5 things we learned from Turner and Flatiron owner Hochtief’s latest trading update

Hochtief recently worked with Doka on the construction of a single-span pylon bridge over the Alte Elbe river in Magdeburg, Germany. (Image: Doka)

Construction giant Hochtief, which owns subsidiaries Turner and Flatiron in the US, CIMIC in Australia, and Leighton Asia, last week unveiled a trading update for Q1 2023. 

The business, which celebrates its 150th anniversary this year, unveiled increased sales and profit, as well as a strong year-on-year rise in its order book. Click for more on its performance here.

Looking deeper into the performance, here are 5 things we learned:

1) Multiple ‘megatrends’ are driving Hochtief to target new business opportunities.

These include seeking out projects for the technology sector, contracts for construction projects linked to the energy transition, and sustainable infrastructure. Juan Santamaría Cases, chairman Hochtief’s executive board said growth in those areas is being driven by several long-term “megatrends” related to digitalisation, sustainability and decarbonisation. Urbanisation, changing demographics and industrial reshoring as businesses reassess their supply chains after pressures following the Covid-19 pandemic are also presenting new opportunities to construction contractors. He said: “These trends are driving strong investment growth in specific areas where Hochtief is well positioned as a key player and can deliver optimal solutions for our private and public-sector clients across the value chain.”

2) Hochtief has now switched 80% of its order book to lower-risk contracts.

The contractor said that 84% of the total value of its order book is now made up of contracts with a “lower risk profile”. That is up from 66% five years ago. The company has adopted alliance, partnering or construction management deals, as well as cost-plus arrangements on its contracts, in a bid to move away from riskier, more traditional contract models. A spokesperson added, “In addition, various risk mitigation tools have been applied to manage the current inflationary environment and supply chain disruptions together with our clients and partners.”

3) The Americas and Asia are where the growth is.

In the Americas, home to Hochtief subsidiaries including Turner, Flatiron, and toll road operator Abertis (in which it holds a 20% stake), sales increased 16% to €4.1 billion (US$4.5 billion) and were up 12% on adjusted exchange rate basis. Work on data centre, industrial and transportation projects in particular helped to drive the growth. New orders in the first quarter included a win for Turner in joint venture to build an electric vehicle battery production facility.

In the Asia Pacific region, sales rose 18% to €1.8 billion ($2 billion), or 22% on an exchange rate adjusted basis. Growth came across all construction and services activities.

Sales in those regions were considerable higher than in Europe, where the figure for Q1 2023 was €300 million ($330 million) and up by 8%.

Despite being a German company, 97% of Hochtief’s sales are now generated outside Germany.

4) Profit is likely to be roughly in line with last year.

In a presentation to investors, Hochtief has set its operating net profit guidance at €510-550 million (US$560.6-604.6 million) for the 2023 financial year. That is broadly in line with the €522 million it made in 2022.

5) The business has spent millions of Euros on tunnelling equipment.

Hochtief’s net operating capital expenditure for the quarter ramped up to €50 million, which it said was mainly due to increased purchases of job-costed tunnelling equipment. Hochtief declined to elaborate on the breakdown of its capital expenditure other than to say it included heavy machinery as well as TBMs. But a proportion of the spending could be related to its Australian division CIMIC’s role on the AUS$1.63 million (US$1.1 billion) Sydney Metro West project, where CIMIC is delivering the eastern tunnelling package in joint venture with John Holland and Ghella.