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Messer - Geschäftsbericht 2008
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Review of operations

Despite less favourable business conditions at the end of the financial year 2008, our strong market position in many countries and the economic dynamism in China enabled the Messer Group to continue to perform well. Thus, even though the micro-economic climate has deteriorated significantly since the beginning of the 4th quarter 2008, the budgeted targets were achieved.

 

Earnings performance

Messer Group generated worldwide net sales of K€ 794,751 in 2008, which can be analyzed by region as follows:


 

 

The financial year 2008 saw another sharp rise in sales revenue, combined with higher energy, raw material and bought-in product costs. In some cases, purchase prices increases were quite drastic. Competition on the industrial gases market remained tough. Despite these adverse factors, we were nevertheless able to consolidate our market presence in all regions and increase market share in some areas. Business developed in the various regions as follows:

Western Europe
Net sales rose by 8 % compared to one year earlier, partially reflecting the fact that ASCO Kohlensäure AG, Switzerland was included for the first time for a full year. The majority shareholding in this company had been acquired in May 2007. In 2008, a majority shareholding was also acquired in a New Zealand company that supplies ASCO Kohlensäure AG. Excluding the contribution made by the two ASCO companies, net sales generated in Western Europe increased by some 4 %.

This positive development in Western Europe was helped in particular by good sales performances in Italy and Switzerland. Messer Medical S.r.l., commenced operations in Italy with effect from January 1, 2008. This company, which specializes in business with medical gases, had previous been spun out of Messer Italia S.p.A. In November 2008, both companies moved premises to Settimo near Turin, the location of the new cylinder-filling plant. In Switzerland, industrial gases business performed well in all areas. Helium business did particularly well, benefiting throughout the year from the long-term contract in place with the European Organization for Nuclear Research (CERN) to supply the world’s largest particle accelerator. Construction work on the air separation plant in Visp continued in line with schedule. When completed, this plant will supply gases to the local chemical company as well as supplying bulk liquid gases for the Swiss and North Italian markets. As early as the first half of the year, the pipeline business in Spain suffered from temporary breaks in production for two major customers. The performance with liquefied gases was also held back during the final quarter of 2008 by the fact that liquefaction module for the new air separation plant in Tarragona (which had otherwise successfully started operations in September) was out of action. It was taken back into production in February 2009.

Central Europe
Net sales were up by 13 % compared with the previous year, partly (6 %) as a result of the strength of the Polish, Czech and Slovakian currencies against the euro during the first nine months of the year.

The strongest sales performance in the region came from Poland. Excluding the additional positive currency effect, net sales generated on this market rose by 11 %. The main contributory factor was bulk liquid gases business in advance of the start of operations of the new air separation plant in Rybnik/Upper Silesia (planned for the beginning of 2009). Austria profited in particular from a strong performance with helium sales. Following on from newly constructed the helium storage tank, a 200 ton CO2 tank was also taken into operations in Austria in a further measure to ensure product availability.

South Eastern Europe
Messer was able to participate up to the end of the year in the dynamic growth in this region, in particular in the Balkans. Net sales generated in South Eastern Europe increased by 6 %. If the previous year’s figures are adjusted for the sale of business activities in Greece in 2007, the comparable net sales growth was even higher at 8 %.

The fastest growth rates were recorded in Bosnia-Herzegovina, Serbia and Bulgaria. A new Messer company, Messer BH Gas d.o.o., commenced operations in Bosnia-Herzegovina. It constructed an air separation plant in Zenica and has operating the plant successfully since the end of the year. As well as supplying gases to a major customer in the steel industry on a long-term basis, the plant will also enable Messer to strengthen its market position generally in Bosnia-Herzegovina. Construction work on an air separation plant in Resita, Rumania, which will service a local steel factory and supply liquefied gases for the Rumanian market, is continuing in line with schedule. In Turkey, the remaining minority interests (45 %) in Messer Aligaz Sanayi Gazlari AS were acquired in February 2008. The business strategy on this market was subsequently realigned, including laying the foundation stone (in October 2008) for a new air separation plant. The plant should commerce operations in mid-2009.

China
Net sales rose sharply once again (+27 %) despite the snow chaos in February and the devastating earthquake in May. Part of the increase (10 %) was due to changes in the group reporting entity.

The largest contribution to the sales increase in China came from the companies operating in Central China. This was attributable in particular to the strong performance of Hunan Xianggang Messer Gas Products Co., Ltd. with Messer’s largest on-site customer by far. With a fifth air separation plant commissioned in mid-2007 for the steel factory customer – which is also a joint venture partner – net sales were up by € 7 million (+17 %) in this area alone. The Group’s companies operating in South China also performed well. Foshan MS Messer Gas Co., Ltd., which has been consolidated since April 2008 when a majority shareholding was acquired, was able to benefit from improving capacity utilization at the second air separation plant and from higher selling prices. The strong performance of Messer companies operating in Eastern China reflected primarily good levels of business with helium and the successful start of operations (at the beginning of 2007) of an air separation plant in a chemical park in the Shanghai region.

Other countries
Business operations developed very positively in Peru, with net sales up by 14 % compared with the previous year. In addition to a good sales performance with cylinder and bulk gases, business also benefited from stronger demand from an on-site customer operating in the steel sector. Sales volumes to this customer did not drop off until towards the end of the year at which stage the steel market began to feel the effects of the economic crisis. The two companies in Vietnam were both able to increase net sales, particularly in the northern part of the country, despite a sharp deterioration in macro-economic conditions from mid-2008 onwards. Construction work on the air separation plant in the North of Vietnam was delayed as a result of slower-than-planned progress during the second half of the year in the construction of the steel factory which is being built for the on-site customer. Construction is now expected to be completed by the 4th quarter 2009.

Once the contractual agreement not to use the Messer brand name in Germany expired on May 7, 2008, we turned our sights increasingly to re-entering the German market, operating as Messer Industriegase GmbH (formerly: Gase.de Vertriebsgesellschaft mbH). It quickly became apparent that the Messer brand continues to have a positive resonance with customers even after four years during we were not able to use the name on the German market. The German subsidiary has already created a solid basis for the future by winning two major on-site customers. The construction of air separation plants for these two customers in Siegen and Salzgitter is progressing in line with schedule and will strengthen our market position significantly.

Overall the Messer Group recorded a net profit before minority interests of K€ 45,711 for the financial year 2008. The gross profit amounted to K€ 410,597 (52 % of net sales) and the operating profit amounted to K€ 79,569 (10 % of net sales). With impairment losses on goodwill, other intangible assets and property, plant and equipment roughly at the same level as in the previous year, the operating profit for 2008 was up by K€ 12,182 The profit before tax and before minority interests is stated after a net interest expense of K€ 21,767, marginally offset by income from associated companies and other equity investments. Taking into account all of the above factors, the profit attributable to the Group (i.e. after deduction of minority interests) totalled K€ 33,125 and was therefore K€ 4,211 higher than in the previous year.

 

Net assets position

The balance sheet total (total assets/total equity and liabilities) as at December 31, 2008 amounted to K€ 1,649,131. As in the previous year, non-current assets accounted for the largest proportion (82 %) of this amount. Tangible and intangible assets represented the largest combined item on the assets side of the balance sheet (79 %). The carrying amount of these two items together increased by 9.2 % in 2008 as a result of further investments. Cash at bank accounted for 4 % of the balance sheet total.

The equity ratio (including minority interests) was almost unchanged at 58 %. Gross debt accounted for 24 % of the balance sheet total and increased by K€ 62,388 compared to one year earlier. The repayment of debt and the positive foreign exchange impact on the US$-denominated USPP were more than offset by new debt raised to finance investments. Net debt increased by K€ 71,569 to K€ 333,180 (December 31, 2007: K€ 261,611).

 

Financial position

The liquidity position of the Messer Group is adequately safeguarded by the stable levels of cash flows generated, existing and unutilized credit lines totalling € 64.5 million, the loan agreement concluded in January 2009 for an amount of € 100 million (“SFA II”) and high cash balances.

Consolidated cash flow statement

The cash flow from operating activities, at K€ 141,255, was K€ 18,443 lower than in the previous year, mainly as a result of higher levels of trade and other receivables relating to operations, the effect of which was only partially offset by the T€ 9,929 increase in profit before tax.

The cash outflow for investing activities went up by K€ 30,907, mainly reflecting higher capital expenditure on property, plant, and equipment and on other intangible assets totalling K€ 186,877 (2007: K€ 147,853). A total of K€ 4,270 (2007: K€ 25,370) was used to acquire shares of minority shareholders and to purchase shares in other companies.

The cash flow from financing activities was a cash inflow of K€ 30,675 compared with a cash outflow in the previous year of KT€ 5,994. This was largely due to debt raised to finance investment in property, plant and equipment and equity investments. These inflows were higher than the amounts used to make scheduled repayments of debt. Most of the new debt was raised in China in order the finance capital expenditure for that market.

In 2009, the Messer Group will require further capital to fund its expanding business operations and scheduled capital expenditure and to repay loans and interest as they fall due. These funds will be generated out of cash flows from operating activities, existing funds, new debt and credit lines available to the Group. The Messer Group’s strong position in the various markets in which it already operates, combined with expansion into new markets, will enable it to maintain its robust financial position.


 

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