Annual Report 2003 2004

esearch and development, and, if necessary, cooperation with
partners or acquisition of investments, as well as the strengthening
of its position as a system vendor. Major consideration is given to
the increased use of alternative materials and the use of electric/
electronic systems to replace mechanical solutions. At the same
time, however, the increasing complexity of products as well as
underlying production processes in some cases carry the risks of
higher start-up costs and a strained income situation.
The international steel market is currently strongly influenced by
China’s expanding steel and primary material needs. The major price
rises for scrap resulting from this have had a significant impact on
earnings for the segment’s North American foundries as price
increases can only be passed on to customers with a time delay. A
continuation of the development in steel prices also carries significant
risks for earnings at the steel-processing companies.
While the operating performance of the Elevator segment’s new
installation business is dependent on the situation in the construction
sector, this is not the case with the modernization, service and repair
business, which therefore has a stabilizing effect on earnings.
In this regard, regional weaknesses in the international construction
sector are impacting further segment growth. However, the segment
is profiting from the stable growth, particularly in construction activities,
which can currently be observed in Asia. The further expansion of
Elevator’s service business is relatively independent of the regional
variations in the development of new installation business as the
expansion of the service portfolio is not based only on new installations.
The operating risks are seen as relatively low due to the strongly
decentralized organization of the segment with over 800 branches
worldwide and the associated high level of diversification.
Although approx. 45% of business volume is realized in us-Dollar, the
currency risks are limited as sales and costs are largely accounted
for in the same currency, due to the highly regional nature of activities.
The remaining transaction risks are minimized through consistent
hedging.
Part of Elevator’s strategy for successful business expansion is
to acquire new companies. The risks associated with the integration
of new acquisitions are minimized through comprehensive business
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Management’s discussion and analysis
integration measures and close support of the acquired activities.
The Technologies segment has a differentiated risk structure due
to the vast diversity of product ranges. Project controlling as a form
of early identification system based on available instruments and
systems is further optimized through monthly summary reporting
on the status and changes of key major projects.
The risk at the Production Systems business unit of overdependence
on only a few large customers is being counteracted by
a broadening of the customer base and a reorganization of sales.
Risks from changes during project processing will be countered with
greater flexibility and further development of product ranges.
Plant Technology curbs risks arising from the processing of longterm
contracts through more efficient contract management and
intensive project controlling as well as concentration on mastered
technologies.
In the Marine business unit, risks in order processing shall be
limited by greater project management and controlling. Merchant
shipbuilding, concentrating on small and medium-sized container
ships (up to 2,700 teu (container storage spaces)), fast ships
(ferries) and mega-yachts, contributes to the compensation of
capacity fluctuations in naval shipbuilding.
At the Mechanical Engineering business unit, leading market positions
will be consolidated and expanded through further restructuring and
cost reduction measures, range extensions and by developing new
sales markets.
Now that the Shanghai route has successfully commenced
commercial operations, worldwide market penetration for the Transrapid
will be supported by the government-financed development program.
At the same time, the development program is improving the chances
of realizing the Munich project.
The companies of the Services segment chiefly involved in materials
trading are mainly exposed to price and inventory risks and those of
uncollectible receivables, none of which, however, jeopardize their
existence. Further expansion of the centralized warehousing concept
as well as constant advancement of the logistics control systems
reduce inventories, thus buffering the effects of short-term price
volatility even further.