E_mg_GB_03_vorne-29_3_04

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68 Lurgi’s business in 2003 was hit by the depressed levels of capital spending around the world and in Europe in particular. The only exceptions here were the growing markets of China and the Middle East. The plant engineering sector was characterized by intense competition for markets and the extremely high pressure on costs exerted by customers. Investor structures, particularly for large-scale projects, produced complex and long-term contractual and funding models. The strength of the euro compounded the situation in Germany’s export-driven industrial plant engineering sector. Taken together, these factors delayed the awarding of large-scale projects expected in 2003. As part of the restructuring program launched by the mg Group, Lurgi started to implement the first of these measures towards the end of 2003, and commenced the process of winding up its holding company. In 2004, Lurgi Oel Gas Chemie GmbH and Lurgi Life Science GmbH will be merged with Lurgi AG, which will then be an operating company. The aim of this measure was to improve efficiency and generate cost savings over the foreseeable future. Lurgi started to close down the Chemnitz site of Lurgi Life Science GmbH in line with the mg Group’s strategy of disposing of businesses that fail to achieve sustainable profitability. It is currently examining alternative options that would secure these jobs. Its restructuring costs affected its profits accordingly. Further one-off charges were taken as a result of necessary valuation allowances on inventories. In the future, Lurgi will concentrate on technologies such as gas-to-petrochemicals and synthetic fuels, sulfur management, exclusive licensing agreements in the field of petrochemicals, as well as food, oleochemicals, and fuels and fuel components made from renewable resources such as bio-diesel and bio-ethanol. Its gas-to-petrochemicals business – focusing on synthesis gas, MegaMethanol®, methanol-to-propylene (MTP®), Megammonia®, methanol-to-synthetic-fuels and sulfur management – is largely based on proprietary technologies. Over the past ten years Lurgi has established itself as the market leader in methanol: between 60 and 70 percent of global methanol production either already comes from Lurgi’s plant or will do so in the near future. As part of its strategy of focusing on growth markets, Lurgi plans to dispose of its refinery technology, fine chemicals, and pharmaceuticals businesses. The Oil Gas Chemicals strategic business unit won a smaller volume of new orders due to delays in the awarding of big-ticket projects. During the period under review, this unit won its first contract in the field of Eastman polymer-grade terephthalic acid (EPTA) technology, which is being developed jointly with Eastman. Terephthalic acid is an important intermediate in the production of polyester. In Iran a Letter of Award was signed for a further MegaMethanol plant®. The order for this plant is expected in the first half of 2004. This unit’s earnings were depressed by problems with two major contracts. This deterioration in its profits was caused by additional charges and follow-up costs incurred by a strike and disruptions lasting several months as well as inefficient working by plantassembly firms. Its profitability was also hit by insufficient capacity utilization.
MANAGEMENT SHARE STRATEGY SPECIAL SECTION MANAGEMENT REPORT FINANCIAL STATEMENTS FURTHER INFORMATION Economic Environment • Situation of the Company • Organization and Structure • Risk Report • Employees • Performance of the Subgroups • Outlook The Life Science strategic business unit won a larger volume of new orders during the period under review than in the previous year. After the low level of new orders received in the first nine months of 2003, the volume it achieved in the fourth quarter was encouraging. This was largely due to its food business, which will continue to belong to Lurgi after its portfolio has been optimized. It won a contract from Russia’s largest producer of cooking oil as well as two further orders from Russian clients. Strong growth in new orders at Lurgi Lentjes In 2003, Lurgi Lentjes substantially increased its volume of new orders on 2001/2002. These largely involved projects for which the company can mainly use proprietary technologies. Nonetheless, its sales and earnings came in lower. The main reasons for this were delays in new orders in the first two quarters, measures relating to the strategic restructuring of the mg Group, and a deterioration in its business operations. Despite the difficult economic environment, the Gas Cleaning strategic business unit turned in a respectable performance. Its sales, volume of new orders, and earnings all increased year on year. The Energy and Environment strategic business unit won several big-ticket contracts during the period under review, reporting a year-on-year increase in new orders. Its earnings were depressed by the deteriorating state of ongoing projects and by one-off charges from risk provisioning for problem contracts and the settlement of long-running lawsuits. Its profitability was also adversely affected by restructuring costs incurred in connection with the strategic restructuring of the mg Group. During the period under review, Lurgi Energie und Entsorgung GmbH won an order from the Frankfurtbased Mainova AG to modernize a thermal power station. This will involve using a power-thermal coupling process to simultaneously generate electricity and heat for the local district heating network. Once the plant comes on stream, customers will receive subsidies to promote power-thermal coupling in order to cut carbon dioxide emissions. This strategic business unit won a contract from AVA Nordweststadt and Mainova AG, Frankfurt am Main, Germany, to modernize a waste incineration plant in Frankfurt in order to make it compliant with the increasingly stringent environmental legislation. Lurgi Energie und Entsorgung GmbH achieved further success when it won a contract to build a waste incineration plant on the Channel Island of Guernsey. The customer for the order is the island’s government. Starting in 2006, the plant – which will be the only one of its kind on the island – will be used to extract energy from up to 72,000 tonnes of residual waste per year, which in the past has simply been dumped. Lurgi Energie und Entsorgung’s business in China also went well. During the period under review it signed seven licensing agreements on smoke-cleaning technologies with Chinese firms. These agreements cover the company’s entire product range, and the anticipated royalty income will help boost its earnings over the coming years. 69
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