Hochtief Ag Business Information, Profile, and History

Company Perspectives:

Behind every successful project there is a vision. Our engineers, businessmen, and craftspeople set them into practice with excitement and know-how--without long decision processes, but with a great deal of self-responsibility. They are masters of construction on whom we count as a system leader of the future.

History of Hochtief Ag

Hochtief AG is the German market leader in the construction industry and is among the world's leading international contractors with special expertise in dam, harbor, bridge, tunnel, nuclear power plant, pre-cast plant, and airport construction. The company has also gained a reputation in financing, promoting, and operating airports as well as developing special software for managing complex construction projects. Hochtief owns a wide network of subsidiaries and minority shareholdings worldwide, especially in the Netherlands, Brazil, Argentina, Australia, Hong Kong, South Africa, and the Middle East, as well as new subsidiaries in Poland, Russia, and the United States. Hochtief is majority owned by the German RWE Group (Rheinisch-Westfälische Elektrizit&auml×werk).

Two Ambitious Craftsmen Take a Chance in 1875

In the early 1870s Balthasar and Philipp Helfmann, two brothers from the small German town of Kelsterbach near Frankfurt, were struggling to make ends meet. They had learned the meaning of hard work as youths by helping their parents in their small brick-burning business. Despite the combined effort of all the family members, the family was poor, and Balthasar and Philipp Helfmann dreamed of a better life. Balthasar Helfmann became a trained locksmith, while Philipp Helfmann trained as a bricklayer. Before the French-Prussian war they muddled through with small transportation and wood trading jobs. However, after the war ended, they teamed up, bought a small brick-burning business and worked together on wrecking and demolition jobs. Finally, in 1875 they decided to found their own construction business in Frankfurt/Main, the Offene Handelsgesellschaft Gebr. Helfmann.

At that time, Germany was at the end of an unprecedented boom in business start-ups that followed the victory over France. A number of the businesses founded in the heat of the times went bankrupt. The Helfmann brothers, however, pursued a conservative strategy in order to survive in this environment. They started out with a lumberyard, a carpentry shop, a brick-oven, and 20 horses for transportation. First, they built houses as subcontractors, and later they began to built at their own risk. Philip Helfmann carefully studied the real estate markets in and around Frankfurt and specialized in estate development. Soon the two Frankfurt mayors Miquel and Franz Adickes hired him as a real estate broker in matters pertaining to property the city was planning to acquire.

Still, construction remained the Helfmann brothers main business, and their business philosophy was to complete all of their projects rapidly and with excellent quality. Three years after the business was founded it garnered its first large project: the complete construction of a university in the German city Giessen. Soon the company became involved in other projects in addition to dwelling construction, building sewer systems and sewer basins in Frankfurt and other cities, as well as sluices, harbor quays, and basins. By the late 1870s the Helfmann business had become one of the leading construction firms in the Frankfurt area.

The Helfmann brothers' success was based on hard work, calculation, and planning. Philipp Helfmann valued trade skills over academic titles, for himself as well as for employees. During this time, 12-hour days were normal for weekdays at the company; even on Saturday, construction workers were on the job from six o'clock in the morning until four in the afternoon. Philipp Helfmann was modest and hard-working himself. He reportedly preferred a sandwich to large meals and traveled by night so that he would not lose a work day.

Never had German citizens and politicians show off their wealth so openly in the form of magnificent buildings as during the era of the German Empire in the 1870s. The Helfmann brothers profited from this boom. Many public buildings such as schools, post offices, and courthouses were on the young firm's list of projects, as were Frankfurt's Hotel Continental, the Hotel Kaiserhof, and the Auguste-Victoria-Baths in Wiesbaden. Moreover, the construction boom was driven during the last two decades of the 19th century by the Industrial Revolution. During that period, railroad, tunnel and canal projects dominated the Helfmann brother's business.

A Public Company Replaces the Old Business in 1896

In 1896, Balthasar Helfmann died, and his widow resigned from the business. Philipp Helfmann then liquidated the old business and founded the Actien-Gesellschaft für Hoch- & Tiefbauten (AHT) in Frankfurt/Main; for legal reasons it was impossible to use the Helfmann name for a time. Philipp Helfmann owned 42.5 percent of the new joint stock company's shares, while two other major shareholders--the Frankfurt banks J. Dreyfus & Co. and E. Ladenburg--held each 20 percent of the share capital.

Helfmann continued to manage the business, often without consulting his new co-owners or Balthasar's son Fritz Helfmann, who joined the executive management board in 1897. Obviously concerned about their investment, the bankers visited Helfmann's office almost daily. They grew concerned about the capital involved in the company's larger projects, and Helfmann started ignoring their numerous invitations to business meetings.

In 1899, shortly before his death, Philipp Helfmann landed his first contract from abroad when AHT acquired a share of an Italian silo company located in the northern Italian harbor town Genoa. In an unusual move for the time, the construction firm took over the huge project as general contractor and guaranteed a fixed price (of SF 3.25 million, an amazingly high figure for that time). It was not at all common to give a single firm full responsibility for such a complex project, which included the construction of large grain silos and the facilities necessary to run them. The project was carried out by AHT in cooperation with German and Italian subcontractors. Although it was a struggle, the company managed to finish this project without realizing any losses.

In the grain silo project in Genoa, AHT used a brand-new technique. Invented by a French gardener by the name Monier in 1867, this technique soon revolutionized construction technology. The gardener had begun to use iron cable to stabilize the planter boxes he built out of concrete. This process proved long-lasting and stable. Combining iron and concrete required a completely different technology. Instead of putting one brick over the other to build a wall, construction workers built forms which were filled with concrete. A wall could be made in one piece, and steel reinforced concrete became, of course, the material of choice.

AHT kept renewing its reputation for solid, quickly executed work. In 1903, for example, in just five months, the company built a hall for a festival in Frankfurt that was big enough to house over 9000 people. The company continued to expand up until World War I broke out in 1914. In addition to many railroad and train station construction projects, it built churches and army barracks. For clients from the Ruhr area, such as Krupp, Thyssen, and the Gelsenkirchener Bergwerks AG, it built harbor facilities and quays on rivers. One of the biggest projects during this time was the construction of a train station, Badischer Bahnhof, in Basel Switzerland between 1907 and 1912.

Turbulent Times Began in 1914

The majority of employees of AHT served on the front during World War I, and as a result civil construction projects became rare. After its defeat, Germany was obliged by the Versailles Peace Treaty to pay enormous reparations to the winners of the war. Hugo Stinnes, one of Germany's most powerful businessmen, was among the representatives who negotiated the agreement in 1920. One year later, when AHT raised their share capital, a Stinnes-owned company acquired almost all of the newly offered shares and thereby owned 50 percent of Hochtief's share capital. One of the projects Stinnes used Hochtief for after the war was to help built canals of the River Mosel in France. In the four offerings of the company's shares that occurred before 1923, Hugo Stinnes continued to acquire and soon became the majority shareholder. He then consolidated Hochtief into his empire, which included many coal and steel companies, and ships, as well as shares in banks, newspapers, and construction companies. Under Stinnes' influence Hochtief moved its headquarters from Frankfurt/Main to Essen, the center of the Stinnes realm of influence, where there was also more construction activity going on than in other parts of the country. Two years after Hugo Stinnes suddenly passed away in 1924, his empire broke apart. Due to the help of associated banks it was possible to keep Hochtief out of the turmoil and to preserve it as an independent enterprise.

In 1924 Hochtief's name was changed to Hochtief Aktiengesellschaft für Hoch- und Tiefbauten vorm. Gebr. Helfmann, Essen. In June 1926 the Rheinisch-Westfälische Elektrizit&auml×werk (RWE), one of Germany's largest electricity suppliers, acquired a significant share of Hochtief, 31 percent; this percentage would remain about the same for the following 20 years. After a period of hyperinflation ended, the construction sector began thriving again. A consequence of the reinforced concrete technology, construction sites looked more and more like mobile factories and the style of architecture focused on utility rather than aesthetics. Heavy investment in new office machines allowed Hochtief to install an up-to-date accounting and controlling system which enabled project managers at the Essen headquarters to monitor the progress of each construction project precisely and thereby keep financial losses at a very low level.

In 1927 a new CEO took office and laid the groundwork for Hochtief to become an internationally competitive company. Eugen Vögler, a civil engineer who started working for Hochtief in 1913 and whose father was CEO of a large steel company, had successfully set up the Hochtief offices in Essen and joined the executive management board in 1921. He set up a sustainable organizational structure with largely independent profit centers, moved the majority of the company's business activities to reinforced concrete construction, forced the company to move abroad, and founded an apprenticeship workshop to train qualified professionals--the first of its kind in the industry. One of the most prestigious projects during this period was construction of a large stretch of the Albert Canal in Belgium in 1929. The project's total value was equivalent to two years worth of total sales at Hochtief and was finished in less than five years--half of the time originally planned for the project--thanks to the creativity of Hochtief's civil engineers.

Unlike many other construction businesses, Hochtief was able to survive the Great Depression, due to its activities abroad and the great variety of its domestic projects. Surviving construction companies in an industry so sensitive to economic cycles cut back their staffs by up to 90 percent. In winter 1929 salaries of Hochtief employees were cut by one-third. However, after the company's recovery it established a highly competitive wage scale.

During the Nazi regime, between 1933 and 1945, Hochtief like all other big enterprises was in practice managed by the government bureaucracy. Until the early 1940s the number of employees increased fivefold to 10,000. Hochtief became involved in the Nazis' war projects such as the construction of the so-called 'Westwall' along the French border and submarine bunkers. One of Hochtief's most famous civil projects of that time was the construction of Berlin's Olympia-Stadium where, in 1936, the last Olympic Games before World War II were held.

Building Nuclear Power Plants After World War II

During World War II many of Germany's cities were bombed into ruins, and it was expected to take a few decades to rebuild the country. However, Germans seemed energized by this challenge and worked passionately to rebuild their houses, factories, and streets, with the help of companies such as Hochtief. The 1950s also brought new technologies to the construction industry such as hydraulic drives, large cranes, and mechanized construction, all of which boosted productivity.

In the mid-1950s Hochtief expanded into a new field which would later become one if its main fields of expertise: the construction of nuclear power plants. With very strict regulations and safety requirements, such projects demanded special know-how that Hochtief was able to acquire over the years. The company pioneered methods for calculating the necessary strength of concrete containers under pressure in order to withstand earthquakes, airplane crashes, or gas explosions; their calculation methods were later incorporated into general safety laws. Between 1956 and 1986 Hochtief was heavily involved in more than 30 nuclear reactor construction projects, from research reactors to big power plants in Germany and later abroad.

Despite the domestic construction boom, Hochtief soon reactivated contacts with its international customers in Belgium, the Netherlands, France, Turkey, and Iran. The company also expanded into new markets such as Egypt, Australia, India, and some Latin American countries, and later in the 1970s into Arabic countries, particularly Saudi Arabia. In the 1960s more than half of all international construction carried out by German firms was done by Hochtief. Between 1971 and 1980 the company's sales abroad grew tenfold, reaching DM 3.3 billion at the end of this period. Hochtief had become one of the world's leading construction firms.

One of the company's most prestigious projects during this time was the 'New Jeddah International Airport' in Saudi Arabia. Worth over DM 10 billion, this was the biggest construction contract ever given to a single company; it was begun in 1974 and finished ten years later. Other international Hochtief projects included the subway in Hong Kong; a water power station in Saryar, Turkey; the 'Mossy-Marsh-Tunnel' in Tasmania, Australia; 23 hospitals in Peru; dams in Mozambique, Pakistan, and Irak; the relocation of the Temple of Abu Simbel; the Bosporus bridge in Turkey; and harbors all over the world.

1990s Bring New Challenges at Home and Abroad

The year 1990 brought two major changes for Hochtief: the RWE conglomerate became its majority shareholder, and Germany was reunited. Regarding the latter, Hochtief became involved in several projects in the former East Germany. A high percentage of the country's residential buildings were in bad condition, and modern, new production facilities, and transportation infrastructure were needed to make East German companies competitive. Hochtief focused on environmental projects such as landfill construction and reconstruction, a field in which it also conducted research on new technologies, as well as for cleaning the ground and ground water from pollution. However, Hochtief realized that the sudden boom in the German construction industry would not last forever and therefore focused on acquiring new business outside the country.

One of the main Hochtief hallmarks in the 1990s was airport construction. The company had already built the airports in Frankfurt/Main and Cologne as well as in Saudi Arabia, and the growth of international trade and travel resulted in a need for more modern airports worldwide. In the early 1990s Hochtief enlarged the airport facilities in Warsaw, Poland. In the mid-1990s the company helped modernize and enlarge the airport in Beirut, Lebanon, while it continued operation. The project included a new landing strip over two miles long that reached far out into the ocean, a 1.5 mile long breakwater, a new passenger terminal for six million people, and a new coastal highway. The company also acquired a 36 percent share in the Athens International Airport S.A. (AIA) and won the major contract for planning, financing, and building the new international airport in Athens in 1995. Two years later Hochtief founded the Hochtief AirPort GmbH subsidiary to focus on planning, financing, and operating airports worldwide, a field in which Hochtief was investing as a second focus for its business in addition to construction. In the same year the company acquired a share in the Flughafen Dusseldorf GmbH and won a contract to modernize and enlarge the Dusseldorf airport.

Hochtief's latest involvement with airports was its majority stake in a consortium that would plan, finance, and run the new Airport Berlin Brandenburg International with an annual capacity of 20 to 30 million passengers. However, one of its competitors in bidding on the project, IVG, went to court accusing Hochtief of corruption. A Berlin court ruled the deal void in September 1999, finding four violations in the bidding process. Hochtief AirPort CEO Wolfhard Leichnitz remained under investigation in the late 1990s.

The 1990s also intensified fundamental structural changes in the worldwide construction business. A growing number of complex international projects involved the collaboration of several companies. Global players with appropriate know-how emerged as the main planners and financiers who teamed up with national partners in public-private partnerships, while the actual construction was done by local mid-sized companies. In order to participate in all those markets Hochtief systematically extended and enhanced its network of international subsidiaries, even in traditional Hochtief markets such as the Netherlands, Brazil, Argentina, Australia, Hong Kong, South Africa, and the Middle East, and formed new subsidiaries in Poland and Russia. Moreover, in the fall of 1999 Hochtief agreed to acquire Turner Corporation, the U.S. market leader in nonresidential construction. The deal was completed in September 1999, with Turner maintaining its autonomy, and Hochtief gaining a foothold in the U.S. construction market. As it moved toward a new century, Hochtief seemed well prepared to build on its success.

Principal Subsidiaries: Hochtief AirPort GmbH; Hochtief Verkehrswegebau GmbH; Hochtief Rohrleitung- und Kanalbau GmbH; Hochtief Umwelt GmbH; Streif AG; Streif Baulogistik GmbH; Hochtief Fertigteilbau GmbH; A.L.E.X. Bau GmbH; Hochtief Facility Management GmbH; Hochtief (U.K.) Construction CTD; Hochtief do Brasil S.A. (Brazil; 91.42%); Beta Acquisition Corporation (U.S.); Turner Corporation (U.S.); Kitchell Corporation (U.S.; 35.34%); PT Ballast Nedam Indonesia Construction (47.44%); Ballast Nedam N.V. (Netherlands; 48%); Hochtief Russia; Leighton Holdings Limited (Australia; 46.96%); Concor Limited (South Africa; 49.99%); Hochtief Polska Sp.z.o.o. (Poland); Garantie-Koza Insaat Sanayi ve Ticaret A.S. (Turkey; 41.93%); Hochtief Construcciones S.A. (Argentina); PT Ballast Nedam Indonesia Construction.

Principal Competitors: ABB Ltd.; Bechtel Group, Inc.; Philipp Holzmann AG.

Chronology

• Key Dates:

• 1875: Balthasar and Philipp Helfmann found their own construction business in Frankfurt/Main.
• 1896: The Actien-Gesellschaft für Hoch- & Tiefbauten in Frankfurt/Main replaces the old business.
• 1923: Hochtief is integrated into the Hugo Stinnes group of companies.
• 1926: The Rheinisch-Westfälische Elektrizit&auml×werk (RWE) become Hochtief's biggest shareholder.
• 1950: Hochtief begins building nuclear power plants.
• 1970: Hochtief becomes involved in airport construction.
• 1990: RWE becomes the majority shareholder in Hochtief.
• 1995: Hochtief wins the Athens International Airport project.
• 1999: Hochtief acquires Turner Corporation.