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Annual Report 2008 - AMG Advanced Metallurgical Group NV

Annual Report 2008 - AMG Advanced Metallurgical Group NV

Engineering Systems

Engineering Systems Division $435.5M Revenue increased 40% over 2007 $95.6M EBITDA grew by 38% from the comparable period in 2007 Revenue by market 2008 The Division achieved record operating results in 2008, increasing sales by more than 40% to $435.5 million and increasing EBITDA by 38% to $95.6 million. The growth was driven by increased sales of directional solidification systems (DSS furnaces) to the solar industry and vacuum remelting systems to the fuel economy market, primarily for titanium applications. The Division entered 2009 with a strong backlog of over $332 million, 32% above the backlog at December 31, 2007. Operations Order intake for 2008 increased by 21% over 2007 to $514 million. Furnace orders from the solar industry and titanium producers accounted for the majority of the Division’s growth. In particular, order intake from the solar industry reached $292.8 million in 2008, an increase of 51% over 2007. In the fourth quarter, demand for remelting systems for the production of components of industrial gas turbines was remarkably strong, reflecting the replacement of obsolete turbines worldwide. The Division requires its customers to secure orders by advance payments. To date, the Division has been only modestly impacted by the current economic crisis. Nevertheless, the Division maintains a significant percentage of temporary employees and subcontractors and is able to adjust workforce levels. The Division is prepared to further reduce costs in 2009 should there be a decline in demand. After a strong start, the Division’s tolling-based heat treatment services had a challenging second half of 2008. As many customers are in the automotive industry, this business unit has been significantly affected by the current downturn. More than 20% of capacity was idled during the second half of 2008. This business unit is prepared for a prolonged downturn and has reduced payroll costs by 22%. Markets The demand for high-tech alloys and metals in the markets served by the Division, particularly aerospace and energy, remained strong through the first three quarters of 2008 and declined in the fourth quarter. 20 Report of the Management Board | Business Review: Engineering Systems Division

The Engineering Systems Division produces advanced vacuum furnace systems, primarily for titanium applications and solar energy markets. VACUUM ELECTRO SLAG REMELTING FURNACE As in 2007, Asia and Europe were the primary markets during 2008, with 34.4% and 50.4% of revenues, respectively. Within Asia, the Indian market is becoming much more important because of the change in the export control policy of the German Government. For the first time, the Division was able to sell several systems to the Indian aviation and energy industries, a promising signal for the future. North America represented 15.0% of revenues. The growth in the North American market was driven by the aerospace and solar industries. Although the number of requests for quotations remains high, credit market problems are causing significant delays in the decision making process. Fuel Efficiency Reduced weight and improved strength of component parts are crucial for gains in fuel efficiency. Given that titanium has the highest strength-to-weight ratio of any metal, improvement in fuel efficiency is driven by the creation of titanium parts. The Engineering Systems Division offers a large spectrum of furnace Key achievements Achieved record revenue and EBITDA of $435.5 million and $95.6 million Increased furnace backlog to $332 million at year-end, despite slowing orders in the fourth quarter, exceeding 2007 high by 32%. Increased production at Berlin plant to 200 DSS furnaces in 2008, compared to four furnaces in 2007 Established dedicated nuclear subsidiary and signed contract with Shaw Areva MOX Services, LLC to engineer nuclear sintering furnaces in the United States Started production on schedule at new heat treatment services facility in Mexico Report of the Management Board | Business Review: Engineering Systems Division 21

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