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Messer - Geschäftsbericht 2008

Review of economic development

Economic environment

According to surveys of the International Monetary Fund (IMF) and the OECD, the global economy was suffering severely at the end of 2008 as a result of the financial crisis. The prospects for growth were dampened even further in the final months of 2008 by a number of factors, including reduced equity coverage within the finance sector, a high degree of uncertainty amongst companies and consumers and a loss of confidence in the banks. The risk of a long period of recession has caused consumer spending to fall, companies to invest less and unemployment figures to rise. With the market for corporate bonds as good as closing down in September and the market for high-interest debt practically non-existent throughout the whole of the year, funding and operating conditions for companies are likely to further deteriorate in the coming year.

Weaker worldwide demand is causing raw material prices (particularly for oil) to fall. Compared to its highest level, the price of oil fell by 50 % despite the fact that the OPEC reduced production volumes. This is a clear indicator of a global economic downturn. Lower prices for oil, metals and food will help consumers in the major industrial countries and in the emerging economies. At the same time, however, it will also weaken growth prospects in those very same emerging economies. From our perspective, China is still performing better than many European countries and the USA, largely as a result of its more robust financial situation and the fact that it has not so far been hard hit by the financial crisis.


Significant developments

In the following section, we describe the main developments and trends affecting the financial year ended December 31, 2008.

Change in net operating assets
Measures were implemented during the year aimed at reducing the Group’s working capital (inventories, trade receivables and trade payables). Net current assets nevertheless increased to K€ 67,754 at the year-end (December 31, 2007: K€ 58,600) with net sales and hence receivables both up on the previous year. In addition to higher receivables, the increase was mainly attributable to higher inventory levels (primarily advance payments and project materials). Overall, however, the ratio of net current assets to net sales increased slightly from 8.3 % at the end of 2007 to 8.5 % at December 31, 2008.

Financing arrangements
The terms and conditions of our existing financing arrangements remain unchanged. We refer to our comments in the section of this report dealing with the Group’s financial position.

In January 2009, Messer Group GmbH, as borrower, concluded a new, unsecured Senior Facilities Agreement for an amount of € 100 million (SFA II). The new credit is equal in rank (pari passu) to the existing Senior Facilities Agreement (SFA I)/Note Purchase and Guarantee Agreement (NPA). We refer to the disclosures made on events after the reporting period.

Capital expenditure
Our capital expenditure policy is based on economic principles, namely that we only invest in projects which will enhance the Group’s supply capability and/or which create opportunities for profitable growth. Since 2007, our focus in Europe has been on constructing new, and expanding existing, production facilities in order to eliminate supply bottlenecks and hence reduce the high ratio of bought-in products. In China, we were mainly intent on playing our role in the expansionary projects undertaken by our on-site customers. Capital expenditure in 2008 (excluding first-time consolidations) totalled € 193.1 million and was therefore equivalent to 24.3 % of total net sales. Most of the capital expenditure incurred in 2008 was spent on construction projects involving 13 air separation plants, two of which are located in Germany. We took advantage of the opportunities available to achieve profitable growth by increasing our investment in one company in China to 85 %, by raising our shareholding in our Turkish company to 100 % and by acquiring a majority interest in ASCO Carbon Dioxide Ltd., New Zealand.

A new air separation plant in Spain commenced operations in 2008 as part of our strategy to secure further growth with the existing pipeline system in Tarragona and in the liquid gases bulk supply segment. Similarly, the air separation plant in Bosnia-Herzegovina (Zenica) was also successfully commissioned in 2008. This plant covers the current oxygen requirements for the steel production of our on-site customer and also provides an opportunity to strengthen our position in the liquid gases bulk supply market in this country.

Good progress was made in 2008 with the construction of air separation plants in Poland (Rybnik) and for on-site customers in Germany (Siegen), Switzerland (Canton Wallis) and Rumania (Resita). All of these facilities have been designed with a view to supplying the principal customer and serving the liquid gases bulk supply market. All of the plants will start operations in 2009 in line with schedule. The foundation stones were also laid for air separation plants in Turkey (Istanbul) (start of operations 2009) and for a second one in Germany (Salzgitter) (start of operations 2010). Construction of two further air separation plants was commenced in China as part of the process of supporting existing customers to expand their steel production facilities. These two plants will start operations in 2009 in line with schedule. The construction of our first air separation plant for a steel factory in Vietnam is making progress, albeit with some delays, and will now be commissioned in 2009.

Coordinating all of these air separation plant projects posed a tremendous challenge in logistics terms, requiring the organization of large-scale transportation of material and equipment to our new air separation plants in Switzerland, Poland and Rumania, extensive documentation and customs clearance. All components arrived on time at the various construction sites.

Working together with reference customers, new techniques were developed at our centers of expertise which found immediate usage in the market. Our centers of expertise in Europe and Asia are continually being expanded in order to provide greater opportunities to test new ideas. The new generation of burners was added to the combustion testing facilities in Gumpoldskirchen. New facilities were added to the center of expertise in Mitry-Mory, France, vastly increasing the scope for testing Variosol technologies. The cold grinding technical center near to Krefeld was retrofitted with a subcooler, thus enabling cold grinding operations to be reproduced even more accurately.

The Group also continued to invest in cylinder-filling capacities for industrial gases. New ultra-modern filling plants were commissioned in Italy (Settimo) as part of the move to a new site and in Germany (Siegen) in conjunction with the re-entry into the German market.

Changes in the group reporting entity
As a result of the expansion of business activities in Vietnam, Messer Haiphong Industrial Gases Co., Ltd. and Messer Vietnam Industrial Gases Co., Ltd. were taken into the group reporting entity with effect from January 1, 2008 and fully consolidated with effect from that date.

The two German companies, Messer Produktionsgesellschaft mbH Siegen and Messer Produktionsgesellschaft mbH Salzgitter were both founded in 2008 and have been fully consolidated since the date of foundation.

The Messer Group acquired 24.97 % of Foshan MS Messer Gas Co., Ltd., China (a related company) on April 1, 2008 and a further 16.59 % on December 29, 2008 and therefore now holds 85 % of the shares of this entity.

The Messer Group acquired a majority shareholding in ASCO Carbon Dioxide Ltd., New Zealand, with effect from September 1, 2008, thus extending the Messer Group’s CO2 know-how, particularly in the areas of CO2 production and recovery. The equipment and facilities set up in New Zealand are being marketed by the Swiss parent company, ASCO Kohlensäure AG, in which the Messer Group acquired a majority shareholding in 2007.

Messer set up the joint venture bECO2 B.V., Belgium, together with a Belgian partner in November 2008. From 2010 onwards, the joint venture (in which Messer has a 70 % interest) will operate a production plant which recovers CO2 from industrial exhaust air and enables it to be re-used.

As a result of the start of business operations of Balti Messer OÜ., Estonia, – a production joint venture between the BLRT Group and the Messer Group – Balti Messer OÜ. is included in the consolidated financial statements as an associated company.

The remaining minority interests at Messer Aligaz Sanayi Gazlari AS, Turkey, and Messer Mostar Plin d.o.o., Bosnia-Herzegovina, were acquired during the financial year 2008, with the result that the Messer Group now wholly owns these entities.

The two Chinese companies, Messer North China Industrial Gas Co., Ltd. and Messer International Trading (Shanghai) Co., Ltd. were wound up in June 2008.

Messer Hungarogáz Kft., Hungary, was merged into Messer Magyarorszag Vagyonkezelö Kft., Hungary, (its 100 % direct parent company), with effect from April 1, 2008. Messer Magyarorszag Vagyonkezlö Kft. subsequently changed its name to Messer Hungarogáz Kft. Messer Schweiz Verwaltungs AG, Switzerland, was merged into Messer Schweiz AG, Switzerland (100 % parent company) on August 31, 2008.


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