Annual Report 2007 - Muehlhan AG

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36 Muehlhan has an highly advanced inventory of equipment, which was developed with few manufacturers in the past. in principle, there is the risk that one of these manufacturers will cease production. in this case, we can find solutions at short notice. because we engaged in the development of the equipment in the past in close collaboration with our suppliers and performed a significant share of our own development work, we also have a high degree of expertise in-house. this makes it possible for us to produce equipment that is compatible with our existing inventory of equipment within a short period of time, even with new suppliers. Surface protection is quite labour intensive. However, energy is also required for climate control in large steel structures while work is performed, for the transportation of abrasives by compressed air, or for the production of high pressure water using pumps. Muehlhan is therefore directly affected by price increases of energy. We can counter such developments only with a price increase for our own services. However, Muehlhan uses environmentally-friendly and energy-saving technologies, so that an increase of prices of energy tends to improve our competitiveness. in general, for companies that use patented or licensed processes, there exists the risk of terminable patent or license terms. for the µ-jet process that we use, and for the other services in the µ-series, we currently have patent agreements beyond the year 2020. in addition, our licenses guarantee the exclusive right of use within a 1-mile zone of coastal locations, rivers and large bodies of water. Personnel risks the competition for highly qualified executives and qualityconscious technical personnel is still high in the industries in which Muehlhan is active. Examples from the past fiscal years have shown that Muehlhan works in a “people business” in its sub-markets, in which individual positions can affect the success of the Group. our future success therefore depends in part on the extent to which we are successful over the long-term in externally recruiting the required professional personnel, integrating them into the existing work processes, and linking them to the company for the long-term. at the same time, the company wants to make use of its employees’ extraordinarily high level of identification with our company and its services in the past, and consistently prepare appropriate employees from its own ranks for strategically important tasks within the company. Information technology risks Muehlhan protects the entire Group from the risk of data loss at the level of the individual companies by making daily data backups. by storing the backups offsite, we ensure the prompt restoration of all the necessary operational and corporate data. Financial risks the companies of the Muehlhan Group work primarily at fixed prices and regularly begin providing their services in advance of payment. as such, there is the risk of customer bankruptcy, and a credit risk, particularly in the case of large contracts. for existing customer business relationships, most of which have been in place for years, Muehlhan considers these risks to be extremely low. in order to limit the likelihood of default for important new customer contracts as well, all companies of the Muehlhan Group are instructed to evaluate the economic status of its business partners before finalizing the contracts. in addition, all companies have accounts receivable management that functions well. from the company’s perspective, there are no significant tax risks. Nevertheless, tax claims could emerge if the tax authorities’ opinion of the law differs from that of the taxed company in particular cases. as already reported in the previous year, a legal dispute is pending in this regard with the Greek tax authorities. because a decision has already been issued in favour of Muehlhan in the initial court proceedings a positive decision for the entire proceedings can also be expected. all accounts with credit balances invested in the money market are subject to the normal risk of interest rate fluctuations. in addition, for contracts outside of the Euro zone, in principle there is a currency exchange rate risk, in particular for the uS dollar, which is currently very weak. in order
ManaGeMent divisions share group ManageMent report Group Consolidated FinanCial stateMents to reduce the earnings impact on the income statement at the least, the financing structure for the subsidiary companies was changed from external financing to equity financing so that the vast majority of future currency exchange fluctuations will affect only equity and not the income statement any more. in 2007, the Muehlhan Group generated 50.6% (2006: 43.7%) of its sales in the Euro zone. a currency exchange rate risk for these transactions is precluded, but with increasing internationalization the percentage of contracts from the Euro zone will decrease over the long term. Company-specific risks the application of surface protection by the companies of the Muehlhan Group is a service provided on a project basis. it is often provided in conjunction with other trades, and commonly under considerable time pressure. in individual cases, the full scope of the services to be provided only emerges during the work. Muehlhan prepares for these conditions by assessing the likelihood of additional costs, such as those resulting from a change in performance or change in scope, even in the early stages of the contract negotiations. it is subsequently taken into consideration in the offer calculation and then for preparing the final contract documents. at the same time, the persons responsible for the project at the site receive capable support from the Group’s holding company: Specialists in technical, commercial or legal issues have proven to be of great benefit during the past fiscal year for a number of projects. they were all able to respond much more quickly and in an individually tailored manner to the respective requirements than would have been the case with external support. Major legal risks at present, Muehlhan is engaged in a legal dispute with respect to the Golden Gate bridge project. our claims based on extra work performed were asserted against the general contractor in an american court. Even though we are confident and expect a positive judgment in favour of Muehlhan, a success in a legal proceeding can never be predicted with 100-percent certainty. for this reason, none of the accounts receivable currently in dispute have been shown in the balance sheet. furthermore, in the international project business or for an internationally established group of companies, it can be expected that claims by or even against Muehlhan may require judicial clarification. However, at present the company has no knowledge of any legal risks that could threaten the net assets of the Muehlhan Group. start and prospects oF 2008 Significant events after the balance sheet date our subsidiary company Geuer Korrosionsschutz GmbH & Co. KG, Kiel, was merged with Muehlhan bremen GmbH (MHb) effective as of 2 January 2008. We assume that, by doing so, both the earnings power and the growth prospects of MHb will continue to be strengthened significantly. in addition, no events occurred after the end of the fiscal year 2007 that are of particular importance to our company. The Group will focus on increasing profitability in 2008 Having overcome challenges, we are full of confidence for the year 2008. We have used the experience in order align our company even better to the markets strategically and operationally. in the future, we will grow our business even more intensively from our locations. Very good growth expected for shipping and industrial segments as a result of the rapidly increasing international merchant fleet, we still anticipate very good growth opportunities for our Group both in the Ship Newbuilding and in the Ship repair division. this is true both for Europe as well as for asia. in addition to commercial shipping, we also see great potential in the field of luxury yacht construction, which offers very good prospects especially in Germany. Shipyards in this field are currently booked at full capacity through the year 2014, and sometimes beyond that. 37
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Annual Report 2007 - Muehlhan AG

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