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Industrial plant engineering covers the construction of complete plant in the field of power generation,
oil and gas refining, and plastic and fiber production, as well as other large-scale environmentalengineering
and chemical plant for various purposes. This business is generally characterized by large
individual order volumes, an international orientation, long-term planning and project terms as
well as complex contractual and financing arrangements. The risks involved in large-scale projects
lie principally in the fact that the prevailing conditions and circumstances may deteriorate during
the course of the project. At the same time, any failure to meet milestones and completion dates
normally incurs contractual penalties, so that unforeseeable difficulties in completing a contract may
impair its profitability.
Furthermore, new technologies and processes are constantly being developed and implemented on an
industrial scale. This so-called first-of-its-kind plant exposes the plant builder to the risk of extensive
corrective work if industrial-scale process solutions prove more complex than expected. This entrepreneurial
risk is mitigated by the selective acceptance of such contracts.
mg’s industrial plant engineering business operates internationally. One focal point of its work is
power-plant projects and industrial plant for oil and gas refining, which are often erected in emerging
markets. In order to be able to identify potential risks in the handling of such projects at the earliestpossible
stage, mg has set up a Risk Board, which checks contracts from a technical, legal and commercial
viewpoint before they are accepted and arranges for any necessary adjustments to be made.
mg implements forward-looking measures to mitigate risks arising from contracts in critical regions
by using appropriate contractual arrangements, hedging instruments and ongoing project controlling.
GEA’s business is characterized by lower contract volumes, shorter component-production runs, and
the construction of smaller plant. Accordingly, GEA is less affected by risks from individual contracts.
Its trading results are more subject to the prevailing procurement and sales situation in the relevant
markets of its strategic business units. In December 2003, the Italian Parmalat Group, which is
engaged, among other things, in milk processing, filed for bankruptcy. Despite the fact that GEA is
a market leader in the field of milk processing, Parmalat’s bankruptcy has had no material adverse
impact on GEA’s profits. This issue is expected to depress GEA’s sales only very slightly in the
current year.
Production in the chemicals business involves the commitment of substantially more capital than
in engineering. Companies are particularly exposed to risks arising from the fact that capital investment
is tied up in plant for long periods. mg mitigates the risk of misplaced investments with its
sophisticated investment-controlling system. There is also a procurement risk attaching to the supply
of raw materials and energy to industrial plant. Dynamit Nobel’s plastics business, for example, is
particularly dependent on oil as the source of its raw materials. This risk is substantially reduced by
the conclusion of long-term procurement and sales agreements. In the chemical industry – particularly
where hazardous chemicals are used or produced – there is also a risk of possible accidents or environmental
pollution. mg mitigates these risks by following the prescribed safety and organizational
precautions.
The chemical retailing and distribution activities engaged in by solvadis require extensive knowledge
of the various procurement and sales markets. For this subgroup it is thus crucially important to recruit
and retain suitable employees. The cost of capital is lower in chemical retailing and distribution than
in production, so the barriers to market entry facing competitors are lower. This creates the risk that
competition may intensify as a result of the entry or expansionist strategies of competitors.