Hochtief Forecasts Higher 2014 Earnings Amid Business Revamp

Hochtief AG (HOT), the German builder controlled by Spain’s Actividades de Construccion & Servicios SA, forecast earnings will rise after more than doubling last year as it refocuses on infrastructure projects.

Net income excluding restructuring costs will reach 225 million euros ($307 million) to 250 million euros this year after profit on that basis rose to 208 million euros in 2013, Essen-based Hochtief said today.

“The outlook underlines that the restructuring measures are starting to pay off,” Jasko Terzic, a Frankfurt-based DZ Bank analyst who recommends buying the stock, said in a note. “The more optimistic outlook is based on a significant improvement in profit in Europe and a solid performance at Americas.”

Chief Executive Officer Marcelino Fernandez Verdes, who joined from ACS initially as chief operating officer in November 2012, is focusing Hochtief on highways and mining projects, reversing a decade-long expansion into services. The company, which divested airport and facility-management businesses, said it may make mid-size acquisitions in markets such as the U.K., U.S. and Scandinavia.

The shares gained as much as 2 percent. They were trading 0.1 percent lower at 65.64 euros at 12:23 p.m. in Frankfurt. That brings the gain this year to 5.8 percent, valuing the company at 5.1 billion euros.

Asset Shuffle

Hochtief, which also sold property-development interests, concluded a 256 million-euro buyback in December, extending ACS’s control. Fernandez Verdes will seek permission at the annual shareholder meeting for further buybacks, which depend on whether Hochtief has adequate funds, he said today.

The Spanish company tightened control of Hochtief’s majority-owned Australian subsidiary Leighton Holdings Ltd. (LEI) in October with the appointment of Adolfo Valderas Martinez, an ACS veteran, as chief operating officer. Increasing the shareholding in Leighton is a priority, Fernandez Verdes said.

As part of the reorganization, which has seen a streamlining of divisions, Hochtief is cutting 800 to 1,000 jobs at its solutions unit in Germany, with the final number dependent on order intake, according to Fernandez Verdes.

“All divestments aim at reducing the capital commitment within Hochtief,” Fernandez Verdes said at a press conference in Essen today, adding that talks with investors about the sale of further property management and development units are ongoing. “We will continue to scale back business areas that are capital intensive, concentrating on profitability.”

Hochtief also plans to cancel a 10 percent stake it holds as treasury stock, it said today. That will boost ACS’s shareholding to 55.7 percent from 50.4 percent.

The focus on infrastructure projects means Hochtief aims to increase new orders from public-private partnerships to about 1 billion euros in 2016 from the current 300 million euros.

To contact the reporter on this story: Alex Webb in Munich at awebb25@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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