restructuring measures in the German building construction segment are already giving rise to initial successes. This gratifying trend coupled with the ongoing favorable developments in our infrastructure and international business will contribute to sustainably improving the profit situation at HOCHTIEF Construction. We should like to express gratitude to our clients and business partners for the cooperation we share in a spirit of partnership. And we wish to thank our employees for their exceptional commitment to the company. Together, we will shape our future success.

Essen, February 15, 2008

Dipl.-Ing. Henner Mahlstedt

*You will find further infor-mation on the new organiza-tional structure on pages 10 and 11.

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Executive Board

Dipl.-Ing. Henner Mahlstedt (born 1953), Essen, Chairman of the Executive Board (since April 1, 2007)

studied civil engineering and joined HOCHTIEF Construction AG in 2003 as Management Chairman of the East division. Since October 2005, he has been a member of the Executive Board of HOCHTIEF Construction AG where he was respon-sible for the Civil Europe division, HOCHTIEF Polska Sp. z o.o., HOCHTIEF CZ a.s., HOCHTIEF Russia, HOCHTIEF (UK) Construction Ltd., as well as market development and relations and contract administration until March 31, 2007. Since April 1, 2007 he has been Chairman of the Executive Board and Human Resources Director of HOCHTIEF Construction AG. His scope of responsibility includes the Civil Europe division, HOCHTIEF Polska Sp. z o.o., HOCHTIEF CZ a.s., HOCHTIEF Russia, HOCHTIEF (UK) Construction Ltd., Durst-Bau GmbH as well as market development and relations, risk management, personnel and communications.

Dipl.-Kfm. Heiner Helbig (born 1957), Hilden

holds a degree in business administration and joined HOCHTIEF in 1998, assuming management responsibilities at HOCHTIEF Construction AG’s Northwest division. He went on to serve as member of the Management Board of HOCHTIEF Development, Managing Director of HOCHTIEF Projektentwicklung GmbH and HOCHTIEF PPP Solutions GmbH, and member of the Supervisory Board of HOCHTIEF Construction AG. Heiner Helbig joined the Executive Board of HOCHTIEF Construction AG in October 2005 and is responsible for finance, project financing, accounting, con-trolling, investment concon-trolling, procurement, IT strategy,

Construction Trade Europe, Streif Baulogistik GmbH (until March 31, 2007) and HOCHTIEF-Luxembourg S. A. (since April 1, 2007).

Dipl.-Ing. Achmed Kadded (born 1961), Mettmann

studied civil engineering and began his career as a HOCHTIEF site manager in 1989. Positions held by Achmed Kadded include business unit manager in Münster and Berlin and managing director of Streif Baulogistik GmbH. Kadded became Management Chairman of the East division in 2002 and of the Northwest division in 2003, as well as of the Southwest division in an acting capacity from September 2006. Effective September 1, 2006 he was appointed alter-nate member of the Executive Board while maintaining his responsibilities. Since December 2006, he has been a regular member of the Executive Board. On April 1, 2007 he took charge of the Building division, HOCHTIEF Consult, Streif Baulogistik GmbH and contract administration.

Dipl.-Ing. Dr.-Ing. E.h. Friedel Abel (born 1945), Mettmann, Chairman of the Executive Board (until March 31, 2007)

began his career with HOCHTIEF in 1972 after studying civil engineering. He was appointed to the Executive Board of HOCHTIEF Aktiengesellschaft in 1995. From July 2001 up until his planned retirement, Friedel Abel was Chairman of the Executive Board and Human Resources Director of HOCHTIEF Construction AG. Until March 31, 2007, his scope of responsibility included the Building division, HOCHTIEF Consult, HOCHTIEF-Luxembourg S. A., Durst-Bau GmbH,

Executive Board of HOCHTIEF Construction AG, from left: Achmed Kadded, Henner Mahlstedt, Heiner Helbig

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Report of the Supervisory Board

Throughout the 2007 fiscal year, the Supervisory Board closely supervised and advised on the Executive Board’s management of the Company, and performed the tasks and responsibilities incumbent upon it by law and under the Company’s Articles of Association. The Executive Board provided the Supervisory Board with comprehensive, timely and regular verbal and written reporting on the financial situation and development of the Company and its subsidiaries, their business policy plans, enterprise planning, risk management, and specific material transactions. The Supervisory Board covered this reporting in depth at its meetings, discussed it with the Executive Board, and made all necessary decisions. There was no cause to institute measures, such as inspection of the Company’s books or documents, under the first clause of Section 111 (2) of the German Stock Corporations Act (AktG).

The Chairman of the Supervisory Board additionally maintained regular contact with the Executive Board outside of meetings to keep abreast of the business situation and key transactions.

At four meetings, the Supervisory Board held extensive discussions on fundamental questions of business policy, risk management, trends in orders and earnings, the Company’s cash position and capital resources, as well as the employment situation in the individual corporate units. The Executive Board explained to the Supervisory Board in detail any departures from the planned or targeted course of business.

In three meetings, the Supervisory Board devoted close attention to problems existing in the German building construction segment. Its deliberations inevitably focused on the negative project results together with an analysis of the causes, on the market conditions as well as on the action required for structural change. Difficulties here sprang

mainly from price increases that affected long-running projects as well as problems with subcontractors. The Board examined and discussed in depth the Executive Board’s reporting on a package of measures to restructure the Building division.

As in previous years, the Board also discussed the develop-ment of the European construction markets and the European competitive environment.

In particular, the Supervisory Board deliberated on the strategic orientation of the domestic building construction business and on the European competitive strategy. The key issues were a reorganization of the German construction business and the opportunities arising in Europe’s growth markets—especially in Eastern Europe—and in selected countries outside Europe that offer an advantageous competitive climate.

With regard to human resources, the Supervisory Board gave special attention to the situation of the workforce and measures to provide them with training and continuing education.

The Supervisory Board Human Resources Committee did not meet in the 2007 fiscal year, but adopted resolutions by way of circularization. It was not necessary to convene a meeting of the Mediation Committee pursuant to Section 27 (3) of the Codetermination Act (MitbestG).

The annual Financial Statements and Management Report for FY 2007 prepared for HOCHTIEF Construction AG by the Executive Board, together with the bookkeeping, were audited by and received an unqualified auditor’s report from the Essen branch of PricewaterhouseCoopers Aktien-gesellschaft WirtschaftsprüfungsAktien-gesellschaft, Frankfurt am Main, Germany. The auditors were appointed at the General

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Shareholders’ Meeting on May 7, 2007 and instructed by the Supervisory Board to perform the audit of the annual Financial Statements.

The annual Financial Statements, the Management Report and the auditor’s report were duly submitted to all members of the Supervisory Board prior to the financial statements meeting on March 11, 2008. The Executive Board also provided verbal explanations at the financial statements meeting. The auditors who signed the auditor’s report took part in the Supervisory Board discussions regarding the documents submitted, during which they reported on the most significant results of the audit and were available to provide additional information. Following its own appraisal, the Supervisory Board approved the results of the auditor’s examination of the annual Financial Statements.

The Supervisory Board reviewed the annual Financial Statements and the Management Report. The review concluded that there are no objections to be raised. The Supervisory Board has approved the annual Financial Statements, which are thus formally adopted.

Bernd Börgers retired from the Supervisory Board effective May 7, 2007 and Professor Hans-Peter Keitel effective September 15, 2007. The Supervisory Board thanks these two gentlemen for their dedicated cooperation and expert advice.

Matthias Donecker was elected to represent the employees on the Supervisory Board effective May 7, 2007. Dr. Burkhard Lohr was elected as a member of the Supervisory Board at an Extraordinary Shareholders’ Meeting effective September 16, 2007.

The Supervisory Board expresses its thanks and appreciation to the Executive Board, company management teams and all employees for their work in 2007.

Essen, March 11, 2008

Dr.-Ing. Herbert Lütkestratkötter Chairman

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HOCHTIEF Construction Berlin has painstakingly refurbished the Bero-linahaus in Berlin, built between 1930 and 1932, to plans of the architect Peter Behrens. The main tenant of the heritage-protected building in the classic modernist style is C&A, the fashion store moving close to its roots with its 17th Berlin outlet. The company opened its first German store only a few steps away from the prominent address Alexanderplatz 1 in March 1911. The completion of the Bero-linahaus revives a piece of city history.

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•

Consolidated, with profit/loss transfer agreement

•

Consolidated Work done (EUR million) Employees (average over the year)

Figures relating to work done and employees in our reporting include only fully consolidated companies belonging to the HOCHTIEF Group, and refer to the 2007 fiscal year. •

•

Main subsidiaries of HOCHTIEF Construction AG

HOCHTIEF Construction AG,

Essen, Germany _{4 ,916}

1,946

Streif Baulogistik GmbH,

Essen, Germany ₃₈₉

91 Entreprise Générale de Construction HOCHTIEF-Luxembourg S.A. ₁₁₆

36

Durst-Bau GmbH,

Vienna, Austria ₁₆₂

44

HOCHTIEF (UK) Construction Ltd.,

Swindon, UK ₃₁₅ 64 99.96 % 99.90 % 100 % 100 % 99.20 % 100 %

HOCHTIEF Polska Sp. z o.o.,

Warsaw, Poland ₈₁₅

289

HOCHTIEF CZ a.s.,

Prague, Czech Republic _{1 ,639} 303 HOCHTIEF Construction AG brings together the

HOCHTIEF Group’s comprehensive range of construction and construction-related services in Europe. A subsidiary of HOCHTIEF Aktiengesell-schaft, HOCHTIEF Construction has made a name for itself at international level as an expert in com-plex infrastructure projects. The extremely high quality of our services is upheld by our highly skilled and motivated staff, enabling us to create added value for our clients.

As a construction company, HOCHTIEF Construction cre-ates something unique with every project, which means we are constantly facing new engineering and construction challenges. This is why each project passes through a pro-duction process tailored to its own specific requirements. Strict quality controls and comprehensive risk manage-ment make for seamless processes, reduce the need for renegotiations and increase the value created for our cli-ents and for the company.

With our subsidiaries, business units and offices, we have a presence both in Western Europe and in the high-growth regions of Eastern Europe. In addition, we are now also offering infrastructure and building construction projects in selected markets outside Europe. Moreover, our proximity to clients gives rise to competitive advan-tages.

HOCHTIEF Construction has thus far been responsible for managing the two subsidiaries HOCHTIEF Polska and HOCHTIEF CZ. Ownership of the two companies was also transferred to HOCHTIEF Construction in the year under review.

Thanks to our increasingly close collaboration with compa-nies in other HOCHTIEF corporate divisions as well as with our subsidiary Streif Baulogistik, we are in a position to offer clients the full range of services at every link in the construction value chain. HOCHTIEF designs, finances, builds and operates a vast range of complex projects for its clients.

Management Report

Business Activities

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HOCHTIEF Construction Services Europe

Turnkey Construction Berlin Frankfurt Hamburg Leipzig Munich Northrhine-Westphalia PPP Shell Construction … Berlin … Frankfurt … Hanover … Northrhine- Westphalia After Sales Service

Building Civil Europe Streif Baulogistik

HOCHTIEF Consult

Organization

The sweeping restructuring measures at HOCHTIEF Construction in the year under review made it neces-sary to make certain organizational changes. These adjustments have created a sound structural platform for the company to generate greater value added and minimize existing risks.

Building

The company is aware that the new selective order intake will lead to lower building construction sales with external clients. HOCHTIEF Construction AG has therefore once again reduced the number of business units in the building segment. The three business units Cologne, Düsseldorf and Ruhr/Refurbishment and Upgrading have been amalgamated

to form the Northrhine-Westphalia business unit. The Frankfurt and Rhine-Main business units have been merged at the company’s Frankfurt location. The Kassel/Shopping Centers, Sports Facilites and Healthcare Facilities units have either been shut down or integrated into existing business units. Closure of the competence centers is attributable to the waning demand in Germany for such special purpose properties as well as the unsatisfactory price level. Since this move, the regional and international units have been focusing on selected, high-margin projects in these segments. The decision to close the Baden-Württemberg business unit was prompted by strong competitive pressure compounded by a lack of demand for high-caliber construction manage-ment services in the southern German construction market.

Residential … North … South … West FormArt … Baden- Württemberg … Bavaria … Berlin/ Brandenburg … Hamburg … Hanover … Leipzig … Northrhine-Westphalia … Rhine-Main HOCHTIEF Luxembourg Building International

Civil Engineering and Marine Works Civil Engineering and Tunneling Energy Europe

Infrastructure Alps Region

Civil Engineering and Environmental Major European Projects

Transportation Projects and Tunneling HOCHTIEF Construction Bulgaria HOCHTIEF Construction Austria HOCHTIEF Construction Romania HOCHTIEF Construction Hungary HOCHTIEF Construction Russia Durst-Bau

HOCHTIEF CZ HOCHTIEF Polska

HOCHTIEF (UK) Construction

Construction Machinery and Equipment Scaffolding and Formwork Technology and Services Holdings and International Business Building Essen Building Frankfurt IKS Energy Infrastructure Marine Works Materials

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The Turnkey Construction units will in future concentrate solely on designing and executing complex building con-struction projects as general contractor wherever the project is accompanied by a preconstruction phase, as with the Elbe Philharmonic Hall project in Hamburg. The Shell Construction and Residential segments have therefore been separated from the Turnkey Construction units in organizational terms. Today, they are independent units with lean structures modeled on those of mid-size enterprises.

The profitable real estate development activities marketed by HOCHTIEF Construction under the brand name FormArt are now also being operated as an independent unit. This way, the experts at FormArt have the opportunity to act autonomously and continue to strengthen their market image. HOCHTIEF Construction will be the principal client of the two units Shell Construction and Residential*. In addition, selected external clients will benefit from the construction expertise of these competence centers.

HOCHTIEF Construction AG responded to growing world-wide demand for its building construction expertise by forming the Building International unit in fiscal 2007. However, Building International does not offer any general contractor services, focusing rather on the construction management of major projects with very low risk potential and above- average returns. In this, Building International is following the successful example of HOCHTIEF’s US subsidiary Turner. Civil Europe

Civil Europe concentrates on infrastructure projects and expansion in growth regions. In fiscal 2007, a business office was hence set up in Sweden to push ahead with building up Scandinavian business. The aim of the newly established business office in St. Petersburg is to strengthen Civil Europe’s position in Russia. In Austria, HOCHTIEF Construction Austria came into being, a company focusing on civil engi-neering projects, the infrastructure segment and structural engineering. At the same time, Civil Europe is once again involved in projects in selected countries outside Europe. These include Latin America (particularly Chile), South Africa, the United Arab Emirates and India. HOCHTIEF

Construction AG has already enjoyed great success in these countries in the past.

Streif Baulogistik

This HOCHTIEF Construction AG subsidary has made a name for itself notably as a construction site infrastructure and logistics service provider. With its integrated portfolio, Streif Baulogistik serves both internal and external clients. The company is resolutely making inroads into the European market with its units in Poland, Ukraine, Denmark and Austria. HOCHTIEF Consult

As one of Germany’s “biggest engineering consultancy firms,” HOCHTIEF Consult has end-to-end experience and know-how in all areas of turnkey building construction, civil and structural engineering, transportation infrastructure and the management of construction processes. Thanks to this outstanding expertise, HOCHTIEF Consult is involved in every project within the HOCHTIEF Group—for instance, construction of the Elbe Philharmonic Hall in Hamburg.** In addition, as a section of HOCHTIEF Construction AG, HOCHTIEF Consult is working more and more frequently for external clients. These clients profit from optimized planning processes which have been proven in practice and serve to minimize project risks.

*You will find further infor-mation on page 18. **You will find further infor-mation on page 27.

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Markets

Construction output grew by 2.0 percent in 2007 ac-cording to Euroconstruct, Europe’s leading construc-tion business research group. This represented a slight drop on the previous year’s sectoral growth rate in Europe. Civil engineering accounted for most of the increase. The Russian, Polish and Bulgarian markets showed particularly compelling rates of growth.

Western Europe

The Western European construction sector continued to gain ground in 2007, although not quite as fast as the year before. This trend is set to continue in 2008. The countries covered by the Euroconstruct research group* saw the rate of increase in real construction output drop from 3.6 percent in 2006 to an estimated 1.7 percent in 2007. Growth of 1.0 percent is projected for 2008 and 1.2 per-cent for 2009.

This growth affected individual segments to varying de-grees: Non-residential construction—a segment relevant to HOCHTIEF Construction—grew by 1.4 percent in 2007 and is set to gain another 0.6 percent in 2008 and 0.7 per-cent in 2009. Growth in civil engineering was 3.1 perper-cent, with a further 2.8 percent forecast for 2008, accelerating to 3.2 percent the year after that. While the segments im-portant to HOCHTIEF Construction show above-average growth, a less than satisfactory gain in residential construc-tion meant only a moderate rise in construcconstruc-tion output overall.

In Austria, the construction industry saw its stable up-ward trend continue with the market expanding by 5.5 per-cent in 2007. Notable growth drivers were increased spend-ing on civil engineerspend-ing works and housspend-ing renovation. In non-residential construction, the office and industrial con-struction segments benefited particularly strongly from a positive trend in the Austrian economy. The Group will profit from the dynamic growth in civil engineering and housing renovation through its subsidiary Durst-Bau and through HOCHTIEF Construction Austria which it launched in the year under review.

After a poor year for construction activity in 2005, the

United Kingdom market returned to a slight positive trend from 2006 onward. The gain in the year under review was 2.3 percent. A 2.4 percent increase is projected for 2008 and 2.9 percent for 2009.

German construction activity continued to recover, gain-ing one percent in the year under review. Market re-searchers anticipate a further 1.6 percent growth in 2008 and 2.2 percent in 2009. The residential construction market contracted by two percent in 2007. This was partly due to the abolition of grants for home buyers in Germany and a reduction in tax breaks. Projections for the next two years show a slight decrease in 2008 fol-lowed by a return to modest growth in 2009. Despite the low growth forecasts, HOCHTIEF benefits in residential construction in particular with regard to high-quality resi-dential real estate. Major growth impetus in 2007 came from non-residential construction, where the industrial, retail and logistics real estate segments accounted for the lion’s share of a 4.9 percent increase. Civil engineering likewise showed a strong upward trend, growing by 4.2 percent on the back of increased spending on road and rail infrastructure. The positive trend is mirrored in strong new orders in HOCHTIEF Construction’s infrastructure activities. As a result of the healthy construction market, sizeable construction groups in particular are noticing a shortage of qualified personnel—primarily construction engineers and skilled construction workers.

The European construction market: Regional growth, 2006 to 2008 (%) 8 7 6 5 4 3 2 1 0 2007 2008E 2006 Source: Euroconstruct M Germany

M Europe (except Germany)

Exchange rate adjusted figures

4.3 3.7 1.0 1.6 2.2 1.3

*The Euroconstruct area consists of Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Portu-gal, Spain, Sweden, Switzer-land and the United King-dom.

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Eastern Europe

The countries of Eastern Europe reaffirmed their status in 2007 as particularly attractive markets with well above average potential, as underscored by a regional growth rate of 7.6 percent. The steep upward trend was mirrored by the development of HOCHTIEF Construction’s business in the region. Euroconstruct predicts a further 9.2 percent growth in 2008 and 8.8 percent in 2009. This strong growth sets Eastern Europe apart from the more moderate prog-ress of the European construction market as a whole. The Russian construction industry is booming in equal measure across the residential construction, infrastructure and industrial construction segments. HOCHTIEF Russia’s contracting portfolio grew correspondingly strongly. Resi-dential construction expanded by ten percent in 2007. However, the strong demand is driving up real estate prices. This means the uptrend will steady off slightly in 2008 and 2009 while remaining at a high level. Non-residential con-struction proved a growth driver in the year under review, gaining by eleven percent. Demand was spread across all segments but was particularly strong in hotels, offices, in-dustrial buildings and education. Civil engineering likewise showed compellingly dynamic growth, especially in road and rail infrastructure construction. To better serve this growth market, we converted our former Moscow business office into a business unit.

The Polish construction industry achieved Europe’s strong-est growth rate in the year under review with a 13.1 per-cent increase in construction output. The forecasts are for an even faster 15.2 percent growth in 2008 and 12 percent in 2009. Civil engineering will account for a major part of this gain with double-digit growth rates. A further exceptional boost is being provided by the European soccer champion-ship due to be held in Poland in 2012. To expedite neces-sary spending, Poland’s Ministry of the Economy has im-proved conditions for private investors in the infrastructure market. Strong demand in the residential construction seg-ment has caused real estate prices in major Polish cities to climb rapidly since 2006. Non-residential construction also showed very satisfactory growth in the year under review. HOCHTIEF Construction made use of this strong positive

trend and secured a large number of attractive contracts during 2007.

Construction output in the Czech Republic grew by six percent in 2007. Profits at HOCHTIEF CZ followed a simi-larly positive trend. Market researchers anticipate that the strong overall construction industry growth of recent years will tail off from 2008. Civil engineering is expected to gain 6.7 percent in 2008 after a 2.5 percent decline in the year under review. Growth in residential construction, however, is set to slow from 14.6 percent in 2007 to 2.5 percent in 2008. The projections for non-residential construction are stronger. After a drop up until 2005, the sector will con-tinue to recover on the back of rising foreign direct invest-ment. HOCHTIEF CZ made use of the increase in con-struction output and secured several major contracts. Segments

The energy sector sustained its dynamic trend through fiscal 2007. Growth in renewables was particularly strong, with EU directives leading almost all European countries to continuously increase the share of electricity generation accounted for by environmentally sustainable and resource-saving renewable energy sources. Due to an ongoing shift toward natural gas, demand has also risen sharply in Europe for gas turbine, steam turbine and biomass power plants. Twenty-three such plants, including 20 coal or gas fueled facilities, were at the planning or construction stage at the end of 2007. They are set to go into operation by 2011. A similar surge in demand can be expected for hydro-geo-thermal power systems. HOCHTIEF is well placed to take advantage of this trend and began construction of Ger-many’s first privately financed geothermal power plant in 2007.*

Expenditure for the transport segment in Germany showed a mixed growth pattern. Spending on expansion of the German rail network remained at a low level. On the other hand, the country’s federal transport infrastructure master plan provides for EUR 12.5 billion in expenditure on rail net-work maintenance from 2006 to 2010. Like 2006, the year under review saw a further increase in funds available for roadbuilding. This reflected increased takings from

Germa-*You will find further infor-mation on pages 21 and 33.

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ny’s truck road charging system and higher tax revenues. Some transport contracts are financed and carried out on a public-private partnership (PPP) basis. HOCHTIEF Con-struction also notched up successes in this business with its sister company HOCHTIEF PPP Solutions. The German government plans to raise the share of contracts performed on a PPP basis from 4 percent today to 15 percent in future.

Port construction benefited in the year under review as in previous years from globalization and the associated on-going rise in goods transport. Shifting logistics flows and ever-larger container ships also require ports to be made ready for greater volumes. The eastward expansion of the EU brought extra growth stimulus. This is exemplified by the container port that HOCHTIEF Construction has built in Gdansk, Poland, and completed in 2007, as well as by newly secured major contracts in Russia.

A sustained uptrend is likewise projected for the refur-bishing and upgrading segment. The year under review saw sales in this segment already exceed the new-builds market. For 2008 alone, Euroconstruct market researchers anticipate nearly EUR 634 billion in expenditure on refur-bishing and upgrading properties in Europe. HOCHTIEF Construction is well poised to meet this dynamically grow-ing demand.

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Orders and Work Done

New orders

At EUR 1,820 million in fiscal 2007, new orders were more or less on a par with the EUR 1,817 million posted in 2006, as anticipated. This outcome is attributable to several major projects that were acquired in Germany. Among these, the Elbe Philharmonic Hall in Hamburg stands out. The volume of lucrative real estate development business also increased. New orders in Germany thus rose overall by 34.6 percent to EUR 1,482 million.

Totaling EUR 338 million, new orders in the international business were lower year on year. The prior-year figure of EUR 716 million originated largely from a toll highway proj-ect, the Vienna northeastern bypass*, worth EUR 404 mil-lion.

HOCHTIEF Construction’s consistently implemented strat-egy, formulated to reinforce and expand the company’s position in Eastern Europe, continued to bear fruit in the reporting period. The new orders of the subsidiaries and business units in this region climbed to nearly EUR 1.2 bil-lion.

Work done

At EUR 1,946 million, work done in 2007 remained at about the same level as the previous year. Work done totaled EUR 1,960 million in fiscal 2006. The domestic and foreign share of the 2007 total likewise remained more or less un-changed.

Order backlog

The pattern traced by new orders and work done prompted a slight year-on-year decrease in order backlog. The de-cline came to 4.9 percent.

This corresponds to an absolute figure of EUR 126 million, of which EUR 109 million is attributable to the international and EUR 17 million to the domestic decrease in order back-log.

The forward order book contains around 15 months’ work. Capacity utilization in the business units of HOCHTIEF Con-struction is therefore largely satisfactory.

*You will find further infor-mation on page 36.

MInternational M M Germany M

Orders and work done (EUR million)

New orders + 0.1 % Order backlog – 4.9 %

1,820 2,450 338 1,482 913 1,537 2007 2006 2007 2006 Work done – 0.7 % 1,946 447 1,499 2007 2006 1,817 716 1,101 1,960 467 1,493 2,576 1,022 1,554

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HOCHTIEF Construction is building a 15-story of-fice complex of unusual design and construction in the Rheinauhafen area of Cologne. The distinc-tive building is based on the shape of a crane. Behind its transparent glass facades, attractive offices are being created covering a total of 21,000 square meters of gross floor area. The project is due for completion in May 2008.

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Strategy

During 2007, HOCHTIEF Construction embarked on a strategic realignment of the company aimed at bring-ing the buildbring-ing construction segment in Germany back into the black in the long term. The measures already implemented during previous years were not sufficient to achieve this goal. The unforeseen massive price rises for materials and subcontractors as well as low price levels as compared to the project risk are important reasons behind our decision to focus even more closely on profitable market segments and to pursue further increases in efficiency.

Challenging operating conditions

The German construction market changed in 2006 and 2007. Following 14 years of recession, there has been a resurgence of construction activity. Rising demand has led to significant price hikes as well as supply shortages for numerous materials. At the same time, many partner companies and suppliers also took advantage of the healthier market to introduce not insubstantial price increases of their own. In addition, competition with leading mid-sized enterprises in the conventional building construction segment intensified. HOCHTIEF Construction responded to these factors with a range of measures that included organizational changes to its purchasing activities* along with further optimized risk management.**

Strategy based on a broader foundation

HOCHTIEF Construction is continuously adjusting its strategy in line with current market trends. This is why, for example, the network of local business units was streamlined and competence centers established in the past. Business models such as PreFair, under which cooperation with the client starts as early as the planning phase, along with the ongoing optimization of and systematic approach to client support enable HOCHTIEF Construction to respond to new trends in the market. In 2007, the company also launched a restruc-turing program in Germany. The program’s success will very quickly be reflected in improved earnings and will guarantee an attractive return in the medium term.

For an outline of the new organization introduced as part of the restructuring program, please see page 10.

Cornerstones of the new strategy

The comprehensive reorientation of HOCHTIEF Construction in Germany builds on numerous important changes that have been implemented across all areas of the company. These include the following:

HOCHTIEF Construction concentrates on higher-quality business models

With regard to turnkey construction projects, the company will engage exclusively in profitable segments, for example in the PreFair business. Contracts that require HOCHTIEF Construction to act as a general contractor in the traditional sense will only be entered into if the project is accompanied by a preconstruction phase. Put simply, the company must be allowed to become involved in the planning process. HOCHTIEF Construction strengthens its Shell Construction unit

Shell Construction was separated from the business units and expanded to create an independent unit with structures modeled on those of mid-size enterprises. This type of organization facilitates flat hierarchies, direct responsibilities and specialization in just one segment. In addition, this created the necessary conditions to enable the pooling of strengths, more cost-effective purchasing as well as better control over partner companies than was previously the case. HOCHTIEF Construction makes a strategic entry into the international building construction business The new Building International business unit focuses on the construction management of profitable large-scale projects in those growth markets in which HOCHTIEF Construction has not been active up to now. In this context, Building In-ternational is cooperating with Civil Europe, the HOCHTIEF division concerned with infrastructure projects. Cooperation with HOCHTIEF companies Leighton and Turner will also be strengthened. To bolster its position in the high-growth construction market in the United Arab Emirates, HOCHTIEF Construction established a company in Qatar in 2007.

*You will find further infor-mation on page 23. **You will find further infor-mation on page 24.

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HOCHTIEF Construction expands real estate devel-opment and residential construction

Real estate development, referred to at HOCHTIEF Construc-tion as FormArt*, and residential construcConstruc-tion have been systematically strengthened. The two units will operate in-dependently in the future and are set to take advantage of the excellent opportunities in special segments. Specifically, these include the construction of high-quality apartments, special-purpose properties and apartments for senior citizens. The objectives are ambitious, with the company targeting a significant boost in work done in the area of FormArt and residential construction.

HOCHTIEF Construction further optimizes risk management

In addition to our focus on contracts incorporating a pre-construction phase, our rigorous approach when it comes to selecting projects helps to reduce the level of risk. Any uncertainties that remain are discussed in detail with the client and taken into account during the costing process. Binding offers by subcontractors for key trades must also be obtained before bids are submitted. Escalation clauses integrated into the contracts enable price rises for materials and subcontractors to be passed on to the client to a much greater extent than was possible to date.

HOCHTIEF Construction launches quality offensive on construction sites

Together with Porsche Consulting, the company developed a program of measures aimed at achieving ongoing improve-ments and standardization of procedures on construction sites. The objective of this continuous improvement process is to take the zero-defect principle as used in the mass production of automobiles and apply it to the construction of unique buildings in the real estate sector. This quality initia-tive is also unique in the German construction industry. HOCHTIEF Construction intensifies cooperation with Group companies

Although HOCHTIEF is already executing numerous projects with partners from within the Group, the company plans to leverage these synergies to a greater degree than ever before. Our stated goal is to cooperate much more closely with HOCHTIEF PPP Solutions and HOCHTIEF Facility

Manage-ment in particular. Over the next three years, the work done by HOCHTIEF Construction is set to increase as a result of joint projects of this type. At the same time, the company is also targeting a reduction in the contract volume for turn-key construction with external clients during this period.

Quality provider instead of discounter

Following the complete refocusing of the company’s activi-ties, especially in Germany, HOCHTIEF Construction is reinforcing its position as a quality provider that concentrates on selected clients and projects in carefully chosen locations. Additional consultancy services offered during the planning phase are designed to provide clients with even greater security and to help them make the right decisions before construction commences rather than on the building site itself. Longstanding partnerships between HOCHTIEF Construction and highly qualified subcontractors who perform to the highest standards ensure that our clients have access to the necessary labor and material capacities—even in times of resource shortages and rising prices.

In future, building construction clients in numerous coun-tries outside Europe will be able to profit from the superior quality of HOCHTIEF services.

Attractive growth potential

These challenging factors have also been accompanied by some distinctly positive developments. For example, the Refurbishing and Upgrading unit will experience extremely positive development.** With building diagnosis services that contribute to lowering energy costs and boosting the value of properties, HOCHTIEF Construction, along with the other HOCHTIEF subsidiaries, offers an integrated port-folio of services for this growing sector. Our building diagnosis services can, for instance, identify the potential for optimizing a property. They can also provide yield comparisons for revitalization or refurbishment options of varying degrees of complexity all the way to a completely new building. HOCHTIEF Construction is therefore well placed to establish itself as one of the leading consultancy and service

compa-**You will find further infor-mation on page 24. *You will find further infor-mation on page 23.

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nies operating in the area of energy-saving refurbishment supported by the Federal Government.

Innovative concepts for the entire industry

Sustainable “green” building based on high ecological standards is also set to increase significantly.* The issues of environmental protection and energy conservation are already established traditions on HOCHTIEF Construction projects. And the company has accumulated a correspond-ingly high level of expertise in these fields as a result. HOCHTIEF and its companies are playing an active role in shaping the development of the construction industry. This is why the Group is also one of the founding members of the German Sustainable Building Council. Established in June 2007, the organization has set itself the task of contin-uously furthering the causes of sustainable construction and operation of buildings in Germany.

HOCHTIEF became actively involved in ensuring—also in the competitive dialog procurement procedure used for awarding public-sector contracts—that the skills of the pro-viders participating are a deciding factor in contract awards, not just price. The new procedure for complex construction projects enables cooperation between public-sector clients and innovative suppliers in a spirit of partnership. And the company has already acquired its first contracts—for exam-ple, to build the State Criminal Police Office for Northrhine-Westphalia in Düsseldorf.

Restructuring delivers first signs of success

Some of the measures aimed at steering HOCHTIEF Con-struction back to a position of economic strength have already made an impact on the company’s performance in the reporting year. Despite higher expected returns and more stringent risk management, new orders remain at the same level as the previous year.

HOCHTIEF Construction is therefore optimistic that its com-plete refocusing can return building construction activities in Germany and, with it, the company as a whole to profit-ability over the medium term. This positive expectation is also supported by the current market situation in Germany, where many clients are expressing a growing interest in partnership-based contracting methods such as PreFair. In addition, the—in some cases—cutthroat price competition between construction service providers is increasingly giving way to a yield-oriented approach and making the transition to quality competition.

The sustained positive business trend outside Germany has prompted the company to pursue its process of inter-nationalization.

*You will find further infor-mation at www.hochtief. com/sustainability as well as in the HOCHTIEF Sus-tainability Report 2007.

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In March 2007, construc-tion work began on InHaus2 in Duisburg. The research project is a joint effort by Fraun-hofer-Gesellschaft in association with HOCHTIEF and other partners to develop intelligent and integrated technologies for com-mercial buildings. HOCHTIEF Construction will erect the three-story high-tech building in a construction time of only 14 months.

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Research and Development

As a forward-looking company, HOCHTIEF Construc-tion gives high priority to research and development (R&D). Operating independently and in conjunction with other Group entities, the company developed and rolled out further innovative technologies as well as optimized existing processes in the reporting period. The R&D activities also contributed to the timely harnessing of attractive new market poten-tial.

In the 2007 fiscal year, HOCHTIEF Construction conducted R&D primarily in the fields highlighted below.

ViCon (Virtual Design and Construction)*

This process uses 3D computer models to simulate the design, construction and operation of buildings. All parties involved in execution thus receive information over the en-tire life cycle of the project in order to optimize processes. Combining ViCon with the PreFair business model delivers especially successful outcomes for both HOCHTIEF Con-struction and its clients.

In the year under review, the application range and customer benefits associated with ViCon were further enhanced. A new “virtual inspection” utility, for example, makes it possi-ble to visualize rooms, floors, wall coverings and furnishings digitally in the design phase, thus facilitating the decision-making process. In addition, the “building configurator” allows planned apartments or offices to be furnished and experi-enced interactively in an online 3D model.

iBuild (Intelligent Building)

Together with HOCHTIEF Facility Management, Streif Bau-logistik and HOCHTIEF ViCon, HOCHTIEF Construction is developing innovative ideas in order to position itself from the outset in the fast-growing intelligent building segment. In fiscal 2007, interest focused on the inHaus2** project. The HOCHTIEF companies and other partners, such as the Fraunhofer-Gesellschaft, are seeking to transfer intelligent technologies to buildings. These include innovative cooling systems, geothermal energy, the micro-reinforced high-per-formance concrete Ducon, and energy optimization.

InTun (Innovative Modules for Tunneling)

In 2007, HOCHTIEF Construction put into practice a series of pioneering innovations—developed in-house—in the tunneling segment. ATDS (Advanced Tunnel Drive Steer-ing), for example, was employed in a pilot project in Co-logne. The direct feedback between surface subsidence measurements and the steering system of the tunnel driv-ing machine permits low-subsidence tunneldriv-ing.

Geothermal energy

In the reporting period, HOCHTIEF Construction joined forces with other HOCHTIEF companies to continue the successful activities surrounding its entry into the emerg-ing geothermal energy*** market. Developed in concert with partners, the concept for financing, designing, build-ing and operatbuild-ing geothermal power plants was rolled out for the first time toward the end of the year. Building work started in Dürnhaar, Bavaria, on Germany’s first privately financed geothermal power plant at the end of November 2007. The project owner is a company formed in the year under review, Süddeutsche Geothermie-Projekte (SGG) GmbH, in which HOCHTIEF holds a 40 percent interest. Operating as a general contractor, HOCHTIEF Construc-tion looks forward to implementing various projects in the years ahead. Experts expect this market to develop vigor-ously.

Continuous Improvement Process (CIP)

The purpose of this program, developed in cooperation with Porsche Consulting, is to enhance the efficiency of work-ing on-site without compromiswork-ing quality. Among the targets are to minimize material inventories, reduce waiting times and improve the coordination of subcontractors’ activities. The envisioned benefits for HOCHTIEF Construction are lower overall costs and the security of consistently high qual-ity. CIP is patterned on the production procedures that take place in the automotive industry and the zero-defect principle that applies in series production. The CIP team at HOCHTIEF Construction already oversaw numerous proj-ects in 2007, and will be continuing its work in 2008. Patents

The number of patents remained unchanged at 133 in the reporting period

*You will find further infor-mation on ViCon at www. hochtief-vicon.com.

**See photo opposite. You will find further information at www.inhaus-zentrum.de/ site_en/.

***You will find further infor-mation on pages 13 and 33.

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Employees

Sustained, profitable growth can be achieved only with highly motivated and exceptionally well qualified staff. HOCHTIEF Construction is aware of this fact and acts accordingly. Our personnel activities, which were further enhanced in the reporting period, there-fore seek to continuously increase the level of train-ing and commitment of our staff. The company also stepped up its drive to recruit new talent in 2007.

Rise in number of employees

On the balance sheet date, HOCHTIEF Construction AG employed 4,990 staff. The year-on-year increase of 2.8 percent is largely attributable to the infrastructure segment. The company’s complement of 330 trainees once again made it the largest training enterprise in the HOCHTIEF Group. Highly satisfied HOCHTIEF employees

At the start of 2007, the responses to the first pan-European HOCHTIEF employee survey were evaluated. The survey delivered very gratifying results. Eighty percent of those polled indicated that they were happy to be working for HOCHTIEF. The company has responded promptly to con-structive criticism and taken appropriate measures to further improve the working environment.

Action to overcome skill shortage

The competition to recruit talented skilled and managerial staff has been getting tougher in the construction industry for several years. HOCHTIEF Construction has taken a wide variety of steps to address this trend. Back in 2000, for exam-ple, the in-house HOCHTIEF Academy was established. Since 2007, external students have also been able to enroll with, and obtain a generally accepted bachelor’s degree from, this institution, which is the only one of its kind in the German construction industry.

During the company’s second “university day,” students and lecturers from Germany’s foremost technical universities took the opportunity to get to know HOCHTIEF—including a visit to a construction site—and to meet the Executive Board and other managers in person.

A program was initiated in 2007 to encourage existing mem-bers of staff to recruit suitable candidates for employment from among their friends and acquaintances. The campaign proved highly successful and gave rise to numerous

perma-nent appointments. In addition, a new vacancy notice concept was developed for university graduates and specialists, in which HOCHTIEF employees present their duties and respon-sibilities from a personal perspective.

Human resources activities focus on personnel development

The company’s success is founded on its employees’ com-mitment and expertise. For this reason, personnel devel-opment is a matter of priority for HOCHTIEF Construction. Its task is to continuously improve the employees’ skills according to specific targets and to offer them attractive development opportunities.

Raft of employee motivation measures

HOCHTIEF Construction motivates its employees not only by way of individual development programs, a positive corpo-rate culture and challenging tasks, but also with monetary incentives. In fiscal 2007, for instance, staff were once again given the opportunity to purchase employee shares. The company firmly believes that a family-friendly personnel pol-icy also encourages employees to perform especially well. In July 2007, the HOCHTIEF Group was awarded the “beruf- undfamilie” (“career and family”) certificate of the charitable Hertie Foundation in recognition of its exemplary work in promoting a sensible work-life balance. The award was pre-ceded by a comprehensive audit, performed by the Founda-tion, of the company’s activities to foster a better balance between the demands imposed by working while raising a family. The safety and environmental management regime developed by HOCHTIEF has consistently reduced the work accident rate in Germany for four years in a row.

A word of thanks to employees and staff representatives

Without the willingness of the staff to remain loyal to the company even in economically difficult times, HOCHTIEF Construction would not have registered initial successes with its restructuring within such a short time. It is thanks to their commitment and resolute desire to generate profit-able growth together that HOCHTIEF Construction can take an optimistic view of the future.

The Executive Board therefore thanks all employees and staff representatives for their exemplary conduct.

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Procurement

In the 2007 fiscal year, HOCHTIEF Construction AG’s procurement expenditure accounted for more than 80 percent of total operating performance. This il-lustrates the critical role played by efficient and ef-fective purchasing in ensuring business success.

In the reporting period, the company systematically pushed ahead with implementing the organizational changes in purchasing that were initiated in 2006. Lead buyer organization and supplier park introduced

We began in 2007 to establish lead buyers for key services and materials. These buyers act on behalf of all the divi-sions and are responsible primarily for procuring facade engineering, technical building systems, steel and con-crete. By pooling the company’s demand, this new organi-zation gives us a strong position in the procurement mar-ket. In fiscal 2008, HOCHTIEF Construction is to deploy lead buyers in other segments as well. In the year under review, the lead buyers set up a supplier park for key works—specifically facade engineering and technical building systems. The company has thus taken an early step to ensure long-term, partnership-based cooperation with highly capable subcontractors. Such close collabora-tion simplifies processes and facilitates risk management. Direct purchasing reinforces global sourcing By way of the two trading companies HOCHTIEF Global Trade and HOCHTIEF Procurement Asia Ltd., we have since 2007 been developing enhanced opportunities for purchasing favorably priced, high-quality supplies direct from manufacturers worldwide. HOCHTIEF Construction is also offering this service to external clients. HOCHTIEF Global Trade was established in the reporting period by merging two purchasing organizations, namely HOCHTIEF Construction Trade Europe and Global One Trade. The predecessor companies’ know-how was amalgamated in HOCHTIEF Global Trade. Purchasing directly from manu-facturers will enable us to benefit even more from numer-ous advantages in future. First, this practice eliminates the customary mark-ups charged by subcontractors and wholesalers. Second, direct purchasing reduces the risk of

material supply bottlenecks because we can order larger volumes much earlier and independent of subcontractors. In the year under review, HOCHTIEF Global Trade focused its direct purchasing activities on air conditioning and ven-tilation, electrical engineering and the fit-out segment, in-cluding flooring and interior finishing products. The cost economies achieved with the individual projects came to between 10 and 20 percent. Against this background, we will be integrating other product categories in the direct purchasing program soon.

In August 2007, we founded HOCHTIEF Procurement Asia as a 50 percent joint venture with the Chinese trading company B.S.C. Industries Ltd. It focuses on procuring building materials and fit-out elements directly from manu-facturers in China. In future, the company intends to en-gage in purchasing activities throughout the whole of Asia. We are thus able to respond efficiently to price trends in Europe and the USA, and further safeguard our supply chain. TÜV Rheinland, which among other things provides inspection and certification services, continuously moni-tors the quality of the products. Ongoing supplier audits similarly ensure that the materials comply with the high standards required by HOCHTIEF. Besides its procure-ment activities, the joint venture identifies cost-saving alter-natives to existing building materials on the Chinese mar-ket.

KaufPilot makes significant value contribution The KaufPilot tool introduced in 2006 enables HOCHTIEF Construction to also procure products attributable to indi-rect costs at a reasonable price without compromising quality. The range of products includes office supplies and furniture, tools and work safety equipment. The ability to combine the purchase orders of the German HOCHTIEF units and to conclude favorable master agreements gives rise to considerable price benefits.

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Financial Review

HOCHTIEF Construction AG recorded a loss of EUR 197 million in fiscal 2007. The loss was made good by the Company’s parent, HOCHTIEF Aktiengesellschaft, under the existing profit/loss transfer agreement.

HOCHTIEF Construction AG thus fell far short of its goal of improving earnings. This represented a major setback. The shortfall is mostly a result of losses on contracts in the German building business.

The main causes of the substantial losses in German build-ing construction lie in market-specific trends. These in-clude exceptionally fierce price competition and major price hikes in key trades such as core and shell work, facade engineering and technical building services. The negative situation was compounded by subcontractor insolvencies and poor subcontractor performance.

Immediate action was taken to improve earnings on a sus-tained basis in the form of changes to costing and pricing guidelines as well as to contract terms.

The Company framed a strategy at short notice to realign its business model and the organization of its building business. The resulting measures are now being imple-mented. The restructuring costs incurred due to this realignment had a further adverse impact on earnings. Due to the loss situation and the fact that new advance payments did not fully cover the amounts utilized from past advances, funds available to the Company dropped from EUR 806 million at the end of 2006 to EUR 678 million at December 31, 2007.**

Despite this decrease, HOCHTIEF Construction AG’s li-quidity position remained healthy at the 2007 balance sheet date, resulting in positive net income from financial assets.

**Available funds: HOCHTIEF AG cash pooling account, other marketable securities and cash and cash equivalents less amounts due to banks

Risk report

HOCHTIEF Construction has a comprehensive risk man-agement system. As in previous years, we refined and im-proved this system on an ongoing basis during 2007. Our Company is also integrated into the risk management sys-tem of the HOCHTIEF Group.*

The Contract Review Committee remains a key element of our risk management system. The Committee consists of the HOCHTIEF Construction Executive Board and expe-rienced HOCHTIEF Construction managers.

The risk minimization and risk control systems further im-proved in 2007 are primarily a response to the problems in the German building construction business. We have taken action on various fronts:

• An intensified selection process and longer processing times when pursuing new business

• Specification of deal breakers in tender and contract documents to ensure a fair spread of risks and opportu-nities between HOCHTIEF Construction and customers • Implementation of new contracting models with a low

risk profile

• Development of early warning indicators during contract performance

• No firm commitment on price to customers without pre-viously obtaining binding offers for key trades from sub-contractors

We have also raised the minimum return on new contracts to above three percent.

The organizational framework for risk control was addi-tionally improved when realigning the German building construction business.

*Detailed information on these topics is provided in the HOCHTIEF Aktiengesell-schaft 2007 Annual Report and on the HOCHTIEF Group website, www. hochtief.com.

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*You will find further infor-mation on page 28.

Looking Ahead

The thorough restructuring launched in fiscal 2007 aims to restore the German building business to its former strength and generate profitable growth for HOCHTIEF Construction. The action taken is already showing signs of success. We are optimistic that this positive trend will continue.

Overall economic situation

The Kiel Institute for the World Economy forecasts that world economic growth will slow down in 2008. Industry situation

The Central Federation of the German Construction Indus-try predicts further moderate growth in the German con-struction market in 2008. The strong demand in the East-ern European growth markets will likewise be sustained. Use of the competitive dialog* procurement procedure is also likely to have a positive impact on public-sector con-struction.

New orders

HOCHTIEF Construction’s new orders total in 2008 will be dominated by major infrastructure contracts. This assump-tion is based among other things on promising negotia-tions that we are conducting jointly with HOCHTIEF PPP Solutions to secure large-volume toll expressway contracts in Greece. In turnkey construction, we will maintain the rig-orous selectivity in pursuing new business adopted in 2007. New orders in the development business and at HOCHTIEF Construction’s subsidiaries and associates will match or exceed the high level achieved in 2007. Overall, we expect that new orders will increase in 2008 compared with the prior year.

Work done

Based on the current order backlog and anticipated new orders, our Company expects to increase work done in 2008 compared with the year under review. The current order backlog means we are already more than 75 percent cer-tain of achieving our goal of increasing work done. This makes for a satisfactory level of capacity utilization overall. Earnings and financial performance

After the sharp deterioration in its business results in 2007, HOCHTIEF Construction expects a major improvement on the bottom line in 2008. The strategic and operational re-alignment launched in the building construction business and the improved risk management will contribute signifi-cantly toward this outcome. The success of the action taken is already visible from the earnings quality on new contracts. Further action with an adverse effect on earnings cannot be ruled out in the course of realignment. We do not see any additional risks for the Company beyond those that are usual for the industry.

HOCHTIEF Construction is part of the HOCHTIEF Group’s cash pooling system and expects that the liquidity position in its operating business will remain stable in 2008. Pur-chases of shares in HOCHTIEF Polska and HOCHTIEF CZ will reduce funds available to the Company.

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HOCHTIEF Construction again demonstrated its contracting expertise and regional know-how with the turnkey con-struction of a challeng-ing deep-water container terminal on the northern coast of Poland. The newly created land area for global container shipping measures ap-proximately 44 hec tares. Seven million cubic me-ters of sea bed were moved for the construc-tion of the terminal.

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Projects of HOCHTIEF Construction AG, its

Subsidiaries and Business Units

As a service-oriented construction company, HOCHTIEF Construction AG focuses HOCHTIEF’s 130-plus years’ experience in the core business of construction. The company is mainly engaged in building construction, civil engineering, structural engineering and airport construction in Europe. In the year under review, the company began estab-lishing a new business unit, Building International, which is focused on construction management for major international projects. At the same time, HOCHTIEF Construction further expanded the prod-uct market segments of real estate development and residential properties.

Cross-business synergies make it possible to real-ize projects which set us apart from the competition and offer impressive levels of efficiency, innovation and quality. These projects arise through partnership and cooperation between the competence centers— focused on the market segments—and the business units and subsidiaries. This tight-knit network en-ables us to offer clients a full range of services at every link in the construction value chain.

The following project highlights document the broad capabilities of HOCHTIEF Construction.

HOCHTIEF Construction

Major project

Elbe Philharmonic Hall, Hamburg

A prominent landmark and one of the ten best concert halls in the world is being built in Hamburg’s new Hafen-City urban development zone—the Elbe Philharmonic Hall. HOCHTIEF Construction is building the complex on top of a 37 meter tall former quay warehouse. Alongside the three concert halls, the EUR 241 million project includes educational facilities aiding children’s musical advancement, a 250-room five-star hotel, restaurants and a parking ga-rage with more than 500 parking spaces. In addition, HOCHTIEF Construction is building 43 exclusive freehold

apartments as a real estate developer and will also market them. Construction work began in April 2007 and is sched-uled for completion in early 2010. HOCHTIEF Facility Man-agement will subsequently operate the Elbe Philharmonic Hall.

Real estate development

Residential district, Düsseldorf

HOCHTIEF Construction is carrying out the Am Wildpark project close to the Grafenberger Wald forest and the Düs-seldorf racecourse. Due for completion in 2011, it includes a total of 133 rental apartments, 106 condominiums and 33 townhouses with a total living area of 28,750 square me-ters, as well as a 383-space underground parking garage. Ground will be broken on the EUR 80 million project in July 2008.

Residential development Schanzenstrasse, Düsseldorf-Oberkassel

As a member of a project company, HOCHTIEF Construc-tion is designing and building 76 apartments, 26 townhouses and an underground parking garage with 179 parking spaces on a former factory site. Phase one of the Neuraum resi-dential development will be ready for occupation in March 2008. The overall project, worth EUR 38 million, is sched-uled for completion in late 2008.

Semidetached houses, Bad Vilbel

In spring 2008, HOCHTIEF Construction will begin a fur-ther residential development, the Tannenweg project. With an overall investment of EUR 10 million, the project com-prises the construction of 18 upscale semidetached homes as well as the sale of eight developed properties for duplex houses and free-standing single-family homes.

Severin residential development, Cologne-Südstadt HOCHTIEF Construction is a member of a project company building a turnkey residential development in the Severin district of Cologne, consisting of six buildings with 60 hous-ing units and a shared underground parkhous-ing garage. The overall project, worth EUR 17.5 million, will be ready for oc-cupation in late 2008.