Annual Report 2007 - Muehlhan AG

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despite the rapidly initiated and implemented reorganization
program, MMi contributed a loss of Eur 3.0 million
to consolidated net profit.
during the renovation of a portion of the Golden Gate
bridge by our subsidiary company CCC, significant difficulties
arose in 2007, which – in our view – can be attributed
primarily to intentionally false contractual information:
on the one hand, the terms and conditions of the invitation
to bid were incomplete with respect to a decisive point related
to the scope of services. on the other hand, based
on today’s knowledge, we are convinced that the seller and
subsequent managing director of the company knowingly
withheld essential information from us. We are currently
engaged in a legal proceeding in the case with two opponents:
in July of 2007, we sued our direct client, a joint venture
between a large exchange-listed Japanese company
and a medium-sized american company, for compensation
for damages in the amount of uS$ 3.8 million and
accounts receivable due of uS$ 2.5 million (overall uS$ 6.3
million) due to incomplete bidding documentation. to date,
the client has acknowledged the latter only to the extent of
uS$ 1.3 million, but initially retained it while making its own
claims for compensation for damages. furthermore, he is
making a claim for an additional uS$ 2.0 million without
further explanation of the legal grounds, for which we have
created no reserves for the lack of concrete terms. to date,
we have already been successful in two proceedings with
regard to the determination of legal jurisdiction. We expect
that the proceedings will be decided in our favour in the
coming months. in addition, we are reserving the right
to sue the former shareholder and managing director for
compensation for damages as a result of false contractual
representations to the extent to which we may be unsuccessful
in the proceedings mentioned above against
the first opponent, despite positive expectations. for this
reason, we are currently retaining the second and final
purchase price instalment of uS$ 1 million still outstanding
on the purchase price resulting from the corporate
ac quisition.
Even though we assume that the legal dispute will be decided
in our favour, we have allowed for a total of Eur 2.9
million as losses for the project. together with attorneys’
fees of Eur 0.2 million incurred to date, the project therefore
reduces consolidated net profit by Eur 3.1 million.
at our uS subsidiary company Meaux, which is active in
the offshore sector, as expected there was strong competition
for customers and employees, because a managing
director who left at the end of 2006 had founded a competing
company during his employment by Meaux. a legal
proceeding is pending here due to actions in bad faith. the
reduction in price resulting from the situation has caused
Meaux to add a loss of Eur 0.7 million to consolidated
net income. in the meantime, we were partly able to win
back lost customers such that that we are confident that
our competitive situation will improve significantly in the
coming months.
Restructuring program in the USA leads
to cost savings of EUR 2.5 million in 2008
as a result of the lack of sales successes and the existing
overcapacity, a comprehensive restructuring program was
started in June. in the course of the restructuring program,
the continental management level was abolished and
administrative expenses were significantly reduced. the
program has since been completed and will result in cost
savings of more than Eur 2.5 million starting in 2008.
MMi (formerly Sipco) now has a structure whose costs
are covered by existing work. if the remaining work
decreases even more in the future, a closure of the
entire shipyard operation would be considered. the closure
costs arising as a result, however, can be estimated
as being insignificant.
Delays in Oil & Gas Offshore business inhibited
overall business development
the formation of a contract for the maintenance on three
offshore platforms by our subsidiary company MGb as
described under sales trends led to the inability to recover
full costs. in the year 2006 we were successful in winning
an international oil company as a new customer in the
northern North Sea territory, which held out the prospect
of a contract volume of Eur 13.0 million distributed over
24 months. during the course of additional negotiations,
the volume was rapidly reduced to approximately Eur 8.0
million pending further notice, such that the productivity
and profitability of the contract was significantly impaired,
in no small part due to performance rendered in advance
such as training programs, and the failure to make of use
µ-jet technologies.