MAN Ferrostaal prepares for growth

Even though the company is not unaffected by the current difficulties facing plant and machine construction, its cross-regional focus and emphasis on growth sectors such as power, petrochemicals and solar energy provide stability.

"By concentrating on growth areas, we can offset businesses where we are currently making a loss," said Dr. Matthias Mitscherlich, Chairman of the Executive Board at MAN Ferrostaal, at the company's annual press conference. "We have a solid basis to successfully navigate our way through the economic crisis."

The company's new majority shareholder, International Petroleum Investment Company (IPIC), is also providing optimism through its plans to award orders to MAN Ferrostaal. For example, it is envisaged that the company will be involved in a multi-billion dollar project that IPIC is planning in Abu Dhabi.

Over the coming years, the Chemicals Industrial City, a petrochemical complex with a planned investment volume of $50-70bn, is to be built in Abu Dhabi. IPIC also has petrochemical projects in Central Asia and North Africa on its agenda and plans to involve MAN Ferrostaal in those. Collaboration with other IPIC investments is a further source of possible additional business. MAN Ferrostaal is currently undertaking preparatory work for the construction of a compressor station for an OMV company (IPIC share in OMV: 19.2%) and it is assumed that it will receive the complete contract.

The volume of orders of MAN Ferrostaal is currently at a record high at just under €2.9bn (2008: €2.4bn). Viewed in this light, MAN Ferrostaal has a good prospect of being able to continue the positive growth of recent years.

Dr. Mitscherlich is anticipating replicating the levels of incoming orders and sales from 2008 in 2009, "Our operational profit in 2009 is forecast to be lower than the previous year, due in particular to the fact that the performance of our investments in petrochemical operating companies will be lower this year. Consequently, we are currently implementing a cost-saving programme which aims to reduce our costs by ten percent. Depending on the development of the financial and economic crisis, we are expecting a general and continued increase of our positive business growth from 2010, and therefore a sustained increase in incoming orders, sales and operating profit. We continue to hold on to our objective of achieving sales of €4bn in 2013."

Mitscherlich is expecting further growth over the coming years in addition to the activities for IPIC, primarily from the petrochemicals and energy businesses, "In both areas there is both great potential and pent-up demand, especially in the regions in which we are traditionally heavily represented. In the fields of renewables - in particular solar energy - we anticipate that original plans will be continued and developed in the not too distant future as a result of the high political relevance of environmental matters in many major national economies."

Accordingly, the company is currently continuing to increase its headcount. Set against the background of the change of ownership, MAN Ferrostaal increased its equity to €438m last year, representing a capital ratio of almost twenty percent. Dr. Mitscherlich justified this step on the basis that the company will be more independent in the market, "In agreement with our new majority shareholder, IPIC, we now take charge of our credit facilities ourselves. In this regard, we are benefitting from our long and good credit history that we have built up over the years with many relevant banks."

In 2008 the company achieved an operating profit before interest and tax of €167m (previous year: €179m) - the second-best result in the company's history. Sales increased to €1.6bn (previous year: €1.4bn). The operating margin was 10.2%, and the return on capital was 37.3%. New orders increased by 18% to €1.8bn (previous year: €1.6bn). As in previous years, sales and new orders originated for the most part (83% and 85%) from abroad. As in previous years, the most important region was Latin America.

Whilst profits from the industrial plant business declined somewhat as a result of an unusually high contribution to operating income in the previous year, measures for the reorientation of the company had a positive effect. In previous years, MAN Ferrostaal has reorganised businesses with weak contributions to operating income and thereby considerably improved the profitability of these areas.

Additionally, MAN Ferrostaal has further streamlined its organisation. The company is concentrating even more on areas of plant construction that have a promising future. The businesses in the Services division are now organised more efficiently, in particular in order to exploit existing synergies.

The international organisation of the company with a presence in 60 countries and where more than half its workforce is located continues to be of great importance to MAN Ferrostaal. As Dr. Mitscherlich said, the international nature of the company is also an important factor for IPIC, because IPIC is working on the continued international expansion of its portfolio, "Our international nature is based upon our service business with machines and industrial equipment. Consequently, we will continue to drive the division intensively and, where we are able, expand it. With our established presence in many countries, we can also open doors for IPIC and facilitate their access to the market."

The industrial plant construction business, too, benefits from the company's international sales organisation. MAN Ferrostaal uses its existing infrastructure from the Services division in order to realise major plant projects.

These projects also include three major projects that the company is currently undertaking in Venezuela, where MAN Ferrostaal is presently constructing two power stations and a fertiliser plant with a total order volume of over €1.1bn. The company is carrying out two further major projects in Trinidad - the construction of a petrochemical complex and a power station. These projects comprise an order volume of €1.3bn. The petrochemical plant, comprising seven individual plants, is anticipated to be completed this year.